2026-VIL-951-CESTAT-DEL-CU
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CUSTOMS CESTAT Cases

Customs - Export Promotion Capital Goods Scheme - Waiver of export obligation due to force majeure and impossibility of performance - Levy of interest and imposition of penalty - Appellant obtained multiple authorisations under the Export Promotion Capital Goods Scheme for importing duty-free capital goods to be used in hotel construction, however, before completion of construction, consortium of banks initiated proceedings under SARFAESI Act and auctioned the imported capital goods and hotel premises in a public auction, making it impossible for the importer to fulfil the export obligations within the prescribed period - Department subsequently encashed the bank guarantees and issued a show cause notice demanding customs duty, interest and imposing penalty for non-fulfilment of the scheme conditions - Whether interest and penalty are demandable when an importer fails to fulfil export obligations under the EPCG Scheme due to force majeure or other unforeseen circumstances beyond its control – HELD - The interest and penalty cannot be levied when the export obligation becomes impossible to fulfil due to circumstances beyond the importer's control. The Notification No. 97/2004 dated 17.09.2004 provides for waiver of export obligation in cases of force majeure or other unforeseen circumstances. The doctrine of frustration of contract applies when a specific thing essential to performance of the contract is destroyed or lost. In this case, the imported goods and premises were auctioned by banks, making it impossible for the importer to fulfil export obligations - When bank guarantees are encashed before issuance of SCN, redemption fine, penalty and interest cannot be imposed. The bona fides of the importer is evident from its attempt to fulfil fifty percent of export obligations through group companies as permitted under the scheme. Since the principal duty amount was recovered through encashment of bank guarantees prior to the show cause notice, and the impossibility of performance was established, interest and penalty are not demandable - The confiscation of goods, levy of interest and imposition of penalty are set aside. The confirmation of demand of customs duty is upheld – The appeal is allowed
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