The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Chennai has clarified that the absence of physical examination under the Risk Management System does not invalidate a bonafide claim for conversion of shipping bills under the EPCG scheme, provided supporting documentation confirms export eligibility. This ruling reinforces procedural fairness in export promotion regimes and sets a critical precedent for exporters relying on third-party logistics.
Background & Facts
The Dispute
M/s. YSI Automotive India Pvt. Ltd. (Appellant) sought conversion of shipping bills originally filed under the Drawback scheme to the Export Promotion Capital Goods (EPCG) scheme. The Appellant had exported goods through M/s. Glovis India Ltd., which acted as the principal exporter, and claimed eligibility for EPCG benefits based on its role as a supporting manufacturer under the scheme. The Appellant submitted six applications between 03.09.2019 and 23.12.2019 requesting amendment of shipping bills or issuance of a No Objection Certificate under Section 149 of the Customs Act, 1962.
Key Facts
- The Appellant held valid EPCG authorizations for the imported capital goods used in production
- The shipping bills in question were endorsed by M/s. Glovis India Ltd. with confirmatory letters acknowledging YSI as the supporting manufacturer
- The Appellant demonstrated that the duty liability remained unchanged upon conversion, as no additional duty drawback or exemption was claimed
- The Commissioner of Customs, Chennai-IV, initially rejected the applications by a non-speaking order dated 16.01.2020 (Order-in-Original No. 73204/2020)
- The Appellant challenged the non-speaking order before the Madras High Court in W.P. Nos. 3591 & 9046 of 2020, with WMP No. 11004 of 2020
- The High Court, by order dated 29.04.2021, quashed the non-speaking order and directed the Commissioner to pass a speaking order within four weeks, considering all materials submitted by the Appellant
- The Commissioner issued the impugned order dated 03.01.2023 (Order-in-Original No. 08/2023), rejecting the claim solely on the ground that the shipping bills were not selected for physical examination by the Risk Management System (RMS), as they were not tagged under EPCG at the time of filing
- The Appellant appealed this order to CESTAT
Procedural History
- 03.09.2019: First set of four applications filed for conversion of shipping bills
- 23.12.2019: Second set of two applications filed
- 16.01.2020: Commissioner issued non-speaking rejection order (No. 73204/2020)
- 2020: Writ Petitions filed before Madras High Court (W.P. Nos. 3591 & 9046 of 2020)
- 29.04.2021: Madras High Court quashed the non-speaking order and directed issuance of a speaking order within four weeks
- 03.01.2023: Commissioner issued impugned order rejecting conversion on grounds of non-examination
- 20.01.2026: Hearing before CESTAT Chennai
- 27.03.2026: Final order passed by CESTAT
The Parties' Positions
The Appellant contended that:
- The EPCG scheme permits conversion of shipping bills between export promotion schemes under applicable circulars
- The lack of physical examination was due to RMS selection, which is entirely beyond the control of the exporter
- Supporting documents, including endorsements from Glovis India Ltd., established bonafide export under EPCG
- The High Court had already framed the legal issue as whether EPCG license number mention was mandatory or whether other evidence could suffice
The Revenue contended that:
- Physical examination by Customs is mandatory for EPCG-linked exports
- Absence of examination meant no verification of goods, rendering conversion ineligible
- The shipping bills were not tagged under EPCG at the time of filing, making them ineligible for scrutiny under that scheme
Relief Sought
The Appellant sought:
- Setting aside of the Commissioner’s order dated 03.01.2023
- Grant of conversion of shipping bills to EPCG scheme
- Recognition of its export claims under EPCG for the purpose of duty credit entitlement
The Legal Issue
The central question was whether the failure of the Risk Management System to select shipping bills for physical examination under the EPCG scheme can be grounds to reject a bonafide claim for conversion, when the exporter has provided contemporaneous documentary evidence establishing eligibility under the scheme.
