GST UPDATE

Non-Fulfilment of the condition stipulated in the Notification No. 97/2004 dated 17.09.2004.

Writ Petition No.:W.P.(MD) No. 50378 of 2021

Court: High Court of New Delhi (New Delhi Bench)

Case Title: Rajdarbar Heritage Venture Limited v. Additional Director General (Adjudication)

Outcome:Writ petition was allowed and the impugned order demanding penalty and interest was set aside.

Judgement Date: 01.06.2026

BRIEF FACTS OF THE CASE:

Rajdarbar Heritage Venture Limited (formerly M/s. Global Heritage Venture Ltd.), hereinafter referred to as appellant, imported goods under Export Promotion Capital Goods (EPCG) authorizations during the period 2007–2009 from DGFT for construction of hotel. For this purpose, bonds with bank guarantees were submitted by the appellant also for complying with the conditions. Due to delay in construction of hotel, creditors and banks withdrew the support andand proceedings were initiated under the SARFAESI Act which led to auction of imported capital goods along with the hotel premises in September 2011. All these circumstances led to the encashment of bank guarantees by the Department as the appellant failed to fulfil the export obligations against the import of capital goods.
Being aggrieved, appellant preferred a writ petition before the Delhi High Court. Pursuant to which, High court ordered DGFT to look into the matter and examine the request of the appellant for the relaxation of the policy by permitting to fulfil 100% export obligation through alternative products or services provided by other group companies of the appellant. However, this request was rejected by the DGFT.
Thereafter, a show cause notice (SCN) was issued demanding customs duty along with interest and penalty. Consequently, appellant filed a detailed reply against the SCN.
The Additional Director General (Adjudication), by order, confiscated the goods imported under 55 Bill of entries from different ports due to non-fulfilment of the conditions stipulated in Notification No. 97/2004-Cus dated 17.09.2004. Along with the confiscation, the order also confirmed the demand of customs duty foregone on the imported goods in terms of Section 25 of the Customs Act 1962.
Appellant preferred appeal against the order. However, Customs (Appeals) upheld the order passed by the adjudicating authority. The Order-in-Appeal was challenged before the Tribunal.

QUESTION BEFORE THE TRIBUNAL:

Tribunal observed the following key questions:

Whether interest can be imposed under Section 28AA if the bank guarantee had already been encashed even before the issuance of SCN?
Whether waiver of export obligation as per para 4 of Notification can be extended to the appellant when the goods are confiscated by the department officials?
Whether penalty can be imposed if the goods are confiscated by the department and export obligation becomes impossible due to confiscation?
Whether penalty can be imposed when the department failed to prove the presence of mens rea?

BRIEF ARGUMENTS BY APPELLANT:
Appellantsubmitted following contentions: -

The appellant is not disputing the demand of customs duty itself it’s only challenging the levy of interest and imposition of penalty.
Since the bank guarantee was encashed by the department before the issuance of the Show Cause Notice the interest and the penalty levied is not justified.
That a clause no.4 was inserted by Notification dated 21.05.2007 which provides for waiver of export obligation because of force majeure or for other unforeseen circumstances. For this reliance was placed upon the judgement given by Bombay High Court in the case of Taurus Novelties Ltd. v. Commissioner of Customs, Bangalore and Commissioner of Customs (Port), Kolkata v. M/s B R Marbles Pvt Ltd.
DGFT rejected request of the appellant to fulfil 100% export obligation by export of other goods by group companies as the exports were made by group companies, which accounted for 50% permissible fulfilment already.
That the appellant also applied for closure of 26 EPCG authorizations for which permission was not granted which shows that the appellant acted bona-fidely.
Based on above contentions, that there was no deliberate intent to evade duty or violate conditions and penalty under Section 112(a) requires mens rea, which is absent in the instant case.

