Custom, Excise & Service Tax Tribunal
Super Cassettes Inds. Ltd. vs Commissioner Of Customs, Icd, ... on 3 January, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. I
CUSTOMS APPEAL NO. 296 OF 2006
(Arising out of Order-in-Original No. 8/06 dated 31.01.2006 passed by the Commissioner of
Customs, New Delhi)
M/s. Super Cassettes Inds. Ltd. ....Appellant
Plot No. 1, Sector 16A
Flim Centre, Noida
Uttar Pradesh
VERSUS
Commissioner of Customs, ....Respondent
ICD, Tughlakabad, New Delhi
WITH
CUSTOMS APPEAL NO. 297 OF 2006
(Arising out of Order-in-Original No. 8/06 dated 31.01.2006 passed by the Commissioner of
Customs, New Delhi)
Shri Sunil Wadhwani ....Appellant
Director,
M/s. Super Cassettes Inds. Ltd.
Plot No. 1, Sector 16A
Flim Centre, Noida
Uttar Pradesh
VERSUS
Commissioner of Customs, ....Respondent
ICD, Tughlakabad, New Delhi
APPEARANCE:
Shri B.L. Narasimhan and Shri Rubel Bareja Advocates for Appellant
Shri Rajesh Singh, Authorized Representative appearing for the Respondent
Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 10.12.2024
Date of Decision: 03.01.2025
FINAL ORDER NO's. 50009-50010/2025
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JUSTICE DILIP GUPTA:
Customs Appeal No. 296 of 2006 has been filed M/s. Super
Cassettes Inds. Ltd. 1 to assail the order dated 31.01.2006 passed by the
Commissioner of Customs, New Delhi 2, by which the demand Rs.
47,38,817/- on import of capital goods against Export Promotion Capital
Goods License dated 29.12.1994 in terms of the conditions of Notification
No. 160/92-Cus dated 20.04.1992 3 issued under section 25 of the Customs
Act, 1962 4 read with the provisions of the Exim Policy in force has been
confirmed with interest under section 28AB of the Customs Act. Penalty of
Rs. 5,00,000/- has also been imposed on the appellant under section 112(a)
and 112(b) of the Customs Act read with section 111(o) of the Customs Act.
2. Customs Appeal No. 297 Of 2006 has been filed by Sunil
Wadhwani, Director of the appellant, to assail the order dated 31.01.2006
passed by the Commissioner which has imposed a penalty of Rs. 2,00,000/-
upon him under section 112 of the Customs Act.
3. The appellant is engaged in the manufacture of audio cassettes, video
cassettes and CDs. The appellant is also engaged in the sale of products for
home consumption as well as exports outside India. In the year 1994, the
appellant sought to import certain capital goods required for the
manufacturing of products under the Export Promotion Capital Goods
Scheme in terms of the Import Policy 1992-1997.
4. The EPCG License No. P/CG/2133756 dated 29.12.1994 5 imposed an
obligation on the appellant to export products worth USD $2,482,135 within
five years from the issuance of the License. The appellant also furnished a
1. the appellant
2. the Commissioner
3. the Notification
4. the Customs Act
5. EPCG License dated 29.12.1994
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bank guarantee of Rs. 1,06,07,000/- equal to 100% of the duty saved. The
appellant claims that it manufactured CD-ROMs specified in the EPCG
License dated 29.12.1994 and exported them to fulfill the export obligation
stipulated in the License. The said export obligation was fulfilled by the
appellant by also exporting the CD-ROMs through third parties like Sundram
Exports, a merchant exporter. Sundram Exports purchased the CD-ROMs
from the appellant and exported the same worth US $1,945,600. The DGFT,
by a letter dated 10.05.1999, confirmed that the appellant had fulfilled their
export obligation against EPCG License dated 29.12.1994. The appellant
was, therefore, free from the bank guarantee and the letter of undertaking
dated 16.01.1995.
5. The appellant also obtained another EPCG License No. P/CG/2133308
dated 06.07.1994 6. This License had an export obligation fulfillment
requirement of USD $6,133,526 to be achieved till 05.07.1999. The period
was, however, extended upto 05.07.2000 by the Directorate General of
Foreign Trade 7. Subsequently, it was extended upto 31.03.2001 by Public
Notice dated 06.04.1999 by DGFT. This export obligation was also satisfied
by the appellant.
