Exporters availing Advance Authorisation and Export Promotion Capital Goods (‘EPCG’) schemes are at times faced with challenges in fulfilling the export obligation. To aid such exporters, and to reduce the pending litigation on this account, Amnesty Scheme was introduced vide Public Notice No. 2/2023[1] by the Directorate General of Foreign Trade (‘DGFT’).
The Amnesty Scheme offered bona fide exporters a one-time opportunity to regularize default in export obligation under the Advance Authorization and EPCG schemes. This Scheme applied to authorizations issued under the Foreign Trade Policy 2004-2009 and 2009-2014. Under the Scheme, exporters could regularize their defaults by paying customs duty proportional to the unfulfilled export obligation. Additionally, the interest payable under the Scheme was capped at a maximum of 100% of the duties exempted on which interest is payable.
However, there was no mention of payment / discharge of penalty confirmed, under the Amnesty Scheme. This loophole was utilised by Customs Authorities and payment of penalty was insisted upon even from exporters who had opted for the Amnesty Scheme.
The question of whether payment of penalty can be insisted upon in such cases came up for consideration before the Customs, Excise, and Service Tax Appellate Tribunal (‘CESTAT’) Chennai, in the case of Makwuds India Private Limited v. Commissioner of Customs, Chennai[2]. In the Makwuds’ case, the exporter availed benefit under the Amnesty Scheme, paying the entire customs duty demanded along with applicable interest, and sought the regularization of their EPCG license. Consequently, the Deputy DGFT issued a regularization letter indicating the closure of the exporter’s case. In the ongoing legal proceedings, Customs Department contended that opting for Amnesty scheme did not absolve the exporter from payment of penalty confirmed under Section 112(a) of the Customs Act, 1962, as there was no mention of penalty being waived in the regularization letter issued.
The Hon’ble Tribunal analysed Public Notice No. 2/2023 dated 1 April 2023, which introduced the Amnesty Scheme. Upon analysing the same, the Tribunal held that the closure letter was issued upon the satisfaction of customs duty and interest payment, leaving no scope to confirm the penalty imposed under Section 112(a) of the Customs Act for non-fulfilment of the export obligation.
The Tribunal further noted that the Amnesty Scheme does not specify anything about penalty. Hence, any violation related to the non-fulfillment of export obligations is not viewed as an irregularity or of a mala fide intention.
This ruling provides much-needed clarity for exporters availing the Amnesty Scheme, ensuring that once conditions set out in the Amnesty Scheme is complied with and suitable communication of closure is received, no further dues can be insisted on by the Customs Department. The decision is also useful for clarifying the proposition that non-fulfilment of export obligation does not automatically mean presence of irregularity or a mala fide intention. With many more such Amnesty Schemes expected in near future, this decision is a step in the right direction to ensure the true purpose of such Amnesty Schemes is achieved.
[The authors are Partner and Associate, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
[1] F.No.18/15/AM-23/P-5 dated 01.04.2023
[2] 2024 (12) TMI 1038 - CESTAT Chennai
