ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 19.02.2026
CESTAT Ahmedabad Sets Aside Duty Demand in FPS Scrip
This Article has been written by Advocate Ravi Shekhar Jha-BALLB & LLM (Constitutional Law) based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email idย intelconsul@gmail.com or on his Mobile +91-9999005379.
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), West Zonal Bench at Ahmedabad, recently delivered a significant judgment in the matter of Customs Appeals No. โ 10182, 10183, and 10552 of 2024. The case revolved around the alleged misclassification of goods exported under the Focus Market Scheme (FPS) and the subsequent imposition of duty and penalties by the Additional Commissioner of Customs, Mundra. โ The judgment, pronounced by Hon’ble Member (Judicial), on February 18, 2026, has set a precedent in the interpretation of Section 28AAA of the Customs Act, 1962, and the applicability of penalties under Sections 114(iii) and 114AA.
Background of the Case
The case originated from a Show Cause Notice (SCN) issued by the Directorate of Revenue Intelligence (DRI) on July 2, 2020, to M/s Rishabh Salvage Energy Pvt. โ Ltd. under Section 28AAA of the Customs Act, 1962. โ The SCN alleged that the company had misclassified the goods exported under the FPS scheme to claim undue benefits. โ The goods, described as industrial salt under CTH 2501 0090, were alleged to be common salt falling under CTH 2501 0010, which does not qualify for FPS benefits. โ
The DRI argued that the company had obtained FPS scrips from the Directorate General of Foreign Trade (DGFT) based on misrepresentation. โ Consequently, penalties and duty demands were imposed on M/s Rishabh Salvage Energy Pvt. โ Ltd., its director, and their custom broker, M/s Soham Logistics Pvt. โ Ltd.
Key Arguments Presented
The appellants contested the allegations, presenting the following key arguments:
- Classification of Goods: M/s Rishabh Salvage Energy Pvt. โ Ltd. argued that the exported salt was industrial salt, not common salt, as it contained added anti-caking agents, silica, and iodine. โ They further stated that the salt was examined by the Department of Salt, which issued an Export Worthiness Certificate. โ
- Validity of FPS Scrips: The appellants emphasized that the FPS scrips were issued by the DGFT after reviewing all relevant shipping bills and product classifications. โ They argued that the DGFT had not canceled the scrips, and as per Circular No. โ 334/1/2012-TRU dated June 1, 2012, action for recovery of duty can only be initiated after the DGFT cancels the scrips. โ
- Precedents and Legal Framework: The appellants relied on previous judgments, including the case of Commissioner of Customs Mumbai-I vs Adani Ports Limited (2024) and Munjal Shova Limited vs CCE & ST-Delhi-IV (2022), to argue that penalties and duty demands cannot be imposed unless the scrips are proven to be fraudulent or canceled by the DGFT. โ
Tribunal’s Observations and Final Decision
After carefully considering the arguments and evidence presented by both sides, the Tribunal made the following observations:
- The DGFT had not initiated any action to cancel the FPS scrips issued to M/s Rishabh Salvage Energy Pvt. โ Ltd., which meant the scrips were still valid. โ
- The lower authorities had acted prematurely by issuing the SCN and imposing penalties without the cancellation of the scrips, which is a prerequisite for such actions as per the Board’s Circular. โ
- The case of Munjal Shova Limited was not applicable in this matter, as the FPS scrips in question were not proven to be fraudulent or forged. โ
Based on these findings, the Tribunal ruled in favor of the appellants, setting aside the duty demand, penalties, and redemption fines imposed by the lower authorities. โ The appeals were allowed, and consequential relief was granted to all parties involved. โ
Implications of the Judgment
This landmark decision has significant implications for exporters and the customs authorities:
- Reaffirmation of Legal Principles: The judgment reinforces the principle that penalties and duty demands under Section 28AAA of the Customs Act cannot be imposed unless the DGFT cancels the scrips. โ This ensures that exporters are not penalized prematurely without proper legal grounds. โ
- Protection for Exporters: The Tribunal’s decision provides clarity and protection to exporters who obtain FPS scrips in good faith. It emphasizes the importance of due process and prevents arbitrary actions by customs authorities.
- Guidance for Future Cases: The judgment serves as a guiding precedent for similar cases, ensuring that the customs authorities adhere to established legal procedures and respect the decisions of the DGFT.
Conclusion
The CESTAT Ahmedabad’s decision in the Customs Appeals No. โ 10182, 10183, and 10552 of 2024 is a testament to the importance of adhering to legal procedures and respecting the validity of instruments issued by the DGFT. By setting aside the penalties and duty demands, the Tribunal has upheld the rights of the appellants and provided much-needed clarity on the application of Section 28AAA of the Customs Act. This judgment is a significant step towards ensuring fairness and transparency in customs adjudication processes.
Source: CESTAT Ahmedabad
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