Chennai | In a significant ruling concerning the Export Promotion Capital Goods (EPCG) scheme, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has delivered a notable judgment in a case involving alleged misuse of export documentation. The tribunal upheld findings of fraud related to the use of third-party shipping bills to falsely demonstrate export obligation compliance but simultaneously reduced the penalty imposed on the appellant.
The case pertains to M/s Chromaprint India Pvt. Ltd., which had imported capital goods and machinery worth approximately ₹11.89 crore under the EPCG scheme, availing customs duty exemption benefits. Under the scheme conditions, the company was required to fulfill specified export obligations within a stipulated time frame to justify the duty exemption granted.
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However, investigations by the Directorate of Revenue Intelligence (DRI) raised serious concerns that the export obligations were not fulfilled through actual exports but were instead shown through manipulated documentation. The probe revealed that the company allegedly used shipping bills belonging to unrelated third-party garment exporters to falsely demonstrate compliance with its export obligations.
Authorities further found that based on these documents, Export Obligation Discharge Certificates (EODCs) were obtained from DGFT authorities, thereby allowing the company to retain customs duty benefits. The department treated this as a serious financial irregularity and proposed recovery of over ₹3.17 crore in customs duty along with interest and potential confiscation of goods.
In the proceedings, the appellant S. Kishore, Managing Director of Nandhishiv Impex Pvt. Ltd., was accused of facilitating the arrangement of third-party shipping bills to help meet EPCG compliance requirements. The department alleged that he received approximately ₹41 lakh for his involvement and that his statement recorded during investigation was never retracted, strengthening the case against him.
The appellant, however, argued before the tribunal that his role was limited strictly to documentation and processing. He claimed that export documents were provided to him in pre-prepared form and that he merely submitted them to the concerned authorities without any involvement in the actual export transactions. It was also argued that the principal entity had already settled the matter through the Settlement Commission, making further proceedings against him unjustified.
After examining the evidence and records, CESTAT observed that EPCG licenses and EODCs in the case were obtained through fraudulent means. The tribunal held that the use of third-party shipping bills to demonstrate exports that did not belong to the importer constituted a clear violation of customs law and justified confiscation as well as imposition of penalty.
The bench also noted that provisions under Sections 112(a) and 114AA of the Customs Act were clearly applicable, as the case involved use of false documents to obtain undue financial benefit from the government exchequer. At the same time, the tribunal emphasized that sentencing must adhere to the principle of proportionality, ensuring that punishment is balanced and not excessive in relation to the role played by the accused.
It was further observed that in a related settlement, the managing director of the main importing company had been imposed a penalty of only ₹1 lakh. Considering this, the tribunal held that imposing a disproportionately higher penalty on other parties involved in a similar role would not be justified.
Accordingly, CESTAT reduced the penalties originally imposed under Sections 112(a) and 114AA from ₹1 lakh each to ₹50,000 each, bringing the total penalty down to ₹1 lakh.
Experts believe the ruling reinforces two key principles: strict enforcement against customs fraud and judicial balancing in penalty determination. While the tribunal clearly acknowledged the fraudulent nature of the conduct, it also ensured that punishment remained proportionate to the established role and involvement of the appellant.
Officials indicated that enforcement agencies are increasingly strengthening digital monitoring systems, data verification mechanisms, and real-time export tracking tools to prevent misuse of EPCG benefits. Greater scrutiny of third-party documentation and cross-verification of shipping records is also being implemented.
The judgment underscores the importance of transparency and robust compliance mechanisms in export incentive schemes, highlighting that while such schemes are designed to promote trade, they remain vulnerable to misuse in the absence of strong regulatory oversight.
