EPCG default interest is enforceable, but recovery must follow the later capped notification regime and adjusted credit.

Under the EPCG scheme, interest stipulated in the importer's bond was enforceable on failure to fulfil export obligations, because the customs exemption notification, export policy, handbook procedure and bond operated as one integrated scheme. The Court applied earlier binding authority to hold that an importer could not take the benefit of concessional duty while disputing the default interest undertaking. However, the later notification and public notice capped the interest recoverable on regularisation of export obligation defaults, so the payable amount had to be re-determined with credit for sums already paid or appropriated, and any excess refunded. The matter was therefore remitted for recalculation in line with the revised regime.

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Issues: Whether, on failure to fulfil export obligation under the EPCG scheme, interest could be demanded and recovered from the importers under the Foreign Trade (Development and Regulation) Act, 1992 and the customs notifications governing the scheme, and whether the demand required re-determination in light of the later policy and notification capping interest.

Analysis: The importers had availed concessional customs duty under Notification No. 160/92-Customs issued under Section 25(1) of the Customs Act, 1962, and had executed bonds undertaking to comply with export obligations and to pay interest in the event of default. The Court held that the exemption notification, the Export and Import Policy, the Handbook of Procedure and the bond formed a single scheme, and that the importers could not accept the benefit of the concession while disputing the enforceability of the undertaking. The Court relied on the earlier binding authority recognising that interest stipulated in the bond was payable on default. At the same time, the Court noted that Notification No. 46/2013-Customs and Public Notice No. 22 (RE-2013)/2009-2014 subsequently capped the interest recoverable on regularisation of export obligation defaults, and that the amounts already appropriated had to be adjusted against the revised entitlement.

Conclusion: The demand for interest was upheld in principle, but the impugned orders were set aside and the matters were remitted to the licensing authority to re-determine the payable interest in accordance with Notification No. 46/2013-Customs, after granting credit for amounts already paid or appropriated and refunding any excess.

Ratio Decidendi: Where an importer executes a bond under the EPCG scheme to secure customs duty concession, the stipulated interest on default is enforceable, but the quantum of recovery must conform to the governing policy and notification regime in force for regularisation of the default.

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