TaxTMI 
TaxTMI 
2026 (6) TMI 19
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....'ble Mr. P. Dinesha, Member (Judicial) And Hon'ble Mr. Vasa Seshagiri Rao, Member (Technical) For the Appellants : Mr. S. Renganathan, Advocate (For Sl. Nos. 1-5, 7, 8, 14&16) Mr. A.K. Jayaraj, Advocate (For Sl. Nos. 11&12) Mr. M.N. Bharathi, Advocate (For Sl. Nos. 6, 10&13) Ms. M.B. Divya, Advocate (For Sl. Nos. 9&15) For the Respondent : Mr. Anoop Singh, Authorised Representative ORDER PER MR. VASA SESHAGIRI RAO : The present batch of sixteen appeals arises out of two separate Orders-in-Original, namely Order-in-Original No.13/2016 dated 04.08.2016 issued on 11.08.2016 in the case of M/s. P.V. Spinning Mills India (P) Ltd. ("PVSM") and Order-in-Original No.14/2016 dated 12.08.2016 in the case of M/s. Alamelu Balaji Spinning Mills (P) Ltd. ("ABSM"), both passed by the Commissioner of Customs, Tuticorin and hereinafter referred to as "Impugned Order No.1" and "Impugned Order No.2" respectively. The proceedings in both matters arise out of common investigations conducted by the Directorate of Revenue Intelligence alleging fraudulent discharge of export obligations under the EPCG Scheme through use of third-party shipping bills obtained from unrelated exporters on comm....
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....cence No. & Date Bill of Entry No. & Date Assessable Value (Rs.) Duty Involved (Rs.) 1 3230009745 dated 10.05.2007 B/E No.411479 dated 24.05.2007 1,68,71,464 43,64,076 B/E No.411479 dated 24.05.2007 46,63,170 12,06,204 B/E No.414601 dated 10.07.2007 2,38,49,607 61,69,084 B/E No.434086 dated 07.04.2008 1,23,26,840 32,00,837 2 3230018335 dated 24.09.2012 B/E No.8216624 dated 15.10.2012 1,59,28,589 36,25,742 3 3230016048 dated 21.12.2010 B/E No.2670707 dated 29.01.2011 1,05,05,490 18,75,338 B/E No.2670711 dated 29.01.2011 1,05,05,490 18,75,338 TOTAL 9,59,50,650 2,23,16,619 2. Since all the appeals arise out of interconnected investigations involving substantially similar allegations, common evidentiary materials, overlapping parties and identical issues relating to third-party exports for fulfillment of EPCG export obligations, all the appeals are taken up together and are disposed of by this common order. The details of the sixteen appeals and the demands involved are tabulated below: ....
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....ated in view of the subsequent adjudication orders passed by the Joint Director General of Foreign Trade, Coimbatore under the Foreign Trade (Development and Regulation) Act, 1992, wherein the competent DGFT authority, after considering the very same allegations relating to third-party exports, EPCG endorsements and fulfillment of export obligations, categorically held that the Export Obligation Discharge Certificates (EODCs) issued in favour of Appellant No.14 and Appellant No.6 were valid and that the export obligations stood duly fulfilled. It was submitted that the DGFT proceedings specifically examined the issue of third-party exports, the alleged ambiguity in Para 9.62 of the FTP and the corresponding Customs Notifications and ultimately condoned the procedural lapses, if any, while upholding the validity of the EODCs. 4.2 The appellants further submitted that the DGFT authorities, being the statutory licensing authorities administering the EPCG Scheme under the Foreign Trade Policy, alone possess jurisdiction to determine fulfillment of export obligation and validity of EPCG authorisations and EODCs. Once the licensing authority itself reaffirmed the EODCs in adjudication....
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....ttributable to the third-party exporters. 4.6 The third-party exporters further submitted that they were neither importers of capital goods nor beneficiaries of the customs duty exemption availed under the EPCG Scheme and had no role in obtaining EPCG licences or EODCs. According to them, copies of shipping bills and BRCs were supplied to the EPCG licence holders only for the purpose of redemption of EPCG licences as per prevailing trade practice. It was therefore argued that penalties imposed upon such exporters under Sections 112(a) and 114AA of the Customs Act, 1962 were wholly unsustainable in the absence of any evidence establishing mens rea, deliberate misdeclaration or conscious involvement in evasion of customs duty. 4.7 The Chartered Accountant Shri R. Saravanan submitted that he had merely certified ANF forms and Appendix declarations after completion of exports in his professional capacity and had no role whatsoever either in import of capital goods or in export operations. Similarly, Shri S. Kishore contended that he was only a consultant dealing with DGFT matters and that no material existed to establish any conscious involvement on his part in the alleged violat....