6. The appellant claims that in January 2001, after redemption of the
bank guarantee and the letter of undertaking by DGFT in respect of the
EPCG License dated 29.12.1994, the appellant came to know that the export
of CD-ROMs by Sundram Exports was being disputed by the Directorate of
Revenue Intelligence on the ground of over-valuation of the export goods.
The appellant claims that in pursuance of the Public Notice dated 31.03.2001
issued by DGFT in exercise of the powers conferred under the Exim Policy
setting out guidelines for fulfillment of export obligation by the EPCG License
6. EPCG License dated 06.07.1994
7. DGFT
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holders where the original export obligation could not be fulfilled, the
appellant submitted a letter dated 03.05.2001 to DGFT that as the export of
CD-ROMSs worth US $1,945,600/- made through third party was under
dispute, they would fulfill the said obligation once again by fresh exports in
terms of the aforesaid Public Notice. For this purpose, the appellant sought
time upto 31.03.2002 and also submitted a fresh bank guarantee of Rs. 2.55
crore. The DGFT, by a letter dated 13.09.2001, accepted the fresh bank
guarantee furnished by the appellant and also accorded extension of time to
the appellant to fulfill the export obligation upto 31.03.2002. The appellant
claims to have fulfilled the balance export obligation within the stipulated
time and informed DGFT, which by an order dated 27.05.2003 discharged
the appellant from the liability under the bank guarantee dated 27.06.2001
for Rs. 2.55 crore and the letter of undertaking dated 16.01.1995 as the
entire export obligation under the EPCG License dated 29.12.1994 had been
fulfilled.
7. It needs to be noted that earlier, the Directorate of Revenue
Intelligence had conducted an investigation regarding over-valuation of
exports made by Sundram Exports and issued a show cause notice dated
04.12.2000 to the appellant and Sundram Exports, amongst others,
proposing to confiscate the capital goods imported by the appellant under
the EPCG License and proposing a duty demand on the ground that CD-
ROMs exported by the appellant through Sundram Exports were over-valued
and should not be counted towards the fulfillment of export obligation. The
show cause notice also proposed to demand customs duty in respect of
capital goods imported under the second EPCG License dated 06.07.1994.
8. The appellant and Sunil Wadhwani, Director of the appellant, filed
replies to the show cause notice and denied that customs duty had been
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evaded by them on the import of capital goods. It was stated that EPCG
License dated 06.07.1994 was valid for fulfilling export application upto
05.07.1999, which period was extended initially upto 05.07.2000 by DGFT
and thereafter upto 31.03.2001 by Public Notice dated 06.04.1999 issued by
DGFT. The appellant also pointed out that the said EPCG License dated
06.07.1994 was still being utilized and accepted by the customs at the
airport for fulfilling the export obligation and so the show cause notice issued
during the validity of the export obligation period of the EPCG License was
pre-mature. It was also stated that earlier they had included the exports
made through Sundram Exports in its exports obligations but because of the
seriousness of the allegations made against Sundram Exports, the appellant
decided not to take the benefit of these exports. The appellant submitted a
further reply pointing out it had fulfilled the export obligation against the
EPCG License dated 06.07.1994 without incorporating the exports of CD-
ROMs made through Sundram Exports and DGFT, by order dated
27.05.2003, discharged the appellant from the liability under the bank
guarantee and the undertaking.
9. In so far as the EPCG License dated 06.07.1994 is concerned, the
Commissioner accepted the plea of the appellant that it had discharged the
export obligation within the period extended by DGFT after excluding the
exports by Sundram Exports for the reason that the export obligation had
been satisfied before submission of the matter by the appellant before DGFT.
