The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has delivered a landmark ruling reinforcing the conclusiveness of Export Obligation Discharge Certificates (EODCs) issued by the Directorate General of Foreign Trade (DGFT) under the Foreign Trade Policy (FTP). The Tribunal set aside a demand of Rs. 14,97,51,922 under Section 28(4) of the Customs Act, 1962, holding that once EODCs are issued and bonds are discharged, Customs authorities cannot reopen the matter without DGFT revoking the certificates. The judgment also underscores the violation of natural justice in denying cross-examination of key witnesses and rejects the extrapolation of findings from a partial investigation to confirm duty on 100% of consignments.
Background & Facts
The Dispute
The appellant, M/s Kalpena Plastiks Ltd. (formerly M/s Sarla Gems Limited), is engaged in the import and trade of polymer and plastic raw materials under the Advance Authorisation (AA) and Duty-Free Import Authorisation (DFIA) schemes of the FTP. Between 2009 and 2012, the appellant obtained 29 authorisations from DGFT, Kolkata, declaring M/s Kalpena Industries Limited (KIL) as the supporting manufacturer. Under these authorisations, the appellant imported polymer raw materials with a total CIF value of Rs. 67,51,85,463 and duty foregone of Rs. 14,97,51,922 (Rs. 9,84,42,093 under AA and Rs. 5,13,09,829 under DFIA).
The Transaction Architecture
The transaction structure involved:
- A merchant-exporter (appellant) tied with a named supporting manufacturer (KIL)
- High-seas purchase of consignments sold by KIL to the appellant under registered High-Seas Sale (HSS) agreements
- Discharge of export obligation by way of deemed exports to M/s Tara Holdings Pvt. Ltd. (THPL), a 100% Export-Oriented Unit (EOU) under Chapter 7/8 of the FTP
This structure is expressly permitted under:
- Para 4.1.3 read with Para 4.1.7 of FTP 2009-14
- Para 4.04 of Handbook of Procedures (HoP) (AA to merchant-exporter with supporting manufacturer)
- Para 8.2(b) of FTP (supply by Domestic Tariff Area (DTA) unit to EOU recognised as deemed export)
- Para 8.3.1(ii) read with Para 4.28 of HoP (discharge of export obligation under AA/DFIA by deemed export to EOU on production of CT-3 and Central Excise attested invoice)
Procedural History
- 2009-2012: Appellant obtained 29 authorisations from DGFT, Kolkata, and imported raw materials under AA/DFIA schemes
- Post-import: Appellant discharged export obligation by deemed exports to THPL, supported by documents such as ARE-3, CT-3, and Central Excise attested invoices
- Post-verification: DGFT issued EODCs for all 29 authorisations, and the Customs Bond Cell vacated the bonds executed at the time of import
- 29.08.2014: Directorate of Revenue Intelligence (DRI), Kolkata Zonal Unit, issued Show Cause Notice (SCN) No. DRI F. NO. 02/KOL/APP/2013/Pt./KPL/4147 under Section 124 read with Section 28 of the Customs Act, 1962, alleging diversion of duty-free imported raw materials into the open market and fictitious deemed exports to THPL. The SCN proposed:
- Confiscation under Section 111(o) of the Customs Act
- Demand of Rs. 14,97,51,922 under Section 28(4)
- Interest under Section 28AA
- Penalty under Section 114A
- 15.03.2016: Appellant filed a detailed reply denying all allegations
- 31.12.2018: Commissioner of Customs (Port), Kolkata, passed Order-in-Original (OIO) No. Kol/Cus/Commissioner/Port/82/2018, confirming the demand, interest, and penalty, and recording at Paragraph 46 that the ingredients of Section 135 stand attracted
- 01.03.2019: Appellant filed Writ Petition No. 5060 of 2019 before the Calcutta High Court
- 12.07.2019: Calcutta High Court granted protection against coercive action, extended from time to time
- 21.04.2026: Leave granted to file the present statutory appeal before CESTAT
Key Facts
- The appellant imported raw materials under 29 DGFT authorisations with a total CIF value of Rs. 67,51,85,463 and duty foregone of Rs. 14,97,51,922
- DGFT issued EODCs for all 29 authorisations after verification of deemed export documents
- Customs Bond Cell vacated the bonds executed at the time of import on production of EODCs
- DRI issued SCN alleging diversion of goods without prior consultation with DGFT or seeking revocation of EODCs
- Five separate SCNs were issued by the Commissioner of Central Excise, Kolkata-V, to THPL, proceeding on the footing that THPL received inputs from suppliers including the appellant
- The Central Excise SCNs and OIOs contradict the DRI’s hypothesis of no movement of goods from the appellant to THPL
- The appellant produced certificates from the Superintendent of Central Excise certifying receipt of goods by THPL based on RG-23 Part-II purchase registers and ER-1 returns
- The Commissioner discarded these certificates at Paragraph 41 of the OIO on grounds of:
- Being based on records only
- No physical verification
- Superintendent not being informed the certificate would be used for EODC
- The OIO relied heavily on statements recorded under Section 108 of the Customs Act from vehicle owners, transporters, drivers, and Customs House Agents (CHA) representatives
- Cross-examination of these witnesses was denied despite specific requests
- Annexure-B to the SCN admitted that in about 65% of consignments, no enquiries were undertaken, and within the remaining 35%, the enquiry was inconclusive in approximately two-thirds
- Despite this, the Commissioner confirmed the full demand of Rs. 14.97 crore on 100% of consignments across all 29 authorisations
- The Department produced no purchase/sale records, banking trail, statements of alleged buyers, or seizure of diverted goods
- A cash seizure of Rs. 17,22,72,185 from M/s Jaqua Industries was not traced to the appellant’s consignments
Relief Sought
The appellant sought:
- Setting aside the OIO dated 31.12.2018
- Quashing of the demand of Rs. 14,97,51,922 under Section 28(4)
- Quashing of the penalty and interest
- Exclusion of the finding under Section 135 of the Customs Act
The Revenue sought imposition of redemption fine in its appeal.
