Chiripal’s Rolling-Mill Spools Get EPCG Exemption Despite Customs’ Reclassification, As CESTAT Sets Aside ₹3.07-Crore Duty Demand

The appellant imported 60 spools for a rolling mill under an EPCG authorisation and claimed exemption under Customs Notification No. 26/2023-Cus., declaring the goods under CTH 8455 9000.

Customs considered them classifiable under CTH 7326 9099, alleging misclassification to obtain the EPCG benefit.

Following seizure, the adjudicating authority reclassified the goods, denied the exemption, demanded differential duty of ₹3,07,21,816, imposed an equal penalty under Section 114A of the Customs Act, 1962, and ordered redemption on payment of a ₹50,00,000 fine.

The appellant appealed.

The Tribunal applied paragraphs 5.1(a) and 11.08 of the Foreign Trade Policy (FTP), under which EPCG covers eligible capital goods and “capital goods” includes plant, machinery, equipment or accessories required, directly or indirectly, for manufacture or production;

it also considered Appendix 5F of the Handbook of Procedures, which identifies goods excluded or conditionally permitted under the scheme.

The exemption notification referred to the FTP definition of capital goods.

For classification, the Tribunal considered Section Note 1(c) to Section XVI, concerning bobbins, spools and similar supports, and the proposed residual heading 73.26.

It relied on *JSW Steel Ltd.*, which treated the FTP definition and the terms of the relevant exemption as central to determining capital-goods eligibility, and noted that *Jindal Stainless Ltd.* had applied that approach.

The Tribunal also distinguished the reasoning in *KGN Enterprises Ltd.* on its facts.

The goods were described as spools for rolling mills in both the EPCG authorisation and the Bill of Entry, and Revenue did not contend that they fell within the goods excluded or conditionally permitted under Appendix 5F.

The Tribunal held that capital-goods eligibility under the applicable FTP definition turned on the goods’ role in manufacture, not solely on their Customs Tariff classification.

Since the exemption notification adopted the FTP definition, Customs could not deny the benefit merely because it reached a different classification; if necessary, it should have sought clarification from the DGFT or obtained amendment of the authorisation.

Although the parties disputed classification, the Tribunal found it unnecessary to decide that question because the exemption was available irrespective of classification.

It therefore did not finally determine whether the goods fell under CTH 8455 9000 or CTH 7326 9099.

In those circumstances, the allegation of intentional misdeclaration was not sustained, and the duty demand, penalty and redemption fine could not stand.

The impugned order was set aside and the appeal allowed.