2026 (1) TMI 1244 - AT - Customs

Export obligation under Advance Authorization: FTP regularisation and EODC acceptance preclude Customs recovery and demands once EO is revised and discharged.

Regularisation of bona fide defaults under the Foreign Trade Policy (FTP) and Handbook of Procedures operates to revise and restate export obligations ... Export obligation (EO) as specified in Advance Authorization (quantity and value) - Non- fulfillment of the export obligation in terms of value with regard to the three Authorizations - imports of copper concentrates - failed to comply with the conditions laid down in the Notifications No.96/2009-Cus and Notification No.99/2009-Cus - Regularization of bonafide default in fulfillment of export obligation - Binding effect of Export Obligation Discharge Certificate (EODC) issued by DGFT - Primacy of Foreign Trade Policy and Handbook of Procedures in interpretation of schemes - Conflict between Customs Department and licensing authority (DGFT) - Recovery/demand and penalties - Whether the Customs authorities can raise a demand alleging violation of conditions (viii) and (ix) of Notification Nos. 96/2009-Cus and 99/2009-Cus respectively, when undisputedly the Export Obligation has been fulfilled and the DGFT had issued an EODC.” HELD THAT:- The regularization of bona fide default by the DGFT in terms of Para 4.28 (FTP 2009-2014) / Para 4.49 (FTP 2015-2020) has the effect of the EO having been revised and restated. It cannot be disputed that fixing the quantum of EO under the Advance Authorizations, which are the subject matter of the dispute, was the prerogative of the DGFT alone. The fulfillment of EO in terms of quantity and value having been accepted by the DGFT in the present case, the Customs Commissioner was wrong in holding that there was a violation of conditions No. (viii) and (ix) of Notification Nos. 96/2009-Cus. and 99/2009-Cus. on the part of the Appellant. It is also difficult to countenance that the reasoning of the Respondent to the effect that EO for the purposes of Customs could be different for the purposes of licensing authority, especially when the clause relating to fulfillment of EO in the Customs notification envisages fulfillment of EO with reference to the quantity and value as per the Advance Authorization. In fact, the FTP also allows clubbing of Authorizations for fulfillment of EO, even though the Notification is silent on the same. It is nobody's case that where the Advance Authorizations are clubbed, the fulfilment of EO against an individual Authorization can be separately examined by the Customs authorities and demands be raised in cases where there is a short fall in fulfilment of EO on a standalone basis, which otherwise stood fulfilled as a consequence of clubbing of Authorizations. When the condition relating to fulfillment of EO in the Customs Notification is with reference to what has been specified in the Advance Authorization, the said condition in the Customs Notification is to be read in the text and context of the provisions of the FTP read with HBP, and not in its isolation. The undisputed fact that EODC is an evidence of fulfillment of EO for all purposes, has been acknowledged and accepted by the CBIC through its Circular No.16/2017-Cus dated 02.05.2017, wherein the Board itself has clarified that any recovery proceedings is to be initiated only if the Assessee fails to submit the EODCs, clearly implying that in case the Assessee submits EODCs, it is to be accepted that the EO stood fulfilled and no proceedings ought to be initiated against such Assessee. The impugned proceedings are contrary to the clarifications issued by the CBIC and thus, the demand so raised is untenable on this count also. In any case, we find that the demand has been confirmed by the Commissioner-Respondent under Section 143(3) of the Customs Act, 1962, it is an undisputed factual matrix on record that the bonds executed by the Appellant in respect of the three Advance Authorizations dated 02.01.2009, 30.11.2009 and 10.06.2010 have been cancelled by the Customs albeit after passing of the impugned order; since these bonds stand cancelled, we are of the view that no demand could be enforced under Section 143(3) of the Customs Act, 1962. On this ground as well, the demand so confirmed in the impugned order does not survive. When the demand for duty does not survive, there is no question of levy of any interest or penalty upon the Appellant and therefore, there is no question of confiscation in absence of there being any violation of the provisions of Customs Act, 1962 and / or the Notifications issued thereunder. Resultantly, the impugned order is set aside and the Appeal is allowed with consequential benefits, if any, as per law. Issues: Whether Customs authorities can raise and sustain a demand for customs duty (including interest and penalty) alleging violation of conditions (viii) and (ix) of Notification Nos.96/2009-Cus and 99/2009-Cus when the Export Obligation under the Advance Authorizations has been regularized by DGFT and Export Obligation Discharge Certificates (EODCs) have been issued.Analysis: The Advance Authorization Scheme and the relevant Customs notifications require fulfillment of the Export Obligation (EO) as specified in the Advance Authorization issued by the DGFT, in terms of quantity and/or value. The DGFT alone has the competence under the Foreign Trade Policy and Handbook of Procedures to fix, revise and certify fulfillment or regularization of EO, including under para 4.28 (FTP 2009-14) and para 4.49 (FTP 2015-20) which permit regularization of bonafide defaults by payment of prescribed amounts and issuance of EODCs. Judicial precedents establish that once the licensing authority (DGFT) has issued certificates redeeming obligations and not questioned the license, Customs cannot independently deny the benefit or re-interpret the EO for the purposes of imposing duty; at best Customs may refer concerns to DGFT. Board circulars (CBIC Circular No.16/2017-Cus) acknowledge that EODCs are evidence of fulfillment and recovery proceedings are to be initiated only if EODCs are not submitted. In the present case DGFT regularized the shortfalls and issued EODCs in 2017, and the bonds were subsequently cancelled, removing any enforceable demand under Section 143(3) of the Customs Act. The Commissioners demand proceeded contrary to the DGFT certifications and applicable law and precedent.Conclusion: The demand of customs duty, interest and penalties based on alleged non-fulfillment of EO under conditions (viii) and (ix) of Notifications No.96/2009-Cus and No.99/2009-Cus does not survive where DGFT has regularized the defaults and issued EODCs; the impugned order confirming the demand is set aside and the appeal is allowed in favour of the assessee with consequential benefits as per law.