The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has set aside customs duty, confiscation, redemption fine and penalties imposed over the import of a Honda CR-V under the Export Promotion Capital Goods (EPCG) Scheme, observing that the alleged non-compliance could not survive after the Directorate General of Foreign Trade (DGFT) issued an Export Obligation Discharge Certificate (EODC).
The Bench of Ajay Sharma (Judicial Member) and M.M. Parthiban (Technical Member) has observed that the competent authority’s decision to grant the EODC established compliance with the conditions attached to the EPCG authorisation.
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The appellant/assessee which provides hotel-related services, had obtained EPCG authorisations for importing four cars at a concessional rate of customs duty. One Honda CR-V was cleared through Mumbai Sea Port, while three BMW cars were imported through Chennai Sea Port.
The Honda CR-V was imported under an EPCG authorisation dated June 11, 2007. Under the authorisation, the company was required to fulfil an export obligation equivalent to eight times the customs duty saved within eight years. The imported capital goods were also subject to an “actual user” condition.
Customs authorities initiated an investigation based on information that the imported vehicles were allegedly being used as private cars by the company’s Managing Director and his family members. According to the department, the vehicles were not being commercially used to earn foreign exchange for fulfilling the export obligation under the EPCG Scheme.
A show cause notice dated August 30, 2011, proposed recovery of ₹9.42 lakh in customs duty, along with interest, in relation to the Honda CR-V imported through Mumbai.
The adjudicating authority confirmed the duty demand and ordered confiscation of the vehicle under Sections 111(d) and 111(o) of the Customs Act, 1962. The vehicle was permitted to be redeemed on payment of a fine of ₹7 lakh.
The authority also imposed a penalty of ₹1.50 lakh on the importer company and a separate penalty of ₹1 lakh on its Managing Director. The Commissioner of Customs (Appeals) subsequently upheld the adjudication order, prompting the appellants to approach the Tribunal.
Before the CESTAT, the appellants submitted that an identical dispute concerning the three BMW cars imported through Chennai had already been decided in their favour by a coordinate Bench of the Tribunal in July 2023.
They contended that the EPCG conditions governing the Honda CR-V were identical to those applicable to the three BMW cars. Therefore, the Mumbai Bench could not reach a different conclusion on the same allegations and substantially identical facts.
The Tribunal examined the EPCG authorisation and found that the Honda CR-V import was governed by conditions identical to those considered in the earlier decision concerning the BMW cars.
In the earlier case, the Chennai Bench had observed that the show cause notice was issued before the expiry of the period available to the importer for satisfying the export obligation. The allegation of non-fulfilment was consequently held to be premature.
The earlier order had also noted that the company declared substantial foreign exchange earnings, which were not disputed by the Customs Department. It held that the actual-user requirement stood satisfied and that the mere parking of an imported vehicle at a particular location could not establish a breach of the EPCG conditions.
The Tribunal had further ruled that questions relating to vehicle registration, insurance or the use of particular number plates fell within the jurisdiction of the concerned transport or state authorities. Such alleged violations could not, without more, establish a breach of the Customs exemption notification or the EPCG Scheme.
Applying those findings to the Honda CR-V, the Mumbai Bench noted that the company had submitted an installation certificate dated February 27, 2008. It had also produced the vehicle’s registration certificate, which classified the car as a “Tourist Taxi Deluxe”.
These documents were submitted to the DGFT through a letter dated August 22, 2012. The company also furnished a certificate recording foreign exchange earnings towards fulfilment of its export obligation.
The Tribunal recorded that the company repeatedly pursued its application for an EODC with the DGFT through letters issued during 2013. The DGFT eventually issued the EODC or redemption letter on January 11, 2024.
According to the Bench, the grant of the EODC by the DGFT was an undisputed fact. Consequently, the allegation that the importer had failed to comply with the EPCG conditions could not legally be sustained.
The Tribunal acknowledged that the EODC was unavailable when the adjudicating and first appellate authorities decided the matter. However, it found that the importer had submitted the required particulars to the DGFT as early as August 2012, and the delay in issuing the discharge certificate was attributable to the competent authority.
Therefore, the importer could not be faulted for its inability to produce the EODC during the earlier proceedings.
The Bench also noted that the company had informed the original authority that it fulfilled the export obligation and that the DGFT had confirmed the position through a communication dated September 7, 2012.
The CESTAT concluded that the customs appellate order, insofar as it upheld the duty demand, confiscation, redemption fine and penalties, was legally unsustainable. It accordingly set aside the impugned order and allowed both appeals.
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