EPCG compliance and Export Obligation Discharge Certificate limit Customs' power to demand duty for alleged non-fulfilment.

Under the EPCG scheme, imported vehicles need not remain registered as tourist vehicles throughout the entire relevant period if the DGFT clarification permits later registration and relaxes prior non-compliance. The respondent's subsequent re-registration as a tourist vehicle was accepted within that framework, so the alleged breach was not established. Foreign exchange earned through the respondent's hotel and tourism operations was also treated as relevant to export obligation compliance, and the Export Obligation Discharge Certificate issued by the licensing authority was given isive effect. Customs could not disregard that certificate and independently demand duty, interest, confiscation, or penalties on the same facts.

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Issues: (i) Whether the imported vehicle was required to be registered as a tourist vehicle throughout the relevant period for availing the EPCG exemption. (ii) Whether foreign exchange earned from the respondent's hotel and tourism activities, together with the issuance of Export Obligation Discharge Certificate, barred the Customs authorities from demanding duty and imposing consequential action for alleged non-fulfilment of the exemption conditions.

Issue (i): Whether the imported vehicle was required to be registered as a tourist vehicle throughout the relevant period for availing the EPCG exemption.

Analysis: The dispute turned on the effect of the DGFT policy clarification governing imported vehicles under the EPCG scheme. The clarification recognised that vehicles could be registered as tourist vehicles by the stipulated outer date, and it also provided relaxation for past cases where registration as a tourist vehicle had not been obtained earlier. The respondent had initially registered the vehicle as a private vehicle and later re-registered it as a tourist vehicle within the framework of the DGFT directions. On that basis, the alleged breach based solely on the timing of tourist registration was not established as a continuing disqualification under the scheme.

Conclusion: The alleged violation based on non-registration as a tourist vehicle throughout was not sustained against the assessee.

Issue (ii): Whether foreign exchange earned from the respondent's hotel and tourism activities, together with the issuance of Export Obligation Discharge Certificate, barred the Customs authorities from demanding duty and imposing consequential action for alleged non-fulfilment of the exemption conditions.

Analysis: The Tribunal applied the settled position that export obligation under the EPCG scheme is not confined to receipts arising only from the bare use of the imported vehicle in isolation, and that earnings generated through associated hotel and tourism services may also be relevant where the vehicle is used as part of the business activity. It also gave decisive weight to the Export Obligation Discharge Certificate issued by the licensing authority. Once the competent licensing authority had certified fulfilment of the export obligation, the Customs authorities could not disregard that certification and independently conclude non-fulfilment on the same facts. In the circumstances, the demand of duty, interest, confiscation, and penalties could not be sustained.

Conclusion: The duty demand and consequential penalties were not sustainable, and the finding was in favour of the assessee.

Final Conclusion: The appellate order was upheld and the departmental challenge failed, as the alleged breach of the EPCG conditions was not established in a manner warranting duty recovery or penal consequences.

Ratio Decidendi: Where the competent licensing authority has issued an Export Obligation Discharge Certificate, Customs authorities cannot ignore that certification and independently sustain duty recovery for alleged non-fulfilment of EPCG conditions, absent a legally sustainable finding of breach under the scheme.

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