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TMI Blog2015 (12) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dish Rai Sood, Shri Raman Kumar Sood, Shri Ajay Kumar Sood and Shri Satish Kumar Sood are in appeals against the order No. 26/2010 dated 28.4.2010. HEL is further filed appeal against the Order No. ACE/MIJM/59/2010 dated 26/27.08.2010. Revenue is also in appeal against the said order for enhancement of redemption fine and penalty. 2. As the issue involved is identical in all the appeals, therefore, all the appeals are disposed of by a common order. 3. The facts in brief are that HEL is providing Hotel Services under the category of Tourism and Travel related services mentioned in Appendix 10 of the Handbook of Procedures relating to Foreign Trade Policy 2004-2009. M/s HEL obtained EPCG authorisation dated 20.08.2007 in respect three Mercedes Benz cars and another such authorisation dated 1.11.2007 in respect of one Rolls Royce car. The export obligation against this EPCG authorisation was to be fulfilled within eight years reckoned from the date of authorisation. HEL imported three Mercedes cars on 1.1.2008 and one Rolls Royce car on 7.2.2008 by claiming concessional rate of duty/exemption under Notification No. 97/2004-Cus dated 17.6.2004. An investigation was conducted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orisation. The capital goods as defined in para 9.12 of the policy which means any plant, machinery, equipment or accessories required for rendering services and includes those required for replacement, modernisation, technological upgradation or expansion. The service providers includes providers of hotel services, can import any plant, machinery, equipment or accessories required for providing hotel services, as also for modernisation, technological upgradation or expansion of services, which for the present proceedings means hotel services. He further submits that proviso to para 5.1 of the policy allows import of motor cars, sports utility vehicles or all purpose vehicles inter alia to hotels. Condition for import of capital goods in para 5.3 of the Policy is that import of cars shall be the subject to actual user condition till export obligation is completed. As per para 9.4 of the Policy actual user means, who may be either industrial or non-industrial and para 9.6 of the Policy, actual user means a person who utilise the imported goods for his own use in any service industry. Therefore, it means that cars imported by HEL were to be used by HEL in their service industry. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g foreign exchange through the use of cars by foreign tourists. He further submits that it is also provided in the notification that in respect of hotels, the export obligation can also be fulfilled by the manage hotels as defined in paragraph 9.36 of the Foreign Trade Policy. As per said proviso, it is clear that cars are only to be used by foreign tourists staying as guests in the hotel is not in line with even the language of the notification. Therefore, there is no divergence between the provisions of the Foreign Trade Policy and the exemption notification. To support this contention he relied following decisions: (a) CC, New Delhi Vs. Som Dut Builders Ltd. - 2009 (236) ELT 478 (Tri.-Del.) (b) M Far Hotels Ltd. Vs. CC, Cochin - 2009 (241) ELT 94 (Tri.-Bang.) (c) Air Travel Bureau Ltd. Vs. CC, New Delhi - 2009 (237) ELT 283 (Tri.-Del.) (d) CC Vs. Air Travel Bureau Ltd. - 2010 (26) ELT 78 (Del.). (e) Air Travel Bureau Ltd. Vs. CC- 2012 (277) ELT 250 (Tri.-Del.) (f) Goldfinch Hotels Pvt Ltd. Vs. CC (ACC and Exports), Mumbai - 2015-TIOL-976-CESTAT-MUM Apart from this, he submits that the action of the department is premature as HEL has time ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emature. 6. In rebuttal to the argument advanced by ld. Counsel for Revenue, Shri S.K. Pahwa submits that the arguments of Revenue are untenable as it is not the case of HEL that the department has to be guided by the provisions of Foreign Trade Policy nor they have suggested that department has no jurisdiction to administer the provisions of custom notification. In fact, it is the case where both the Foreign Trade Policy and the customs notification is to be operationalised the benefit of custom duty accorded in the Foreign Trade Policy. Therefore, the Foreign Trade Policy of custom notification issued thereof cannot be viewed as being mutually contradictory. It is also submitted that the definition of capital goods, neither the definition of the export obligation by itself nor when read in conjunction with the proviso relating to managed hotels suggested that the Government of India intended any divergence in Foreign Trade Policy and the customs notification in regard to the matter in issue. Therefore, the Policy and the customs notification, allow import of cars by hotels for use in providing service. In fact, custom notification does not provide how to use capital goods impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts utility vehicles/all purpose vehicles shall be allowed only to hotels, travel agents, tour operators or tour transport operators and companies owning/operating golf resorts subject to condition that: (i) total foreign exchange, earning from hotel, travel and tourism and gold tourism sectors in current and preceding three licensing years is ₹ 1.5 crores or more. (ii) duty saved amount on all EPCG Authorisations issued in a licensing year for import of motor cars, sports utility vehicles/all purpose vehicles shall not exceed 50% of average foreign exchange earnings from hotel, travel and tourism and golf tourism sectors in preceding three licensing years. (iii) Vehicles imported shall be so registered that the vehicle is used for tourist purpose only. A copy of the Registration certificate should be submitted in concerned RA as confirmation of import of vehicle. However, parts of motor cars, sports utility vehicles/all purpose vehicles such as chassis etc. cannot be imported under EPCG Scheme. 