Conversion of EPCG license from 0% to 10% scheme.

PJ/CASE LAW/2014-15/2412

Case:-M/s BHILWARA SPINNERS LTD VERSUS COMMISSIONER OF CUSTOMS (EXPORT), NHAVA SHEVA

Citation:-2014-TIOL-1966-CESTAT-MUM

Brief Facts:-The appellant is in appeal against the impugned order wherein the customs duty of Rs. 1,30,10,568/- have been demanded along with interest and the goods were held liable for confiscation which were allowed to be redeemed on payment of Redemption Fine and the penalty under Section 112A of the Customs Act, 1962 was also imposed.
The brief facts of the case are as under:-
The appellant is engaged in the business of manufacture and sale of yarn. The appellant had applied for and obtained Export Promotion Capital Goods licence ('EPCG licence' for short) dated 14-1-1998, with obligation to export goods 6 times the CIF value of the capital goods imported. At the relevant time, there were two types of EPCG licences namely 10% basic duty EPCG licence (10% Basic duty + Nil CVD) and zero duty EPCG licence ('Nil' Basic duty + 10% CVD). The appellant opted for zero duty EPCG licence. Para 6.3 of the Foreign Trade Policy as well as condition No. 5 of Notification No. 29/97 governing zero duty EPCG licence provided that the minimum CIF value of capital goods to be imported under zero duty EPCG licence should be Rs. 20 crores and if the same is not complied, the importer shall be liable to pay full duty with interest.
The appellant who had obtained zero duty EPCG licence could not import the capital goods of the value of Rs. 20 crores and therefore applied for revalidation of the licence. Accordingly, the licence was revalidated upto 31-7-2001. However, even within the extended period, capital goods worth Rs. 20 crores could not be imported.
In these circumstances, the customs authorities issued various show cause notices calling upon the appellant to show cause as to why the capital goods imported by the appellant should not be confiscated for violating condition No. 5 of Notification No. 29/97 and why duty with interest and penalty should not be recovered from the appellant.
The appellant thereupon applied for conversion of licence from 'zero duty EPCG licence' into '10% duty EPCG licence' so that there is no requirement of importing capital goods worth Rs. 20 crores and consequently there is no violation of the condition No. 5 in Notification No.29/97. The application was considered by EPCG Committee consisting of both the licensing authorities and the customs authorities and approval for conversion of licence was granted. Accordingly, the licensing authority by its letter dated 8-9-2003 informed the appellant that the licence has been allowed to be converted into 10% duty EPCG licence. Thereupon, the Assistant Commissioner of Customs, EPCG issued 'No Dues' certificate and the Foreign Trade Development Officer by his communication dated 21-4-2006 informed that the appellant has fulfilled the export obligation by exporting goods 6 times the value of the capital goods imported and that they can approach the customs authorities for release of BG/LUT executed by the appellant.
In the meantime, by an order-in-original ('OIO') dated 27-2-2001, one of the show cause notice was adjudicated and it was held that the failure to import capital goods worth Rs. 20 crores under zero duty EPCG licence was in violation of condition No. 5 in Notification No. 29/97 and, therefore, the appellant was liable to duty, interest and penalty.
The appellant challenged the said order before this Tribunal and this Tribunal referred the matter to the Larger Bench of the Tribunal holding that (i) whether DGFT has powers to amend the licences including the re-validation (obviously referring of a situation where validity is expired) and whether amendment will be retrospective in nature? (ii) Whether as to the amendment carried out by the DGFT, whether right or wrong can be the subject matter of the scrutiny and challenge by the customs authorities?
The Larger Bench of CESTAT by its decision dated 18-1-2008 held thus:-
"(i) The licensing authorities do not have powers to amend any licence retrospectively.
(ii) The Customs authorities cannot challenge the powers of the licensing authority for amendment of the licence", and consequently the matter was remanded back to the Adjudicating Authority to consider the contention of the appellant regarding the quantum of duty and ancillary issue. In remand, the impugned order is passed. Aggrieved from the said order, the appellant is before tribunal.

Appellant Contentions:-The ld. counsel for the appellant submits that the decision of the Larger Bench dated 18.01.2008 was appealed against before the Hon'ble High Court of Bombay and the Hon'ble High Court of Bombay has observed held that once the licensing authority has found that the licence conditions have been fulfilled, it would not be open to the customs authorities to contend that the imports under the licence are contrary to law and take action against the licence holder. In this scenario, the Hon'ble High Court set aside the decision of the Larger Bench of the Tribunal, holding that the decision of the customs authorities seeking the recovery duty with interest and penalty on the condition that the appellant has violated the condition 5 of the Notification 29/97 is set aside.
As the Hon'ble High Court of Bombay has considered the issue and decided in favour of the appellant, therefore, impugned order required to be set aside and the appeal allowed with consequential relief.

Reasoning of Judgment:-Heard the counsel. Considered the submissions.
As in this case the appellant has opted to shift from zero duty EPCG licence to 10% duty EPCG licence, the same has been accepted by the DGFT and the amendment of the licence has been made retrospective. Therefore, the customs authorities have no authority to demand duty in violation of the condition 5 of the Notification 29/97 from the appellant.
With these observations, we set aside the impugned order and allow the appeal with consequential relief, if any.

Decision:-Appeal allowed.

Comment:-The crux of this case is that appellant has shifted from zero duty EPCG licence to 10% EPCG licence, the same has been accepted by the DGFT and amendment of the licence has been made retrospective. Consequently, the custom authorities have no power to demand duty in violation of condition 5 of the notification no. 29/97 from appellant.

Prepared by: Hushen Ganodwala

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PJ/CASE LAW/2014-15/2412

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