2023 (11) TMI 226 - AT - Customs

Tribunal Remits Case for Verification of Export Obligation Certificate; Potential Relief Upon Compliance.

M/s. Solar Soles Private Limited Versus Commissioner of Customs, Chennai-IV Commissionerate

M/s. Solar Soles Private Limited Versus Commissioner of Customs, Chennai-IV Commissionerate - 2024 (388) E.L.T. 239 (Tri. - Chennai) ISSUES PRESENTED AND CONSIDERED 1. Whether the imported capital goods under EPCG authorisations can be demanded as Customs duty and confiscated under Section 111(o) and penalty invoked under Section 112(a) for alleged non-fulfilment of Export Obligation where no discharge/redemption certificate (EODC) was produced within the prescribed time. 2. Whether production after issuance of the Show Cause Notice and/or after adjudication of redemption/discharge certificates issued by the DGFT/ADGFT should preclude confirmation of demand and confiscation, and what procedural step is appropriate when such certificates are produced during appellate proceedings. 3. The scope of the adjudicating authority's duty to verify EODC documents and to grant statutory benefits if export obligations are shown to be discharged subsequent to initiation of proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of demand/confiscation for alleged non-fulfilment of EPCG export obligation Legal framework: EPCG scheme conditions require fulfilment of prescribed Export Obligation; importer executes bond undertaking to pay Customs duty with interest in case of non-fulfilment. Under the Customs Act, confiscation may be proposed under Section 111(o) and penalty under Section 112(a) where conditions of authorisation/bond are not met. Precedent Treatment: No specific precedent was cited or discussed in the judgment. Interpretation and reasoning: The Tribunal notes that the adjudicating authority proceeded on the Revenue's doubt that EODC was not produced within the prescribed time and therefore confirmed the demand and proposals for confiscation/penalty for three of the four EPCG licences. The authority dropped proceedings in respect of one licence where a redemption letter dated 14.09.2007 was available. The Court frames the legal issue as fact-dependent: whether the statutory export obligation remains unfulfilled at the time of adjudication and whether the requisite discharge certificate exists. Ratio vs. Obiter: Ratio - Confirmation of demand/penalty/confiscation is contingent upon non-production or absence of valid EODC showing export obligation not discharged. Obiter - Observations on general duty of Revenue to act on doubts were not expanded into broader principles. Conclusions: A confirmed demand and proposed confiscation cannot stand without verification of whether the EODC exists and whether export obligations were in fact discharged. The presence of a bond and statutory power to demand duty does not itself make confirmation automatic where documentary proof of discharge is tendered. Issue 2 - Effect of production of EODC after initiation of proceedings and during appeal Legal framework: Discharge/redemption certificates issued by competent DGFT/ADGFT authorities are the formal proof of fulfilment of EPCG export obligations; administrative/regulatory practice contemplates issuance and production of such EODCs to obtain relief from Customs liability. Precedent Treatment: None cited; the Tribunal treated the matter on established administrative law principles regarding verification of documentary evidence. Interpretation and reasoning: The appellant asserted that EODCs had been obtained for all four licences (one earlier and others obtained later with dates cited) and that applications/acknowledgements had been submitted to DGFT earlier. The Tribunal accepted that EODCs had been produced (or at least that the appellant had represented receipt and filed them with DGFT) and that the adjudicating authority had not verified these documents before confirming demands. The Tribunal emphasised the need for the adjudicating authority to verify the authenticity and applicability of the EODCs before confirming demands or confiscation; where EODC is subsequently issued, revenue should verify and, if genuine, grant corresponding benefits. Ratio vs. Obiter: Ratio - Production of EODC, even after initiation of proceedings, requires verification by the adjudicating authority and, if verified, mandates withdrawal or reduction of demand/penalty/confiscation consequences tied solely to non-fulfilment. Obiter - The Tribunal's procedural preference for remand rather than outright setting aside or automatic discharge without verification. Conclusions: Late production of EODC is material and can defeat a demand/penal action if the documents are authenticated and show fulfilment. The proper course is verification by the adjudicating authority; confirmation of demands without such verification is unsustainable. Issue 3 - Scope and effect of remand to adjudicating authority for verification and grant of benefits Legal framework: Principles of adjudication require that relevant documentary proof be considered and verified by the deciding authority; administrative decisions which affect liabilities must be factually supported and permit consequential relief where statutory conditions are shown to be satisfied. Precedent Treatment: No prior decisions were discussed; the Tribunal exercised its appellate supervisory jurisdiction to remit the matter for verification. Interpretation and reasoning: The Tribunal found that the adjudicating authority had failed to verify the EODC-related claims before confirming the demand. Given that redemption letters/EODCs existed for at least one licence and were represented to have been received for the others (with documentary acknowledgements), the Tribunal concluded that remand for limited purpose of verification was the correct remedy. The Tribunal did not substitute its own factual findings but required the lower authority to examine authenticity and applicability of the EODCs and thereafter grant such benefits as legally due. Ratio vs. Obiter: Ratio - Where documentary proof of discharge of EPCG obligations is produced (even belatedly), appellate forum may remit to adjudicating authority for verification and to grant relief consequent to verified discharge; appellate forum need not (and should not) effectuate factual verification itself where primary fact-finding is required. Obiter - The specific time periods or standards for such verification were not prescribed. Conclusions: The impugned order confirming demands is set aside and the matter remitted to the adjudicating authority for limited purpose of verifying the EODCs and, on such verification, granting the appellant the benefits in law that follow from discharge of export obligations. Proceedings already dropped in respect of a licence for which a redemption letter existed are affirmed as properly dropped. Cross-reference The conclusions on Issues 1-3 are interdependent: confirmation of demand/confiscation (Issue 1) cannot be sustained without proper verification of EODCs (Issue 2); accordingly, the appropriate remedy is remand for verification and consequential relief (Issue 3).