BRIEF ARGUMENTS BY REVENUE DEPARTMENT:

Revenue Department made the following key arguments:

As the Appellant failed to comply with the condition laid down by the Notification, the demand of duty, interest and penalty stands valid.
Department distinguished the appellant’s relied upon judgements on the ground that the facts and circumstances are different and not applicable in the instant case.
That the demand of duty does not get vitiated even if it is not demanded under Section 28AA and only interest is demanded under Section 28AA. Hence, Appellant is liable to pay interest.
It was contended that the goods are liable to be confiscated and consequently penalty under Section 112(a) flows automatically.
The appellant cannot claim the benefit of Section 56 of the Indian Contract Act (doctrine of frustration) or invoke Paragraph 4 of the Notification relating to force majeure/unforeseen circumstances to avoid its obligations under the EPCG Scheme.

FINDINGS & JUDGEMENT:

Following are the key findings and judgement of the Tribunal:

It was observed that the order has levied interest under notification and not under section 28AA of the Customs Act. Further Tribunal referred to the judgement laid down by Bombay High Court in the case of Customs and Central Excise Settlement Commission, Additional Bench Kolkata in which it was held that even if Settlement Commission had no power to waive interest, Hon’ble High Court has the power and examined the Sec 56 of the Contract Act and confiscation of goods under section 111(o) of the Customs Act cannot also be justified as the appellant had reasons beyond his control for not fulfilling the terms of the Notification.
Since the goods are not liable for confiscation penalty under section 112(a) of the Customs Act cannot be imposed and hence set aside.
It was held that based on the judgements (supra)since bank guarantee was encashed much before the issuance of SCN, in such case, interest could not have been levied upon the appellant for the violation of terms of the Notification. In continuation of above, that the levy of interest and penalty is not sustainable as the reliance should be placed upon the Taurus Novelties and B R Marbles (supra) in which it was held that interest and penalty could not be imposed if the bank guarantee had been encashed before the issuance of SCN and the fulfilment of export obligation becomes impossible.
Further, that the reliance cannot be placed on the Delhi High Court judgement in the case of DSJ Communications as the matter was decided in 1995 and there was no provision in the Notification for waiver of export obligation on account of force majeure or other unforeseen circumstances.
Thus on the basis of above observations, it was held that if a person who has obtained EPCG authorisation for the purpose of importing duty free capital goods is unable to fulfil the export obligation for good and valid reasons, then levy of interest and penalty can be waived and para 4 of the notification (supra) deals with the same situation. Further, that the appellant had lost the control and possession of imported goods.
That confiscation of goods under Section 111(o) of the Customs Act cannot also be justified as the appellant had reasons beyond its control for not fulfilling the terms of the Notification. Once the goods are not liable to confiscation, penalty under Section 112(a) of the Customs cannot be imposed. The appellant has not contested the confirmation of demand of customs duty in terms of the Notification and, therefore, the confirmation of demand of customs duty is upheld.

Thus, theappeal preferred by the appellant was accepted and the interest and penalty imposed by the order gets brushed aside however the demand of custom duty as per the order gets upheld.

Various Sections, Rules, Circulars, Notifications and case laws referred in the instant GST Update:

Notification No. 97/2004 dated 17.09.2004 and Notification no. 72/2007-Cus

Section 25, Section 28AA, Section 112(a)(ii), Section 112(b), Section 111(o) of the Customs Act,1962

Section 56 of the Contract Act

Taurus Novelties Ltd. vs. Commissioner of Customs, Bangalore [2004 (173) E.L.T. 100 (Tri.-Bang.)]

Commissioner of Customs (Port), Kolkata vs. M/s. B R Marbles Pvt. Ltd [Customs Appeal No. 75151 of 2018]

DSJ Communications v. Union of India [2014 (309) E.L.T. 230 (Del.)]

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GST update /2026-27/0032

GST UPDATE

BRIEF FACTS OF THE CASE:

QUESTION BEFORE THE TRIBUNAL:

BRIEF ARGUMENTS BY REVENUE DEPARTMENT:

FINDINGS & JUDGEMENT:

Opinion

Author’s Comment:

Various Sections, Rules, Circulars, Notifications and case laws referred in the instant GST Update:

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