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....redemption fine under Section 125 are legally sustainable in the facts of the present case? Issue No. (i) : Whether rejection of EODCs and denial of EPCG benefits on the ground of alleged absence of nexus and invalidity of third-party exports is legally sustainable 9. At the outset, we note that the Central issue in the present batch of appeals pertains to the legality of rejection of the Export Obligation Discharge Certificates ("EODCs"), denial of EPCG benefits and the Department's interpretation regarding third-party exports and nexus under Notification No.97/2004-Cus. and the Foreign Trade Policy. We further note that the duty demands, confiscation, redemption fine and penalties imposed in the impugned orders are substantially consequential to and founded upon the findings relating to invalidity of the third-party exports and alleged non-fulfilment of export obligation. Accordingly, since the principal controversy in the present batch of appeals relates to the validity of the EODCs, permissibility of third-party exports and fulfillment of export obligation under the EPCG Scheme, the issues concerning differential duty demand, confiscation, redemption fine and penalties wo....
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....gation. 12. We further note that Para 9.62 of the FTP, as it existed during the relevant period prior to 01.04.2015, defined "Third Party Exports" to mean exports made by an exporter or manufacturer on behalf of another exporter. The records also reveal that DGFT Policy Circular No.16/2002-2007 dated 24.12.2002 clarified that third-party exports were intended to facilitate manufacturer exporters who may not directly undertake exports and may utilise merchant exporters as marketing channels. We also note that subsequent amendment introducing Para 5.10(d) in the HBP and DGFT Policy Circular No.3/2015-20 dated 02.09.2015 specifically clarified that the amended conditions relating to third-party exports would apply prospectively from 01.04.2015 onwards and that the earlier regime prevailing prior thereto would continue to govern earlier exports. 13. In the case of M/s. Alamelu Balaji Spinning Mills Pvt. Ltd. (ABSM), the investigations alleged that the EPCG licence holder, instead of directly effecting exports corresponding to the export obligation under the EPCG licences, operated through an organized network of EPCG consultants, DGFT intermediaries, brokers, Chartered Accountant....
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....mbai, M/s. Damodar Industries Ltd., Mumbai, M/s. Sutlej Textiles & Industries Ltd., Mumbai and M/s. Kay Tee Corporation Pvt. Ltd., Mumbai. According to the Department, these entities either permitted utilization of their shipping bills or acted through merchant exporters/intermediaries for facilitating discharge of export obligation by PVSM under the EPCG Scheme, leading to initiation of proceedings not only against the EPCG licence holders/importers but also against the consultants, intermediaries, merchant exporters, manufacturer exporters and the Chartered Accountant under Sections 112(a) and 114AA of the Customs Act, 1962. 15. We find considerable force in the contention of the appellants that substantial ambiguity existed during the relevant period regarding the exact procedural requirements governing third-party exports under the EPCG Scheme. We note that even the DGFT appellate authority, while restoring the EODCs, recorded that the adjudicating authority had failed to consider the Minutes of the high-level meeting dated 18.06.2015 held between DGFT, senior DRI officers and trade representatives and had also failed to consider DGFT Policy Circular No.3/2015-20 dated 02.09....
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....ty regarding third-party export procedures, ultimately concluding that the dispute substantially arose out of procedural ambiguity and interpretation of third-party export provisions rather than deliberate fabrication of export documents. We further find that despite serious allegations of manipulation, the Department has not produced before us the alleged Original, Duplicate and Triplicate Customs copies of the shipping bills or any comparative analysis thereof vis-à-vis the EP copies for independent verification. The allegation therefore substantially rests only upon statements recorded under Section 108 of the Customs Act from certain brokers/intermediaries without corresponding documentary corroboration. In the absence of primary documentary evidence substantiating deliberate fabrication of shipping bills, particularly when the exports themselves are admitted to be genuine exports processed through Customs channels with realization of foreign exchange, the broad allegation of fraud and suppression cannot be sustained merely on the basis of uncorroborated statements.17. We find that the expression "same products capable of being manufactured" occurring in the notification....
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....sion of machinery had been reported by any agency. The DGFT proceedings further recorded that substantial ambiguity and confusion existed during the relevant period regarding the scope and procedure governing third-party exports under Para 9.62 of the FTP and the corresponding Handbook provisions. The adjudicating authority also noticed that even the Department of Revenue Circular No.120/95-Cus. dated 23.11.1995 permitted liberal consideration of past third-party exports even where all procedural conditions were not strictly fulfilled. It was further observed that the ambiguity was subsequently clarified only through Trade Notice No.2 dated 25.11.2014 issued by the Regional Authority, Coimbatore and later incorporated prospectively into Para 5.10(d) of HBP 2015-20. 21. A careful examination of the above EPCG licences, Bills of Entry, shipping bills relied upon for discharge of export obligation and the corresponding EODCs reveals a highly significant factual aspect. In both the impugned proceedings, all the foundational events relating to import of capital goods under EPCG licences, utilization of third-party shipping bills for discharge of export obligation and issuance of EODC....