However, in respect of the EPCG License dated 29.12.1994, the
Commissioner did not accept the plea of the appellant that it had discharged
the export obligation within the period extended by DGFT for the reason that
though the appellant had made further exports to fulfill its obligations under
the License within the extended period granted by DGFT after excluding the
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export made by Sundram Exports, but this was done by the appellant after it
had submitted the matter to DGFT and after the first letter dated 10.05.1999
had been issued by DGFT discharging the appellant from the export
obligation. The Commissioner, therefore, confirmed the demand in respect of
the EPCG License dated 29.12.1994 with penalty and also gave an option to
the appellant to redeem the goods on payment of redemption fine. The
relevant portion of the order dated 31.01.2006 passed by the Commissioner
in respect of the EPCG License dated 29.12.1994 issued to the appellant is
reproduced below:
"41.12 M/s. Super Cassette Industries Ltd.
attempted & succeeded to fraudulently avail
benefits under EPCG scheme against the goods
which were exported under DEPB scheme,
when they submitted details of export of US$
2483877/- (uncluding US$ 19,45,600.00 FOB
value of the CD ROM's exported by M/s.
Sundram Exports Pvt. Ltd. & M/s.
Netcompware Pvt. Ltd.) in appendix 10C
claiming fulfillment of export obligations
against US$ 2482135.00 required to be fulfilled
under the EPCG Licence P/CG/ 2133756 dated
29.12.94 to DGFT on 03.07.1998 and requested
to discharge the Bank Guarantee and LUT
which was accepted by DGFT and their bank
guarantee was released vide letter dated
10.05.1999. M/s Super Cassette Industries Ltd.
claimed and availed benefits under EPCG Scheme of
the said export of CD ROMs being declared as
"Supporting Manufacturer" in the Shipping Bills. M/s
Super Cassette Industries Ltd. being the actual
importer of the capital goods under EPCG Scheme on
its own could not fall under the category of
"Supporting Manufacturer" as only the actual
importer of capital goods and not the supporting
manufactures could take the export value for the
purpose of fulfillment of export obligation and
availment of EPCG benefits. The export of CD
ROMs could not also fall under the category of
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third party export in view of non-fulfilment of
conditions mentioned in the Ministry of
Finance's Circular No. 120/95-Cus. dated
23.11.95. Thus M/s Super Cassette Industries
Ltd. had wrongly and fraudulently discharged
export obligations under the said EPCG Licence
by resorting to suppression of facts and willful
mis declaration. M/s Super Cassette Industries
Ltd., therefore, had not fulfilled the export
obligations against the subject EPCG licence
no. P/CG/2133756 dt. 29.12.94 and had thus
violated the conditions imposed under the
Customs notification No. 160/92- Cus dated
20.4.92. Their substitution of tainted export by
other export towards fulfillment of the export
obligation after the fraud was detected, does not
absolve them of the consequences of their complicity
in the whole fraud. The said exemption notification
had been issued under Section 25(1) of the Customs
Act, 1962. The conditions of discharge of export
obligation was in the nature of post importation
condition and was an integral part of the said
notification according to which the liability would
accrue when there is failure to fulfill export
obligation. When duties of Customs are short levied
or non-levied, such duty is demandable under
Section 28 of the Customs Act, 1962. However, in
the cases of demand arising due to wrong availment
of Notification granting exemption casting continuing
obligation after import, customs duty can be
demanded independent of the provisions of Section
28 of the Customs Act, 1962. ***** Therefore, the
differential duty can be demanded and
recovered from them even without invoking the
provisions relating to extended time as
provided under proviso to Section 28 of the
Customs Act, 1962. M/s. Super Cassette
Industries Ltd. had not fulfilled the export
obligation (to the extent of FOB value of CD
ROM's i.e. US$ 19,45,600) which was a
condition subject to which the said capital
goods were partially exempted from the
Customs duty. Hence proportionate customs duty is
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demandable and recoverable from M/s. Super
Cassette Industries Ltd. *****
The goods imported under the said EPCG
licence are also liable to confiscation under
Section 111(O) of the Customs Act, 1962 and
they have rendered themselves liable to penal action
under Section 112(a) & (b) of the Customs Act,
1962. In addition interest on said duty is also
recoverable."
(emphasis supplied)
10. In respect of the EPCG License dated 06.07.1994 issued to the
appellant, the Commissioner found that the appellant had discharged the
obligation and the relevant portion of the order is reproduced below:
"41.13 Similarly, against export obligation of
US$ 61,33,526/- under EPCG licence no.
