Comprehensive Analysis of CESTAT Mumbai Decision on Group Company Scrip Utilization and Customs Exemption for Helicopter Parts

The intersection of the Foreign Trade Policy (FTP) and customs regulations frequently generates complex legal disputes, particularly concerning the interpretation of incentive schemes, the definition of corporate relationships, and the classification of imported goods. A prominent illustration of these intricacies is found in the ruling delivered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, in the matter of Commissioner of Customs (Import-I) Vs Navayuga Engineering Company Limited.

This comprehensive judicial decision addressed multiple overlapping appeals stemming from investigations conducted by the Directorate of Revenue Intelligence (DRI). The core controversies revolved around the legitimate utilization of Export Promotion Capital Goods (EPCG), Served From India Scheme (SFIS), and Status Holder Incentive Scheme (SHIS) scrips among affiliated corporate entities, the adjustment of port-handling earnings toward export obligations, and the eligibility of imported helicopter parts for customs duty exemptions under specific notifications.

Factual Matrix and Background of the Dispute

The assessee, Navayuga Engineering Company Limited (NECL), is a corporate entity engaged in the execution and development of mega infrastructure projects, including highways, river bridges, Himalayan tunnels, and port facilities. A closely associated entity, Krishnapatnam Port Company Limited (KPCL), operates as a developer of a modern deepwater seaport in Andhra Pradesh.

To facilitate its extensive infrastructure operations, which are often located in remote hinterlands, the assessee imported various capital goods, machinery, spare parts, and consumables. During the clearance of these imported goods, the assessee availed of customs duty exemptions by utilizing four EPCG licenses issued by the Director General of Foreign Trade (DGFT), claiming benefits under Notification No. 97/2004-Customs dated 17.09.2004. Furthermore, the assessee utilized over thirty SFIS and SHIS duty credit scrips—originally issued to KPCL—to clear capital goods and helicopter parts across multiple Indian ports, claiming exemptions under Notification No. 91/2009-Customs dated 11.09.2009.

The Directorate of Revenue Intelligence (DRI) Investigation

The DRI initiated a detailed investigation based on intelligence suggesting that the assessee had improperly utilized the EPCG, SFIS, and SHIS scrips. The investigative authorities raised several primary allegations:

  1. The assessee and KPCL did not qualify as a "group company" under the strict interpretation of the Foreign Trade Policy, thereby rendering the transfer and utilization of KPCL's scrips by the assessee invalid.
  2. The adjustment of earnings generated by KPCL through port handling services for foreign-flagged import vessels could not be legally counted toward the export obligation fulfillment of the assessee.
  3. The helicopter parts imported by the assessee did not qualify as "capital goods" for its service sector business, as the helicopter was allegedly deployed for "private use," thereby violating the actual user condition.

Following the investigation, the customs authorities seized the imported capital goods under the proviso to Section 110(1) of the Customs Act, 1962. Subsequently, two separate Show Cause Notices (SCNs) were issued.