5.4 Export Obligation Following conditions shall apply to the fulfilment of the export obligation- (i) Export obligation shall be fulfilled by export of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y envisages fulfilment of export obligation by export of services rendered by HEL. It also provided that export obligation can also be fulfilled by exports of group company/managed hotels which has EPCG authorisation. Therefore, the export obligation in respect of hotel A which has imported cars under EPCG scheme can also be fulfilled by hotel B of the same company or under the same management which has imported any other item like lift under EPCG scheme. The proviso to para 5.1 of the policy allows import of motor cars, sports utility vehicles or all purpose vehicles inter alia to the hotels. Condition for import of such capital goods in para 5.3 of the Policy is that import of cars shall be subject to actual user condition till export obligation is completed and para 9.4/9.6 means actual user a person who utilises imported goods for his own use in any service industry. Therefore, the said conditions clearly stipulates that the car imported by HEL were to be used by HEL in their service industry. We further find that para 5.15 of 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual user concept in the definition of export obligation. The Notification does not suggest that export obligation is to be discharged by earning foreign exchange through the use of car by foreign tourist as it is provided in the notification itself that in respect of hotel, export obligation can be fulfilled by Managed Hotel as defined in paragraph 9.36 of the Foreign Trade Policy. The Managed Hotel means hotel provided by a three star or above hotel/hotel chain under an operating management contract for a duration of at least three years between operating management contract operating hotel/hotel chain and hotel being managed. Management contract, as per the definition, must necessarily cover the entire gamut of operations/management of Managed Hotel . This proviso clarifies that view of the Revenue that the cars are only to be used by foreign tourists staying as guests in the hotel is not in line with even the language of the notification. It further says there is no divergence between the provisions of Foreign Trade Policy and exemption notification. 10. We also note that the appellants do not suggest that the department has to follow only the provisions of Foreign Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that how this custom notification which provides for the use of car by foreign tourist to earn export obligation. The definition of capital goods is same for other capital goods as well as cars are identical in both notifications as well as in policy. 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. This logic is not tenable for it is not the goods which will expand or contract the concept of use underlying the EPCG scheme. The rule of law emphasizes the regulation of activities according to law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars were registered in the name of HEL as 'tourist vehicle' not during the investigation but thereafter also. The ld. Counsel has relied only to the ratio in that case to say that export obligation means receiving payments in freely convertible foreign exchange for services rendered through the use of imported capital goods (car), it would appear without any foreign exchange earning out of service rendered without the use of capital goods would not form part of discharge of export obligation envisaged under Notification No. 44/2002. We have seen that in that case the imported car was transferred in a private name in stead of being registered at tourist vehicle in the name of importer, on these facts, the foreign exchange earned by the said appellant has not been earned by the use of imported car. In those set of facts, this Tribunal arrived at a decision that the foreign exchange earning out of the service rendered without the use of capital goods would not found part of discharge of export obligation. Definitely this is not the case in hand. In the case of Surya Samudra Holiday Resorts Pvt. Ltd. (supra) also the Tribunal had not analysed how and in which manner car is requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that these three Mercedez cars have not been used for the purpose intended, it has additionally being alleged that these cars were registered for private/personal use with the licensing authority under Motor Vehicle Act and not for commercial use. 26. Neither the Import Policy nor the Customs Notfn. 49/2000-Cus. dated 27-4-2000 lay down the nature of record to be maintained by the licensee in respect of foreign exchange earned from the imported capital goods. It is nowhere provided that details of each journey undertaken or name of foreign guest who used the car or the amount and mode of payment should be recorded. The only requirements are that the required incremental foreign exchange be earned in a specified period and that the imported goods should not be sold or in any way parted with. In any case the Department has not produced any proof that the cars have been used for any other purpose or have been sold. There is no bar to a car meant for private use being used to transport commercially important guests. In any case foreign guests staying in hotels do not pay separately for travel from Airport to hotel. This is a complementary facility provided by hotel to their gues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn Trade Policy wherein import of Motor Cars, Sports Utility Vehicles/al purpose vehicles are allowed only to Hotels, Travel Agents, Tour Operators or Tour Transport Operators and Companies owning/operating Golf Resorts. 