Arguments Presented
For the Appellant
The Appellant relied on Circular No. 36/2010 dated 23.09.2010 and Circular No. 6/2002 dated 23.01.2002, which explicitly permit conversion of shipping bills between export promotion schemes subject to prescribed examination norms. It was argued that the Appellant was not responsible for the non-selection of its shipping bills by RMS, as the system operates autonomously. The Appellant submitted confirmatory letters from M/s. Glovis India Ltd. establishing its role as a supporting manufacturer and demonstrated that the duty liability remained unaffected by conversion. The Appellant also relied on the Madras High Court’s prior direction to consider all materials, which the Commissioner failed to do. The Karnataka High Court’s decision in Principal Commissioner of Customs, Bengaluru v. M/s. Louverline Blinds (30.07.2025) was cited as binding precedent supporting the view that procedural lapses attributable to the department cannot defeat a bonafide claim.
For the Respondent
The Revenue argued that physical examination is a mandatory precondition under the EPCG scheme to verify the nature and value of exported goods. It contended that since the shipping bills were not tagged under EPCG at the time of filing, they were not routed for examination, and therefore, no verification could be conducted. The Revenue maintained that without such verification, the claim for conversion could not be entertained, regardless of supporting documents. It did not dispute the authenticity of the letters from Glovis India Ltd. but insisted that the absence of examination rendered the claim legally incomplete.
The Court's Analysis
The Tribunal observed that the Madras High Court had already adjudicated the legal issue in 2021, directing the Commissioner to pass a speaking order after considering all materials. The Tribunal noted that the Commissioner’s impugned order ignored this directive by relying solely on the absence of physical examination - a factor entirely outside the control of the Appellant.
"The non-examination of Shipping Bills for some procedural requirements, cannot be fatal to a bonafide claimant, like the Appellant herein."
The Tribunal emphasized that the Revenue had not alleged any fraud, misrepresentation, or non-compliance by the Appellant. The confirmatory endorsements from Glovis India Ltd., the unchanged duty liability, and the existence of valid EPCG authorizations collectively established a bonafide claim. The Tribunal further held that Circulars 36/2010 and 6/2002 contemplate conversion based on documentary compliance and examination norms, not on the arbitrary failure of RMS to trigger physical scrutiny. The Revenue’s reliance on the absence of examination was found to be procedurally unjustified, particularly since it had not raised any objection to the High Court’s framing of the issue as one of evidentiary sufficiency rather than procedural compliance.
The Tribunal also found the Karnataka High Court’s decision in Principal Commissioner of Customs, Bengaluru v. M/s. Louverline Blinds directly applicable, where a similar claim was upheld despite non-examination, on the basis of documentary evidence and bonafide intent.
The Verdict
The Appellant succeeded. The CESTAT set aside the Commissioner’s order dated 03.01.2023 and directed the Commissioner to grant conversion of the shipping bills to the EPCG scheme. The Tribunal held that the Appellant’s claim is valid and must be processed without further delay. No monetary relief was sought or granted, as the relief pertained solely to procedural recognition of export eligibility under EPCG.
What This Means For Similar Cases
Bonafide Documentation Overrides Procedural Lapses
- Practitioners representing exporters may now argue that documentary evidence - including third-party endorsements, EPCG authorizations, and correspondence - can establish eligibility even if RMS did not trigger physical examination
- The burden shifts to the Revenue to prove mala fide intent or material non-compliance, not merely absence of examination
RMS Non-Selection Is Not a Ground for Denial
- Exporters are not liable for system-generated non-selection of shipments for examination
- Denial of benefits on this ground violates the principle of natural justice and the High Court’s directive to consider all materials
- This applies equally to other schemes (e.g., RoDTEP, MEIS) where RMS-based scrutiny is involved
Precedent from Other High Courts Is Binding
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Decisions from other High Courts on identical issues (e.g., Karnataka HC in Louverline Blinds) are persuasive and may be cited to reinforce arguments in CESTAT and Customs forums
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Practitioners should routinely cite circulars 36/2010 and 6/2002 when challenging denials based on examination failure
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Always file and preserve third-party confirmatory letters and EPCG authorization documents
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When a non-speaking order is issued, immediately seek judicial direction for a speaking order to preserve legal rights
