EPCG and third-party exports: DGFT validation of EODCs bars Customs denial, penalties, and confiscation absent proved fraud.

Under the EPCG scheme and Foreign Trade Policy, DGFT is the competent authority to determine export obligation fulfilment and to issue or restore EODCs. Third-party exports are recognised under the relevant notification and policy, and where the record shows physical exports through Customs channels and realisation of export proceeds, Customs should not disregard a subsisting DGFT validation absent primary evidence of fabrication or proved fraud. On the same footing, penalties under the Customs Act require proof of intentional abetment or knowing use of false declarations, and confiscation and redemption fine depend on a valid basis for non-fulfilment of export obligation. Without independently established fraud, those consequences do not survive.

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Issues: (i) Whether rejection of Export Obligation Discharge Certificates and denial of EPCG benefits on the basis of alleged absence of nexus and invalidity of third-party exports was sustainable; (ii) whether penalties imposed under the Customs Act on importers, directors, exporters, consultants and connected persons were sustainable; (iii) whether confiscation under section 111(o) and redemption fine under section 125 of the Customs Act were sustainable.

Issue (i): Whether rejection of Export Obligation Discharge Certificates and denial of EPCG benefits on the basis of alleged absence of nexus and invalidity of third-party exports was sustainable.

Analysis: The EPCG scheme, the Foreign Trade Policy and Notification No. 97/2004-Cus. formed an integrated framework under which DGFT was the competent authority to determine fulfilment of export obligation and issue or restore EODCs. Third-party exports were recognised under the notification and the policy, and the record disclosed substantial ambiguity during the relevant period regarding the procedural requirements. The competent DGFT authorities had already restored and validated the EODCs after considering the same allegations, and the exports were admitted physical exports processed through Customs channels with realisation of export proceeds. In the absence of primary documentary evidence of fabrication or proved fraud, Customs could not disregard the subsisting DGFT determination.

Conclusion: The rejection of the EODCs and denial of EPCG benefits were unsustainable.

Issue (ii): Whether penalties imposed under the Customs Act on importers, directors, exporters, consultants and connected persons were sustainable.

Analysis: The penalties rested on the same premise of alleged invalid third-party exports and non-fulfilment of export obligation. The evidence did not establish fictitious exports, forged shipping bills, clandestine diversion of capital goods or knowing use of false documents. The dispute turned on interpretation of third-party export provisions and procedural ambiguity, not on proved deliberate fraud. In such circumstances, the ingredients of intentional abetment or knowing use of false declarations necessary for penal liability were not made out.

Conclusion: The penalties were unsustainable.

Issue (iii): Whether confiscation under section 111(o) and redemption fine under section 125 of the Customs Act were sustainable.

Analysis: Confiscation and redemption fine were consequential to the finding of non-fulfilment of export obligation. Once the rejection of EODCs and denial of EPCG benefits were held unsustainable, the foundation for treating the goods as liable to confiscation also failed. The consequential fine could not survive independently.

Conclusion: The confiscation and redemption fine were unsustainable.

Final Conclusion: The impugned orders were set aside to the extent challenged and the appeals were allowed with consequential reliefs.

Ratio Decidendi: Where the competent licensing authority has restored and validated EODCs under an integrated export-promotion framework, Customs authorities cannot deny EPCG benefits or impose consequential penalties and confiscation in the absence of independently established fraud or fabrication.

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