No S. 28AAA Recovery under Customs allowable without DGFT Cancelling FPS Scrips: CESTAT sets aside Duty & Penalties [Read Order]

The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has ruled that recovery proceedings under Section 28AAA of the Customs Act, 1962 cannot be sustained unless the export incentive scrip in question is first cancelled by theDirectorate General of Foreign Trade ( DGFT ).

The appellate tribunal, while setting aside customs duty demand, redemption fine and penalties, held that customs authorities cannot independently initiate recovery when the Focus Market Scheme (FPS) scrips continue to remain valid and uncancelled.

The proceedings were initiated against the exporter, Rishabh Salvage Energy Pvt Ltd. on allegations that export benefits had been wrongly availed under the FPS scheme.

The department had invoked Section 28AAA, which permitted recovery of duty where an instrument such as a duty credit scrip has been obtained by collusion, wilful misstatement or suppression of facts.

However, the core issue before the Tribunal was whether such recovery could be undertaken when the DGFT had not cancelled the scrips in question.

According to the exporters /appellant, the scrips were obtained from the office of DGFT after supplying copies of all cheques and shipping containing bills to continue product description and classification. Therefore, the department cannot re-adjudge the classification and sit over the decision of DGFT authorities as given to him.

The bench of Somesh Arora (judicial member) examined Section 28AAA and noted that the provision was inserted to enable recovery of duty in cases where export incentive instruments are fraudulently obtained.

It also noted that, CBIC’s own circular clarifies that while field formations may initiate action once DGFT begins cancellation proceedings, adjudication must await actual cancellation of the instrument by DGFT.

In the present case, it was an admitted position that no cancellation proceedings had been initiated or concluded by DGFT against the FPS scrips relied upon by the exporter.

The Tribunal noting Commissioner of Customs Mumbai-I vs Adani Ports observed that as long as the scrips issued by DGFT remain valid and operative, the authorities cannot indirectly nullify them by demanding duty, imposing redemption fine, or levying penalties.

Therefore, the bench set aside the duty demand and also the penalties imposed which ultimately quashed the recovery too.

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