2016 (12) TMI 138 - AT - Customs

Import of two Bentley cars under EPCG scheme - Use of case for the purpose other than to earn foreign exchange - Jurisdiction - cars found parked at the residence of the Directors of the appellant-company for personal use. - Held that - 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 for 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. While the proper officer under the Customs Act, 1962 can initiate action for breach of conditions of notification, a certification of compliance with conditions of licence cannot be ignored or substituted by separate findings to the contrary. 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. The service which the appellant was to render is not a readily identifiable taxable service in Finance Act, 1994. The authorization issued to appellant specifies the ITC HS classification of the service through which export obligation is to be achieved and this classification is alien to the Customs Tariff Act, 1975 and has naught to do with section 65 of Finance Act, 1994. The description and assigning of value to services earning foreign exchange are not amenable to interpretation or assessment by customs authorities. Consequently, no authority attaches to claim the right or duty to determine the extent of achievement of export obligation. In the light of this factual matrix, the determination of export obligation is best left to the licencing 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 - the demand of duty and confiscation of the cars fails as do the various penalties - appeal allowed - decided in favor of appellant-importer.

Issues Involved:
1. Confiscation of imported Bentley cars under the Export Promotion Capital Goods (EPCG) scheme.
2. Recovery of duty foregone and imposition of penalties under the Customs Act, 1962.
3. Compliance with conditions of the EPCG scheme, including the furnishing of an installation certificate and fulfillment of export obligation.
4. Jurisdiction and authority of Customs authorities versus the licencing authority in determining the fulfillment of export obligations.

Detailed Analysis:

Confiscation of Imported Bentley Cars:
The adjudicating authority confiscated two Bentley cars imported by the appellant-company under the EPCG scheme but allowed them to be redeemed on payment of a fine of ?50,00,000. The cars were seized due to failure to comply with the conditions of the EPCG scheme, specifically the non-furnishing of an installation certificate and non-fulfillment of export obligations. The vehicles were found parked at the residence of the Directors of the appellant-company for personal use rather than being used for 'car rentals transport for foreign tourists' as required by the authorization.

Recovery of Duty Foregone and Imposition of Penalties:
The duty foregone amounting to ?2,59,43,151 was confirmed as due for recovery under the proviso to section 28(1) of the Customs Act, 1962. Additionally, a penalty of like amount was imposed on the appellant-company under section 114A of the Customs Act, 1962, and a penalty of ?20,00,000 was imposed on Shri Ramesh Narang.

Compliance with Conditions of the EPCG Scheme:
The EPCG scheme permits the import of capital goods at a concessional rate with the condition that a stipulated value of goods shall be exported or foreign exchange earned by rendering prescribed services within eight years. The appellant-company failed to furnish the installation certificate within six months of import and did not provide evidence of fulfilling the export obligation. The adjudicating authority found that the cars were not used for the intended purpose of earning foreign exchange through 'car rentals transport for foreign tourists.'

Jurisdiction and Authority:
The appellant-company contended that the determination of fulfillment of export obligation should be the prerogative of the licencing authority, not the Customs authorities. The Tribunal in M/s Goldfinch Hotels Pvt Ltd and M/s Hotel Excelsior Ltd had previously settled similar issues, concluding that the licencing authority is the final authority to determine the fulfillment of export obligations. The Customs authorities' action was deemed premature and an overreach of their jurisdiction.

The Tribunal in Surya Samudra Holiday Resorts Pvt Ltd and the High Court of Kerala in Commissioner of Customs v. Kumarakom Lake Resort held that Customs authorities could initiate action for recovery of duty foregone if the export obligation was not fulfilled, provided the licencing authority's decision was awaited. The Tribunal emphasized that the Customs authorities should not preempt the licencing authority's decision.

Conclusion:
The Tribunal found that the adjudicating authority erred in preempting the licencing authority's decision regarding the fulfillment of export obligations. The exemption notification allowed a period of six years from the date of licence for compliance, and the seizure was effected before this deadline. The Customs authorities lacked the domain knowledge and authority to determine the fulfillment of export obligations related to services, which is best left to the licencing authority.

The Tribunal concluded that the impugned order was not legally sustainable, set aside the demand of duty, confiscation of the cars, and various penalties, and allowed the appeals with consequential relief.

Pronouncement:
The judgment was pronounced on 25/10/2016.

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