Customs Circular No. 11 dated 25^th February 2003

Kind attention is invited to DOR Circular No. 53/2002-Cus. Dated 20.8.2002 enclosing copy of opinion given by Ministry of Law on the issue of jurisdiction of Settlement Commission to entertain and finally settle duty liability in cases involving default in export obligation under Advance License/ EPCG Schemes, where Settlement Commission had finally settled the liability by granting waiver of interest on duty. In Para 2 of the said Circular, customs field formations were advised to take appropriate action to safeguard Government revenue in such case.

2.     After receipt of DOR Circular, DGFT authorities have examined this issue at their end and informed DOR that in all EPCG/ Advance License issued prior to 1.4.1995 (where LUT/BG was submitted to relevant DGFT authorities), in terms of Section 11 of Foreign Trade (Development & Regulation) Act, and in terms of the conditions of Advance/ EPCG License, the liability to pay interest on duty does not get extinguished despite the final order issued by Settlement Commission. This is because Settlement Commission has jurisdiction only under the Customs Act and not under FT (DR) Act. Copy of note forwarded by DGFT in this regard is enclosed. (Annexure-I)

3.     In this regard it has also been reported by CC, Chennai that in WPMP No. 58876 of 2002 dated 25.10.2002 (main WP No. 39535 of 2002) filed by CC, Chennai in the case of M/s. SRF Limited, Bangalore, Chennai High Court has granted interim stay on the final order of Settlement Commission granting waiver of interest. Copy of the said interim order is also enclosed for ready reference (Annexure-II)

4.     In all future cases involving default in EO under Advance License/EPCG Schemes, where Settlement Commission entertains the application filed by License holder, in order to safeguard the interests of revenue, the aforesaid facts should also be brought to the notice of the Commission.

5.     Suitable Standing Order for the guidance of customs field officers may be issued.

6.     Receipt of this Circular may kindly be acknowledged.

The levy of interest on duty saved on unfulfilled portion of export obligation stipulated on the EPCG license under FT (D&R) Act

In respect of defaulter EPCG licensee who have approached the Settlement Commission regarding waiver of interest on duty saved on unfulfilled portion of export obligation the following facts are brought to the notice: -

1.     The condition for execution of Indemnity-cum-Guarantee Bond-cum-Legal Undertaking has been imposed on the EPCG licence in terms of powers given under Foreign Trade (Development & Regulation) Act as per following provisions: -

The Foreign Trade (Development and Regulation) Rule provide under Section 6(2)(b) as under: -

6.2(b): The licensing authority may issue a licence for import subject to condition that the applicant for a licence shall execute a bond for complying with the terms and conditions of the licence

2.     The requisite Indemnity-cum-Guarantee Bond cum Legal Undertaking has been prescribed in the Hand Book of Procedure. The EXIM Policy and Procedure are duly notified under Section 5 of the Foreign Trade (D&R) Act, in Gazette of India Extraordinary (Part � II, Section 3, Sub Section) (ii) and the Hand Book of Procedure is also notified under EXIM Policy in Gazette of India Extraordinary (Part- I, Section-I).

3.     Para 16 of the Hand Book of Procedure 1992-1997 provided that the licensing authority, on being satisfied, may issued a licence for import or export, in such form and with such conditions as may be prescribed or specified by or under the Rule or Orders made the Act, Policy or this Handbook.

4.     Under Para 102 of the Chapter relating to EPCG scheme in the Hand Book of Procedure 1992-97 it has been provided that before clearance of goods through customs, the importer shall execute an Indemnity-cum-Surety Bond for fulfillment of the export obligation with the licensing authority.

5.     The format of Indemnity-cum-Guarantee Bond-cum Legal undertaking has been provided in Appendix XXXIV of the Hand Book of Procedure 1992-97. Thus it is a part of the Hand Book of Procedure, which is duly notified in Gazette under the provisions of the EXIM Policy and FT (D&R) Act.

