DGFT-issued EODC establishes EPCG compliance, defeating Customs duty demand, confiscation, and penalties.

Unison Hotels Ltd. imported vehicles under EPCG Authorisation No. 0530143858 dated 11 June 2007, claiming concessional customs duty under Notification No. 97/2004-Cus.

One Honda CR-V, bearing registration No. DL1ZZ 0209, was imported through Mumbai, while three BMW vehicles were imported through Chennai.

The authorisation required the importer to fulfil export obligations equivalent to eight times the duty saved, within eight years, by using the imported capital goods, while also maintaining the prescribed average export performance and complying with the actual-user condition.

The Department alleged that the vehicles were being used as private vehicles by the Managing Director and his family rather than for hotel-related services and the earning of foreign exchange.

A show-cause notice was issued in respect of the Honda CR-V, proposing recovery of duty, interest, confiscation and penalties.

The adjudicating authority confirmed duty of Rs. 9,41,922 with interest, ordered confiscation under Sections 111(d) and 111(o) of the Customs Act, 1962, allowed redemption on payment of Rs. 7,00,000, and imposed penalties of Rs. 1,50,000 on the company and Rs. 1,00,000 on Shri Umesh Saraf.

The Commissioner (Appeals) upheld that order.

During the Tribunal proceedings, the appellants relied on a prior decision of a Co-ordinate Bench concerning the three BMW vehicles imported under the same EPCG scheme, in which identical allegations had been rejected.

The appellants also produced the vehicle’s tourist-taxi registration, installation certificate, evidence of foreign-exchange earnings and, subsequently, an EODC/Redemption letter issued by the DGFT on 11 January 2024.

Whether the appellants violated the conditions of EPCG Authorisation No. 0530143858 and Notification No. 97/2004-Cus. by allegedly using the Honda CR-V for private purposes instead of fulfilling the prescribed export obligation through hotel-related services.

Whether the confirmation of customs duty, interest, confiscation, redemption fine and penalties under the Customs Act, 1962 was legally sustainable.

The Tribunal applied the conditions of the EPCG Scheme under Chapter 5 of the Foreign Trade Policy 2004–2009 and Notification No. 97/2004-Cus., particularly the requirements of fulfilling the prescribed export obligation within the stipulated period, maintaining the average export performance and complying with the actual-user condition.

It considered Sections 111(d) and 111(o) of the Customs Act, 1962, concerning confiscation of goods imported contrary to legal restrictions or exemption conditions, along with the provisions relating to interest and penalties.

The Tribunal relied on its Co-ordinate Bench decision in the appellants’ case concerning the three BMW vehicles, which held that proceedings alleging non-fulfilment of export obligations before expiry of the prescribed period were premature and that actual use could be established through evidence of business activity and foreign-exchange earnings.

It also relied on M Far Hotels Ltd., Air Travel Bureau Ltd., Goldfinch Hotels Pvt. Ltd., Vadilal Chemicals Ltd. v. State of Andhra Pradesh and Interglobe Enterprises Ltd. v. Union of India, which support the principles that EPCG benefits cannot be denied without establishing breach of the prescribed scheme conditions, that mere parking or alleged private use does not conclusively establish violation, and that the competent DGFT authorities determine fulfilment of export obligations.

The Tribunal found that the conditions attached to the Honda CR-V authorisation were materially identical to those considered in the earlier Co-ordinate Bench decision concerning the BMW vehicles; therefore, the same legal approach had to be followed.

The Department’s case rested principally on allegations regarding the vehicles’ location, registration, insurance and statements of employees or drivers.

However, those circumstances did not conclusively establish a breach of the EPCG authorisation, particularly when the vehicle was registered as a tourist taxi, an installation certificate had been submitted, and the appellants had produced evidence of foreign-exchange earnings.

The Tribunal further held that the alleged non-fulfilment of export obligations could not be conclusively determined before the expiry of the prescribed period and that issues concerning vehicle registration or insurance were primarily within the jurisdiction of the relevant transport or other authorities, not Customs.

Most importantly, the DGFT, being the competent authority, subsequently issued the EODC/Redemption letter on 11 January 2024, confirming fulfilment of the relevant obligations.

This subsequent determination eliminated the foundation for alleging non-compliance with the EPCG conditions.

Consequently, confiscation under Sections 111(d) and 111(o), duty recovery and the related penalties could not be sustained.

It held that the Department had not established a legally sustainable violation of the EPCG authorisation or Notification No. 97/2004-Cus., particularly in view of the DGFT’s issuance of the EODC/Redemption letter.

The order confirming duty of Rs. 9,41,922 with interest, confiscating the Honda CR-V, imposing redemption fine and levying penalties on Unison Hotels Ltd. and Shri Umesh Saraf was set aside.

Both appeals were allowed.