February 19, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has ruled that customs authorities cannot demand duty or impose penalties under Section 28AAA of the Customs Act, 1962 unless the export incentive scrips in question are first cancelled by the Directorate General of Foreign Trade (DGFT).
Allowing three connected appeals in Customs Appeal Nos. 10182, 10183 and 10552 of 2024, the Bench of Judicial Member Somesh Arora set aside the duty demand, redemption fine and penalties imposed on Rishabh Salvage Energy Pvt. Ltd., its director Shri Inderjit Singh Minhas, and customs broker Soham Logistics Pvt. Ltd.
Background of the Dispute
The case arose from a show cause notice dated 02 July 2020 issued by the Directorate of Revenue Intelligence (DRI) under Section 28AAA in relation to two Focus Market Scheme (FPS) scrips issued by DGFT. These scrips had been granted after exports of different varieties of salt made between 23 August 2012 and 09 December 2013 through Mundra Customs House.
The Department alleged that the exporter misclassified the goods under CTH 2501 0090, meant for industrial salt, instead of CTH 2501 0010 applicable to common salt. According to the Revenue, this classification enabled the exporter to claim a 2 percent credit benefit under the Focus Market Scheme, which was not available for common salt.
A duty demand of ₹81,918 was raised under Section 28AAA. In addition, penalties of ₹2,91,550 each were imposed on the company, its director and the customs broker under Sections 114(iii) and 114AA of the Customs Act. These were confirmed by the lower authorities, prompting the present appeals.
Appellants’ Stand
The appellants contended that the exported salt was not fit for human consumption and was used for cattle feed, textile and fisheries purposes. Anti-caking agents containing silica and iodine had been added. Before export, the goods were examined by the Department of Salt, which issued export worthiness certificates.
It was further argued that all shipping bills, including product description and classification, were submitted to DGFT while applying for the FPS scrips. The scrips were issued after scrutiny and have never been cancelled. They continue to remain valid.
The appellants relied on CBEC Circular No. 334/1/2012-TRU dated 01 June 2012, which clarifies that recovery proceedings under Section 28AAA may be initiated when DGFT initiates action for cancellation, but adjudication can be completed only after such cancellation.
Tribunal’s Findings
The Tribunal noted that it was undisputed that DGFT had not initiated any action for cancellation of the FPS scrips. Referring to the Board Circular, the Bench held that proceedings for recovery of duty under Section 28AAA are contingent upon cancellation of the instrument by DGFT.
In the absence of cancellation, the scrips remain valid and operative. Customs authorities cannot sit in judgment over the decision of DGFT or re-adjudicate classification when the incentive scrips have not been withdrawn.
The Revenue had relied on the Supreme Court’s decision in Munjal Shova Limited v. CCE & ST-Delhi-IV. However, the Tribunal distinguished that ruling, noting that it involved fraudulent and forged DEPB scrips. No allegation of forgery or fabrication had been established in the present case.
The Bench instead relied on its earlier decision in Commissioner of Customs Mumbai-I v. Adani Ports Limited, where it was held that unless incentive scrips are cancelled by DGFT, duty demand and penalties cannot be sustained.
Final Order
Holding that the action of the lower authorities was premature and contrary to the Board’s circular, the Tribunal set aside:
- Duty demand of ₹81,918 under Section 28AAA
- Penalties of ₹2,91,550 each on the company, its director and the customs broker
- Redemption fine and all consequential liabilities
All three appeals were allowed with consequential relief.
Cause Title: Rishabh Salvage Energy Pvt Ltd v. Commissioner of Customs, Mundra
Case No.: Customs Appeal No. 10182 of 2024 (with connected appeals)
