DGFT’s EODC Is Determinative of Export Obligation Compliance: CESTAT Quashes Customs Duty Demand on Imported Cars

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a duty demand of ₹76.28 lakh, interest, and penalties imposed by the Commissioner of Customs, Tughlakabad, holding that the company had legitimately fulfilled its Export Promotion Capital Goods (EPCG) obligations through foreign exchange earnings in the tourism and travel services sector. The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) has observed that once the Directorate General of Foreign Trade (DGFT) issues an Export Obligation Discharge Certificate (EODC), such certification is determinative and binding, unless contrary evidence is produced. The Tribunal stressed that customs authorities cannot disregard the DGFT’s findings without substantive proof of violation. The appellant/assessee, Interglobe Enterprises had imported three cars during 2001–2003 under the EPCG Scheme by availing concessional duty benefits under Notification Nos. 49/2000 and 44/2002, claiming that these vehicles were used for tour and travel-related services to generate foreign exchange. The DGFT had already issued EODCs for two licences in 2004 and 2005, while the application for the third licence was pending when the Directorate of Revenue Intelligence (DRI) initiated investigations. DRI seized the vehicles in 2005, alleging misuse and non-fulfilment of EPCG obligations. The company secured release of the vehicles through Delhi High Court by furnishing bank guarantees. Following the investigation, a show cause notice was issued in August 2006, leading to confirmation of the demand by the Commissioner in January 2010. The department contended that the foreign exchange earnings cited by the company were not directly attributable to the use of the imported cars, The vehicles were registered as private, not commercial. Export obligation should be satisfied only through earnings arising from the exclusive use of those cars. The case was similar to the Surya Samudra Holiday Resorts ruling, where the Supreme Court upheld duty demands for misuse of an imported luxury car under EPCG. The department argued that DGFT’s certificates were not conclusive and customs authorities retained the right to independently verify compliance. Interglobe Enterprises countered that the foreign exchange was legitimately earned through tourism-related services such as GSA commissions, reservation fees, and airline incentives. DGFT had expressly clarified (letters dated 29.11.2005 and 27.12.2006) that EPCG obligations for hotels, travel, and tourism operators could be fulfilled through overall foreign exchange earnings, not necessarily from exclusive use of the imported vehicles. The registration of cars as private vehicles was compliant for the relevant period, as mandatory tourist/commercial vehicle registration was introduced only in June 2006, years after the cars were imported. The cars were physically available at company premises during the DRI search, showing there was no misuse or diversion. CESTAT held that the Supreme Court’s decision in the Surya Samudra case clearly states that the Tribunal’s earlier view—treating the EODC as non-determinative—“cannot be sustained.” Therefore, issuance of EODC by DGFT conclusively establishes fulfilment of export obligation, unless proven otherwise. Unlike in Surya Samudra—where the imported Ferrari was transferred out of the registered state and converted to private use—the three cars in this case were never transferred, were physically present with the company, and were used in tourism services. DGFT’s policy clarifications were categorical that foreign exchange earnings from overall hotel/travel/tourism operations qualify. EPCG policy does not require segregated billing for vehicle usage. Industry practice makes individual attribution practically impossible. The Tribunal accepted these clarifications. Since the policy amendment requiring tourist/commercial registration came only in June 2006, the earlier private registration could not invalidate EPCG benefits for imports made from 2001–2003. The CESTAT noted that the department failed to produce evidence showing any alternative use of the vehicles, their transfer or sale, and failure to deploy the cars for tourism-related activities. The Tribunal quashed the demand of Rs. 76.28 lakh, interest and penalties. Case Details Case Title: Watermark Systems (India) Private Limited Versus Principal Commissioner of Customs Case No.: Customs Appeal No. 51419 Of 2016 Date: 20.11.2025 Counsel For Appellant: Dhruv Matta and Ms. Namrata Singhal, Advocates Counsel For Respondent: Shiv Shankar,Authorized Representative Click Here To Read Order Read More: Car Already Confiscated Once Can’t Be Re-Confiscated; CESTAT Quashes Penalties on Bona Fide Purchasers in Mercedes CLS 320 CDI Import Case

DGFT’s EODC Is Determinative of Export Obligation Compliance: CESTAT Quashes Customs Duty Demand on Imported Cars

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