2025 (1) TMI 233 - AT - Customs

Fulfilment of export obligation under the EPCG License within the time extended by the Directorate General of Foreign Trade (DGFT) - jurisdiction to question the discharge certificate issued by the DGFT - confiscation - penalties - extended period of limitation. HELD THAT - The appellant had initially fulfilled the export obligation after including the exports made through Sundram Export and DGFT by a letter dated 10.05.1999 confirmed that the appellant had fulfilled the export obligation. After the appellant came to know that the export of CD-ROMs made by Sundram Exports was being disputed by the Directorate of Revenue Intelligence, the appellant made further exports after the initial time granted by DGFT was extended upto 31.03.2002, and fulfilled the export obligation after excluding the exports made by Sundram Export. In respect of this License, the Commissioner did not accept the plea of the appellant that it had fulfilled export obligation since the appellant had earlier written to DGFT that it had fulfilled its export obligation and DGFT by a letter dated 10.05.1999 had discharged the appellant from the export obligation. So long as the time period for discharging the obligation under the EPCG License dated 29.12.1994 was extended by DGFT and the appellant fulfilled its obligation under the License before the expiry of the said extended period, it cannot be urged by the custom authorities that the appellant had not fulfilled its export obligation. It does not matter if the appellant had made further exports to fulfill the export obligation after discarding the exports made by Sundram Exports. This step was taken by the appellant as a matter of abundant caution when it came to the knowledge of the appellant that the Directorate of Revenue Intelligence was examining the over-valuation of goods by Sundram Exports. The finding recorded by the Commissioner that this was done in a fraudulent manner by the appellant is without any basis. In fact, DGFT did not question this act of the appellant and in fact issued the discharge certificate. It clearly transpires from the aforesaid judgment of the Delhi High Court in Designco 2024 (11) TMI 1150 - DELHI HIGH COURT that custom authorities cannot go behind the benefits availed, in the absence of any adjudication having been undertaken by DGFT. In other words, an action for recovery of benefits claimed and availed would have to necessarily be preceded by an order of the competent authority under the FDTR Act that the certificate or script had been illegally obtained. Conclusion - The customs authorities cannot question the discharge certificate issued by DGFT in respect of the obligation to be fulfilled by the appellant under EPCG License dated 29.12.1994, unless DGFT itself takes a prior decision that the appellant had not discharged the obligation under the said EPCG License. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

Whether the appellant fulfilled the export obligation under the EPCG License dated 29.12.1994 within the time extended by the Directorate General of Foreign Trade (DGFT).
Whether the customs authorities have the jurisdiction to question the discharge certificate issued by the DGFT regarding the export obligation under the EPCG License.
Whether the customs authorities can impose penalties and confiscate goods based on alleged fraudulent fulfillment of the export obligation.
Whether the extended period of limitation for demand of duty and imposition of penalties was applicable in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Fulfillment of Export Obligation

Relevant Legal Framework and Precedents: The Export Promotion Capital Goods (EPCG) Scheme under the Import Policy 1992-1997 and the Customs Act, 1962, particularly sections 25, 28, 28AB, 111(o), and 112.
Court's Interpretation and Reasoning: The court found that the appellant had initially fulfilled the export obligation by including exports made through Sundram Exports. However, after the Directorate of Revenue Intelligence raised concerns, the appellant made additional exports, excluding Sundram Exports, within the extended period granted by DGFT.
Key Evidence and Findings: The DGFT issued a discharge certificate on 27.05.2003, confirming the fulfillment of the export obligation by the appellant.
Application of Law to Facts: The court concluded that the appellant fulfilled its export obligation within the extended period granted by DGFT, and thus, the customs authorities could not claim otherwise.
Treatment of Competing Arguments: The appellant argued that the DGFT's discharge certificate should be final, while the customs authorities claimed fraudulent fulfillment. The court sided with the appellant.
Conclusions: The appellant fulfilled the export obligation under EPCG License dated 29.12.1994 within the extended period granted by DGFT.

Issue 2: Jurisdiction of Customs Authorities

Relevant Legal Framework and Precedents: The Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act) and related rules, alongside the Customs Act.
Court's Interpretation and Reasoning: The court emphasized that the DGFT is the competent authority to determine the fulfillment of export obligations, and customs authorities cannot question the DGFT's discharge certificate without a prior determination by DGFT.
Key Evidence and Findings: The DGFT's discharge certificate was considered final and binding.
Application of Law to Facts: The court held that the customs authorities had no jurisdiction to question the DGFT's discharge certificate.
Treatment of Competing Arguments: The customs authorities' argument of fraud was dismissed as they lacked jurisdiction to question the DGFT's determination.
Conclusions: The customs authorities cannot question the DGFT's discharge certificate without a prior determination by DGFT.

Issue 3: Imposition of Penalties and Confiscation of Goods

Relevant Legal Framework and Precedents: Sections 111(o) and 112 of the Customs Act, 1962.
Court's Interpretation and Reasoning: The court found no basis for penalties or confiscation since the export obligation was fulfilled as per DGFT's determination.
Key Evidence and Findings: The DGFT's discharge certificate negated the basis for penalties and confiscation.
Application of Law to Facts: The court held that penalties and confiscation were unjustified given the fulfillment of export obligations.
Treatment of Competing Arguments: The appellant's argument against penalties was upheld, as the customs authorities' claims were unsupported by the DGFT's findings.
Conclusions: Penalties and confiscation were unjustified and set aside.

Issue 4: Extended Period of Limitation

Relevant Legal Framework and Precedents: Section 28 of the Customs Act, 1962.
Court's Interpretation and Reasoning: The court found no grounds for invoking the extended period of limitation as the fulfillment of export obligations was confirmed by DGFT.
Key Evidence and Findings: The DGFT's discharge certificate was pivotal in determining the limitation period.
Application of Law to Facts: The court concluded that the extended period of limitation was inapplicable.
Treatment of Competing Arguments: The appellant's argument against the extended period was upheld.
Conclusions: The extended period of limitation was not applicable.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The customs authorities cannot question the discharge certificate issued by DGFT in respect of the obligation to be fulfilled by the appellant under EPCG License dated 29.12.1994, unless DGFT itself takes a prior decision that the appellant had not discharged the obligation under the said EPCG License."
Core Principles Established: The DGFT's determination regarding the fulfillment of export obligations is final and binding, and customs authorities lack jurisdiction to question it without prior determination by DGFT.
Final Determinations on Each Issue: The court set aside the demand of duty, penalties, and confiscation orders, concluding that the appellant fulfilled its export obligations as determined by DGFT.

The judgment underscores the primacy of DGFT's determination in matters of export obligation fulfillment under the EPCG scheme and limits the jurisdiction of customs authorities in such matters.

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