2021 (7) TMI 685 - AT - Customs

Misuse of EPCG licence scheme - use of false and incorrect documents for export of garments as third party exporter - Whether the allegation that the appellants have not fulfilled export obligation is sustainable or not? - HELD THAT - On perusal of EPCG licence it is seen that it is issued in 2015 by DGFT and the period for completion of the export obligation is six years. Show cause notice has been issued on 18.11.2020. The contention of the appellant that SCN alleging non-fulfilment of export obligation is premature is therefore not without merits. From the conditions of the EPCG licence, it is also seen that licence holder may discharge the export obligation by way of direct exports as well as through third party exports. In the event of third party exports, name of the third party exporter, name of the EPCG licence holder, licence number and date should be noted on the shipping bill. Thus, it cannot be said that merely by exporting the goods through third party exporter/Rithvikk Garments, the licence holder (Sri Angallamman Knit Fabrics) has violated the conditions of the EPCG licence. Over and above all the facts, it has to be noted that since there is enough time for completion of export obligation and also for submitting necessary documents before the DGFT, the show cause notices issued by the department alleging various violations, in my view, cannot sustain. There is no evidence to show that appellant M/s.Rithwikk Garments had intentionally made any false endorsements on the shipping bill. Had there been any dishonest intention, the appellants would not have produced such invoice showing lesser amount before the Customs officers. From the statements of both the appellants, it is clear that it is the first time they have endorsed shipping bills with this EPCG licence. Confiscation of the export goods cannot sustain and it is hereby set aside - penalty imposed on both the appellants is unwarranted - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Alleged misuse of EPCG license scheme and use of false documents for garment export.

Analysis:
The appeals arose from a common impugned order alleging misuse of EPCG license scheme and use of false documents for garment export. M/s. Rithvikk Garments manufactured 'knitted Girls Pyjama' using fabrics from M/s. Sri Angallamman Knit Fabrics, who used capital goods imported under EPCG License. The department alleged discrepancies and misuse, leading to seizure of goods and subsequent investigation. Show cause notices were issued, resulting in confiscation of goods and imposition of fines on both appellants. The appellants contended that they fulfilled export obligations and explained the alleged overvaluation of goods.

The first issue was whether the appellants fulfilled export obligations. The EPCG license issued in 2015 had a six-year validity for export obligations. The show cause notice issued prematurely in 2020 raised questions about non-fulfillment of obligations, which the appellants disputed. They argued that all necessary export documents were produced, and the premature conclusion by Customs authorities was incorrect.

The second issue involved the alleged overvaluation of export goods. Statements from the appellants clarified the process of garment manufacturing using imported goods and job work arrangements. The invoices and documents presented supported the manufacturing process and the endorsement of EPCG license on shipping bills. The Tribunal found no evidence of intentional false endorsements or fabrication of documents by the appellants. The department's allegations were deemed unsubstantiated.

In conclusion, the Tribunal set aside the confiscation of goods and held that the penalties imposed on the appellants were unwarranted. The impugned order was overturned, and the appeals were allowed with consequential relief, if any, as per the law. The judgment emphasized the importance of proper assessment and evidence before penalizing parties in customs cases.

Judgment:
The Tribunal ruled in favor of the appellants, overturning the confiscation of goods and penalties imposed, citing lack of evidence to support the department's allegations of misuse and overvaluation. The premature show cause notice and lack of substantiated claims led to the decision in favor of the appellants.