By TIOL News Service

MUMBAI, NOV 18, 2016: THE Appellant-company, running a number of hotels and operating a flight catering service, had imported two Bentley cars valued at Rs.1,12,16,536/- and Rs.1,11,36,009/- in November 2007 against authorisations at a concessional rate of duty of 5% under notification no. 97/2004-Cus.

The Export Promotion Capital Goods (EPCG) scheme in the Foreign Trade Policy issued by the Director General of Foreign Trade in exercise of powers under the Foreign Trade (Development & Regulation) Act, 1992 permits import of permitted capital goods at a concessional rate with the condition that stipulated value of goods shall be exported or foreign exchange earned by rendering of prescribed services within eight years of issue of authorisation.

The vehicles were seized on 20th September 2012 but released provisionally. It is the finding of the adjudicating authority that the cars had been imported under authorization that required foreign exchange to be earned through 'car rentals/transport for foreign tourists' but had not been utilised for the said purpose and, instead, was found parked at the residence of the Directors of the appellant-company for personal use.

During the pendency of investigations, appellant had, in accordance with the requirements of the scheme applied to the licensing authority on 21 st September 2012 for Export Obligation Discharge Certificate (EODC) which was under correspondence at the time of issue of impugned order.

In adjudication, the Commissioner of Customs (Export)confiscated the two cars but allowed the same to be redeemed on payment of fine of Rs.50,00,000/- duty foregone of Rs.2,59,43,151/- was confirmed; penalty of like amount u/s 114A of Customs Act, 1962 was imposed on appellant-company and Rs.20,00,000/- on Ramesh Narang.

Before the CESTAT, the appellant submitted that the issues raised in the notice leading to the impugned order stood settled with the decision of the Tribunal in Goldfinch Hotels Pvt. Ltd - 2015-TIOL-976-CESTAT-MUM and Hotel Excelsior Ltd. - 2015-TIOL-2661-CESTAT-DEL. Inasmuch as the last word in the determination of fulfillment of export obligation should be that of the licensing authority who had yet to decide on the application filed by the appellant and, therefore, the conclusion of proceedings by adjudicating authority is premature and usurpation of authority vested in another statutory body.

The AR submitted that the facts in the cited decisions are different inasmuch as in those cases the output service was 'hotel and tourism related services' whereas in the present case, the authorization required appellant-company to provide 'car rentals/transport service for foreign tourist'. Reliance is placed on the Tribunal decision in Surya Samudra Holiday Resorts Pvt. Ltd and the Kerala High Court decision in Kumarakom Lake Resort - 2011-TIOL-221-HC-KERALA-CUS.

In the context of the case laws cited by the AR, the Bench noted –

++ We do not find any legal principle to have been settled therein for us to follow. It is also noteworthy that the decisions of the Tribunal and the High Court on the matter of jurisdiction of Customs authorities to initiate action were rendered in the context of the licencing authority having issued the discharge certificate with further recourse to benefits and privileges under the scheme no longer available to the holder of authorization under the Export Promotion Capital Goods (EPCG) scheme and can hardly be alleged to be premature. We are, undoubtedly, to be guided by these decisions on the principle that there is no bar on customs authorities initiating action for confiscation and for recovery of duty that was foregone as quid pro quo for the importer binding itself to comply with conditions that were found to have been breached. However, in applying that principle, circumstances peculiar to each case will determine that appropriateness of the stage at which such intervention may be warranted.

The CESTAT further observed –

++ The importer is permitted to clear capital goods at concessional rate in return for fulfilling export obligation of eight times the duty foregone within a period of eight years from date of issue of authorization to import.

++ The scheme is limited to import of capital goods and, consequently, does not impose any condition of exclusive use for the purpose assigned in the import authorization – whether the holder be a manufacturer of goods or supplier of services. Such condition is not envisaged because it is not in public interest that capital goods utilized sub-optimally solely for earning foreign exchange. Therefore, usage for purposes other than earning of foreign exchange is not a breach of the conditions of the scheme or of the corresponding exemption notification. That is the finding in re Hotel Excelsior Ltd. Therefore, the finding in the impugned order that use by Directors, or for use other than ferrying tourists, is a breach of the conditions of exemption is not sustainable.

++ We are not in doubt that the facts unearthed by the investigators do evidence use of the imported cars for personal use and for purposes other than earning of foreign exchange but that, to the extent that such use is not violation of the conditions of import in the scheme or in the corresponding exemption notification, does not suffice to conclude that the vehicles were not used for the purposes for which import at concessional rate of duty was permitted by the authorization.

++ It is not in doubt that the licensing authority is competent to determine that export obligation has been discharged. [Bhilwara Spinners v. Union of India - 2011-TIOL-159-HC-MUM-CUS refers]

++ The adjudicating authority, in rendering the finding that export obligation has not been fulfilled has erred in pre-empting a decision by the statutory authority vested with that responsibility. The exemption notification itself in paragraph 2(2) allows a period of six year from date of licence, i.e. upto August 2013, as the first reporting block, to fulfill the export obligation; and we notice that seizure was effected and importers directed to justify the imports well before that deadline. For the reason of not having awaited the completion of the deadline prescribed in the exemption notification for compliance with first report of prescribed proportion of achievement of obligation and of deciding on the extent of achievement of export obligation without proper authority, we find that the proceedings are not legally sustainable.

++ There can be no two opinions that customs statutes are enacted for, and deal exclusively with, import or export of goods. Services have no place therein and there is no enabling authority to levy duties on import or export of services. Hence, neither domain knowledge nor domain expertise vests in the customs authorities to be capable of or empowered to decide on their own that export obligation prescribed for services has not been achieved.

++ The determination of export obligation is best left to the licensing authority . The finding that export obligation has not been achieved is, thus, without authority of law. There is no allegation of breach of any other condition in the exemption notification.

Setting aside the impugned order, the appeals were allowed with consequential relief.

(See 2016-TIOL-2989-CESTAT-MUM)