EPCG capital goods import: duty and interest dispute after export obligation breach; full duty upheld, interest/penalty dropped

Interest on duty demanded for breach of export obligation under a partial exemption notification for EPCG/EPCC capital goods was held unrecoverable because neither the notification nor the Customs Act, 1962 authorised interest in the circumstances; s. 28AA applied only after confirmed duty remained unpaid for three months and s. 28AB was inapplicable as the demand did not arise from the proviso to s. 28(1). Accordingly, the interest demand was set aside. On the quantum of duty, the Tribunal held that despite a contrary wording in the importer's undertaking suggesting proportionate recovery, the notification governed and required payment of the entire duty foregone; duty demand was sustained to that extent. Confiscation and penalty were set aside for absence of intent to evade and evidence of bona fide effort to seek extension backed by bank guarantee.

---

---

Issues involved:
1. Importer's claim for partial duty exemption under Notification 160/92 for capital goods imported in December 1992.
2. Extension of export obligation period requested by importer and subsequent refusal by licensing authority.
3. Customs Department's notice proposing duty appropriation, confiscation of goods, penalty, and interest.
4. Interpretation of Public Notice No. 5 dated 6-4-1999 by Directorate General of Foreign Trade.
5. Allegation of wilful attempt by importer to wrongly avail of notification benefits.
6. Conflict between legal undertaking and notification regarding duty payment.
7. Application of Customs Act provisions and notification in the case.

Judgment Details:

1. The importer availed 75% duty exemption under Notification 160/92 by undertaking to export three times the CIF value of goods within four years. The export obligation was not fulfilled by December 1996, leading to a notice proposing duty appropriation, confiscation, penalty, and interest.
2. The importer requested a three-year extension for export obligation completion, which was refused by the licensing authority in July 1998. The duty was paid in September 1998.
3. The Customs Department issued a notice in December 1998 proposing duty appropriation, confiscation of goods, penalty, and interest. The Commissioner ordered confiscation, penalty, and interest at 24% on duty.
4. The appellant referred to Public Notice No. 5 dated 6-4-1999, allowing extension of export obligation up to 31-3-2001 with conditions, which was rejected by the licensing authority.
5. The appellant argued that the public notice effectively amended the Policy, extending the export obligation period, which should be considered in benefit interpretation.
6. The appellant contended that failure to meet export obligation was due to market conditions beyond control, not wilful intent to misuse benefits.
7. The Tribunal analyzed the conflict between the legal undertaking and notification regarding duty payment, emphasizing strict construction of notification provisions.

Continued Judgment:

8. The Tribunal found no provision in the notification for interest payment by the importer, as the duty was to be paid on demand without interest.
9. The conflict between the legal undertaking and notification regarding duty payment was noted, with the notification requiring full duty payment.
10. Lack of coordination between the licensing authority and Ministry of Finance led to divergent views, necessitating adherence to Customs Act provisions and notification.
11. Confiscation and penalty were deemed unnecessary as there was no deliberate intent to misuse benefits, and failure to meet export obligation did not warrant severe penalties.
12. The Tribunal held that lack of intent to misuse benefits and efforts to comply with obligations indicated no need for confiscation or penalty, setting aside the same.
13. The appeal was partially allowed, with consequential relief to be granted according to law.

---