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....i Sivasakthi Cotton Mills Pvt. Ltd. EODC obtained on 31.01.2014 (B) Impugned Order No.14/2016 - M/s. Alamelu Balaji Spinning Mills (P) Ltd. (ABSM) Sl. No. EPCG Licence No. & Date Bill of Entry No. & Date No. of Shipping Bills Used Third Party Exporters Relied Upon EODC Number & Date 1 EPCG Licence No.3230009745 dated 10.05.2007 B/E No.411479 dated 24.05.2007; B/E No.414601 dated 10.07.2007; B/E No.434086 dated 07.04.2008 43 Shipping Bills M/s Gainup Industries India Pvt. Ltd., Dindigul and others F.No.32/21/021/00251/AM08 dated 16.05.2014 2 EPCG Licence No.3230016048 dated 21.12.2010 B/E No.2670707 dated 29.01.2011; B/E No.2670711 dated 29.01.2011 8 Shipping Bills M/s Sri Ramalinga Mills Ltd., Aruppukottai F.No.32/21/021/01409/AM11 dated 21.11.2012 3 EPCG Licence No.3230018335 dated 24.09.2012 B/E No.8216624 dated 15.10.2012 4 Shipping Bills M/s Avaneetha Textiles Pvt. Ltd., Coimbatore F.No.32/21/021/00553/AM13 dated 14.03.2014 22. We find that the principal allegation of the Revenue is that the exported goods covered under the third-party shipping bills lacked nexus with the imported capital goo....
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........ and no double benefits of EPCG are claimed for the shipment effected under the license." Similarly, the No Objection Certificate/declaration required from the third-party exporter stated: - "We hereby undertake/declare that the exports shown towards fulfillment of EO against EPCG Lic No....... are manufactured by the CGs imported under the said Licenses". 26. According to the Revenue, the aforesaid declarations demonstrate that the third-party exports relied upon for discharge of export obligation were required to be manufactured using the capital goods imported under the EPCG licences and therefore exports of unrelated third-party manufacturers could not be counted towards fulfillment of export obligation. However, we find that the very existence of subsequent policy clarifications, Trade Notices, DGFT Circulars and the Minutes dated 18.06.2015 relied upon by the appellants themselves demonstrates that substantial ambiguity prevailed during the relevant period regarding the precise scope and interpretation of such declarations vis-àvis Para 9.62 of the FTP and clause 4(c) of Notification No.97/2004-Cus. We further note that the DGFT authorities themselve....
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.... was introduced subsequently, prescribed elaborate requirements such as agreements between manufacturer and third-party exporter, ARE-1 documents, transport documents, disclaimer certificates and financial trail documentation. The very introduction of these detailed procedural conditions prospectively indicates that the earlier regime governing third-party exports lacked comparable procedural clarity. 31. We find considerable force in the contention of the appellants that the subsequent insertion of detailed procedural safeguards itself demonstrates that prior to 01.04.2015 the policy position governing third-party exports was not free from doubt. We further note that DGFT Policy Circular No.3/2015-20 dated 02.09.2015 itself clarified that exports effected prior to 01.04.2015 would continue to be governed by the earlier policy regime. 32. We therefore find that the Department cannot retrospectively apply the subsequently introduced procedural conditions and clarifications to invalidate exports effected during the earlier FTP period when the governing provisions admittedly remained susceptible to varying interpretations. 33. We also find that the DGFT appellate authority, w....
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....C.), the Hon'ble Supreme Court emphasised harmonious construction between statutes administered by different authorities functioning within an integrated regulatory framework. We find that the principle assumes considerable significance in the context of EPCG administration where the FTDR Act, FTP, Handbook of Procedures and Customs notifications operate in conjunction with one another. 39. We further note that in Kothari Filaments v. Commissioner of Customs, 2009 (233) E.L.T. 289 (S.C.), the Hon'ble Supreme Court held that once the licensing authority regularises or validates the licence position, Customs authorities cannot deny exemption benefits on the same grounds absent independent evidence of fraud or deliberate misrepresentation. 40. We also note that the Hon'ble Delhi High Court in Designco v. Union of India & Ors., W.P.(C) 14477/2022 & connected matters, decided on 22.11.2024, observed that Customs authorities cannot ignore or override instruments issued under the FTDR Act unless such instruments are first invalidated by the competent DGFT authority and cautioned against parallel jurisdictional determinations by different authorities over the same export promotion be....
