EPCG exemption conditions: one-to-one correlation not required, and duty demand, confiscation and penalty were remitted for fresh determination.
Under the EPCG exemption regime, one-to-one correlation between imported capital goods and exported products was not a separate documentary condition where the scheme and notification only required fulfilment of export obligation. The insistence on such correlation was therefore unsustainable. Duty and interest for alleged non-fulfilment of export obligation were also not finally upheld because export performance had to be reassessed against yearly norms and the DGFT-granted extension, making the demand premature pending fresh computation. Confiscation and penalty, being consequential to the duty issue, were set aside for reconsideration in de novo proceedings.
Issues: (i) Whether the requirement of proving one-to-one correlation between the imported capital goods and the exported products could be insisted upon under the EPCG exemption notification; (ii) Whether the demand of duty and interest for alleged non-fulfilment of export obligation was sustainable; (iii) Whether confiscation and penalty could be sustained in the facts of the case.
Issue (i): Whether the requirement of proving one-to-one correlation between the imported capital goods and the exported products could be insisted upon under the EPCG exemption notification.
Analysis: The notification and the EPCG scheme were read as not imposing a separate condition requiring documentary proof that each exported product was manufactured only from the imported capital goods. The adjudication finding that no such correlation was proved was held inconsistent with the scheme and the notification language, particularly where the export obligation was otherwise the relevant condition.
Conclusion: The insistence on one-to-one correlation was not sustainable and the finding on this aspect was set aside.
Issue (ii): Whether the demand of duty and interest for alleged non-fulfilment of export obligation was sustainable.
Analysis: The export performance had to be tested against the yearly norms and the extension granted by the DGFT. On that basis, the record did not justify immediate enforcement of the entire duty foregone and interest as ordered in the adjudication. The demand was therefore treated as premature and liable to be reconsidered after the DGFT's decision and recalculation of the obligation for the extended period.
Conclusion: The duty and interest demand was not upheld and the matter was remitted for fresh determination.
Issue (iii): Whether confiscation and penalty could be sustained in the facts of the case.
Analysis: Since the duty liability itself required fresh adjudication, the consequential orders of confiscation and penalty could not stand independently at that stage. They were also made dependent on the outcome of the re-adjudication of duty liability.
Conclusion: The confiscation and penalty orders were set aside for reconsideration in the de novo proceedings.
Final Conclusion: The appeal succeeded to the extent that the impugned duty demand, confiscation, and penalty were vacated and the matter was sent back for fresh adjudication after considering the DGFT's decision and the correct export-obligation computation.
Ratio Decidendi: Under the EPCG exemption regime, duty liability and consequential confiscation or penalty cannot be sustained on an erroneous insistence on one-to-one correlation or before the export obligation, including any valid extension period, is correctly reworked and finally determined.
TaxTMI 
AI Drafter ✕
TaxTMI 
