Fulfillment of Export Obligation for EPCG scheme

PJ/Case Law/2011-12/1140

Fulfillment of Export Obligation for EPCG scheme - verification thereof

Case: Air Travel Bureau Ltd v/s Union of India

Citation: 2011 (266) ELT 179 (Del)

Issue: - Each licence under EPCG is a separate licence and is to be examined separately. Show cause notice cannot be examined at writ stage.

Brief Facts: -Petitioner No. 1 is a travel agency. For the purpose of business activities they imported 5 cars under EPCG licence under the Foreign Trade Policy 2002-07. Thus, the cars were imported under reduced rate of custom duty subject to condition that the service provider shall generate export obligation equal to 5/8 times, depending upon the Circulars issued from time to time, the CIF value of the capital goods on FOB basis within a period of 8 years from issue of licences. The petitioner has at the time of customs clearance on reduced/concessional rate of duty had given bonds and bank guarantees of total value of Rs. 1.73 crores.

The Customs Authorities issued show cause notice to the petitioner alleging that the cars (capital goods) imported by him were required to be used for a specific purpose but the same were not complied with and the export obligation was not fulfilled by the petitioner. It was also alleged that the Export Obligation Discharge Certificate (EODC) issued by DGFT was not acceptable to the Customs Department.

Petitioner has filed this petition before the High Court for quashing the said show cause notices and has prayed for return of bank guarantees and cancellation of bonds given by them to the Customs Department.

Petitioner’s Contention: - Petitioner No. 1 challenged the show cause notices on the ground that DGFT has issued Circular No. 7 dated 07.05.2008 wherein it was postulated that the cars/vehicles imported under EPCG Scheme by the service provider should be registered as tourist vehicles if EODC has not been obtained by 30.06.2008. But by further clarification dated 26.09.2008, DGFT had specified that this condition was no applicable to those who have applied for EODC by 30.06.2008 and they are therefore, protected. It was further stated that in 2004 DRI had initiated an enquiry against them but no show cause notice was issued therein in respect of the 5 cars. Reliance was placed on decision of this Court dated 16.12.2008 in Customs Appeal Case No. 5 and 6 of 2009 [2010 (260) ELT 78 (Del)] dismissing the appeal filed by the Customs assailing the order dated 16.12.2008 passed by the Tribunal in respect of 2 cars which were imported under licence dated 17.09.2002.

Respondent’s contention:- Customs Department has contended that the role of DGFT and Department of Customs is distinct and governed by different provisions of law. The licences were issued by DGFT but operationalised by Customs for which separate notification is issued under the law. As per clause (ii) of Para 4 of the Explanation to Notification No. 44/2002-Cus, the Customs Department has full right and authority to examine whether or not the petitioner has fulfilled the export obligation in compliance with the terms of the import or has violated the conditions of Notification No. 44/2002-Cus. Reliance in this regard was made on judgment given in Sheshank Sea Foods Pvt Ltd v/s Union of India [1996 (88) ELT 626 (SC)].

Reasoning of Judgment: - The High Court noted that the matter was pending at the show cause notice stage. It was held that facts and factual matrix of the case have to be gone into, examined and verified. Each import under the EPCG licence is a separate and a distinct import. Each case has to be examined on its own facts. Service provider may have fulfilled the obligations in respect of one EPCG licence but may have not fulfilled the obligations imposed in respect of another licence. This will depend upon the factual matrix of each case.

The High Court further held that the judgment of the Division Bench dated 03.08.2010 was on an appeal filed by the Customs Department on a question of law. Petitioner is entitled to rely on legal ratio laid in case of Interglobe Enterprises Ltd v/s Union of India and others [2006 (203) ELT 202 (Del)]. It was held that it will be premature and will not be appropriate to interfere with the show cause notices at this stage and prevent any verification or scrutiny.

The High Court noted that the Petitioner had alleged that the Department was prolonging the proceedings and therefore, they were forced to repeatedly renew the bank guarantee. It was noted that the Department in this regard had stated that the adjudication will be completed within 6 weeks. The High Court accordingly directed the proceedings be completed within the stipulated time and if proceedings are dropped, the bank guarantees/bonds be released and in case petitioner’s stand is rejected, 4 weeks time be given to the petitioner to take steps for challenging the order before invoking the Bank Guarantee.

Decision:- Writ petition disposed of accordingly.

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PJ/Case Law/2011-12/1140

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