2015 (12) TMI 1045 - AT - Customs

Denial of the benefit of EPCG license - Import of cars - export obligations - cars were not put to proper use inasmuch as they were not used for providing transport facilities to the guests of the hotel to earn foreign exchange. - cars were insured as personal vehicles - cars were carrying the registration number in the incorrect colour code and different perceptions about the use to which the cars were put. The statements of drivers indicate that the cars were used by the Directors - benefit of Notification No. 97/2004-Cus dated 17.6.2004 - Held that - Condition for import clearly stipulates that the car imported by HEL were to be used by HEL in their service industry - Handbook of Procedure mandates that every EPCG authorisation holder has to maintain for a period of three years from date of redemption, a true and proper account of exports/supplies made and services rendered towards fulfilment of export obligation. This Policy does not envisage that a service provider importing the goods under EPCG authorisation will have to change the character of service depending upon the goods imported which means that a hotel importing laundry equipment will have to render service of washing clothes of foreign tourists and earn foreign exchange in the process. Therefore, it cannot be construed that hotel importing cars will have to provide transportation to the foreign tourists and earn foreign exchange in the process. It only means the cars are to be used by HEL for providing hotel services to foreign guests. The export obligation means in relation to importers rendering services receiving payments in freely convertible foreign exchange for the services rendered through the use of capital goods. Therefore, the export obligation in relation to HEL rendering hotel services means receiving the payment in convertible foreign exchange for the hotel services rendered through the use of cars by HEL. - cars have been used by HEL for providing hotel services to foreign guest by using the car by their Directors. It is not the case of the Revenue that these cars were not used by Directors who are ultimately managing the hotel. Therefore, in this case the cars have been indirectly used by HEL in providing hotel service to foreign guest. It is not the case of the department that the cars have not been put to such indirect or lateral use to discharge for export obligation. The custom notification does not provide for such indirect or lateral use of the capital goods imported under EPCG scheme. The export obligation for the importer rendering service means receiving payment in convertible foreign exchange for service rendered through the use of capital goods. Therefore, if the cars were used directly or indirectly for providing the hotel services from which the foreign exchange is earned, the conditions no where suggest that the nature of service to be provided by the importer or to be governed by the type of capital goods provided. As in the case of other goods like lift and chair do not envisage the use by foreign tourist, the car are to be used by foreign tourist, implying thereby that while other capital goods could be used indirectly or laterally, the cars could not be so used and were to be used by foreign tourists. - HEL has not obtained export obligation discharge certificate and the licences have not been redeemed and during the course of adjudication, HEL has been able to show that the cars in question have been used by the foreign tourist and that is intended the use and there was (still) time available to discharge export obligation and so the action by DRI was premature. - proceedings initiated against HEL and its Directors for violation of condition of notification or the EPCG licence are not sustainable as the same are pre-mature as HEL is still in possession of the cars and registered the same as tourist vehicle. Consequently, the impugned orders are not sustainable in the eyes of law. Accordingly, the impugned orders are set aside. - Decided in favour of assessee.

Issues Involved:
1. Prematurity of proceedings against HEL and its Directors for contravention of import under Notification No. 97/2004.
2. Requirement for imported cars to be used for transportation of foreign tourists to earn foreign exchange.

Detailed Analysis:

Issue 1: Prematurity of Proceedings
The primary contention was whether the proceedings initiated against HEL and its Directors for contravention of import under Notification No. 97/2004 were premature. HEL argued that they still had time until August 2015 and November 2015 to fulfill their export obligation. The Tribunal noted that HEL had not yet obtained the export obligation discharge certificate, and the licenses had not been redeemed. The Tribunal held that the proceedings initiated by the Revenue were premature as HEL was still in possession of the cars and had registered them as tourist vehicles. Therefore, the action by the DRI was deemed premature, and the proceedings were not sustainable.

Issue 2: Requirement for Imported Cars to be Used for Transportation of Foreign Tourists
The second issue was whether the imported cars were required to be used for transporting foreign tourists to earn foreign exchange. HEL contended that the cars were used in the hotel service, and the policy did not mandate that the cars must be used exclusively for transporting foreign tourists. The Tribunal analyzed the relevant provisions of the Foreign Trade Policy and the customs notification, concluding that the cars were to be used by HEL in their service industry, which includes providing hotel services to foreign guests.

The Tribunal emphasized that the policy and the customs notification should be interpreted harmoniously. The Tribunal found that the term "capital goods" and "export obligation" in the notification had the same meaning as in the Foreign Trade Policy. Therefore, the export obligation could be fulfilled by receiving payments in freely convertible foreign exchange for the hotel services rendered through the use of cars. The Tribunal rejected the Revenue's argument that the cars must be used to transport foreign tourists to earn foreign exchange.

The Tribunal also referred to several case laws, including:
- Som Dutt Builders Ltd.: The Tribunal held that there was no violation of the EPCG scheme or the customs notification as the imported cars were used for the intended purpose.
- M Far Hotels Ltd.: The Tribunal noted that it was not necessary to show the amount of foreign exchange earned exclusively through the use of the car due to practical difficulties.
- Air Travel Bureau Ltd.: The Tribunal and the Delhi High Court held that the export obligation could be fulfilled by using the cars for the business activity for which they were imported, and the DGFT's redemption of the license was upheld.
- Goldfinch Hotels (P) Ltd.: The Tribunal held that there was no violation of any condition of the EPCG license, FTP, or the customs notification, and the imported cars were used for the intended purpose.

Based on these precedents, the Tribunal concluded that HEL was not required to use the cars exclusively for transporting foreign tourists to earn foreign exchange. The Tribunal set aside the impugned orders and allowed the appeals filed by HEL and its Directors with consequential relief, while dismissing the appeal filed by the Revenue.

Conclusion
The Tribunal held that the proceedings against HEL and its Directors were premature and not sustainable as HEL still had time to fulfill their export obligation. Additionally, the Tribunal concluded that the imported cars were not required to be used exclusively for transporting foreign tourists to earn foreign exchange, and the cars were used in providing hotel services to foreign guests, fulfilling the export obligation. The appeals by HEL and its Directors were allowed, and the Revenue's appeal was dismissed.

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