2026 (2) TMI 1289 - AT - Customs

EPCG export obligation extensions negate premature seizure; differential duty must be recomputed considering regularisation and relief.

EPCG concessional import obligations attract differential customs duty and interest on non fulfilment, but demands must be recomputed after allowing the ... Confiscation u/s 111(o) - penalty under Section 112(a) - differential duty payable under EPCG Notification No. 28/97 - non-fulfilment of EPCG export obligation - prematurity of show cause notice - remand for re-computation of differential duty - HELD THAT:- We find that the appellants are liable to pay on demand the differential duty in terms of said notification read with the relevant bond executed by them in this regard. However, we find that impugned order confirming demand has been passed without hearing the appellant and also without appreciating their pending request to Competent Authority for allowing certain further time for including third party export and duty as also computation of duty based on depreciated value of capital goods. Thus, we find that on this count itself, the confirmation of demand of differential duty without considering all relevant factual matrix and certain specific provisions in the notification itself i.e. condition 3 of Notification No. 28/97 dated 01.04.1997 for proper calculation of duty required to be paid for non-fulfilment of export obligation in part of full, is not proper and sustainable. The Adjudicating Authority is required to allow them to present all relevant facts and provisions/relaxation allowed by Competent Authority, if any, post 03.06.2012 before arriving at the amount of differential duty payable by the appellant in terms of bond executed by them. The permissible export made by them during intervening period will also have to be considered in terms of provisions under the Notification and EXIM Policy. Thus, to this extent impugned order confirming demand of differential duty is set aside and remanded back for re-computation. Confiscation of machinery - In the present case the confiscation has been made under Section 111(o) of the Customs Act. One of the basic criteria for invoking this provision is that if the conditions under which impugned goods have been exempted are not observed, this shall make it liable to confiscation. However, there is a clear provision that unless the said non-observance of the condition was sanctioned by the proper Officer. In this case, though, initially there was non-observation to the extent that they did not met the export obligation under the stipulated period and hence goods were seized under reasonable belief that they were liable to be confiscated. However, once the said export obligation period itself got further extended from time to time by the Competent Authority, it would tantamount to regularisation of non-fulfilling of export obligation during the said period. Therefore, on this count also the goods would not be liable for confiscation, as such, under Section 111(o). Therefore, we find that in the facts of the case, the confiscation of capital goods is not correct and legally sustainable. Similarly, the penalty under Section 112(a) will also not sustain as the order of the confiscation itself is not sustainable in the facts of the case. The appeal is allowed partly. - Confirmation of demand of differential duty and interest in the impugned order is set aside. Issues: (i) Whether the confirmation of demand of differential customs duty and interest for non-fulfilment of EPCG export obligation is sustainable; (ii) Whether confiscation of capital goods under Section 111(o) is legally tenable where export obligation period was extended or regularised by the competent authority; (iii) Whether penalty under Section 112(a) is sustainable consequential to confiscation.Issue (i): Whether the confirmation of demand of differential customs duty and interest for non-fulfilment of EPCG export obligation is sustainable.Analysis: Notification No. 28/97-Cus dated 01.04.1997 prescribes conditions for concessional import under the EPCG scheme and envisages payment of differential duty and interest on failure to meet export obligations; the importer executes a bond for this purpose and Notification condition 3 deals with computation for non-fulfilment. The adjudication confirmed the demand without hearing the importer on their pending representations, including requests for consideration of third party exports and computation based on depreciated value, and without taking into account extensions and relaxations later granted by the competent authority up to 03.06.2012.Conclusion: The confirmation of the differential duty demand and interest is set aside and remanded for re determination allowing the importer to present relevant facts, documents, and applicable relaxations for proper computation.Issue (ii): Whether confiscation of capital goods under Section 111(o) is legally tenable where export obligation period was extended or regularised by the competent authority.Analysis: Confiscation under the statutory provision invoked requires non observance of conditions subject to the sanction of the proper officer. Where the competent authority subsequently extends or regularises the export obligation period, such regularisation removes the foundational basis for treating the goods as offending. Additionally, seizure prior to the expiry of the extended obligation period is characterised as premature; facts showing inability to export due to non release of essential machinery and intervening market conditions were relevant to the determination.Conclusion: The confiscation under Section 111(o) is not sustainable and is set aside.Issue (iii): Whether penalty under Section 112(a) is sustainable consequential to confiscation.Analysis: Penalty under the relevant provision is contingent on the legality of confiscation; where confiscation is held not sustainable on the facts and law, the consequential penalty cannot stand.Conclusion: The penalty under Section 112(a) is set aside.Final Conclusion: The adjudication is partly set aside - the demand for differential duty is remanded for fresh computation and determination after allowing the importer to place all relevant material; confiscation and the consequential penalty are annulled.Ratio Decidendi: Where a competent authority has extended or regularised export obligation under the EPCG scheme, seizure or confiscation premised on non fulfilment prior to that regularisation is premature and cannot sustain; differential duty demands must be computed after considering extensions, relaxations and relevant factual matrix.