EPCG breach and exemption interest: confiscation, penalty, and interest were disallowed absent mens rea and express statutory authority.

Failure to fulfil export obligation under the EPCG scheme did not, on the stated facts, justify confiscation or penalty because the Tribunal's factual finding of bona fide conduct, genuine efforts, and absence of deliberate misuse or mala fides was upheld. Interest on the duty foregone under the exemption notification was also held not leviable because the notification contained no express interest clause, and the provisions on short levy, non-levy, erroneous refund, and related interest were treated as inapplicable to duty becoming payable only on breach of the notification conditions. The Revenue's advance-licence reliance and circular were held not to assist its case, and the Tribunal's relief was sustained while the duty demand remained undisturbed.

---

---

Issues: (i) whether confiscation of the imported capital goods and imposition of penalty were sustainable when the export obligation under the EPCG scheme was not fulfilled, and (ii) whether interest could be demanded on the duty foregone under the exemption notification, including whether the provisions relied upon by the Revenue applied to this case.

Issue (i): whether confiscation of the imported capital goods and imposition of penalty were sustainable when the export obligation under the EPCG scheme was not fulfilled.

Analysis: The importer failed to achieve the export obligation, but the Tribunal recorded a factual finding that there was no deliberate attempt to misuse the notification, that the importer had made genuine efforts, and that the failure occurred because of circumstances beyond control. The finding was based on the record and on the absence of any material showing mala fides or intentional non-compliance. In such a situation, the factual conclusion on bona fides and absence of mens rea could not be interfered with in appeal.

Conclusion: Confiscation and penalty were not sustainable, and the finding was upheld in favour of the assessee.

Issue (ii): whether interest could be demanded on the duty foregone under the exemption notification, including whether the provisions relied upon by the Revenue applied to this case.

Analysis: The notification granted exemption but did not contain a provision for levy of interest on failure to fulfil the conditions. The provisions invoked by the Revenue dealing with duty not levied, short-levied, erroneously refunded, or interest thereon were held inapplicable to a case where duty became payable only as a consequence of breach of the notification conditions and consequential confiscation proceedings. The scheme under which the import was made was also held to be outside the advance-licence provisions that were pressed into service by the Revenue. The circular relied upon by the Revenue was treated as prospective and not applicable to the transaction in question.

Conclusion: Interest was not leviable, and the provisions relied upon by the Revenue were held inapplicable in favour of the assessee.

Final Conclusion: The appeal failed in full, and the order of the Tribunal granting relief against confiscation, penalty, and interest was sustained while the duty demand remained undisturbed.

Ratio Decidendi: Where an exemption notification does not expressly provide for interest, and the statutory provisions dealing with short levy or erroneous refund are not attracted, interest cannot be imposed merely because the importer later fails to satisfy the notification conditions; confiscation and penalty also require a sustainable basis such as deliberate breach or mens rea.

---