CESTAT Chennai Clarifying Third-Party Export Obligations Under EPCG Scheme

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 28.04.2026

CESTAT Chennai Clarifying Third-Party Export Obligations Under EPCG Scheme

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, recently delivered a significant judgment in the case of M/s. Sree Koppammal Cotton Spinning Mills Pvt. Ltd. versus the Commissioner of Customs, Tuticorin.

The matter revolved around alleged fraudulent fulfillment of export obligations under the Export Promotion Capital Goods (EPCG) Scheme and the subsequent denial of customs duty exemptions.

Background of the Dispute

1. EPCG Scheme and Imports

• The Appellant imported capital goods under four EPCG licenses, availing concessional customs duty under Notification No. 97/2004-Cus dated 17.09.2004.
• Total value of imported capital goods was Rs. 5,38,31,103.
• Duty foregone amounted to Rs. 1,42,41,266.
• Export obligation was Rs. 11,39,30,128.

2. Allegations and Investigation

• The Directorate of Revenue Intelligence (DRI) alleged that the Appellant fraudulently obtained Export Obligation Discharge Certificates (EODCs) by using shipping bills of unrelated third-party exporters and false certificates.
• It was alleged that the Appellant had no commercial relationship with those exporters.

3. Show Cause Notice and Adjudication

• A show cause notice proposed rejection of EODCs, denial of concessional duty, recovery of differential duty, confiscation, and penalties.
• The Commissioner of Customs upheld the proposals, leading to appeal before CESTAT.

Key Legal Issues

• Whether the Appellant fulfilled export obligations under the EPCG Scheme.
• Whether Customs authorities could deny exemption after DGFT restored the EODCs.

Arguments Presented

Appellant’s Contentions

Compliance with Policy

• Capital goods were properly imported and installed.
• Export obligations were fulfilled through third-party exports as permitted under the Foreign Trade Policy (FTP) and Handbook of Procedures (HBP).

DGFT’s Final Authority

• DGFT restored the EODCs after due process.
• Customs authorities cannot override DGFT’s decision regarding export obligations.

No Revenue Loss or Double Benefit

• Disclaimer certificates were issued by third-party exporters.
• No double benefit was availed.

Department’s Contentions

Fraudulent Documentation

• Shipping bills were allegedly purchased from unrelated exporters.

Violation of Policy

• Exported goods were allegedly not manufactured using imported capital goods.

Independent Jurisdiction

• Customs argued they could independently proceed where fraud is alleged.

Tribunal’s Analysis and Findings

Interpretation of Policy and Notification

• Relevant Customs notifications and FTP permitted third-party exports if shipping bills mentioned both the license holder and third-party exporter.

DGFT’s Restoration of EODCs

• DGFT, being the competent authority, restored the EODCs after due process.
• Later policy changes could not apply retrospectively.

No Evidence of Double Benefit or Revenue Loss

• No evidence of double benefit or revenue loss was found.

Legal Certainty

• Customs cannot deny exemption once DGFT has accepted fulfillment of export obligations unless DGFT’s order is set aside.

Final Order and Impact

• The Tribunal set aside the demand and penalties regarding two EPCG licenses (Nos. 3530002103 & 3530002105).
• Consequential relief was granted to the Appellant.
• The ruling emphasizes clear separation of powers between DGFT and Customs.

Conclusion

This CESTAT Chennai decision clarifies the interplay between DGFT and Customs authorities in EPCG matters, especially concerning third-party exports.

It underscores the importance of due process and respecting the finality of DGFT decisions, providing certainty to exporters operating under the EPCG Scheme.

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Source: CESTAT Chennai

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