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....rsy essentially revolves around interpretation of the scope and permissibility of third-party exports under the EPCG framework during the relevant period prior to 01.04.2015, an area in which even the DGFT authorities themselves acknowledged substantial ambiguity and thereafter issued clarificatory amendments and policy circulars prospectively. 43. We also find that the legal position emerging from the decisions of the Hon'ble Supreme Court in Titan Medical Systems Pvt. Ltd. v. CC, 2003 (151) ELT 254 (SC), Kothari Filaments v. CC, 2009 (233) ELT 289 (SC), CC v. Reliance Industries Ltd., 2015 (326) ELT 29 (SC) and Sheshank Sea Foods Pvt. Ltd. v. Union of India, 1996 (88) ELT 626 (SC), read with the decisions of the Hon'ble High Courts and the Coordinate Bench decisions of this Tribunal including Hy-Grade Pellets Ltd. v. CC, 2004 (171) ELT 177 (Tri.-Del.) and M/s. Sree Koppammal Cotton Spinning Mills Pvt. Ltd. v. Commissioner of Customs, Tuticorin, 2026 (4) TMI 1806 - CESTAT Chennai, consistently recognizes that while Customs authorities may examine compliance with exemption notification conditions, they cannot ignore or effectively sit in appeal over subsisting determinations of ....
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....y revolves around interpretation and scope of third-party exports under the EPCG framework prevailing prior to 01.04.2015 and not around any allegation of fictitious exports, forged shipping bills or clandestine diversion of imported capital goods. 46. We find from the records that the EPCG licence holders/importers had imported capital goods under valid EPCG authorisations issued by DGFT and installed the same in their manufacturing units. There is no allegation in the impugned orders regarding under-valuation, misdeclaration, non-installation, diversion or clandestine disposal of the imported machinery. The dispute commenced only at the post-export stage when the DRI took the view that exports made through third-party exporters could not be accepted for discharge of export obligation unless the exported goods were physically manufactured by using the imported capital goods themselves. 47. We note that the role attributed to the EPCG licence holders/importers is essentially that they relied upon third-party shipping bills for fulfillment of export obligation and submitted the same before DGFT for obtaining EODCs. However, we find that such shipping bills admittedly carried e....
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....nuine or that forged documents were knowingly created and utilized. 52. As regards the Chartered Accountant, we note that the allegation is that certificates in Form ANF-5B and Appendix-26A were issued without complete verification of ledger accounts and production records. However, we find that mere certification based on documents produced by the licence holder, in the absence of evidence of deliberate falsification or active conspiracy, cannot by itself attract penal liability under Sections 112(a) or 114AA. No material has been brought on record to establish that the Chartered Accountant fabricated export documents or knowingly certified fictitious exports. 53. We find considerable force in the appellants' contention that substantial ambiguity existed during the relevant period regarding the exact procedural and substantive requirements governing third-party exports under the EPCG Scheme. The records of the DGFT proceedings themselves reveal that various export promotion bodies including FIEO, SIMA, SISPA and others had questioned the interpretation adopted in Trade Notice No.2 dated 25.11.2014 and sought clarification regarding third-party exports. The DGFT thereafter co....
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....nt or intentional involvement in acts rendering imported goods liable to confiscation. Likewise, Section 114AA requires knowing use of false or incorrect declaration, statement or document in customs transactions. Mere reliance upon thirdparty exports under a disputed interpretational framework cannot automatically attract penal consequences. 58. We further note that the exports covered under the shipping bills were admittedly processed through regular Customs channels and the shipping bills themselves contained EPCG endorsements indicating the names of the EPCG licence holders and third-party exporters. No evidence has been produced to establish fabrication of shipping bills, forged Customs documents or non-existent exports. The dispute, at its highest, concerns legal acceptability of such exports for fulfillment of EPCG obligations and not fabrication of the export documents themselves. 59. We also find significance in the fact that the DGFT appellate authority restored the EODCs after considering the DRI objections, the DGFT-DRI meeting dated 18.06.2015 and the subsequent policy clarifications. The restoration of EODCs by the competent licensing authority itself demonstrat....
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....orded hereinabove, we hold as follows: - i. The rejection/cancellation of the Export Obligation Discharge Certificates (EODCs) and the consequential denial of EPCG benefits by the Customs authorities are legally unsustainable in view of the subsequent adjudication and appellate proceedings before the DGFT authorities validating discharge of export obligation under the EPCG Scheme. ii. The findings in the impugned orders regarding non-fulfilment of export obligation on the ground of alleged absence of strict nexus between the imported capital goods and exported goods are legally untenable in light of the value-based export obligation framework under the EPCG Scheme, the recognition of third-party exports under the FTP, Handbook of Procedures and Notification No.97/2004-Cus., and the substantial ambiguity admittedly prevailing during the relevant period regarding interpretation of third-party export provisions. iii. The findings treating the third-party exports relied upon by the appellants as invalid for EPCG purposes cannot be sustained particularly when the exports were genuine physical exports processed through regular Customs channels, the shipping bil....