CESTAT Chandigarh Upholds EPCG Exemption for Rolling Mill Spools

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

Date: 11.11.2026

CESTAT Chandigarh Upholds EPCG Exemption for Rolling Mill Spools

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, has held that an importer’s EPCG exemption cannot be refused merely because Customs adopts a tariff classification different from the one stated in the EPCG authorisation, where the imported goods qualify as capital goods under the Foreign Trade Policy.

In Chiripal Poly-Films Ltd. v. Commissioner of Customs, Ludhiana, decided on 5 November 2026, the Tribunal set aside a duty demand of Rs. 3.07 crore, an equivalent penalty, and a Rs. 50 lakh redemption fine relating to the import of spools used in a rolling mill.

Background of the dispute

Chiripal Poly-Films Ltd. imported 60 spools for use in its rolling mill under an EPCG authorisation. The company declared the goods under Customs Tariff Heading (CTH) 8455 9000 as parts of rolling mills and claimed exemption under Notification No. 26/2023-Cus.

Customs disagreed with that classification. The department maintained that, because the goods were made of steel, they should fall under CTH 7326 9099, a residual heading for other articles of iron or steel. Since this tariff heading was not specified in the EPCG authorisation, Customs denied the exemption.

The department consequently alleged misdeclaration and misclassification, seized the goods, and issued a demand for differential duty of Rs. 3,07,21,816. It also imposed an equal penalty under Section 114A of the Customs Act and a redemption fine of Rs. 50 lakh.

The importer’s case: functional use determines capital-goods status

The importer argued that the spools were tailor-made for its rolling mill and were essential to the production of aluminium foil. Its central submission was that eligibility under the EPCG scheme turns on whether an item is a capital good used in manufacturing, rather than on a disputed tariff heading.

The company relied on the Foreign Trade Policy’s definition of “capital goods,” which covers plant, machinery, equipment and accessories required directly or indirectly for manufacturing or production. It also pointed out that:

• the goods were specifically described as “spools for rolling mill” in both the EPCG authorisation and the Bill of Entry;
• the spools were not listed among restricted or non-permissible capital goods in Appendix 5F; and
• the Customs exemption notification adopts the Foreign Trade Policy definition of capital goods.

On classification, the importer submitted that heading 8455, covering rolling mills and their parts, was more specific than heading 7326. It also argued that the exclusion for ordinary spools or similar supports should not cover specialised machine components integral to a rolling mill.

Customs’ position: authorisation must match the declared tariff heading

Customs argued that the EPCG authorisation was valid only for the tariff classification mentioned in it. According to the department, the correct heading was CTH 7326 9099, not CTH 8455 9000, and the mismatch made the exemption unavailable.

The department also relied on the exclusion in Section Note 1(c) of Section XVI of the Customs Tariff, which excludes bobbins, spools, cops, cones, cores, reels and similar supports from that section. On this basis, it claimed that the importer knowingly used an incorrect classification and had thereby attempted to obtain EPCG benefits unlawfully.

Tribunal’s ruling: Customs could not override the EPCG authorisation without DGFT action

The Tribunal held that the key issue was not the classification dispute but whether the imported spools met the definition of capital goods under the Foreign Trade Policy.

It found that the EPCG scheme permits duty-free import of capital goods for pre-production, production and post-production. The policy defines capital goods broadly to include machinery, equipment and accessories required directly or indirectly for manufacturing. The Tribunal noted that the imported spools were authorised by the Directorate General of Foreign Trade (DGFT) as capital goods and were not barred under Appendix 5F.

Significantly, the Tribunal observed that the Customs Act does not contain a separate definition of capital goods for this purpose. The exemption notification itself refers back to the Foreign Trade Policy definition. Therefore, Customs could not reject the capital-goods character of the imported items only because it preferred a different tariff heading.

The Tribunal stated that, if Customs intended to deny the benefit on this basis, it should have sought clarification from the DGFT or pursued modification, rectification or annulment of the EPCG authorisation. Customs had done none of these things.

Classification issue left open

The Tribunal also found merit in the importer’s argument that the Section XVI exclusion for spools should apply to articles that merely support material, not specialised parts essential to machinery used in manufacture.

It further noted that heading 7326 is a residual heading for iron or steel articles not more specifically covered elsewhere. Customs had not established that the imported spools were simply manufactured articles of the kind contemplated by that heading, while the importer’s assertion that they were technically sophisticated rolling-mill components remained unrebutted.

However, the Tribunal did not finally decide the classification question. It held that, once the EPCG exemption was available regardless of the classification dispute, a determination of the correct tariff heading was unnecessary.

Demand, penalty and fine set aside

Because the exemption remained available, the Tribunal held that the allegation of intentional misdeclaration could not survive. It therefore set aside:

• the differential duty demand of Rs. 3,07,21,816;
• the equivalent penalty under Section 114A; and
• the redemption fine of Rs. 50,00,000.

The appeal was allowed in full.

Key legal takeaway

The decision reinforces that, for EPCG imports, the functional test under the Foreign Trade Policy is decisive: goods authorised by the DGFT as capital goods cannot lose exemption solely because Customs later adopts another tariff classification. Unless the authorisation is clarified, amended or annulled by the competent DGFT authority, Customs cannot independently disregard its treatment of the goods as eligible capital goods.

This ruling provides important protection to EPCG importers facing classification disputes, particularly where specialised industrial components are essential to manufacturing operations but may be described differently under the Customs Tariff.

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Source: CESTAT Chandigarh

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Ravi Shekhar Jha – Advocate, Bar Council of Delhi