CESTAT Mumbai: EPCG Duty Demand Cannot Survive Once DGFT Issues EODC Confirming Fulfilment of Export Obligation

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 12.09.2026

CESTAT Mumbai: EPCG Duty Demand Cannot Survive Once DGFT Issues EODC Confirming Fulfilment of Export Obligation

In a significant ruling concerning imports under the Export Promotion Capital Goods (EPCG) Scheme, the CESTAT Mumbai has set aside the customs duty demand, redemption fine and penalties imposed upon Unison Hotels Limited and its Managing Director, Umesh Saraf, in relation to the import of a Honda CR-V under an EPCG authorization.

The Tribunal held that the alleged violation of EPCG conditions could not legally survive once the competent DGFT authority had issued an Export Obligation Discharge Certificate (EODC) in favour of the importer.

Background of the Dispute

• Unison Hotels Limited is engaged in providing hotel-related services. For its business operations, it obtained EPCG authorizations from the Directorate General of Foreign Trade for importing four vehicles as capital goods while availing concessional customs duty benefits. One Honda CR-V was imported through Mumbai Sea Port, while three BMW cars were imported through Chennai Sea Port.
• The Department initiated investigation on the basis of information alleging that the vehicles were being used as private vehicles for the personal use of the Managing Director and his family members rather than for commercial purposes connected with earning foreign exchange and fulfilling the prescribed export obligation.
• In respect of the Honda CR-V imported through Mumbai, a show cause notice dated 30 August 2011 sought recovery of customs duty of ₹9,41,922 along with interest, besides confiscation and penalties. The adjudicating authority confirmed the demand, ordered confiscation under Sections 111(d) and 111(o) of the Customs Act, 1962, permitted redemption on payment of a fine of ₹7 lakh, and imposed penalties of ₹1.50 lakh on Unison Hotels and ₹1 lakh on Umesh Saraf. The Commissioner (Appeals) upheld the order.

Issue Before CESTAT

• The principal question before the Tribunal was whether the appellants had violated the conditions of the EPCG authorization and consequently failed to satisfy the requirements of Notification No. 97/2004-Customs dated 17 September 2004, under which concessional customs duty had been availed for import of the Honda CR-V.
• The EPCG authorization required the importer, among other things, to fulfil an export obligation equivalent to eight times the duty saved within eight years and comply with the actual-user condition. In respect of the Honda CR-V, the authorization recorded an export obligation connected with the imported vehicle and required fulfillment through use of the imported capital goods.

Appellants Relied on Earlier Chennai CESTAT Decision

• The appellants argued that an identical dispute involving the other three BMW cars imported under the same EPCG arrangement had already been decided in their favour by a coordinate Bench of CESTAT Chennai through Final Order Nos. 40598-40599/2023 dated 21 July 2023. They contended that the facts and legal issues relating to the Honda CR-V were materially identical and therefore the same reasoning ought to apply.
• The Mumbai Bench accepted this contention, observing that the factual matrix relating to the Honda CR-V was exactly similar to that relating to the BMW cars already adjudicated by the coordinate Bench. It consequently held that it could not take a different view in relation to the same appellants and substantially identical EPCG conditions.

Revenue’s Allegation Found Premature

• The Tribunal reproduced the reasoning adopted in the earlier proceedings, where it had been held that initiation of proceedings before expiry of the period available for fulfilment of the export obligation was premature. The EPCG authorization allowed eight years for fulfilment of the export obligation, whereas the show cause proceedings were initiated well before that period had expired.
• The earlier Bench had also found that the importer had declared substantial foreign-exchange earnings, which were not disputed by the Revenue. The Tribunal emphasized that the essential inquiry was whether the imported capital goods had satisfied the actual-user requirement, and observed that the existence of foreign-exchange earnings supported the appellant’s case.
• It further noted that allegations concerning vehicle registration, insurance or parking arrangements were matters primarily within the jurisdiction of the concerned transport or other authorities and could not, by themselves, establish a violation of EPCG conditions enforceable by Customs.

DGFT’s EODC Became Crucial

• A decisive factor in the Mumbai proceedings was that the DGFT had eventually issued the EODC/Redemption Letter on 11 January 2024 in respect of the relevant EPCG authorization.
• The Tribunal recorded that the appellants had furnished the vehicle’s installation certificate, registration certificate showing the Honda CR-V as a “Tourist Taxi Deluxe”, details of foreign-exchange earnings and repeated requests for issuance of the EODC.
• The Bench held that once the competent DGFT authority had issued the EODC, the allegation of non-compliance with EPCG conditions under Notification No. 97/2004-Customs could no longer legally sustain. It also noted that the importer had asserted fulfillment of the export obligation even during the original proceedings and that DGFT had subsequently formally discharged the obligation.
• The Tribunal further observed that non-production of the EODC during the earlier adjudication and appellate proceedings could not be held against the appellants because the certificate had not yet been issued by DGFT and the delay was beyond their control.

Earlier Judicial Authorities Considered

• The Tribunal also referred to several earlier decisions dealing with EPCG imports and actual-user requirements. Among them was Goldfinch Hotels Pvt. Ltd. v. Commissioner of Customs, 2015 (328) E.L.T. 282 (Tri.-Mumbai), where CESTAT had held that mere parking of an EPCG vehicle at a particular place or statements of drivers could not, without more, establish breach of the actual-user condition. The Bombay High Court later dismissed Revenue’s appeal against that decision.
• The order also refers to Vadilal Chemicals Ltd. v. State of Andhra Pradesh, 2005 (192) E.L.T. 33 (S.C.), and M Far Hotels Ltd. v. Union of India, 2011 (270) E.L.T. 158 (Ker.), in the context of EPCG benefits and compliance with prescribed statutory or policy conditions.
• The Tribunal additionally referred to the Delhi High Court’s ruling in Interglobe Enterprises Ltd. v. Union of India, 2006 (203) E.L.T. 202 (Del.), as followed in subsequent EPCG litigation, noting that the Supreme Court had dismissed the Revenue’s SLP in the connected matter.

CESTAT’s Final Ruling

The Mumbai Bench concluded that the order sustaining the customs duty demand, redemption fine and penalties was not legally sustainable. It therefore set aside the impugned order and allowed both appeals in favour of Unison Hotels Limited and Umesh Saraf.

Key Takeaway

The ruling reinforces an important principle in EPCG disputes: where the DGFT, being the competent licensing authority, has accepted fulfillment of the export obligation and issued an EODC, Customs cannot ordinarily continue to sustain a demand founded on an allegation of non-fulfilment of the very same EPCG obligation without a legally sustainable basis to disregard that discharge.

The decision is also significant because CESTAT rejected a purely factual inference of personal use based on matters such as vehicle location, registration-related allegations and statements, particularly when the importer demonstrated foreign-exchange earnings and subsequently secured formal discharge of its EPCG obligation from DGFT.

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Source: CESTAT Mumbai

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Ravi Shekhar Jha – Advocate, Bar Council of Delhi