Case Law Details
Jothi Art Calendars Vs Commissioner of Customs (CESTAT Chennai)
The appeal challenged Order-in-Appeal No. 71/2016-UN (CUS) dated 02.06.2016 passed by the Commissioner of Customs (Appeals-II), Trichy. The appellant had imported a Mitsubishi Sheet Fed Offset Printing Press under the EPCG Scheme through Bill of Entry No. 422779 dated 31.10.2007 by availing concessional customs duty. Under the EPCG Scheme and Notification No. 97/2004-Cus dated 17.09.2004, the appellant was required to fulfil an export obligation equivalent to eight times the duty saved, with 50% of the obligation to be completed during the first six-year block and the balance during the following two years. The total duty saved was Rs. 71,60,400.
Following an investigation by the Directorate of Revenue Intelligence (DRI), it was alleged that the appellant had failed to fulfil 50% of the export obligation during the first block period and had not obtained any extension of time from the competent authority. Consequently, a show cause notice was issued demanding differential duty of Rs. 22,17,580, representing 50% of the duty foregone, along with applicable interest. The adjudicating authority denied the exemption, confiscated the imported machine, confirmed the demand of duty and interest, and imposed a penalty of Rs. 25,000. The Commissioner (Appeals) upheld the order, leading to the present appeal.
The appellant submitted that although the export obligation could not be fully met due to severe market competition and global economic recession, it had discharged the entire differential duty liability. Upon being informed of the shortfall by the DRI, the appellant paid Rs. 10,00,000 initially and the balance amount of Rs. 12,17,580 on 08.12.2014. The appellant also paid interest amounting to Rs. 23,68,826 on 23.12.2015 before the adjudication order was passed. The appellant argued that mere non-fulfilment of export obligation could not justify confiscation or penalty when there was no allegation of diversion, misuse, or improper utilization of the imported capital goods. Reliance was placed on various judicial precedents to support the contention that once duty and interest were paid, the goods effectively exited the EPCG Scheme and confiscation, redemption fine, and penalty were not sustainable. The appellant also contended that the Commissioner (Appeals) had passed a non-speaking order by merely reproducing the findings of the original authority without properly addressing the case law cited.
The Revenue argued that the appellant had availed concessional duty under the EPCG Scheme subject to fulfilment of export obligations and compliance with the conditions prescribed under the Foreign Trade Policy and Notification No. 97/2004-Cus. Since the appellant failed to fulfil the export obligation and did not comply with the stipulated timelines for submission of proof or payment of differential duty with interest, the exemption benefit was not available. According to the Revenue, the violation rendered the goods liable to confiscation under Section 111(o) of the Customs Act, 1962 and attracted penalty under Section 112. The Revenue maintained that adverse market conditions and subsequent payment of duty and interest could not excuse non-compliance with mandatory conditions of the notification.
The Tribunal noted that it was undisputed that the appellant had imported capital goods under the EPCG Scheme and had failed to fulfil the export obligation within the prescribed period. However, it also noted that the entire differential duty and applicable interest had been paid after the shortfall was pointed out by the DRI. The Tribunal identified the core issue as whether confiscation of goods and imposition of penalty remained sustainable in such circumstances.
The Tribunal held that once duty and interest were paid, the appellant effectively exited the EPCG Scheme and the goods could no longer be treated as liable for confiscation under Section 111(o). It observed that non-fulfilment of export obligation, by itself, did not automatically justify confiscation or penalty in the absence of diversion or misuse of the imported goods. The Tribunal further observed that business activities are subject to uncertainties, including adverse market conditions and economic downturns, and failure to fulfil export obligations could not automatically be equated with deliberate violation of law. It remarked that business failure is not uncommon and should not be treated as a basis for imposing harsh penal consequences where there is no allegation of wilful evasion.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal challenges Order-in-Appeal No. 71/2016-UN (CUS) dated 02.06.2016 passed by the Commissioner of Customs (Appeals-II), Trichy, (impugned order).
An apercu of the facts.
2. The appellant imported one Mitsubishi Sheet Fed Offset Printing Press under the EPCG Scheme vide Bill of Entry No. 422779 dated 31.10.2007 at concessional duty. Under the EPCG Scheme and Notification No. 97/2004-Cus dated 17.09.2004, the appellant was required to discharge export obligation equal to eight times the duty saved, with 50% to be fulfilled in the first block of six years and the balance in the next two years. The total duty saved was Rs.71,60,400/-. DRI who investigated the matter, alleged that the appellant failed to fulfil 50% of the export obligation during the first block period and did not obtain extension of time from the competent authority. Accordingly, a show cause notice was issued demanding differential duty of Rs.22,17,580/-, being 50% of the duty foregone, under Section 143 of the Customs Act, 1962, along with applicable interest. The adjudicating authority confiscated the imported machine, denied the exemption, confirmed the duty and interest demand, and imposed a penalty of Rs.25,000/-. The Commissioner (Appeals) vide the impugned order, upheld that OIO, leading to the present appeal.
3. Shri Madan G, learned Advocate, appeared for the appellant, and Shri N. Satyanarayanan, learned Authorized Representative, appeared for the respondent.
Submissions made by the appellant
3.1 The learned counsel for the appellant submitted as follows:
A. The appellant imported the printing press under a valid EPCG licence at 5% customs duty, subject to export obligation of eight times the duty saved. The export obligation could not be fully met due to severe market competition and the global economic recession.
