CESTAT Delhi Sets Aside Duty and Penalty Orders in EPCG License Dispute

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 11.02.2026

CESTAT Delhi Sets Aside Duty and Penalty Orders in EPCG License Dispute

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, recently delivered a significant judgment on January 19, 2026, concerning a series of appeals filed by Nehru Place Hotels Ltd and other appellants. The case revolved around the import of luxury cars under the Export Promotion Capital Goods (EPCG) scheme and the subsequent fulfillment of export obligations. ​ This blog delves into the details of the case, the arguments presented, and the final verdict.

Background of the Case

The case involved six appeals filed by Nehru Place Hotels Ltd and its associated parties, including its Managing Director, Directors, and other stakeholders. The appeals challenged the Order-in-Original dated February 21, 2011, passed by the Commissioner of Central Excise (Adjudication), New Delhi. The order imposed duty liabilities, penalties, and redemption fines under Section 125 of the Customs Act, 1962, on the appellants. ​

Nehru Place Hotels Ltd, a five-star hotel in New Delhi, had applied for an EPCG license to import luxury cars for providing hospitality services to international guests and earning foreign exchange. The first EPCG license, granted on August 20, 1999, allowed the import of one Lincoln car, three BMW cars, and spare parts for one BMW car. ​ Later, the license was amended on March 25, 2002, permitting the import of two Mercedes cars. ​ A second EPCG license was obtained on March 1, 2002, for importing four Toyota Camry cars. ​

The appellants claimed to have fulfilled their export obligations under the EPCG scheme and submitted applications for Export Obligation Discharge Certificates (EODCs). ​ The Directorate General of Foreign Trade (DGFT) issued EODCs for both licenses, certifying that the export obligations had been met. However, in April 2008, the Directorate of Revenue Intelligence (DRI) initiated an investigation into the licenses, leading to the seizure of the imported cars under Section 110 of the Customs Act. ​ A show-cause notice was issued on May 12, 2010, alleging violations of the EPCG scheme, and the Commissioner (Adjudication) passed an order confirming the duty demands, penalties, and confiscation of the cars. ​

Key Arguments Presented

1. Appellants’ Arguments:
   • The appellants contended that the issues raised in the appeals were already covered by previous decisions of the Tribunal in Interglobe Enterprises Limited vs. Commissioner of Customs, New Delhi and M/s. ​ Bestech Hospitalities Pvt Ltd vs. Commissioner of Customs (Preventive), New Delhi. ​
   • They argued that the issuance of EODCs by the DGFT was proof of the fulfillment of export obligations under the EPCG scheme. ​ The customs authorities did not have the jurisdiction to question the validity of the EODCs issued by the DGFT. ​
   • The appellants also highlighted that the imported cars were used for tourism-related activities, including transporting international guests, which contributed to foreign exchange earnings. ​
2. Department’s Arguments:
   • The department supported the impugned order, arguing that the appellants had violated the conditions of the EPCG scheme.
   • The department relied on the Supreme Court judgment in Surya Samudra Holiday Resorts Pvt Ltd vs. CC (Export) Mumbai, which emphasized that the fulfillment of export obligations was not solely determined by the issuance of EODCs. ​

CESTAT’s Observations and Final Decision

The Tribunal carefully examined the arguments presented by both parties and referred to previous judgments, including Interglobe Enterprises Limited and Bestech Hospitalities Pvt Ltd. ​ The key observations and conclusions were as follows:

1. Fulfillment of Export Obligations: ​
   • The Tribunal noted that the appellants had submitted logbooks and other evidence to demonstrate the use of imported vehicles for tourism-related activities, which contributed to foreign exchange earnings. ​ The department did not provide any evidence to contradict these claims. ​
   • The Tribunal referred to a communication from the DGFT dated December 27, 2006, which clarified that foreign exchange earnings from hotel accommodation, food, beverages, and transportation of tourists could be considered towards the fulfillment of export obligations under the EPCG scheme.
2. Jurisdiction of Customs Authorities:
   • The Tribunal emphasized that the customs authorities could not question the validity of EODCs issued by the DGFT. ​ It cited the Supreme Court’s decision in Titan Medical Systems Pvt Ltd vs. Collector of Customs, New Delhi, which held that customs authorities cannot refuse exemptions based on allegations of misrepresentation if the licensing authority has not questioned the license. ​
3. Distinction from Surya Samudra Case: ​
   • The Tribunal distinguished the present case from the Surya Samudra judgment, noting that the Supreme Court had set aside the observation that the fulfillment of export obligations was not determinative. ​ In the current case, the issuance of EODCs by the DGFT was deemed determinative of the fulfillment of export obligations. ​
4. Final Verdict:
   • The Tribunal concluded that the customs authorities could not confirm the demand or impose penalties in the absence of any adjudication by the DGFT canceling the EODCs. ​ Consequently, the impugned order dated February 21, 2011, was set aside, and all six appeals were allowed. ​

Key Takeaways

This judgment highlights several important aspects of the EPCG scheme and the jurisdictional boundaries between the DGFT and customs authorities:

1. EODCs as Determinative Evidence: ​
   • The issuance of an EODC by the DGFT is considered conclusive evidence of the fulfillment of export obligations under the EPCG scheme. ​ Customs authorities cannot challenge the validity of an EODC unless it has been canceled by the DGFT. ​
2. Role of DGFT: ​
   • The DGFT is the competent authority to adjudicate matters related to the fulfillment of export obligations under the Foreign Trade (Development and Regulation) Act. ​ Customs authorities cannot independently question the compliance of EPCG license conditions. ​
3. Use of Imported Goods:
   • The Tribunal clarified that foreign exchange earnings from services related to the tourism and hospitality industry, including hotel accommodation, food, beverages, and transportation, can be considered towards the fulfillment of export obligations under the EPCG scheme. ​

Conclusion

The CESTAT’s decision in this case underscores the importance of adhering to the jurisdictional boundaries between regulatory authorities and respecting the determinations made by the DGFT regarding export obligations. ​ It also provides clarity on the scope of the EPCG scheme, particularly in the context of the tourism and hospitality industry. ​ This judgment serves as a significant precedent for businesses operating under the EPCG scheme and highlights the need for clear communication and compliance with regulatory requirements.

Source: CESTAT Delhi

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