A Madurai-based exporter of wheat products having availed the ‘incentive' of import of machinery at concessional customs duty had to fulfil his export obligation. Failure to comply with the ‘Export Promotion Capital Goods Scheme' (EPCG) would compel him to pay duty with 15 per cent interest to the Customs Dept for the ‘unfilled' portion of export obligation, the Madras High Court ruled recently.

Jayakirshna Flour Mills (P) Ltd, Thirumangalam, Madurai District. availed a licence on July 2, 2006 for the import of machinery such as moisture controller, flour packing machine, etc.

According to the EPCG, they were required to export wheat products eight times of duty saved on import of these machinery, spread over an eight-year period.

According to the scheme, during the first and second year, which constituted Block 1, there would be no export obligation. In III and IV years, export obligation is 15 per cent. Blocks V and VI required 35 per cent export and in blocks VII and VIII, the obligation would be 50 per cent.

Hence, the company was not obliged to make any export for the first two years up to July 2, 2006. In the next two years, the obligation was 15 per cent export.

However, by notification dated October 8, 2007 , the Government banned total export of wheat products. Thus, no export was permissible, though there was the obligation under EPCG.

The company said they had sent letters on December 10, 2007, January 9, 2008 and August 23, 2008 to the Director General, Foreign Trade, O/o Jt Dir Foreign Trade, Madurai, requesting waiver of export obligation in view of the said notification banning export of wheat products.

The authorities informed the company that paragraph 5.11.2 of ‘Handbook of Procedures' was deleted by public notice dated March 23, 2009. The company was, therefore, directed to pay 15 per cent interest for the unfulfilled portion of export obligation.

Challenging order dated March 31, 2009 of the Joint Director Foreign Trade, Madurai 625 020, the company in a writ petition contended that if the ban order was disclosed earlier, they would not have opted for obtaining licence and imported machinery at concessional duty. Ban on export of wheat products came into effect on October 8, 2007 before the due date of export.

Hence, there could not be any liability for payment of interest, the petitioner contended.

Mr Justice K. Chandru, who heard the petition, ruled that the petitioner having availed duty concession could not rely upon ban order which came subsequent to first year of Block II. Their bona fide was not proved during the first three years of their export obligation. The petitioner ought to have taken advantage of paragraph 5.11.4 issued on June 3, 2008. The contentions of R-2 (Joint Director Foreign Trade) were well founded. Hence writ petition would stand dismissed, the Judge held.

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