6.     The EPCG licences pertaining to the period 1992-93 upto 1994-95 are subject to one of the condition that before the clearance of goods the licensee shall execute of Indemnity-cum-Guarantee Bond-cum-Legal Undertaking with the DGFT. In the Indemnity-cum-Guarantee Bond the licensee gives an irrevocable Undertaking that in the event of their default in meeting the export obligation undertaking/condition of the licence, they shall pay an amount of interest on the amount of custom duties saved from the date of import of the first consignment till the date of payment.

7.     The Foreign Trade (Development and Regulation) Act, 1992 provide under Section 19(2)(a), (d) and (j) as under: -

19(2): Power to make rules in particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters namely: -

(a)    the manner in which and the conditions subject to which a special licence may be issued under sub-section (2) of Section 8;

(d)    the form in which and the terms, conditions and restrictions subject to which licence may be granted under sub-section (3) of Section � 9,

(j)     any other matter which is to be, or may be, prescribed, or in respect of which provisions is to be, or may be, made by rules.

8.     The Foreign Trade (Development and Regulation) Rule provide under Section 6(2)(b) as under: -

6.2(b): The licensing authority may issue a licence for import subject to condition that the applicant for a licence shall execute a bond for complying with the terms and conditions of the licence.

9.     Section 11 of the Foreign Trade (Development and Regulation) Act relating to contravention of provisions of this Act and Export and Import Polity provides under its para (2) that where any person makes or abets or attempts to make any export or import in contravention of any provisions of this Act or any rules or orders made thereunder or the Export and Import Policy, he shall be liable to a penalty not exceeding Rs. One thousand or five times the value of the goods in respect of which any contravention is made or attempted to be made, whichever is more.

10.   Since the indemnity-cum-surety Bond has been executed in terms of conditions of EPCG licence obtained under FT (D&R) Act {availing duty concession } the Indemnity-cum-Guarantee Bond-cum Legal Undertaking is under the authority and provisions in law to demand interest.

11.   EPCG licensee who have availed duty concession under Customs Notification No. 160/92 dated 20.4.1992 are approaching the Settlement Commissioner of customs and taking a stand that the interest is not payable for EPCG imports made under said customs notification No. 160/92. In some cases the Settlement Commissioner of Customs has passed orders in such cases to the Customs authority not to charge interest in respect of EPCG licences where licensee has not fulfilled the stipulated export obligation.

12.   In respect of EPCG licences pertaining upto the period 31.3.1995 the Indemnity-cum-Guarantee Bond-cum Legal Undertaking has been executed with DGFT at Hqrs. The EO monitoring in such cases is being done by us. The Customs authority are also writing to us for EO monitoring. We are issuing Demand Notice for payment of duty saved amount on unfulfilled Portion of Export Obligation together With interest as provided in the Legal Undertaking executed by the EPCG licensee with us. Wherever EPCG licensee has executed Bank Guarantee we also issuing BG forfeiture Orders.

13.   Party have been requesting us to stop proceedings under Demand Notice and BG forfeiture relating to levy of interest on duty saved on unfulfilled portion of the export obligation pending decision on their applications before the Settlement Commissioner/ Appeal filed before the CEGAT.

In one of the recent judgment given by the Settlement Commissioner, Mumbai in the Settlement application No. SC/ WZ/ CUS/ 11/ Bell.G.C. / 2001 dated 28.5.2001 relating to an EPCG licence No. P/CG/2133802 dated 20.12.1994 of M/s. Bell Graniteo Ceramica Ltd; Mumbai, the following orders have been passed: -

(a)    The Commissioner refrains from granting any immunity for offences if any, under the Foreign Trade (D&R) Act.