P/CG/2133308 dated 06.07.94, they made
export of US$ 58,72,385/- which included US$
6,53,600/- on account of CD ROM's exported by
M/s. Sundram Exports Pvt. Ltd. but later on
M/s. Super Cassette Industries Ltd. decided not
to include the value of CD ROM's exported by
M/s. Sundram Exports Pvt. Ltd. and they
fulfilled export obligation within extended
period without including the FOB value of CD
ROM's. Since in this case the substitution of
exports of CD ROM's in question by other
exports for fulfillment of export obligation was
made by them within the original validity
period of export obligation before submission
of their case to DGFT for discharge of export
obligation. I am inclined to accept their plea in
the matter."
(emphasis supplied)
11. The relevant portion of the order passed by the Commissioner in
respect of Sunil Wadhwani is as follows:
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"42(E)3 All these facts clearly indicate that Shri
Sunil Wadhwani Director of M/s. Super
Cassette Industries Ltd. entered into
conspiracy in collusion of various persons
associated with M/s. Sundram Exports Pvt. Ltd.
and M/s. Netcompware Pvt. Ltd. to grossly
inflate the export of CD ROM's by these firms in
order to wrongly and fraudulently avail undue
export benefits under EPCG and DEPB schemes
and actual involvement of Shri Sunil Wadhwani
in the conspiracy is proved beyond doubt.
Although the export obligation under both the EPCG
licences were later fulfilled by them without
incorporating the FOB value of CD ROM's exported
by M/s. Sundram Exports Pvt. Ltd. and M/s.
Netcompware Pvt. Ltd. as intimated by them in their
letter dated 06.02.2004, they had attempted to
include the FOB value of goods exported by M/s.
Sundram Exports Pvt. Ltd. and M/s. Netcompware
Pvt. Ltd. for fulfilling their export obligation against
EPCG licence no. P/CG/2133756 dated 29.12.94 in
their application to DGFT."
(emphasis supplied)
12. The operative part of the order dated 31.01.2006 passed the
Commissioner in respect of the appellant and Sunil Wadhwani is reproduced
below:
"ORDER
I - XII *****
XIII
i) I confirm the demand of duty of Rs.
47,38,817/-, evaded by M/s Super Cassette
Industries Ltd. on import of Capital goods
against EPCG licence No. P/CG/2133756 dated
29.12.94 in terms of the conditions of Notification
No. 160/92- Cus dated 20.4.92 (as amended) issued
under Section 25 of the Customs Act, 1962 read with
relevant provisions of the Exim Policy in force. The
interest as applicable under Section 28AB of the Act
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ibid is also to be recovered from them till the
recovery of the above demand amount.
ii) I confiscate the Capital goods valued at Rs.
1,13,58,042/- imported against the EPCG licence No.
P/CG/2133756 dated 29.12.94. However, I give an
option to M/s Super Cassette Industries Ltd. to
redeem the goods on payment of redemption
fine of Rs. 11,00,000/- (Rupees Eleven Lakhs
Only).
iii) I also impose a penalty of Rs. 5,00,000/-
(Rupees Five Lakhs Only) on M/s Super Cassette
Industries Ltd. under Section 112(a) & 112(b)
of the Customs Act, 1962 for their above acts of
omission and commission which have rendered the
goods liable to confiscation under Section 111(0) of
the Customs Act, 1962.
*****
XV *****
(v) I impose a penalty of Rs. 2,00,000/-
(Rupees Two Lakh Only) on Shri Sunil Wadhwani (noticee No. 7) under Section 112 of the Customs Act, 1962."
(emphasis supplied)
13. The confirmation of demand of Rs. 47,38,817/- on the appellant in respect of EPCG License dated 29.12.1994 with interest and penalty and with an option to the appellant to redeem the goods on payment of redemption fine of Rs. 11 lakh and imposition of penalty of Rs. 2 lakhs on Sunil Wadhwani has been assailed in these two appeals.
