EPCG export obligation breach without diversion or misuse does not justify confiscation or penalty after duty and interest payment

Failure to fulfil the EPCG export obligation, where the differential duty and interest had already been paid and there was no diversion or misuse of the imported capital goods, did not justify confiscation or penalty. In the absence of deliberate defiance, contumacious conduct or conscious disregard of the obligation, confiscation under Section 111(o) of the Customs Act, 1962, redemption fine and penal action under Section 112 were held unsustainable. The duty and interest already discharged remained undisturbed, while the confiscatory and penal portions of the order were set aside.

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Issues: Whether, on failure to fulfil the export obligation under the EPCG scheme after payment of the differential duty and interest, confiscation of the imported goods, redemption fine and penalty were sustainable.

Analysis: The imported capital goods were brought under the EPCG scheme and the export obligation was not fulfilled within the stipulated period, but the differential duty and applicable interest had already been paid. In the absence of diversion or misuse of the imported goods, non-fulfilment of export obligation by itself did not justify confiscation under Section 111(o) of the Customs Act, 1962 or penal action under Section 112 of the Customs Act, 1962. Penalty, being a quasi-criminal consequence, was not warranted for a technical or venial breach where there was no deliberate defiance, contumacious conduct or conscious disregard of obligation.

Conclusion: Confiscation, redemption fine and penalty were unsustainable and were set aside. The duty and interest already discharged remained undisturbed.

Final Conclusion: The appeal succeeded to the extent of setting aside the confiscatory and penal portions of the order, while the duty liability already paid was left intact.

Ratio Decidendi: Failure to fulfil EPCG export obligation, without diversion or misuse and after payment of duty and interest, does not by itself attract confiscation or penalty; penal consequences require deliberate or contumacious breach.

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