Legal principle

Under the strict-construction rule for exemption notifications, default in EPCG export obligation entails recovery of duty saved with interest under Sections 28(1)/28AA, but absent mens rea and where failure is occasioned by circumstances beyond the importer's control, confiscation under Section 111(o), redemption fine under Section 125 and penalty under Section 112(a) are not sustainable.

Court decision

The Tribunal partially allowed the appeals: it upheld the demand of duty saved along with interest liability on the appellants, but set aside the confiscation of the imported machinery under Section 111(o), the redemption fine, and the penalties imposed under Section 112(a), modifying the impugned orders to that extent.

Facts

M/s Suruchi Creation Pvt. Ltd. and M/s Hans Creations imported ZSK flat computerized embroidery machines under EPCG licences availing concessional duty under Notification No. 97/2004-Cus, saving customs duty of Rs. 9,75,116 and Rs. 9,59,808 respectively, against bonds and bank guarantees and an export obligation of eight times the duty saved (50% in years 1-6, 50% in years 7-8). The machines, installed in 2005, were submerged and damaged in the historic Surat floods of 2006, and the export obligation was never fulfilled. Show cause notices dated 11.04.2014 and 22.04.2014 demanded the duty saved under Section 28(1) with interest, proposed confiscation under Section 111(o) and penalty under Section 112(a). The Joint Commissioner confirmed the duty demand with interest, confiscated the machinery with redemption fine under Section 125, and imposed penalty under Section 112(a); the Commissioner (Appeals) upheld the demand and interest, reducing the redemption fine to Rs. 1,00,000 and penalty to Rs. 50,000, prompting these appeals.

Key provisions

• Section 111(o), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 112(a), Customs Act, 1962 — Penalty for improper importation of goods
• Section 28AA, Customs Act, 1962 — Interest on delayed payment of duty
• Section 28(1), Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 3, Customs Tariff Act, 1975 — Levy of additional duty equal to excise duty, sales tax, local taxes and other charges
• Section 125, Customs Act, 1962 — Option to pay fine in lieu of confiscation