Alamelu Balaji Spinning Mills Pvt. Ltd. Vs Commissioner of Customs (CESTAT Chennai)
Conclusion: Tribunal held that third-party exports relied upon by EPCG licence holders for discharge of export obligation were valid under the FTP framework prevailing during the relevant period and that Customs authorities could not disregard subsisting EODCs restored by DGFT in the absence of independently established fraud. Accordingly, denial of EPCG benefits, duty demands, confiscation, redemption fine and penalties were set aside
Held: Directorate of Revenue Intelligence conducted investigations against two EPCG licence holders, namely, M/s P.V. Spinning Mills India (P.) Ltd. (PVSM) and M/s Alamelu Balaji Spinning Mills (P.) Ltd. (ABSM), alleging fraudulent discharge of export obligations under the EPCG Scheme. Department alleged that assessees availed concessional customs duty benefits under EPCG licences and subsequently fulfilled export obligations by using shipping bills of unrelated third-party exporters obtained through brokers and consultants on payment of commission. It was further alleged that EPCG endorsements were inserted in EP copies of shipping bills though such endorsements were absent in Customs copies and that exported goods had no nexus with imported capital goods. Based on these allegations, Customs authorities rejected EODCs, denied EPCG benefits, demanded differential customs duty with interest, ordered confiscation of imported and indigenous capital goods under section 111(o), imposed redemption fine under section 125 and levied penalties under sections 112(a), 114A and 114AA upon importers, directors, consultants, chartered accountant and third-party exporters. Meanwhile, DGFT authorities, after considering the same allegations in proceedings under the FTDR Act, restored and validated the EODCs by holding that export obligations stood fulfilled and that third-party exports were admissible under the FTP framework prevailing during the relevant period. Assessee contend that DGFT, being the statutory licensing authority under the FTDR Act, alone possessed jurisdiction to determine fulfillment of export obligations and validity of EODCs. Once DGFT restored and validated EODCs, Customs authorities could not independently deny EPCG benefits on the same grounds. EPCG Scheme was a value-based export promotion scheme and did not require strict one-to-one correlation between imported machinery and individual export consignments. Penalties upon third-party exporters, consultants and chartered accountant were unsustainable in absence of evidence showing fraud, fabrication of documents or mens rea. Revenue contend that Investigation established that shipping bills were procured from unrelated exporters on commission basis and exports had no linkage with imported capital goods. EODCs had been obtained through misrepresentation and Customs authorities were not bound by DGFT determinations where fraud was involved. It was held that EPCG Scheme constituted an integrated statutory framework comprising the FTDR Act, FTP, Handbook of Procedures and Customs exemption notifications. Prior to 1-4-2015, substantial ambiguity existed regarding procedural requirements governing third-party exports, which was subsequently acknowledged and clarified by DGFT through policy circulars and amendments. DGFT appellate authority had examined the very allegations relating to third-party exports, EPCG endorsements and fulfillment of export obligations and restored the EODCs after detailed consideration. Such restored EODCs continued to remain valid and had not been set aside by any superior forum. Customs authorities could not effectively sit in appeal over determinations of the competent DGFT authority regarding fulfillment of export obligations, particularly when licences and EODCs remained valid. Department failed to produce primary documentary evidence establishing fabrication of shipping bills or fraud. Allegations were based substantially on statements recorded under section 108 without adequate corroboration. Exports were admitted physical exports processed through Customs channels; export proceeds had been realised; there was no allegation of diversion, non-installation of capital goods or fictitious exports. Consequently, rejection of EODCs, denial of EPCG benefits and confirmation of differential customs duty with interest were unsustainable. Since the principal duty demand itself failed, confiscation of capital goods under section 111(o), redemption fine under section 125 and penalties under sections 112(a), 114A and 114AA imposed on importers, directors, third-party exporters, consultants and chartered accountant were also liable to be set aside.