14. Shri B.L. Narasimhan, learned counsel for the appellant assisted by Shri Rubel Bareja made the following submissions:
(i) The export obligation under the EPCG License dated 29.12.1994 had been fulfilled by the appellant within the time granted by DGFT and so the duty demand is not sustainable;11
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(ii) The DGFT, by a letter dated 10.05.1999, redeemed the bank guarantee and the letter of undertaking furnished by the appellant and released the appellant of any further export obligation in 1999. Subsequently, DGFT, by a letter dated 27.05.2003, discharged the appellant and Sunil Wadhwani from their liabilities after the appellant had fulfilled the export obligation, excluding the export made by Sundram Exports, within the time extended by DGFT. Thus, even if the disputed exports made through Sundram Exports are ignored, the appellant had fulfilled the export obligation against EPCG License dated 29.12.1994;
(iii) Once DGFT authorities had exercised jurisdiction and was satisfied that the export obligation was fulfilled by the appellant within the stipulated time and the bank guarantee was redeemed, the customs department will have no jurisdiction to question and sit in judgment over the order passed by DGFT. In this connection, reliance has been placed on the judgments of the Supreme Court in Titan Medical Systems Pvt. Ltd. vs. Collector of Customs, New Delhi 8, Zuari Industries Ltd. vs. Commissioner of C. Ex. & Customs 9, and Vadilal Chemicals Ltd. vs. State of Andhra Pradesh 10. Learned counsel also placed reliance on the judgment of the Delhi High Court in M/s. Designco and others vs. Union of India11;
(iv) No penalty could have been imposed upon the Director of the appellant;
(v) Goods are not liable for confiscation; and
8. 2003 (151) E.L.T. 254 (S.C.)
9. 2007 (210) E.L.T. 648 (S.C.)
10. 2005 (192) E.L.T. 33 (S.C.)
11. W.P. (C) 14477/2022 decided on 22.11.2024 12 C/296/2006 & C/297/2006
(vi) The extended period of limitation could not have been invoked nor penalty could be imposed.
15. Shri Rajesh Singh, learned authorized representative appearing for the department, however, supported the impugned order and made the following submissions:
(i) The order passed by the Commissioner is a reasoned order and does not suffer from any infirmity;
(ii) The facts of the present appeals would indicate that it is a case of fraud and wilful collusion and as fraud vitiates everything, there is no infirmity in the impugned order. In support of this contention, learned authorized representative placed reliance upon the judgments of the Supreme Court in Commissioner of Customs vs. Candid Enterprises 12 and Commissioner of Customs, Kandla vs. Essar Oil Ltd. 13;
(iii) Suppression of material documents would amount to fraud and in this connection reliance has been placed on the judgment of the Supreme Court in Ashok Leyland Ltd. vs. State of Tamil Nadu and others 14; and
(iv) The department need not prove with precision, and proof by preponderance of probability is sufficient. In this connection reliance has been placed on the decision of the Kolkata Bench of the Tribunal in Arjun Sah vs. Commissioner of Customs (Prev.), Patna 15.
16. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
12. 2001 (130) E.L.T. 404 (S.C.)
13. 2004 (172) E.L.T. 433 (S.C.)
14. 2004 (3) SCC 1
15. 2021 (375) E.L.T. 241 (Tri.-Kolkata) 13 C/296/2006 & C/297/2006
17. What transpires from the aforesaid factual position is that two EPCG Licenses were issued to the appellant for import of certain capital goods under the Export Promotion Capital Goods Scheme in terms of the Import Policy 1992-1997.
18. The first EPCG License is dated 29.12.1994. It imposed an obligation on the appellant to export products worth US $2,482,135 within five years from the date of issue of the EPCG License.
19. The second EPCG License is dated 06.07.1994 under which the appellant was obliged to fulfill export obligation of USD $6,133,526 by 05.07.1999, which period was initially extended by DGFT upto 05.07.2000 and later upto 31.03.2001 by Public Notice dated 06.04.1999 issued by DGFT.
20. The dispute in the present appeals is only with respect to the EPCG License dated 29.12.1994 as the Commissioner has found as a fact that the appellant had fulfilled the export obligation under the EPCG License dated 06.07.1994.
