2024 (3) TMI 1251 - HC - Customs

Importer liable for penalties after failing export obligations under EPCG scheme despite reduced customs duty

The Madras HC dismissed a writ appeal challenging duty demand and penalties under the EPCG scheme. The appellant imported machinery at concessional ... EPCG Scheme - Benefit of an EXIM scheme - Non fulfilment of the export obligations - Scope and terms of the Bond executed - Duty demand - differential duty - confiscation of the goods imported - fine - penalty - manufacture and export of air purifiers - Import of machinery at concessional rate of customs duty - HELD THAT:- Rule 6 deals with the conditions of licence, Sub Rule (2)(b) of the Rules mandates that an applicant for a licence should execute a bond for complying with the terms and conditions of the licence. The said Rule in clear terms mandates that an applicant for licence should execute a bond for complying with the terms and conditions of the licence. In compliance with the said Rule, the bond had to necessarily be executed by the appellant herein. It is axiomatic that when a person claims certain benefits on certain conditions and if that benefit is extended to a particular individual, he would have to fulfill his obligations on which basis the licence had been granted, or otherwise the executor can be penalised. In this case he had been granted a benefit of reduced customs duty on the promise of bringing in foreign exchange into the country. Since, it had not full filled its part of obligations, definitely it is liable to be penalised. The condition which the appellant counsel seek to be void on the basis of not being supported by any substantive provision would have to fall, since an execution of bond is contemplated under Rule 6 (2) (b) of Foreign Trade (Regulation) Rules 1993 and the reason for the execution of the bond is for the appellant to fulfill its obligation under the licence. Therefore, it is too farfetched for the appellant to content that the said condition would be a void condition. Thus, we are not inclined to interfere with the order passed by the learned Single Judge. In fine, this Writ Appeal fails and is accordingly, dismissed. Issues Involved:1. Validity of the demand for 24% interest on differential customs duty.2. Applicability of the EXIM policy and related obligations.3. Execution and enforceability of the Indemnity cum Guarantee Bond.4. Applicability of precedents cited by the appellant.Summary:1. Validity of the demand for 24% interest on differential customs duty:The appellant challenged the demand made by the second respondent for 24% interest on differential customs duty. The appellant argued that there is no provision under the Customs Act, 1962 or the Foreign Trade (Regulation) Rules, 1993 to demand such interest. The Appellate Tribunal had earlier set aside the confiscation, penalty, and the interest demand, citing the absence of statutory provisions. However, the respondents contended that the demand was based on the Indemnity cum Guarantee Bond executed by the appellant, which stipulated a 24% interest per annum on the duty saved in case of default.2. Applicability of the EXIM policy and related obligations:The appellant had obtained a licence under the Export Promotion Capital Goods Scheme, which allowed them to import machinery at a concessional rate of customs duty, conditional upon exporting a specified quantity of goods manufactured using the imported machinery. Despite an extension, the appellant failed to meet the export obligations. The respondents argued that the appellant was liable to pay the differential customs duty and an additional amount equal to 24% interest per annum on the duty saved, as per the bond executed.3. Execution and enforceability of the Indemnity cum Guarantee Bond:The bond executed by the appellant included a clause that in the event of default in meeting export obligations, the appellant would pay an amount equal to 24% interest per annum on the duty saved. The court found that this clause was a penal charge for non-fulfillment of obligations and not merely an interest demand. The court held that the bond was enforceable under Rule 6(2)(b) of the Foreign Trade (Regulation) Rules, 1993, which mandates the execution of a bond to comply with the terms and conditions of the licence.4. Applicability of precedents cited by the appellant:The appellant cited judgments in VVS Sugars and India Carbon Limited to argue that interest or penalty demands must be supported by substantive provisions of law. However, the court found these cases inapplicable, as they dealt with statutory demands for tax arrears, not contractual obligations under a bond. The court relied on the precedent set in Rexnold Electronics and Controls Limited, where the Supreme Court upheld the validity of interest demands based on bonds executed by the company, even in the absence of statutory provisions.Conclusion:The court dismissed the appeal, upholding the demand for 24% interest per annum on the differential customs duty based on the Indemnity cum Guarantee Bond executed by the appellant. The court found that the bond was enforceable under the relevant rules and that the appellant was liable for the penal charge due to non-fulfillment of export obligations. The precedents cited by the appellant were deemed inapplicable to the facts of the case.