Section 28AAA Action Premature Without DGFT Cancelling FPS Scrips: CESTAT Sets Aside Duty, Fine and Penalties
Pranav B Prem
The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no customs duty demand, redemption fine, or penalty can be sustained under Section 28AAA of the Customs Act, 1962 unless the export incentive scrips are first cancelled by the Directorate General of Foreign Trade (DGFT). The Tribunal set aside the entire demand and penalties imposed on Rishabh Salvage Energy Pvt. Ltd., its director, and the customs broker.
The appeal arose from a show cause notice dated 02.07.2020 issued by the Directorate of Revenue Intelligence (DRI) under Section 28AAA in relation to two Focus Market Scheme (FPS) scrips issued by the DGFT following exports of different varieties of salt between August 2012 and December 2013 through Mundra Customs House. The Department alleged that the exporter had misclassified the goods under CTH 2501 0090, applicable to industrial salt, instead of CTH 2501 0010 for common salt. According to the Department, such classification enabled the exporter to wrongfully claim a 2% credit benefit under the Focus Market Scheme, which was not admissible for common salt.
A duty demand of ₹81,918 was raised under Section 28AAA, along with penalties of ₹2,91,550 each on the company, its director Shri Inderjit Singh Minhas, and the customs broker Soham Logistics Pvt. Ltd. under Sections 114(iii) and 114AA of the Customs Act. The lower authorities confirmed the demand and penalties, leading to the present appeals.
Before the Tribunal, the appellants contended that the salt exported was not fit for human consumption and was used for cattle feed, textile and fisheries purposes. It was submitted that anti-caking agents containing silica and iodine were added and that the goods were examined by the Department of Salt prior to shipment, which issued export worthiness certificates. The appellants further pointed out that copies of all shipping bills containing product description and classification were furnished to DGFT while applying for FPS scrips. The scrips were issued after due scrutiny and were never cancelled. They continue to remain valid.
The Tribunal took note of CBEC Circular No. 334/1/2012-TRU dated 01.06.2012, which clarifies that while action for recovery of duty under Section 28AAA can be initiated once DGFT initiates action for cancellation of an instrument, the matter may be decided only after such cancellation. In the present case, it was an admitted position that DGFT had not initiated any proceedings for cancellation of the FPS scrips.
The Bench observed that Section 28AAA proceedings for recovery of duty are contingent upon cancellation of the instrument by DGFT. In the absence of cancellation, the scrips continue to hold the field and customs authorities cannot disregard them. The Tribunal emphasized that the Department had failed to demonstrate that the scrips were fraudulent or forged.
The Revenue sought to rely upon the decision of the Supreme Court in Munjal Shova Limited v. CCE & ST-Delhi-IV. However, the Tribunal distinguished the said judgment, noting that it involved fraudulent and forged DEPB scrips, which is not the case in the present matter. No allegation of forgery or fabrication had been established here.
The Tribunal also referred to the decision in Commissioner of Customs Mumbai-I v. Adani Ports Limited, wherein it was held that unless the incentive scrips are cancelled by DGFT, duty demand and penalties cannot be sustained. Holding that the customs authorities cannot sit in judgment over the decision of DGFT when the scrips issued by it remain valid and operative, the Tribunal concluded that the duty demand, redemption fine and penalties were unsustainable in law.
Accordingly, the duty demand of ₹81,918 under Section 28AAA was set aside. The penalties of ₹2,91,550 imposed on each of the appellants were also quashed. Redemption fine and all consequential liabilities were set aside. All three appeals were allowed with consequential relief.
Cause Title: Rishabh Salvage Energy Pvt Ltd. Versus CC
Case No.: Customs Appeal No. 10182 of 2024
Coram: Somesh Arora (Judicial Member)