21. In respect of the EPCG License dated 06.07.1994, the Commissioner noticed that initially the appellant had included CD-ROMs exported by Sundram Exports in the export obligation, but later the appellant made further exports to fulfill the export obligation. In this connection the Commissioner noticed that the further exports made by the appellant, after excluding the exports made by Sudram Exports, were within the original validity period of export obligation before submission of their case to DGFT for discharge of export obligation. It is in such circumstances that the Commissioner held that the appellant had discharged its obligation under the EPCG License dated 06.07.1994.
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22. However, in respect of the EPCG License dated 29.12.1994, the Commissioner refused to take into consideration the further exports made by the appellant to cover up the exports made by Sundram Exports only for the reason that in their first communication to DGFT the appellant had included the export obligation of Sundram Exports and it is only after the discharge certificate dated 10.05.1999 was issued by DGFT that the appellant took time from DGFT to make further exports. The Commissioner further held that even though the appellant subsequently fulfilled the export obligation within the time extended by DGFT, but this would not absolve the appellant as the subsequent export was with fraudulent intention.
23. It not in dispute that the EPCG License is issued by DGFT and it is also not in dispute that DGFT imposed conditions upon the appellant to fulfill the export obligation within the time stipulated. It is also not in dispute that DGFT, from time to time, extended the period granted to the appellant for discharging it export obligation. An issue had arisen as to whether the exports made by the appellant through Sundram Exports could also be included in the export obligation which the appellant had to fulfill. In order to avoid any complication, the appellant made further exports to the extent the appellant made exports through Sundram Exports. This export obligation, after excluding the exports made through Sundram Exports was fulfilled by the appellant within the extended period of time granted by DGFT.
24. In respect of EPCG License dated 06.07.1994, the Commissioner accepted the plea of the appellant and discharged the appellant from the obligation.
25. The dispute is with regard the EPCG License dated 29.12.1994. As noticed above, the appellant had initially fulfilled the export obligation after including the exports made through Sundram Export and DGFT by a letter 15 C/296/2006 & C/297/2006 dated 10.05.1999 confirmed that the appellant had fulfilled the export obligation. After the appellant came to know that the export of CD-ROMs made by Sundram Exports was being disputed by the Directorate of Revenue Intelligence, the appellant made further exports after the initial time granted by DGFT was extended upto 31.03.2002, and fulfilled the export obligation after excluding the exports made by Sundram Export. In respect of this License, the Commissioner did not accept the plea of the appellant that it had fulfilled export obligation since the appellant had earlier written to DGFT that it had fulfilled its export obligation and DGFT by a letter dated 10.05.1999 had discharged the appellant from the export obligation.
26. This distinction drawn by the Commissioner in respect of EPCG License dated 29.12.1994 is an artificial distinction which has no bearing on the discharge obligation of the appellant. So long as the time period for discharging the obligation under the EPCG License dated 29.12.1994 was extended by DGFT and the appellant fulfilled its obligation under the License before the expiry of the said extended period, it cannot be urged by the custom authorities that the appellant had not fulfilled its export obligation. It does not matter if the appellant had made further exports to fulfill the export obligation after discarding the exports made by Sundram Exports. This step was taken by the appellant as a matter of abundant caution when it came to the knowledge of the appellant that the Directorate of Revenue Intelligence was examining the over-valuation of goods by Sundram Exports. The finding recorded by the Commissioner that this was done in a fraudulent manner by the appellant is without any basis. In fact, DGFT did not question this act of the appellant and in fact issued the discharge certificate.
27. This apart, it is DGFT alone which can examine whether the appellant had discharged its export obligation and DGFT, after being satisfied, 16 C/296/2006 & C/297/2006 discharged the appellant from its obligation by a fresh letter dated 27.05.2003. The Commissioner is, therefore, not justified in holding that since the DGFT had discharged the appellant from its export obligation by letter dated 10.05.1999, further exports made by the appellant to cover up the exports made by Sundram Exports would indicate that the appellant had "wrongly and fraudulently discharged export obligations under the EPCG License by resorting to suppression of facts and wilfull mis-declaration".
