2025 (10) TMI 828 - AT - Customs

Customs duty and interest quashed after production of Export Obligation Discharge Certificate and related correspondence

CESTAT CHENNAI allowed the appeal and set aside the impugned orders confirming a customs duty demand with interest. The tribunal found the appellant had ... Failure of the appellant to submit proof of fulfilment of pro rata export obligation as well as failure to submit export obligation discharge certificate - demand of Customs duty with interest - HELD THAT:- It is found from the impugned order in appeal that despite the appellant producing the requisite EODC before the appellate authority, the appellate authority has chosen to chastise the appellant for its non-production before the lower authority and to chide the appellant for having preferred the appeal. When the assessee exercises his statutory right of preferring an appeal before an appellate authority, such an assessee cannot be faulted for preferring an appeal, since the appeal is being preferred with the expectation that a quasi-judicial Authority tasked with the attendant responsibility to act fairly and impartially, would do so. Suffice to say, instead of extending the relief sought or at the bare minimum, remitting the matter for denovo consideration, the approach of the Appellate Authority in rejecting the appeal has resulted in protracting the litigation to the detriment of the assessee-an approach that was injudicious to say the least. Indisputably, the impugned orders of the lower authorities do not allege any fraud having been perpetrated by the appellant or that the appellant’s case is that which has been taken up for scrutiny as per any administrative directions. In such circumstances, in the light of such certificate/ EODC/duty paid regularization letter issued by AD,DGFT, which is also seen marked to the jurisdictional customs authorities, the very basis for the demand confirmed has been removed. The impugned order in appeal cannot sustain, and in the interest of justice, it is liable to be set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the demand of customs duty with interest for alleged non-fulfilment of pro-rata export obligation under an EPCG authorisation was sustainable where the exporter subsequently paid duty and interest and obtained an Export Obligation Discharge Certificate (EODC)/duty-paid regularization letter from the AD, DGFT. 2. Whether the first appellate authority erred in rejecting an appeal on the ground of non-production of documents before the original authority and refusing to remit the matter for fresh consideration despite production of EODC/duty-paid regularization before the appellate forum. 3. Whether, in light of administrative instructions on rationalisation of EPCG verification procedures, Customs authorities are required to re-verify EODCs issued by Regional DGFT authorities before accepting them for closure of EPCG obligations. ISSUE-WISE DETAILED ANALYSIS Issue 1: Tenability of demand where duty and interest were paid and EODC/duty-paid regularization issued by AD, DGFT Legal framework: EPCG scheme conditions require fulfilment of export obligations, including pro-rata fulfilment for the first block; para 5.14 of the Handbook of Procedure permits regularisation/closure on payment of duty and interest for shortfall and provides for redemption/closure by DGFT upon satisfaction. Precedent treatment: No prior judicial precedents were relied upon or considered in the impugned proceedings or the Tribunal's reasoning; administrative instructions (Board's circular) were applied as governing guidance. Interpretation and reasoning: The Tribunal accepted the AD, DGFT's duty-paid regularization letter which certified that the case was regularized as a bona fide default under para 5.14 and that the case stood redeemed and closed. Where the competent Regional Authority (DGFT) has issued an EODC/regularization on account of payment of duty and interest, and that communication is marked to Customs, the very basis for a Customs demand for duty on account of shortfall is removed. Absence of any allegation of fraud or specific intelligence justifying re-examination was material; in such circumstances, sustained departmental demand could not be maintained. Ratio vs. Obiter: Ratio - where an exporter has paid duty and interest for shortfall and obtained a DGFT EODC/duty-paid regularization certified to Customs, a subsequent Customs demand for the same shortfall is not tenable unless there is specific reason (fraud, targeted intelligence) to disbelieve the DGFT certification. Obiter - background on bona fide default language of para 5.14 and general expectations of administration. Conclusion: The demand confirmed by the original authority is unsustainable and must be set aside where the DGFT has issued duty-paid regularization/EODC and there is no allegation of fraud or specific basis for re-verification. Issue 2: Appellate authority's conduct in rejecting appeal for non-production before the lower authority and not remitting for de novo consideration Legal framework: Statutory right to appeal to an appellate/quasi-judicial authority entails a duty on that authority to act fairly, impartially and to consider documents produced before it; appellate forum may remit matters for de novo consideration where fresh evidence or subsequent compliance is shown. Precedent treatment: No judicial authorities were cited; the Tribunal applied principles of administrative fairness and appellate duty of remand/consideration. Interpretation and reasoning: The appellate authority criticized the appellant for not having produced the EODC before the original authority and for preferring the appeal, but the Tribunal held that an appellant exercising its statutory right to appeal cannot be faulted for seeking relief. Where appropriate evidence (EODC/duty-paid regularization) was produced before the appellate authority, the proper course for that authority was either to grant relief or to remit for fresh consideration rather than to reject the appeal outright. The appellate authority's failure to consider the documents and to remand protracted litigation to the appellant's detriment and was injudicious. Ratio vs. Obiter: Ratio - appellate authority must consider material produced before it and, where necessary, remit for de novo consideration rather than rejecting appeals on procedural grounds when substantive compliance is demonstrated; rejection for non-production before lower authority without considering subsequent documents is improper. Obiter - comments on protracted litigation and judicial expectations of fairness. Conclusion: The appellate authority erred in rejecting the appeal for procedural non-production when the EODC/duty-paid regularization was produced before it; remand or acceptance should have been considered, requiring interference with the impugned appellate order. Issue 3: Effect of administrative instructions on verification of EODCs and Customs' duty to re-verify DGFT certificates Legal framework: Board instruction on 'Rationalisation of procedures in handling exporters obligations under EPCG Authorisations' directs that Regional DGFT EODCs be normally accepted by Customs without further verification, except in 5% of cases randomly selected or where specific intelligence/fraud is indicated; procedural safeguards for random selection and verification of non-EDI shipping bills are mandated. Precedent treatment: The Tribunal relied on the Board's instruction as persuasive administrative guidance altering practice; no judicial precedent was cited nor overruled. Interpretation and reasoning: Where the AD, DGFT has issued EODC/duty-paid regularization and marked the communication to Customs, the Board's instructions counsel that Customs should generally accept such EODCs without re-verification except in limited, specified circumstances. Since the impugned orders did not allege fraud or selection under the limited exceptions, no basis existed for Customs to undertake full re-verification or to maintain a demand contrary to DGFT closure. The Board's instruction further requires transparency and limited 5% checks with prescribed safeguards, strengthening the position that routine re-verification is not warranted. Ratio vs. Obiter: Ratio - administrative instructions require Customs to accept EODCs issued by DGFT in normal course and limit re-verification to specified exceptions; absent those exceptions, Customs cannot reject or re-compute obligations contrary to DGFT regularization. Obiter - procedural recommendations for publicity, monitoring and transparency in random checks. Conclusion: In light of the Board's instructions, Customs was not justified in maintaining a demand where DGFT had issued an EODC/duty-paid regularization and there were no allegations of fraud or specific intelligence triggering re-verification. Cross-references and Consolidated Conclusion Issues 1-3 are interrelated: the DGFT duty-paid regularization (Issue 1) and the Board's instruction limiting Customs' re-verification (Issue 3) together demonstrate that the appellate authority should have accepted or remitted consideration of the EODC produced before it (Issue 2). Consequently, the Tribunal set aside the impugned appellate order upholding the original demand and allowed the appeal with consequential relief in law.