Rajdarbar Heritage Venture Limited Vs Additional Director General (CESTAT Delhi)
Conclusion: Where an EPCG licence holder becomes incapable of fulfilling export obligations due to unavoidable circumstances such as SARFAESI auction of imported assets, levy of interest and penalty cannot be sustained, particularly when customs duty has already been recovered through encashment of bank guarantees. Tribunal upheld only the customs duty demand while setting aside confiscation, interest and penalty.
Held: Assessee-company was engaged in hotel and hospitality business, obtained 27 EPCG authorisations between 2007 and 2009 for importing duty-free capital goods for construction of a hotel at Gurugram. Imports were made under Notification No. 97/2004-Cus. through 55 Bills of Entry after furnishing bonds and bank guarantees. Due to financial distress and withdrawal of support by lenders and creditors, SARFAESI proceedings were initiated against assessee. Pursuant to DRT orders, consortium banks auctioned the imported capital goods along with the hotel premises in 2011. Customs authorities encashed bank guarantees amounting to Rs. 5.94 crore towards recovery of duty foregone. Subsequently, a show cause notice demanded customs duty of Rs. 5.07 crore along with interest and penalty for non-fulfilment of export obligation under the EPCG Scheme. The adjudicating authority confirmed duty demand, imposed interest and penalty, and ordered confiscation of goods under section 111(o) of the Customs Act. Assessee challenged only the levy of interest, confiscation and penalty before the Tribunal. Assessee contented that Export obligation could not be fulfilled due to force majeure and unforeseen circumstances beyond assessee’s control, namely SARFAESI proceedings and auction of hotel assets. Assessee had acted bona fide and even attempted partial fulfilment of export obligation through exports by group companies, as permitted under the EPCG Scheme. Penalty under section 112(a) could not be imposed in absence of mens rea or deliberate misuse of imported goods. Revenue contended that assessee failed to fulfil mandatory export obligations under the EPCG Scheme and therefore became liable to pay duty, interest and penalty. Conditions of exemption notification were violated and confiscation under section 111(o) was justified. Assessee could not invoke section 56 of the Contract Act or force majeure provisions to escape liability arising under customs notification and bond conditions. It was held that Tribunal observed that imported capital goods and hotel premises were auctioned under SARFAESI proceedings before expiry of export obligation period, making fulfilment of export obligation impossible. Clause 4 of Notification No. 97/2004-Cus. specifically contemplated waiver of export obligation in cases of force majeure or unforeseen circumstances. Interest was sought to be recovered not under section 28AA independently but under contractual conditions of notification and bond; hence section 56 of the Contract Act regarding frustration of contract became applicable. Since performance became impossible due to circumstances beyond assessee’s control, interest could not be levied. Customs duty had already been recovered through encashment of bank guarantees prior to issuance of show cause notice. Confiscation under section 111(o) and penalty under section 112(a) were unsustainable because there was no deliberate violation, misuse of goods, or mens rea. Tribunal distinguished Delhi High Court decision in DSJ Communications on facts, noting that the relevant notification in present case specifically contained a force majeure clause. Accordingly, confiscation, interest and penalty were set aside, while customs duty demand was upheld.
