CESTAT Quashes Rs 14.97 Crore Duty Demand Based on Valid EODCs

The appellant had imported polymer raw materials duty-free between 2009 and 2012 under 29 Advance Authorisation and Duty-Free Import Authorisation (DFIA) licences. The export obligations were discharged through deemed exports made to M/s Tarajyot Polymers Ltd., a 100% Export Oriented Unit. After examining the relevant documentation and excise records, the DGFT issued EODCs for all 29 authorisations, following which the Customs Bond Cell redeemed the bonds and released the bank guarantees.

Subsequently, the Directorate of Revenue Intelligence (DRI) conducted an investigation and alleged that the deemed export transactions were merely paper transactions. Based on these findings, the Commissioner of Customs concluded that the export obligations had not been fulfilled and confirmed a duty demand of Rs. 14.97 crore along with interest. Proceedings for confiscation and prosecution under Section 135 of the Customs Act, 1962 were also initiated.

Before the Tribunal, the appellants contended that once the DGFT had verified compliance and issued EODCs, the Customs authorities could not independently reopen the issue or disregard the certificates without their cancellation by the licensing authority. “As long as the Export Obligation Discharge Certificates remain valid and subsisting, Customs authorities cannot independently allege non-fulfilment of export obligations.”

The Tribunal noted that all 29 EODCs issued by the DGFT continued to remain in force and that no proceedings had been initiated for their cancellation. Relying on settled judicial precedents, the bench held that customs authorities cannot go behind a valid EODC and arrive at a contrary conclusion regarding the fulfilment of export obligations.

The Tribunal further observed that once compliance under the Foreign Trade Policy had been accepted by the competent licensing authority, the very foundation for confiscation, penalties and criminal prosecution ceased to exist. “The Customs Department cannot override or disregard a valid EODC issued by the DGFT unless the certificate is first revoked by the licensing authority.”

Referring to the Supreme Court’s decision in Radheshyam Kejriwal, the Tribunal held that prosecution under Section 135 of the Customs Act was not sustainable when the assessee had already established compliance before the specialised statutory authority. Consequently, the goods were held not liable for confiscation and all penalties, redemption fines and prosecution-related consequences were set aside.

Thus, CESTAT Kolkata allowed the appeals filed by the assessees, quashed the entire duty demand of Rs 14.97 crore along with consequential penalties and confiscation, and dismissed the Revenue’s cross-appeal seeking additional redemption fines.

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