Retrospective licence conversion under Foreign Trade rules can override earlier EPCG import conditions and bar customs duty recovery.

Under the Foreign Trade framework, Rule 8 of the Foreign Trade (Regulation) Rules, 1993 allows amendment of a licence, and a bona fide retrospective conversion approved by the EPCG Committee can govern prior imports. Once the licence was converted from zero-duty EPCG to 10% duty EPCG, the earlier import threshold and the corresponding condition in the exemption notification ceased to apply. Customs authorities, having participated in the committee process, could not disregard that conversion or insist on duty, interest and penalty for alleged breach of the original licence condition.

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Issues: Whether the licensing authority under the Foreign Trade regime could amend or convert an EPCG licence with retrospective effect so as to relieve the licence holder from the import obligation under the exemption notification, and whether the customs authorities could ignore that conversion and proceed to recover duty, interest and penalty.

Analysis: Rule 8 of the Foreign Trade (Regulation) Rules, 1993 permits amendment of a licence in such manner as may be necessary. The licence was converted at the instance of the licence holder after the original period had expired, and the EPCG Committee, consisting of licensing and customs authorities, approved the conversion. Once the licence was converted from zero duty EPCG to 10% duty EPCG, the imports already made had to be treated as imports under the converted licence, with the result that the earlier import threshold and the related condition in the exemption notification ceased to operate. The decision was not shown to be mala fide, and the Foreign Trade Policy empowered the DGFT to grant exemption in deserving cases. The customs authorities, having been part of the committee process, could not challenge the licensing authority's power or disregard the conversion.

Conclusion: The licensing authority had the power to give retrospective effect to the conversion of the licence, and the customs authorities were bound by that decision. The demand for duty, interest and penalty based on alleged breach of Condition No. 5 of Notification No. 29/97 was unsustainable.

Final Conclusion: The writ petition succeeded, the adverse orders of the Tribunal were set aside, and the customs demand was quashed.

Ratio Decidendi: Where the statutory foreign trade framework authorises amendment or exemption and the licensing authority validly converts a licence in a bona fide manner, the converted licence governs the imports and customs authorities cannot disregard that conversion to levy duty for alleged breach of the original licence conditions.

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