The Legal Issue
The Tribunal framed the following legal questions:
- Whether Customs authorities can demand duty for non-fulfilment of export obligation when EODCs have been issued by DGFT after due verification and not revoked?
- Whether the demand can be sustained when the Central Excise Department, in five contemporaneous SCNs to THPL, proceeded on the footing that goods were received by THPL, contradicting the DRI’s hypothesis of no movement?
- Whether the impugned OIO can stand when cross-examination of witnesses on whose statements the OIO is built was denied despite specific requests?
- Whether a duty demand on 100% of consignments under 29 authorisations can be sustained by extrapolation from a vehicle enquiry that covered at best one-third of consignments and was inconclusive in the bulk of that subset?
- Whether the extended period under Section 28(4) is invokable in the absence of any positive act of fraud, collusion, wilful misstatement, or suppression?
- Whether the recommendation under Section 135 at Paragraph 46 of the OIO can survive once the foundation of the adjudication falls?
- Whether the goods can be confiscated and redemption fine imposed in the facts and circumstances of the case?
Arguments Presented
For the Appellant
- Conclusiveness of EODC: The EODC issued by DGFT is conclusive proof of fulfilment of export obligation. Customs cannot sit in appeal over DGFT’s decision. Reliance was placed on Skipper Ltd. v. CC (Port), Kolkata, Vedanta Ltd. v. CC, and Interglobe Enterprises Ltd. v. CC, New Delhi
- Bond Vacation: The customs bond under Notifications 96/2009-Cus and 98/2009-Cus is a conditional instrument. Once the EODC is issued and the bond vacated, the foundation for any demand under Section 28(4) ceases to exist
- Jurisdictional Scheme: The jurisdiction to determine fulfilment of export obligation vests in DGFT under the Foreign Trade (Development & Regulation) Act, 1992 read with the FTP. The Customs authority’s role is limited to verifying compliance with exemption notification conditions
- No Fraud or Suppression: The Commissioner recorded no finding of fraud, collusion, or wilful misstatement. The appellant did not conceal any facts, as all authorisations, imports, and EODCs were issued after scrutiny by DGFT and Customs
- Natural Justice: Denial of cross-examination of witnesses whose statements formed the bedrock of the OIO is a per se violation of natural justice. Reliance was placed on Andaman Timber Industries v. CCE and CCE, Hyderabad-IV v. Venkateswara Silk Mills
- Extrapolation Invalid: The demand on 100% of consignments based on a partial and inconclusive enquiry covering at best one-third of consignments is unsustainable. Reliance was placed on Continental Cement Company v. UOI and Arya Fibres Pvt. Ltd. v. CCE
- No Mens Rea: Section 28(4) requires proof of collusion, wilful misstatement, or suppression with intent to evade duty. The OIO recorded no positive act evidencing mens rea. Reliance was placed on Pushpam Pharmaceuticals Co. v. CCE and Cosmic Dye Chemical v. CCE
- Section 135 Inapplicable: The ingredients of Section 135 were not attracted as the appellant imported openly under 29 DGFT authorisations, filed regular Bills of Entry, and obtained EODCs. No element of "knowing concern" in fraudulent evasion could be imputed. Reliance was placed on Kanungo & Co. v. Collector of Customs and Akbar Badruddin Jiwani v. Collector of Customs
- No Confiscation: Physical confiscation under Section 111(o) was not feasible as the goods stood cleared. The proposal for confiscation stood spent
- Interest and Penalty: With the substantive demand being unsustainable, neither interest under Section 28AA nor penalty under Section 114A could survive. Reliance was placed on CCE v. H.M.M. Ltd. and Arihant Arts v. CCE
For the Revenue
- Diversion of Goods: DRI investigated and found that the transporter was neither existent nor capable of transporting the goods. The goods were allegedly diverted into the domestic market through illicit means
- Liability for Duty: The assessee is liable to pay duty and face consequential action, including confiscation and imposition of redemption fine
The Court's Analysis
The Tribunal addressed each issue systematically:
Issue (i): Conclusiveness of EODC
"Admittedly, the assessee has obtained EODC from DGFT and all the bonds were executed by the assessee has been duly discharged and discharged. In that circumstances, the demand against the assessee is not sustainable as held by this Tribunal in the case of Skipper Ltd. Vs. Commissioner of Customs (Port), Kolkata reported in (2025) 27 Centax 246 (Tri-Cal)..."
