EPCG export obligation failure leaves duty recoverable, but impossibility from auction defeats interest, confiscation and penalty.

Customs duty foregone under an EPCG notification remained recoverable because the export obligation was not fulfilled, and prior encashment of bank guarantees did not extinguish the principal duty liability. However, where the imported goods and project premises were auctioned under SARFAESI proceedings before completion of the export obligation, performance became impossible through circumstances beyond the importer's control. In those facts, interest, confiscation and penalty could not be sustained, as the notification contemplated relief in unforeseen or force majeure situations and there was no basis for penal consequences. The duty demand was maintained, while interest, confiscation and penalty were deleted.

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Issues: (i) Whether customs duty foregone under the EPCG notification remained recoverable despite non-fulfilment of export obligation, and (ii) whether interest, confiscation and penalty could be sustained when the imported goods and hotel premises were auctioned before completion of the export obligation and the duty had already been recovered by encashment of bank guarantees.

Issue (i): Whether customs duty foregone under the EPCG notification remained recoverable despite non-fulfilment of export obligation.

Analysis: The imported capital goods were covered by the EPCG notification and were backed by bond and bank guarantees. The appellant did not dispute the duty demand. The obligation to pay duty foregone arose from failure to comply with the notification conditions, and the prior encashment of bank guarantees did not extinguish the principal duty liability.

Conclusion: The demand of customs duty was upheld and is against the assessee.

Issue (ii): Whether interest, confiscation and penalty could be sustained when the imported goods and hotel premises were auctioned before completion of the export obligation and the duty had already been recovered by encashment of bank guarantees.

Analysis: The export obligation could not be fulfilled because the project assets and imported goods were auctioned in proceedings under the SARFAESI regime, resulting in loss of possession and control. The notification itself contemplated waiver of export obligation in cases of force majeure or unforeseen circumstances. The liability to pay interest was treated as flowing from the notification and bond conditions, but the facts showed impossibility of performance. In those circumstances, the goods were not liable to confiscation, and penalty under the Customs Act could not survive. The absence of deliberate intent and the bona fide partial exports through group companies also weighed against penal consequences.

Conclusion: Interest, confiscation and penalty were set aside and are in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of deleting the interest, confiscation and penalty, while the duty demand under the EPCG notification was maintained.

Ratio Decidendi: Where fulfilment of EPCG export obligation becomes impossible because of circumstances beyond the importer's control and the duty has already been secured by encashment of bank guarantees, confiscation and penalty cannot be sustained, and interest founded on the notification and bond cannot be enforced.

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