EPCG domestic procurement counts toward minimum import value threshold, defeating duty demand, confiscation and penalty.

Under the EPCG scheme, domestically procured capital goods could be counted towards the minimum import value condition in Notification No. 29/97-Cus. even after invalidation of the licence for such domestic procurement, because the policy and notification had to be read harmoniously. The domestic supplier was entitled to deemed export benefits, and the value of imported and locally procured goods together satisfied the prescribed threshold. On that construction, the basis for duty demand, confiscation, interest and penalty failed, and the resulting demand and penalties were unsustainable.

---

---

Issues: Whether the value of capital goods procured domestically under an EPCG licence, after invalidation of the licence for such domestic procurement, could be counted towards compliance with the minimum import value condition in Notification No. 29/97-Cus., and whether the resultant demand of duty, confiscation and penalty were sustainable.

Analysis: The EPCG scheme under the EXIM Policy permits procurement of capital goods from a domestic manufacturer instead of direct import, and the domestic supplier is entitled to deemed export benefits. Reading the notification condition on minimum import value together with the relevant policy provisions, the domestic procurement under licence invalidation cannot be excluded from the computation merely because the goods were not physically imported. A harmonious construction of the policy and notification is required so that the scheme is not rendered ineffective. On that basis, the total value of imported and domestically procured goods satisfied the prescribed threshold, and the foundation for confiscation, duty demand, interest and penalty failed.

Conclusion: The conditions of the notification were held to have been complied with, and the demand of duty, confiscation and penalty were held unsustainable. The appeal was allowed.

---