2010 (12) TMI 719 - HC - Customs

Confiscation - Notification 44/2002 dated 19-4-2002- Capital Goods imported under EPCG Scheme at concessional rate and later on sale it or not used for said function - Concessional rate of duty at 5% on capital goods imported under valid license issued under Export Promotion Capital Goods (EPCG) Scheme - customs department later found that the respondent notified cars for sale in complete violation of the conditions on which respondent was allowed to import cars at concessional rate of 5% as against 160% payable - the contention of the respondent that requirement of registration of the vehicles as tourist taxi vehicles under Section 66(1) of the M.V. Act is not mandatory under the notification and under the bond conditions until the clarification issued in Exim Policy on 14-6-2006, to our mind is absurd - The clarification dated 14-6-2006 issued by the DGFT is not going to save the respondent, because they have no case that cars were used for rendering services to the foreign tourists coming to hotel. - the portion of the foreign exchange earnings from the two Presidential suits referred to in the adjudication order should be attributable to the foreign exchange earnings out of the use of the two cars, no matter they were allowed to be used by the foreign tourists in violation of the provisions of the M.V. Act and Rules. - Appeal is allowed by way of remand

Summary

Issues Involved:
1. Validity of the Customs, Excise and Service Tax Appellate Tribunal's order cancelling the adjudication order.
2. Compliance with conditions of Customs Notification No. 44/2002.
3. Registration and use of imported cars under the EPCG Scheme.
4. Foreign exchange earnings and fulfillment of export obligations.
5. Legality of the discharge certificate issued by the Joint Director General of Foreign Trade.
6. Adjudication order and limitation under Section 28 of the Customs Act.
7. Confiscation of vehicles and imposition of differential duty, interest, and penalty.

Issue-wise Detailed Analysis:

1. Validity of the Customs, Excise and Service Tax Appellate Tribunal's Order:
The High Court reviewed the Tribunal's decision, which had cancelled the adjudication order against the respondent. The Tribunal's cancellation was based on the respondent's compliance with the Customs Notification No. 44/2002 and the discharge certificate issued by the Joint Director General of Foreign Trade.

2. Compliance with Conditions of Customs Notification No. 44/2002:
The respondent imported two BMW cars at a concessional duty rate of 5% under the EPCG Scheme, which required earning foreign exchange equivalent to five times the CIF value of the goods within eight years. The respondent was also required to furnish an installation report within six months. The High Court noted that the respondent failed to comply with these conditions, as the cars were registered as private vehicles rather than tourist taxis, and no installation certificate was provided.

3. Registration and Use of Imported Cars under the EPCG Scheme:
The respondent registered the cars in the names of the Managing Director and Director as private vehicles, contrary to the requirement of registering them as tourist taxis under Section 66(1) of the M.V. Act. The High Court found this registration to be a violation of the conditions of the EPCG Scheme and the Customs Notification.

4. Foreign Exchange Earnings and Fulfillment of Export Obligations:
The respondent claimed to have fulfilled the export obligation through foreign exchange earnings from the hotel. However, the High Court found that the earnings from the two Presidential Suites, where the cars were purportedly used, amounted to only US $54,851, far below the required amount. The court determined that the respondent did not maintain separate accounts for the use of the cars, as required.

5. Legality of the Discharge Certificate Issued by the Joint Director General of Foreign Trade:
The High Court criticized the Joint Director General of Foreign Trade for issuing the discharge certificate without verifying compliance with the Customs Notification. The court held that the customs authorities were not bound by this certificate, as it was issued recklessly and without reference to the specific conditions of the notification.

6. Adjudication Order and Limitation under Section 28 of the Customs Act:
The respondent argued that the adjudication order was barred by limitation under Section 28, which allows for an extended period of five years in cases of collusion, suppression, or fraud. The High Court found that the violations were clear and uncontroverted, and therefore, the extended period of limitation was applicable.

7. Confiscation of Vehicles and Imposition of Differential Duty, Interest, and Penalty:
The High Court allowed the appeal in part by vacating the Tribunal's order and remanding the matter to the adjudicating authority. The court directed the authority to estimate a reasonable percentage of the foreign exchange earnings attributable to the use of the cars and to refix the duty and interest for the balance portion. The court also held that if the respondent paid the differential duty and interest promptly, they could be exonerated from the personal penalty, and confiscation of the cars would not be necessary. If the payments were not made within a reasonable time, the customs authorities could proceed with confiscation and recovery of the liability.

Conclusion:
The High Court's judgment emphasized the importance of strict compliance with the conditions of customs notifications and the EPCG Scheme. It underscored the need for accurate and diligent verification by authorities before issuing discharge certificates and highlighted the consequences of non-compliance, including the imposition of differential duty, interest, and potential confiscation of goods.