EPCG export obligation: duty must be recomputed on actual exports, while confiscation and penalty fail without wilful misuse.

Under the EPCG notification, differential duty for non-fulfilment of export obligation had to be recomputed by taking into account the bank guarantee amount and exports already made, because recovery could not exceed the duty foregone covered by the guarantee. The duty demand was therefore set aside for fresh quantification, with consequential interest to follow the recomputed liability. Once duty was recoverable, confiscation of the capital goods and redemption fine under Section 111(o) of the Customs Act were not justified and were set aside. Penalties under Section 112(a) were also not sustainable, as partial exports were shown and no wilful or contumacious conduct was established.

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Issues: (i) whether the differential duty demanded under the EPCG notification required recomputation in light of the bank guarantee amount and the exports already effected; (ii) whether confiscation of the imported capital goods and redemption fine under Section 111(o) of the Customs Act, 1962 were sustainable on failure to fulfil export obligation; (iii) whether penalties under Section 112(a) of the Customs Act, 1962 were imposable.

Issue (i): whether the differential duty demanded under the EPCG notification required recomputation in light of the bank guarantee amount and the exports already effected.

Analysis: The duty liability arose from non-fulfilment of export obligation under Notification No. 110/95-Cus. The amount recoverable could not exceed the duty foregone for which the bank guarantee had been executed. The exports made during the fourth and fifth years also had to be taken into account while computing the net liability under the notification.

Conclusion: The duty demand was set aside for recomputation and the matter was remanded for fresh calculation of the duty liability and consequential interest on the recomputed amount.

Issue (ii): whether confiscation of the imported capital goods and redemption fine under Section 111(o) of the Customs Act, 1962 were sustainable on failure to fulfil export obligation.

Analysis: Once the differential duty is recovered, the importer is taken out of the EPCG regime and the question of enforcing the notification condition by confiscating the capital goods does not survive. In that situation, confiscation and the associated redemption fine were not justified.

Conclusion: Confiscation under Section 111(o) and the redemption fine were set aside.

Issue (iii): whether penalties under Section 112(a) of the Customs Act, 1962 were imposable.

Analysis: The record showed partial exports within the export obligation period and no wilful conduct was established. Mere non-fulfilment of the export obligation, without deliberate misuse or contumacious conduct, did not justify penalty.

Conclusion: The penalties under Section 112(a) were not sustainable and were set aside.

Final Conclusion: The appeals succeeded in part by deleting confiscation, redemption fine, and penalties, while the duty issue was remitted for fresh quantification in accordance with the notification and the exports already effected.

Ratio Decidendi: Where EPCG export obligation is not fulfilled, the duty recoverable must be computed in accordance with the notification and cannot exceed the duty foregone covered by the bond or guarantee, and confiscation or penalty is not warranted in the absence of wilful misuse or contumacious conduct.

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