CESTAT Chennai Slashes Penalty in EPCG Export Obligation Fraud — Proportionality Principle Applied
Case Overview
S. Kishore Vs Commissioner of Customs (CESTAT Chennai)
The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) delivered a significant ruling in the matter of S. Kishore Vs Commissioner of Customs, partially allowing an appeal filed against penalties imposed under Section 112(a) and Section 114AA of the Customs Act, 1962. While the Tribunal confirmed the assessee's fraudulent involvement in misuse of the EPCG Scheme, it exercised its discretion to proportionately reduce the quantum of penalties, drawing reference to the Settlement Commission's treatment of co-noticees in the same matter.
Background and Factual Matrix
The EPCG Scheme Misuse
M/s. Chromaprint India P. Ltd., Coimbatore (hereinafter "CIPL") had imported capital goods and machinery by availing the Export Promotion Capital Goods (EPCG) Scheme under EPCG licences granted by the Joint DGFT, Coimbatore. The company claimed the benefits of Customs Notification No. 97/2004 dated 17.09.2004 and Notification No. 103/2009 dated 11.09.2009.
However, investigations by the Directorate of Revenue Intelligence (DRI) revealed that CIPL did not genuinely fulfil its export obligations. Instead, the company allegedly discharged these obligations by fraudulently using shipping bills belonging to unrelated third-party exporters — specifically, M/s. Aviram Knitters and M/s. Hero Fashion — both of which were manufacturers-cum-exporters of readymade garments having no business connection whatsoever with CIPL. On the basis of these fabricated shipping bill submissions, Export Obligation Discharge Certificates (EODCs) were fraudulently obtained from the DGFT, Coimbatore.
Role Attributed to the Appellant
The assessee, S. Kishore, was alleged to have acted as a mediator and consultant who facilitated the procurement of third-party shipping bills and coordinated the entire arrangement. According to the Revenue's case:
- The assessee allegedly admitted in his statement that CIPL had no genuine intention to export.
- He purportedly arranged shipping bills from the two unconnected exporters on a commission basis to falsely demonstrate fulfilment of export obligations.
- Payments aggregating to ₹41,42,605/- were allegedly received by him for this purpose.
- He was also involved in obtaining the EPCG licences and liaising with the third-party exporters.
Key fact: The EODCs issued against the EPCG licences dated 08.03.2006 and 09.10.2012 were subsequently cancelled by the Joint DGFT on 02.09.2014 and 10.09.2014 respectively, thereby establishing the fraudulent nature of the transactions.
Show Cause Notice and Adjudication
A Show Cause Notice dated 17.02.2015 was issued to CIPL and five other persons including the assessee, proposing:
- Recovery of differential customs duty of ₹3,17,96,089/- along with applicable interest.
- Confiscation of imported goods valued at ₹11,89,28,866/- under
Section 111(d)andSection 111(o)of the Customs Act, 1962. - Imposition of penalties under
Section 112,Section 114A, andSection 114AAof the Customs Act, 1962.
Following due adjudication, the Commissioner of Customs held that the assessee, acting as a mediator, was liable under Section 112(a) for facilitating procurement of shipping bills from unconnected exporters, and under Section 114AA for knowingly submitting false and incorrect documents to fraudulently secure EODCs. Penalties of ₹1,00,000/- each were imposed under both sections, totalling ₹2,00,000/-.