B. On being informed by DRI of the shortfall, the appellant paid Rs.10,00,000/- immediately and the balance Rs.12,17,580/- on 08.12.2014, thereby discharging the entire differential duty, which has been appropriated in the OIO. Interest of Rs.23,68,826/- was also paid on 23.12.2015, vide challan No 71293, before issue of OIO.
C. A show cause notice dated 22.05.2015 was issued alleging suppression, followed by the order dated 12.10.2015 confirming the proposals.
D. Mere non-fulfilment of export obligation does not justify confiscation or penalty, particularly where there is no diversion or misuse of the imported capital goods. Reliance was placed on Commissioner of Customs v. Sun Knit Wear Pvt. Ltd. [2012 (278) ELT 165 (Kar.)], Fal Industries Ltd. Vs CC, Chennai [2003 (159) ELT 215 (Tri.-Chennai)] and [2008 (231) ELT 524 (Tri.-Chennai)], P.D. Associates [2023 (8) TMI 560 – CESTAT Kolkata], Yenkay Medico Drugs Pvt. Ltd. [2022 (6) TMI 558 – CESTAT Mumbai], BR Marbled Pvt. Ltd. (Final Order No. 76636/2023 dated 11.09.2023), Global Boards Ltd. [2019 (368) ELT 1113 (Tri.-Mumbai)], Neol Architect Ltd. [2011 (273) ELT 306 (Tri.)], and Dencap Electronics Pvt. Ltd. [2006 (194) ELT 389 (Del.)].
E. It was further argued that where duty and interest are paid, the goods go out of the EPCG scheme, and confiscation, redemption fine, and penalty are unsustainable.
F. Relying on Jaswal Neco Ltd. [2015 (322) ELT 561 (SC)] and South India Corporation Agencies Pvt. Ltd. Vs CC, Trichy [2009 (244) ELT 581 (Tri.-Chennai)], affirmed in 2014 (306) ELT A144 (Mad.), the appellant contended that penalty is not warranted where there is no deliberate breach or diversion to the domestic tariff area.
G. The appellant also contended that the Commissioner (Appeals) passed a non-speaking order by merely reproducing the original order and dismissing the case law cited by the appellant without proper reasoning, contrary to the principle laid down in Siemens Engineering & Mfg. Co. Ltd. Vs Union of India, AIR 1976 SC 1785.
H. In view of the above, the appellant prays that this Hon’ble Tribunal may set aside the confiscation of goods, fine and penalty and allow the appeal.
Submissions made by the Respondent-Revenue
3.2 Shri N. Satyanarayanan Ld. Authorized Representative, appearing on behalf of Revenue submitted that:
A. The appellant availed concessional duty under the EPCG Scheme and was required to fulfill the prescribed export obligation within the stipulated period under the Foreign Trade Policy and Notification No. 97/2004-Cus.
B. Since the appellant failed to meet the export obligation and did not comply with the timelines for submission of proof or payment of differential duty with interest, they were not entitled to the notification benefit.
C. It was further submitted that this violation rendered the goods liable to confiscation under Section 111(o) of the Customs Act, 1962, and also attracted penalty under Section 112.
D. The plea of adverse market conditions and prior payment of duty with interest was stated to be unacceptable, as the notification conditions were mandatory and had not been complied with.
E. Accordingly, the adjudicating authority was justified in demanding duty foregone with interest, fine, and penalty, and the appeal deserves to be rejected.
Analysis
4. I have heard the parties to the dispute and have perused the appeal memorandum.
5. I find that the appellant imported capital goods under EPCG scheme and could not fulfil the export obligation within the stipulated period. However, the entire differential duty along with applicable interest stands admittedly paid, on the same being pointed out by DRI.
6. The issue for consideration is whether, in such circumstances, confiscation of goods and imposition of penalty are sustainable. It is well settled that upon payment of duty and interest, the appellant exits the EPCG scheme and the goods cannot be held liable to confiscation under Section 111(o). Non-fulfilment of export obligation, in the absence of diversion or misuse, does not ipso facto warrant penal consequences.
7. Considering the inherent uncertainties of business, including adverse market conditions and economic downturn, failure to fulfill export obligation cannot be equated with deliberate violation. Failure in business in not uncommon and cannot be stigmatised. In such cases, a department which prides itself on being a trade facilitator, resorting to harsh measures like confiscation and penalty without any allegation of willful evasion and for merely not fulfilling export obligation is shocking, unwarranted and ought to have been avoided.
8. The Apex Court in Hindustan Steel Ltd Vs State Of Orissa [AIR 1970 SUPREME COURT 253, 1970 (1) SCR 753], examined the imposition of penalty on a technical or venial breach of the provisions of a statute and held as under:
“An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.”
(emphasis added)
8. In view of the above and following the settled legal position, the confiscation of goods along with fine and imposition of penalty are set aside. The demand of duty has been discharged with interest as per the Appeal Memorandum and has not been disputed by Revenue, hence no further action survives.
9. Accordingly, the impugned order is partly set aside to the above extent. The appellant is eligible for consequential relief, as per law. The appeal is disposed of accordingly.
(Order pronounced in open court on 27.05.2026)
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