Used Machinery cannot be imported under EPCG Scheme: CESTAT Finds No Fraud, Sets Aside Penalty [Read Order]

M/s. Angel Starch & Foods Pvt. Ltd., a manufacturer of starch, imported machinery including “Schugi Fleximix 160 Mix and Agglomerier Machine” and “MINOX Heating-Cooling Mixer” under the EPCG Scheme through Bill of Entry dated 3 September 2014.

After inspection, customs authorities found that the imported goods were second-hand machinery. Since the EPCG Scheme prohibits import of second-hand capital goods, the department alleged misdeclaration and undervaluation, resulting in confiscation under Sections 111(d) and 111(m) of the Customs Act, 1962.

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The Adjudicating Authority denied EPCG benefits, redetermined the assessable value, imposed a redemption fine of ₹50 lakh, and levied a penalty of ₹62,49,728 under Section 114A. The appellant contended that the import was made under a bona fide belief that second-hand machinery was permissible, as one of the items listed in the EPCG authorization itself mentioned “year of manufacture-1992.”

The appellant argued that the EPCG authorization issued on 2 July 2014 included the machinery in question and that the list itself showed the year of manufacture, indicating transparency.

The importer further stated that they were unaware of the DGFT Notification dated 18 April 2013, which amended para 5.1(e) of Chapter 5 of the Foreign TradePolicy (FTP) 2009-14 to prohibit import of second-hand capital goods under the EPCG Scheme.

The counsel said that there was no intent to mislead the authorities or evade duty, as the machines were meant for use in starch manufacturing for exports. They also stated heavy detention charges amounting to ₹13.36 lakh and urged that the penalty and fine were excessive, especially as the goods were eventually cleared upon payment of reassessed duty without any fraud in invoices.

The CESTAT noted that while the import of second-hand machinery under EPCG was indeed prohibited under the amended FTP, the record clearly showed that the EPCG authorization itself mentioned the year of manufacture as 1992. This, the Tribunal observed, supported the appellant’s claim of bona fide belief.

It was also observed that the adjudicating authority did not provide any reasoning to establish misdeclaration or falsification of invoices. The Tribunal found that there was no manipulation or fraud in the documentation and that the appellant had paid duty on the revalued amount without contesting it, primarily to avoid further detention costs.

The tribunal, depending on the Supreme Court’s decision in Jain Exports Pvt. Ltd. v. Union of India , held that while determining redemption fine, extenuating circumstances and bona fide conduct of the importer must be considered.

The Tribunal, after detailed examination, upheld that the import of used or second-hand machinery is not permissible under the EPCG Scheme in view of DGFT Notification No. 1(RE-2013)/2009-14 dated 18 April 2013, which explicitly prohibits such imports.

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However, simultaneously, the bench of Ajayan T V (Judicial member) and M. Ajit Kumar (Technical member) observed that there was no evidence of fraud, misdeclaration, or willful suppression on the part of the importer.

The Bench noted that the EPCG authorisation itself mentioned the year of manufacture as 1992, supporting the importer’s claim of a bona fide belief that such goods were admissible under the scheme.

Accordingly, the Tribunal found the redemption fine of ₹50 lakh imposed by the adjudicating authority to be excessive and accordingly reduced it to ₹26.5 lakh. Further, the bench set aside the penalty levied under Section 114A of the Customs Act, 1962, holding that there was no determination of duty under Section 28 and no evidence of deliberate evasion or fraudulent intent warranting such penal action.

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