Conditional customs duty relief under EPCG can be withdrawn on export default, with differential duty and interest recoverable.

Conditional customs duty relief under the EPCG Scheme was linked to fulfilment of export obligations, and default revived liability for differential duty together with interest. Notices had in fact been issued, so the demand was not invalid for want of notice under Section 28 of the Customs Act, 1962 or for breach of natural justice. The importer's bond and undertaking also covered interest on the duty saved upon default, and Sections 28AA and 28AB, read with the scheme notification, supported recovery of interest from the date of the first consignment until payment. The demand for differential duty with interest was therefore upheld.

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Issues: (i) Whether the demand for interest on the differential customs duty was invalid for want of notice under Section 28 of the Customs Act, 1962 or breach of natural justice; (ii) Whether the demand for interest on the differential customs duty under the EPCG Scheme was legally sustainable.

Issue (i): Whether the demand for interest on the differential customs duty was invalid for want of notice under Section 28 of the Customs Act, 1962 or breach of natural justice.

Analysis: Section 28 embodies the requirement that a person chargeable with duty or interest be given notice and an opportunity to show cause before recovery. On the facts, notices had in fact been issued to the importer and there was no demonstrated prejudice from any alleged absence of notice. The record also showed opportunity having been afforded before the demand was pursued.

Conclusion: The demand was not vitiated by any violation of Section 28 of the Customs Act, 1962 or of natural justice, and this issue was decided against the assessee.

Issue (ii): Whether the demand for interest on the differential customs duty under the EPCG Scheme was legally sustainable.

Analysis: The EPCG exemption was conditional upon fulfilment of the export obligation. The importer had executed the requisite bond and undertaking, including liability to pay interest on the duty saved in the event of default. Failure to fulfil the export obligation caused the concessional exemption to cease, reviving liability for the differential duty. Sections 28AA and 28AB of the Customs Act, 1962, together with the scheme notification and the binding undertaking, supplied legal sanction for interest from the date of the first consignment until payment.

Conclusion: The demand for interest was legally enforceable and this issue was decided against the assessee.

Final Conclusion: The importer could not retain the benefit of concessional duty after failing to satisfy the export conditions, and the demand for differential duty with interest was upheld.

Ratio Decidendi: Where concessional customs duty is granted subject to fulfilment of export obligations and the importer undertakes to pay interest on default, failure to fulfil the condition revives the normal duty liability and authorises recovery of interest in accordance with the statute and the undertaking.

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