(b)    The Commission also grants immunity from levy of penalty and interest under the provisions of Customs Act 1962 and the notification issued thereunder in respect of the offence and liability covered by this case. It may be clarified that the licensing authority is free to deal with any penal or interest liability under the provisions of Foreign Trade (D&R) Act, 1992 and the EXIM Policy framed thereunder including the Public Notice issued thereunder. The grant of immunity under this order in respect of penalty and interest is confined to liability to penalty and interest only under the Customs Act, 1962.

(c)    An action under FT (D&R) Act is independent of any other action under Customs Act. Customs authority has no jurisdiction whatsoever to pass any orders under FT (D&R) Act. In case any order has been passed by customs authority under FT (D&R) Act, the same has no binding on DGFT as it will be without any authority.

15.   In an another case of M/s. Maypar Leather Manufacturing Co. Ltd; Chennai, the Settlement Commission, Chennai in the Settlement (application No. SA(C) No. 23/2001 dated 2.8.2001 relating to EPCG licence No. P/CG/2101315 dated 24.12.1992, in their order No. 9/2002-Cus dated 27.9.2002 has stated that they have no powers to interfere with any action taken by DGFT under the FT (D&R) Act.

16.   Further more the Department of Revenue has recently issued a Circular No. 53/2002 dated 20.8.2002 on the subject matter of settlement of cases involving default in export obligation under EPCG scheme by Settlement Commissioner that the Ministry of Law has opined that Settlement Commission has no jurisdiction to entertain such applications in view of Section 127 (B) of the Customs Act, therefore the question of granting waiver of interest in such cases by the Settlement Commissioner does not arise.

17.   It may be mentioned that Settlement Commission has jurisdiction under Customs Act only and has no jurisdiction under FT (D&R) Act. The interest being charged by this office is by virtue of one of the condition of the EPCG licence that before the clearance of goods the licensee shall execute requisite Indemnity-cum-Guarantee Bond with the DGFT, with an irrevocable undertaking payment to pay interest on duty saved on unfulfilled portion of export obligation. The requisite Indemnity-cum-Guarantee Bond cum Legal Undertaking is prescribed in the Hand Book of Procedure. The EXIM policy and Procedure are duly Notified in the Gazette of India. The EPCG licence has been issued under FT (D&R) Act. The Indemnity-cum-Guarantee Bond is also executed as provided in the FT (D&R) Act.

18.   JS&LA�s has also opinion that the interest in terms of the LUT conditions and FT (D&R) Act, can be claimed on the duty saved on the unfulfilled portion of EO against EPCG licence. Policy Division of this office has also confirmed about the same.

19.   It may also be mentioned that not abiding to the clause of the Indemnity-cum- Surety bond and LUT dated 4.1.1993 may become a good cause for initiation of Penal Action under provisions of Section 11(2) of the FT (D&R) Act, 1992 and that they shall pay interest.

20.   An action under FT (D&R) Act is independent of any other action under Customs Act, Customs authority has no jurisdiction whatsoever to pass any orders under FT (D&R) Act. In case ay order has been passed by customs authority under FT (D&R) Act, the same has no binding on DGFT as it will be without any authority.

Annexure ll

IN THE HIGH COURT OF JUDICATURE AT MADRAS

(Special Original Jurisdiction)

Friday, the Twenty Fifth day of October Two Thousand Two

PRESENT

THE HONOURABLE MR. JUSTICE K.P. SIVASUBRAMANIAM

Petition praying that in the circumstances stated therein and in the affidavit filed therewith the high court will be pleased to grant an interim stay of the impugned order passed by the Customs and Central Excise Commissioner, Additional Bench, Chennai in Final order No. 2/2002 dated 28.5.2002 pending W.P. No. 39535 of 2002.

ORDER: This petition coming on for order upon perusing the petition and the affidavit in support thereof, and, upon hearing the arguments or Mr. K. VEERARAGHAVAN, SCGSC, on behalf of the petitioner, the court made the following order:

Interim stay. Notice.

Sd/-

25/10/2002

True copy

Sd/-

Sub Assistant Registrar (Statistics/ C.S)

High Court, Madras - 600104