2. In order to ensure proper and intended use of above vehicles under EPCG Scheme, following course of action would be taken by EPCG authorization holder, Regional Authorities of DGFT and Customs Authorities in addition to existing conditions: a. Customs authorities will endorse in Bill of Entry while clearing such vehicles that such vehicles have to be registered as a vehicle for tourist purpose only . This would make purpose of import of vehicles absolutely clear and would also facilitate registration. b. in all past cases where Export Obligation Discharge Certificate (EODC) has not been obtained by 30.06.2008 and where vehicles were not registered as Tourist Vehicles, EPCG authorization holders will get them registered as Tourist Vehicles, by 31-08-2008. Regional Authorities of DGFT will monitor and ensure compliance. 3. This issues with the approval of DGFT. [D.G.F.T. Policy Circular No, 7(RE-2008)/2004-09, dated 7-5-2008] 9. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority on this score. 4. As regards 2nd issue at 2(ii) above, in the working of hotel, tourism and travel service industry the vehicles are part of an overall package drawn by these service providers for the tourists. This package may include hotel accommodation, food, beverages and travel cost and charges for utilizing imported vehicles would not be billed separately to the tourist. It is therefore not practically possible for these sectors to show export earnings separately from use of these vehicles. Therefore, the views expressed by the DRI on this score can not be accepted and all benefits including all earnings for providing hotel accommodation, sale of food and beverages apart from transportation of the tourist, should be considered towards discharge of export obligation against vehicles imported under EPCG scheme. This is however subject to the condition that no part of the sale proceeds have been paid in free foreign exchange to any other service provider for providing add on services for hotel accommodation etc. 5. These instructions may be followed scrupulously and wherever the EODC etc. has been cancelled based upon the recommendations of DRI or any other aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the EODC certificate and if the DGFT authorities consider their request and if they issue the EODC certificate to the appellants then it is not for the Customs authorities to question the same. In view of all these points we do not find any merit in the impugned order. There is no justification for imposition of any penalties. It is stated that the said vehicle has been attached to the corporate office. These things are all not grounds for demand of duty and imposition of heavy penalties. Hence, we set aside the impugned order and allow the appeals with consequential relief. Admittedly, the case of the Revenue is similar that the foreign exchange should be earned by use of car. Therefore, the facts of the cases before us are similar to the case of M Far Hotels Ltd. (supra). 16. We further observed that in the case of Air Travel Bureau Ltd. (supra) the cars were confiscated for violation of notification as well as conditions of EPCG license. As the cars importer were required to be used for intended purpose wherein this Tribunal has observed as under: 6.3 We find that the Customs authorities have taken up the matter with the DGFT expressing their views that there is vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not accepted, the Court took a balance of view by interpreting the EPCG policy in the following manner:- 'The true position appears to us to be that while capital goods may or may not be capable of generating convertible foreign exchange by their independent use as is the position in the case of the lift in a hotel or the cars imported by the travel agent, the least that the importer must demonstrate is that the goods were put to use for the business activity for which the same were imported. The Scheme does not in our view envisage imports where the goods are not meant for use in the business activity of the importer nor can the goods be diverted for some other use without violating the conditions of actual user which is fundamental to the Scheme. 6. Once we apply this yardstick to the facts of the present case, the conclusion would be that the respondents have been able to fulfill the obligation under EPCG license as pointed above, which was the very condition imposed in the said license by the DGFT. DGFT has redeemed the license and has taken the view that the respondents have fulfilled their export obligation. No doubt, the opinion of the DGFT would not be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separately for their travel and the Appellant Company claims to provide complementary facility to their VVIP guests, which is not disproved by the department The vehicle has not been sold or transferred to any other person by the importer. It is not proved even on preponderance of probability that the vehicle was imported solely for personal use of the CMD of the Hotel. In these circumstances, we find that even if the mandatory conditions of Exemption Notification are construed strictly, there is no violation of any condition of the EPCG license, FTP or the Customs Notification. 27. We have also perused the judgement of this Tribunal in Surya Samudra Holiday Resorts (P) Ltd. - 2010 (256) ELT 433 (Tri.-Mum). The said judgement was rendered in a totally different context, inasmuch as there was violation of the actual user condition and the main issue was whether the Customs Authorities were empowered to take action for violation of conditions of the Exemption notification before the completion of the export obligation period without concurrence of DGFT. In that case, unlike the instant case, the vehicle (Farrari car) imported for resort in Kerala was always at Bangalore, and was ..... 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