No Customs Duty Demand Without DGFT Cancellation of FPS Scrips: CESTAT

The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no duty demand, redemption fine, or penalty can be imposed under Section 28AAA of the Customs Act unless the export incentive scrips are first cancelled by the Directorate General of Foreign Trade (DGFT). The bench of Somesh Arora (Judicial Member) has observed that DGFT had not initiated any proceedings to cancel the FPS scrips. The scrips remained valid and were issued after disclosure of all relevant documents and classification details. Section 28AAA proceedings for recovery of duty are contingent upon cancellation of the instrument by DGFT. The department failed to demonstrate that the scrips were fraudulent or forged. The Directorate of Revenue Intelligence (DRI) had issued a show cause notice dated 02.07.2020 to Rishabh Salvage Energy Pvt Ltd under Section 28AAA of the Customs Act, 1962. The notice pertained to two Focus Market Scheme (FPS) scrips issued by the DGFT following exports of different varieties of salt between August 2012 and December 2013 through Mundra Customs House. The department alleged that the exporter had misclassified the exported goods under CTH 2501 0090 (industrial salt) instead of CTH 2501 0010 (common salt). According to DRI, the classification adopted enabled the exporter to wrongfully claim a 2% credit benefit under the Focus Market Scheme, which was not admissible for common salt. Duty of ₹81,918 was demanded from the company under Section 28AAA, along with penalties of ₹2,91,550 each on the company, its director, and the customs broker under Sections 114(iii) and 114AA of the Customs Act. The appellants argued that the salt exported was not fit for human consumption and was used for cattle feed, textile, and fisheries purposes. Anti-caking agents containing silica and iodine were added. The Department of Salt examined the goods and issued export worthiness certificates prior to shipment. All shipping bills and classification details were disclosed to the DGFT at the time of applying for FPS scrips. The FPS scrips issued by DGFT were never cancelled and continue to remain valid. The appellants relied heavily on CBEC Circular No. 334/1/2012-TRU dated 01.06.2012, which clarifies that recovery proceedings under Section 28AAA may be initiated when DGFT initiates action for cancellation of an instrument, but the matter can be decided only after such cancellation. They also cited the CESTAT ruling in Commissioner of Customs Mumbai-I vs Adani Ports Limited (2024), where it was held that duty demand and penalties are unsustainable unless the incentive scrips are cancelled by DGFT. Distinguishing the Supreme Court ruling in Munjal Shova Limited vs CCE & ST-Delhi-IV (2022), the Tribunal observed that the said case involved fraudulent and forged DEPB scrips, whereas in the present matter, no such allegation of forgery was established. The Tribunal further observed that the customs authorities cannot sit in judgment over the decision of DGFT when the scrips issued by it remain valid and operative. Allowing all three appeals, the Tribunal set aside the duty demand of ₹81,918 under Section 28AAA, penalties of ₹2,91,550 imposed on each appellant, and redemption fine and all consequential liabilities. Case Details Case Title: Rishabh Salvage Energy Pvt Ltd. Versus CC Citation: JURISHOUR-29-CESTAT-2026(Ahem) Case No.: Customs Appeal No. 10182 of 2024 Date: 18.02.2026 Counsel For Appellant: Vikas Mehta Counsel For Respondent: P Ganesan Click Here To Read Order Read More: Assessment Quashed for Failure to Follow Mandatory S. 148B Procedure in Search-Based Additions: ITAT

No Customs Duty Demand Without DGFT Cancellation of FPS Scrips: CESTAT

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