28. It is not open to the custom authorities to question the communication dated 27.05.2003 issued by DGFT for discharging the appellant from its export obligation, after excluding the exports made by Sundram Exports, in the absence of any determination having first been made by DGFT. This is what has been observed by the Delhi High Court in Designco while examining the action initiated by the custom authorities to deprive the benefits claimed by the writ petitioner under the Merchandise Exports from India Scheme 16. Under the prevailing Foreign Trade Policy of 2015-20, the Union Government, in order to promote exports of Indian handicrafts, had introduced MEIS. With the avowed objective of providing impetus to such exports, the Foreign Trade Policy provided incentives for exports of notified goods and products and the calculation of corresponding rewards. In terms of MEIS, the exporters were also provided duty credit scrips which were transferable. Those duty credit scrips could be used for payment of basic customs duty, additional customs duty, and central excise duties on domestic procurement of inputs or goods. For the purposes of implementation of MEIS, a Public Notice was issued by the DGFT specifying the eligible countries to which exports could be made for availing benefits under the scheme. The Delhi High Court examined the provisions of the
16. MEIS 17 C/296/2006 & C/297/2006 Foreign Trade (Development and Regulation) Act, 1992 17 alongside the Foreign Trade Policy as well as the Foreign Trade (Regulation) Rules, 199318 and made the following observations:
"104. As we read the various provisions enshrined in the FTDR Act alongside the FTP as well as the FTDR Rules, we find ourselves unable to recognize a right that may be said to inhere in the customs authorities to doubt the issuance of an instrument. We, in the preceding parts of this decision, had an occasion to notice the relevant provisions contained in the FTDR Act and which anoint the DGFT as the central authority for the purposes of administering the provisions of that statute and regulating the subject of import and exports. The FTP 2015-20 in unequivocal terms provides in para 2.57 that it would be the decision of the DGFT on all matters pertaining to interpretation of policy, provisions in the Handbook of Procedures, Appendices, and more importantly, classification of any item for import/export in the ITC (HS) which would be final and binding. The FTP undoubtedly stands imbued with statutory authority by virtue of Section 5 of the FTDR Act.
105. Of equal importance are the FTDR Rules and which too incorporate provisions conferring an authority on the Director General or the licensing authority to suspend or cancel a license, certificate, scrip or any instrument bestowing financial or fiscal benefits. Once it is held that the MEIS would clearly qualify as an instrument bestowing financial or fiscal benefits, the power to cancel or suspend would be liable to be recognized as being exercisable by the Director General on the licensing authority alone. It would thus be wholly impermissible for the customs authorities to either ignore the MEIS certificate or deprive a holder thereof of benefits that could be claimed under that scheme absent any adjudication or declaration of invalidity being
17. the FTDR Act
18. the FDTR Rules 18 C/296/2006 & C/297/2006 rendered by the DGFT in exercise of powers conferred by either Rules 8, 9 or 10 of the FTDR Rules. The customs authorities cannot be recognised to have the power or the authority to either question or go behind an instrument issued under the FTDR in law.
106. Taking any other view would result in us recognizing a parallel or a contemporaneous power inhering in two separate sets of authorities with respect to the same subject. That clearly is not the position which emerges from a reading of Section 28AAA. Quite apart from the deleterious effect which may ensue if such a position were countenanced, in our considered opinion, if the validity of an instrument issued under the FTDR Act were to be doubted on the basis of it having been obtained by collusion, wilful misstatement or concealment of facts, any action under Section 28AAA would have to be preceded by the competent authority under the FTDR Act having come to the conclusion that the instrument had come to be incorrectly issued or illegally obtained. The procedure for recovery of duties and interest would have to be preceded by the competent authority under the FTDR Act having so found and the power to recover duty being liable to be exercised only thereafter.
107. Section 28AAA would thus have to be interpreted as contemplating a prior determination on the issue of collusion, wilful misstatement or suppression of facts tainting an instrument issued under the FTDR Act before action relating to recovery of duty could be possibly initiated. A harmonious interpretation of the two statutes, namely, the Customs and the FTDR Acts leads us to the inescapable conclusion that the law neither envisages nor sanctions a duality of authority inhering in a separate set of officers and agents simultaneously evaluating and adjudging the validity of an instrument which owes its origin to the FTDR Act alone. It is these factors, as well as the role assigned to the DGFT which perhaps weighed upon courts to acknowledge 19 C/296/2006 & C/297/2006 its position of primacy when it come to the interpretation of policy measures referable to the FTDR Act as well as issues of classification emanating therefrom."
