Third-Party Exports Valid for EPCG Obligation Discharge Under Earlier FTP Regime: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that third-party exports were valid for discharge of export obligation under EPCG Scheme during the earlier Foreign Trade Policy period.

The appeals came from orders passed by the Commissioner of Customs, Tuticorin against P.V. Spinning Mills India Pvt. Ltd., Alamelu Balaji Spinning Mills Pvt. Ltd. and others. The department alleged that the EPCG licence holders wrongly used shipping bills of unrelated third-party exporters to get Export Obligation Discharge Certificates from DGFT.

The department argued that the exports had no link with the imported capital goods and that EPCG endorsements were later inserted in some shipping bill copies. Based on this, duty demand, interest, confiscation, redemption fine and penalties were imposed.

The appellants’ counsel argued that DGFT had already examined the issue and restored or validated the EODCs. They also argued that third-party exports were allowed under the FTP and EPCG framework. They said the exports were genuine, export proceeds were received through banks, and there was no misuse or diversion of capital goods.

The revenue counsel argued that the shipping bills were taken on commission basis and EODCs were obtained by misrepresentation. They also argued that customs authorities were not bound by DGFT decision where fraud was involved.

The two-member bench of P. Dinesha and Vasa Seshagiri Rao observed that the EPCG Scheme is value based and does not need a strict one-to-one link between imported capital goods and each export consignment. The tribunal pointed out that third-party exports were recognised under Notification No. 97/2004-Cus.

The tribunal explained that later procedural conditions could not be applied to exports already made under the earlier regime. It observed that exports were genuine and foreign exchange realisation was not disputed. It also observed that no diversion or misuse of capital goods was proved.

The tribunal pointed out that DGFT had restored or validated the EODCs and those orders were not set aside by any higher authority. So, customs authorities could not ignore them without clear proof of fraud.

The tribunal held that rejection of EODCs, denial of EPCG benefit, duty demands, confiscation, redemption fine and penalties were not sustainable. The appeals were allowed and the orders were set aside.

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