Export obligation discharge certificate prevents Customs from reopening exemption breach claims after compliance is accepted.

Where the DGFT had issued an export obligation discharge certificate and Customs had released the bond, Customs could not reopen the exemption dispute or allege breach of the export obligation under the notification. The notification was construed to require import of materials matching the authorization, not their physical incorporation in the exported goods; compliance was satisfied by import of covered inputs and discharge of the export obligation. The record also showed disclosure of the imports and export obligation process, so no wilful suppression or misstatement was established, and the demand was barred by limitation. The impugned duty, interest and penalty demand was therefore set aside.

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Issues: (i) Whether, after issuance of the export obligation discharge certificate by the DGFT and release of bond by Customs, the Customs authorities could sustain proceedings alleging breach of the export obligation under the exemption notification; (ii) Whether the imported materials had to be physically incorporated in the exported goods or whether compliance with the notification was satisfied by import of materials of the kind covered by the authorization; (iii) Whether the demand was barred by limitation for want of suppression or wilful misstatement.

Issue (i): Whether, after issuance of the export obligation discharge certificate by the DGFT and release of bond by Customs, the Customs authorities could sustain proceedings alleging breach of the export obligation under the exemption notification.

Analysis: The export obligation was found to have been completed, the EODC had been issued by the DGFT, and the bond executed by the appellant had also been released by Customs. On that basis, the fulfillment of the conditions of the exemption notification and the Foreign Trade Policy stood accepted. Once the licensing authority had accepted compliance, the Customs authorities could not re-open the issue and initiate proceedings for contravention of the policy conditions.

Conclusion: The issue was decided in favour of the assessee; the Customs demand could not be sustained on this ground.

Issue (ii): Whether the imported materials had to be physically incorporated in the exported goods or whether compliance with the notification was satisfied by import of materials of the kind covered by the authorization.

Analysis: The notification was read as requiring import of materials corresponding to the description and specifications in the authorization, not physical incorporation in the exported product. The explanation defining "materials" and the departmental circular were relied upon to hold that the imported goods need only be commercially known inputs covered by the licence description. On that footing, the fact that export production had been made using other inputs did not defeat the exemption, so long as export obligation stood discharged.

Conclusion: The issue was decided in favour of the assessee; physical use of the imported goods in the exported product was not a mandatory condition.

Issue (iii): Whether the demand was barred by limitation for want of suppression or wilful misstatement.

Analysis: The record showed disclosure of the imports and the export obligation process, along with issuance of EODC and release of bond. In these circumstances, no wilful suppression or intent to evade duty was established.

Conclusion: The issue was decided in favour of the assessee; the demand was also unsustainable on limitation.

Final Conclusion: The impugned order was set aside because the export obligation was accepted as fulfilled, the exemption conditions were held to have been complied with, and no sustainable basis remained for duty, interest, or penalty.

Ratio Decidendi: Where the DGFT has issued an export obligation discharge certificate and Customs has released the bond, Customs cannot deny exemption or allege breach of the export condition merely because the exported goods were manufactured using other inputs; compliance is determined by the terms of the notification and the accepted fulfillment of export obligation.

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