(emphasis supplied)
29. The Delhi High Court referred to the views earlier expressed by the Delhi High court in Simplex Infrastructure Ltd. vs. Union of India and others 19 and noticed that the views expressed by the Gujarat High Court in Alstom India Ltd. vs. Union of India and another (No. 2) 20 had been approved. The Delhi High Court also referred to the judgment of the Allahabad High Court in PTC Industries Ltd. vs. Union of India and others 21 and the judgments of the Bombay High Court in Pradip Polyfils Pvt. Ltd. vs. Union of India 22, Autolite (India) Ltd. vs. Union of India 23 and Commissioner of Customs (E.P.) vs. Jupiter Exports & Ors. 24. Ultimately, the Delhi High Court held:
"108. ***** We are thus of the firm opinion that it would be impermissible for the customs authorities to either doubt the validity of an instrument issued under the FTDR Act or go behind benefits availed pursuant thereto absent any adjudication having been undertaken by the DGFT. An action for recovery of benefits claimed and availed would have to necessarily be preceded by the competent authority under the FTDR Act having found that the certificate or scrip had been illegally obtained. We have already held that the reference to a proper officer in Section 28AAA is for the limited purpose of ensuring that a certificate wrongly obtained under the Customs Act could also be evaluated on parameters specified in that provision.
19. 2014 SCC Online Del 7747
20. 2014 SCC Online Guj 15952
21. 2009 SCC Online All 2138
22. (2004) 173 E.L.T. 3 (Bom)
23. 2003 SCC Online Bom 1313
24. 2007 SCC Online Bom 467 20 C/296/2006 & C/297/2006 However, the said stipulation cannot be construed as conferring authority on the proper officer to question the validity of a certificate or scrip referable to the FTDR Act."
(emphasis supplied)
30. It needs to be noted that in Titan Medical, which was considered by the Delhi High Court in Designco, the Supreme Court observed as follows:
"13. As regards the contention that the appellants were not entitled to the benefit of the exemption notification as they had misrepresented to the licensing authority, it was fairly admitted that there was no requirement for issuance of a licence that an applicant set out the quantity or value of the indigenous components which would be used in the manufacture. Undoubtedly, while applying for a licence, the appellants set out the components they would use and their value. However, the value was only an estimate. It is not the respondents' case that the components were not used. The only case is that the value which had been indicated in the application was very large whereas what was actually spent was a paltry amount. To be, noted that the licensing authority has taken no steps to cancel the licence. The licensing authority has not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the Customs Authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf."
31. It, therefore, clearly transpires from the aforesaid judgment of the Delhi High Court in Designco that custom authorities cannot go behind the benefits availed, in the absence of any adjudication having been undertaken by DGFT. In other words, an action for recovery of benefits claimed and availed would have to necessarily be preceded by an order of the competent 21 C/296/2006 & C/297/2006 authority under the FDTR Act that the certificate or script had been illegally obtained.
32. This judgment, when applied to the facts of the present case, would clearly mean that the custom authorities cannot question the discharge certificate issued by DGFT in respect of the obligation to be fulfilled by the appellant under EPCG License dated 29.12.1994, unless DGFT itself takes a prior decision that the appellant had not discharged the obligation under the said EPCG License. In this view of the matter, the custom authorities could not have questioned the discharge of the export obligation given by DGFT to the appellant in respect of the EPCG License dated 29.12.1994 in the absence of any prior determination regarding the said License by the DGFT.
33. Once it is held that the custom authorities had no jurisdiction to issue the show cause notice, the confiscation of goods or the imposition of penalty upon the appellant or upon Sunil Wadhwani, Director of the appellant, does not arise.
34. Thus, for all the reasons stated above, the impugned order dated 31.01.2006 passed by the Commissioner confirming the demand of duty under the provisions of the Customs Act deserves to be set aside.
35. The order dated 31.01.2006 passed by the Commissioner is, accordingly, set aside and the two appeals are allowed.
(Order pronounced on 03.01.2025) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) Shreya