Customs Department Bound By DGFT's Classification Of Capital Goods Under EPCG Scheme: Madras High Court

The Division Bench consists of Justices Anita Sumanth and N. Senthilkumar observed that “there is no justification in the Department having made the assessee litigate the issue needlessly despite the CBEC having categorically confirmed as early as in 2002 that the Customs Department must align with the stand of the DGFT and DG (Tourism) in matters of imports by hotels. The licence where the imports have been classified as 'capital goods' has not been revoked or withdrawn and it is nobody's case that the licence has been obtained on a wrongful or fraudulent basis.”

The assessee/appellant is a hotel and had imported light and light fittings on 25.05.1999. It had applied for, and had been issued a license under the Export Promotion Capital Goods (EPCG) Scheme, claiming benefit of reduced rate of import duty in terms of Notification No.28/97-Cus dated 01.04.1997.

At the time of import, the assessee was denied the benefit of concessional duty, the authorities opining, contrary to the terms of the licence, that the goods imported did not constitute capital goods. Hence, the petitioner was constrained to remit the duty in full, though under protest.

An order was passed wherein the authority took the view that notwithstanding the classification of the goods under the EPCG license, the assessee was not entitled to the concessional rate, referring, inter alia, to Notification Nos.122/93, 28/97 & 29/97.

While the CESTAT had allowed the appeal, the specific ground relating to interest from date of remittance on compensatory basis had not been dealt with. The first appellate authority had himself granted interest as per Section 27A of the Act and when the assessee moved a miscellaneous petition before the CESTAT seeking adjudication of the ground relating to compensatory interest, the Tribunal rejected the same.

The bench noted that in order to obviate instances where officers of the Customs Department take stands at variance with the DGFT, the CBEC has issued a Circular in 2002 (26.09.2022) making it clear that such divergent views should not be taken and that when duty reduction or exemption had been granted by the DGFT or DG(Tourism), the Customs Department will align with such stand. The aforesaid Circular of the Board is binding upon the officers of all Commissionerates of the Department.

In such an event, it is not open to the Customs Department to dispute classification of the goods imported and the view taken by the Department is diametrically opposed to the licence and the 2002 Circular, stated the bench.

“What constitutes 'capital goods' to the licencing authority cannot be otherwise for the Customs Department. Thus, the long-drawn litigation from 1999 till now, 2025, was misconceived and needless and the Appellant is entitled to compensation for having been put through it all,” opined the bench.

In view of the above, the bench allowed the appeal.

Case Title: M/s. Adyar Gate Hotel Ltd. v. The Commissioner of Customs

Citation: 2025 LiveLaw (Mad) 225

Case Number: C.M.A. Nos.71 & 131 of 2025

Counsel for Appellant/ Assessee: Hari Radhakrishnan

Counsel for Respondent/ Department: Rajnish Pathiyil

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