EPCG exemption shortfall: proportionate duty and interest applied, while full demand and penalties were not sustainable.

In an EPCG exemption dispute, the Tribunal distinguished between non-installation of machinery and mere shortfall in export obligation. On the show cause notice and relied-upon material, the allegation was only incomplete discharge of the export obligation, while the machinery was not shown to be unused or the factory non-existent. Condition 4 of the notification provided for proportionate duty with interest where there was a shortfall, and the amount earlier worked out by the department aligned with that mechanism. In the absence of a clear basis to demand the full exemption again or to sustain penalties, no further liability beyond the amount already deposited was made out.

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Issues: Whether any further customs duty, interest and penalty were recoverable from the importer for alleged failure to produce the installation certificate and to fully discharge the export obligation under the EPCG exemption notification.

Analysis: The Tribunal distinguished between a case where the machinery was never installed and a case where the machinery was installed but the export obligation was not fully met. On the show cause notice and the material relied upon, the allegation was found to be only of incomplete discharge of export obligation, not that the factory never existed or that the machinery was sold without use. The Tribunal also noted that Condition 4 of the notification specifically provided the mechanism for payment of proportionate duty with interest in case of shortfall, and that the amount earlier worked out by the department was in line with that condition. In the absence of any clear basis for demanding the entire exemption benefit again or for sustaining the penalties, no further liability was made out.

Conclusion: The demand beyond the amount already deposited was not sustainable, and the Revenue's appeal failed.

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