2025 (6) TMI 1609 - HC - Customs

EPCG penalty quashed as export obligation only arises when licence benefits actually utilized, not merely upon issuance

The HC quashed the penalty order imposed on petitioner for non-fulfillment of export obligation under EPCG licence. The court held that authorities failed ... Violation of principles of natural justice - impugned order has been passed against the petitioner without affording sufficient opportunity and without considering the stand taken by the petitioner and the documents submitted by the petitioner - HELD THAT:- On a careful consideration of the submissions made by the learned counsel on either side and the materials available on record, it is seen that the petitioner has a contestable case to agitate before the authorities. If the petitioner had not utilized the EPCG licence and had paid the import duty every time when the machineries were imported, the fulfillment of the export obligation will not apply to the petitioner. This crucial issue must be decided by the authorities, more particularly, in the light of the non-utilization certificate that was issued by the jurisdictional customs. Hence this Court is inclined to remand this case back to the file of the first respondent, who is the appellate authority, to deal with the appeal on merits and in accordance with law. The impugned proceedings of the first respondent dated 22.08.2024 are quashed and the matter is remanded to the file of the first respondent - Petition allowed by way of remand. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:(a) Whether the penalty imposed on the petitioner for non-fulfillment of export obligation under the EPCG licence was justified in the absence of consideration of the petitioner's stand and relevant documents, including the non-utilization certificate issued by the jurisdictional customs authority.(b) Whether the appellate authority was justified in rejecting the petitioner's appeal on the ground of delay under Section 15(1)(b) of the Foreign Trade (Development and Regulation) Act, 1992, without considering the merits of the appeal.(c) Whether the petitioner, who did not utilize the EPCG licence benefits and paid full customs duty on imports, was liable to fulfill the export obligation stipulated under the licence.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Justification of penalty imposed without considering petitioner's stand and documentsRelevant legal framework and precedents: The EPCG (Export Promotion Capital Goods) scheme allows import of capital goods at concessional customs duty subject to fulfillment of export obligations within a prescribed period. Failure to fulfill such obligations attracts penalty under the Foreign Trade (Development and Regulation) Act, 1992. The authorities are required to consider the representations and documents submitted by the licensee before imposing penalty.Court's interpretation and reasoning: The Court noted that the petitioner had submitted replies to the show cause notices explaining non-utilization of the EPCG licence and had documents including a non-utilization certificate from the jurisdictional customs authority. However, the second respondent did not consider these submissions before imposing penalty. The Court emphasized that the petitioner's contestable case regarding non-utilization and consequent non-applicability of export obligation was not adjudicated on merits.Key evidence and findings: The petitioner's reply dated 16.05.2015 and 24.03.2022, along with the non-utilization certificate, were crucial documents evidencing that the petitioner did not claim benefits under the EPCG licence and paid full customs duty. These were not considered by the second respondent prior to penalty imposition.Application of law to facts: Since the export obligation arises only if the EPCG licence benefits are availed, the petitioner's case that they did not utilize the licence and paid full duty negates the obligation. The failure to consider this crucial fact vitiates the penalty order.Treatment of competing arguments: The respondents contended that the petitioner failed to produce relevant documents during the proceedings before the second respondent, justifying penalty. The Court found this argument insufficient to deny the petitioner a fair opportunity to contest the charge.Conclusion: The penalty order was passed without affording adequate opportunity and without considering the petitioner's stand and documents, rendering it unsustainable.Issue (b): Validity of rejection of appeal on ground of delay under Section 15(1)(b) of the Foreign Trade ActRelevant legal framework and precedents: Section 15(1)(b) of the Foreign Trade (Development and Regulation) Act, 1992 prescribes the limitation period for filing appeals against orders passed by authorities under the Act. However, courts have held that procedural bars such as limitation should not be invoked to deny adjudication on substantial questions of law and fact, especially where the appellant has a prima facie contestable case.Court's interpretation and reasoning: The appellate authority rejected the petitioner's appeal on the sole ground that it was filed beyond the prescribed limitation period. The Court observed that the petitioner was in possession of crucial documents, including the non-utilization certificate, which were not considered earlier. The Court held that the issue of delay should not be a ground to deny the petitioner an opportunity to have the appeal decided on merits.Key evidence and findings: The appeal was filed after a delay of approximately one year and four months. However, the petitioner's possession of the non-utilization certificate and the failure of earlier authorities to consider it justified remanding the matter for fresh consideration.Application of law to facts: The Court applied the principle that limitation should not be an absolute bar where the appellant has a substantial defense and the authorities failed to consider relevant material. The Court directed that the appeal be decided on merits without being prejudiced by delay.Treatment of competing arguments: The respondents emphasized strict adherence to limitation provisions. The Court balanced this against the petitioner's right to be heard on the substantive issue and found in favor of the latter.Conclusion: The appellate authority erred in rejecting the appeal solely on limitation grounds without examining the merits.Issue (c): Liability of petitioner to fulfill export obligation when EPCG benefits were not utilizedRelevant legal framework and precedents: Under the EPCG scheme, export obligation arises only when the importer avails of the duty concession by utilizing the EPCG licence. If the licence is not utilized and full customs duty is paid, no export obligation is triggered.Court's interpretation and reasoning: The petitioner contended that they did not utilize the EPCG licence and paid full customs duty on imports, supported by the non-utilization certificate. The Court recognized this as a crucial factual and legal issue that must be adjudicated by the authorities before imposing penalty.Key evidence and findings: The non-utilization certificate issued by the jurisdictional customs authority was key evidence supporting the petitioner's claim that the licence was not utilized.Application of law to facts: The Court held that if the petitioner did not avail the EPCG benefits, the export obligation would not apply, and penalty for non-fulfillment would be unwarranted.Treatment of competing arguments: The respondents argued that the export obligation was not fulfilled regardless of utilization. The Court rejected this, emphasizing the conditional nature of the obligation linked to license utilization.Conclusion: The question of liability to fulfill export obligation depends on whether the EPCG licence benefits were availed and must be decided on merits by the authorities.3. SIGNIFICANT HOLDINGSThe Court held: 'If the petitioner had not utilized the EPCG licence and had paid the import duty every time when the machineries were imported, the fulfillment of the export obligation will not apply to the petitioner. This crucial issue must be decided by the authorities, more particularly, in the light of the non-utilization certificate that was issued by the jurisdictional customs.'Core principles established include:(i) The export obligation under the EPCG scheme arises only if the EPCG licence benefits are availed.(ii) Authorities must consider all relevant documents and the petitioner's stand before imposing penalty for non-fulfillment of export obligation.(iii) Procedural bars such as limitation cannot be invoked to deny adjudication on the merits where the appellant has a prima facie contestable case and relevant material was not considered earlier.Final determinations:The impugned order imposing penalty was quashed for non-consideration of petitioner's submissions and documents.The appellate authority's rejection of the appeal on limitation grounds was set aside, and the matter was remanded for fresh adjudication on merits without regard to delay.The petitioner was granted a fair opportunity to be heard and produce relevant evidence, including the non-utilization certificate, to determine the applicability of export obligation.