The Tribunal relied on Skipper Ltd. to hold that once EODCs are issued by DGFT and bonds are discharged by Customs, the demand alleging violation of notification conditions is unsustainable. The Tribunal also cited Vedanta Ltd. v. CC and Interglobe Enterprises Ltd. v. CC, New Delhi to reinforce that the demand does not survive when bonds stand cancelled or EODCs are issued.
Issue (ii): Contradiction by Central Excise Records
The Tribunal noted that the Revenue’s allegation of non-movement of goods to THPL was directly contradicted by five SCNs issued by the Commissioner of Central Excise, Kolkata-V, to THPL. These SCNs proceeded on the footing that THPL received raw materials from suppliers including the appellant. The Tribunal held that both positions cannot be simultaneously sustained, and the Revenue cannot approbate and reprobate.
Issue (iii) & (iv): Denial of Cross-Examination and Extrapolation
"We find that in this case, no cross examination of the transporter whose statements have been relied upon by the adjudicating authority to the appellant. Therefore, it is gross violation of principle of natural justice."
The Tribunal relied on Jindal Drugs Pvt. Ltd. v. UOI to hold that denial of cross-examination vitiates the proceedings. The Tribunal also held that extrapolation from a partial and inconclusive enquiry to confirm duty on 100% of consignments is impermissible.
Issue (v): Invocation of Extended Period
The Tribunal held that the demand was barred by limitation as the issuance of EODCs and discharge of bonds were within the knowledge of the Revenue. The extended period under Section 28(4) is invokable only on proof of fraud, collusion, wilful misstatement, or suppression, none of which were established.
Issue (vi): Survival of Section 135 Recommendation
The Tribunal held that the recommendation under Section 135 at Paragraph 46 of the OIO cannot survive once the foundation of the adjudication falls. Reliance was placed on Radheshyam Kejriwal v. State of West Bengal to underscore that Section 28(4) (fiscal recovery) and Section 135 (penal provision) operate on different planes and require different standards of proof.
Issue (vii): Confiscation and Redemption Fine
The Tribunal held that since the goods were exported (as established under Issue (i)), they are not liable for confiscation, and consequently, no redemption fine is imposable.
The Verdict
The Tribunal allowed the appeals filed by the assessee and co-noticees (Shri Narrindra K. Suranna and Shri Tara Chand Jain) and dismissed the Revenue’s appeal. The key outcomes are:
- Demand Set Aside: The demand of Rs. 14,97,51,922 under Section 28(4) of the Customs Act, along with interest and penalty, was set aside
- Section 135 Finding Quashed: The finding under Section 135 of the Customs Act was expunged
- No Confiscation or Redemption Fine: The goods were held not liable for confiscation, and no redemption fine was imposed
- Costs: The Tribunal did not award costs but directed consequential benefits to the appellant
What This Means For Similar Cases
EODC is Conclusive Proof of Export Obligation Fulfilment
- Binding on Customs: Once DGFT issues an EODC after due verification, Customs authorities cannot reopen the matter or demand duty alleging non-fulfilment of export obligation. The EODC is conclusive proof that the conditions of the exemption notification stand satisfied
- No Revocation, No Demand: Customs cannot demand duty unless DGFT revokes or cancels the EODC. The onus is on the Department to approach DGFT for revocation if aggrieved
- Bond Vacation: The vacation of bonds by Customs on production of EODCs estops the Department from demanding duty on the same authorisations
Natural Justice Mandates Cross-Examination
- Statutory Right: The right to cross-examine witnesses whose statements form the basis of an adverse adjudication is a statutory right under Section 138B of the Customs Act and a fundamental principle of natural justice
- Vitiation of Proceedings: Denial of cross-examination, even if the statements are recorded under Section 108, vitiates the proceedings. The adjudicating authority must follow the procedure under Section 9D of the Central Excise Act (applicable mutatis mutandis to Customs) to admit such statements in evidence
- Practical Takeaway: Practitioners must insist on cross-examination of all witnesses relied upon by the Department. If denied, the proceedings can be challenged on grounds of violation of natural justice
Extrapolation from Partial Enquiry is Impermissible
- No Presumptive Demand: A duty demand on 100% of consignments cannot be sustained based on extrapolation from a partial and inconclusive enquiry. The Department must establish diversion or non-fulfilment with respect to each consignment
- Evidentiary Burden: The Department bears the burden of proving diversion with clinching evidence. Mere assumptions, presumptions, or surmises are insufficient to confirm duty, especially in quasi-criminal charges
- Transposition Errors: Minor clerical errors (e.g., wrong vehicle numbers) cannot be relied upon to allege non-movement of goods without independent verification
