By TIOL News Service

MUMBAI, MAY 29, 2015: AN EPCG Licence was issued to the Appellant under Chapter 5 of the Foreign Trade Policy, for import of one "Rolls Royce Ghost" at concessional rate of duty with obligation of export of services, namely "Hotel & Tourism related services" to be completed in 8 years. The condition sheet attached to the EPCG Licence mandated that the vehicle was to be registered for "tourist purpose only". The export obligation was to be fulfilled as per para 5.8 of the Hand Book of Procedure (HBP).

The Bill of Entry was thereafter filed for importing the car on payment of BCD @ 3% (concessional rate) by availing benefit of exemption of duty under Notification No.103/2009-Cus against the said EPCG Licence. A bond was submitted by the Appellant Company, which bound them inter alia to observe all conditions of the impugned Notification. The Bill of Entry was assessed under EPCG Scheme and the vehicle was cleared from Customs by endorsing the Bill of Entry for registration for Tourist purpose only.

On 23.05.2013, the Customs Preventive Unit commenced investigations with search/seizure and recording of statements. The vehicle was seized from the residential premises of Shri Prakash Shetty, CMD of the Appellant Company. It is the case of the Department that the Appellant had no intention to abide by the conditions of the EPCG licence, Exemption Notification No.103/2009-Cus and the Bond, and thus exemption was wrongly availed.

The SCN alleged suppression, collusion and mala fide intention in importing the vehicle for personal use of the CMD. Inference is sought to be drawn from the statements of the Chief Security Officer, General Manager (Finance), General Manager, Front Office Manager, Driver, Cook and the CMD. The allegations were - that the vehicle was parked at the residence of the CMD of the Appellant Company, no log book was maintained for the movement of the vehicle, the fuel expenses were borne in cash by the CMD, Driver was on the payroll of a holding company of the Appellant and the Driver had not attended to any foreign nationals for any pick-up from or drop at Airport, or any other trip; All India Permit sign was not displayed on the car; transfer of registration from RTO Chitradurga to RTO Bangalore was a transaction of sale; address of Chitradurga was not declared to the DGFT; the vehicle was not mentioned on the official website of the Appellant Company and that a Visitor Pass sticker, not connected to the Hotel, was found in the car.

The allegations were upheld by the Commissioner of Customs (ACC), Mumbai and, therefore, the appellant is before the CESTAT challenging this order.

Incidentally, Revenue has also filed an appeal seeking enhancement of penalty.

After considering the exhaustive submissions made by both sides the Bench reproduced the relevant conditions of the EPCG licence, provisions of the FTP, Handbook of Procedures, conditions of the exemption notification 103/2009-Cus and in an elaborate order inter alia observed thus -

+ As per the condition (3) of Para 2 of the Notification No.103/2009-Cus dated 11.09.2009, the Appellant has to complete the Export Obligation within total 8 years, and first 50% of the export obligation is required to be completed in the Block of 6 years. The vehicle was seized on 23.05.2013 i.e. within 2 1/2 years from the date of import under EPCG Scheme. Neither the appellants claim of having fully discharged the Export Obligation, nor have they applied for issuance of any Export Obligation Discharge Certificate.

+ It is undisputed that the vehicle imported under the EPCG license was registered only for Tourist Purpose in the name of the Appellant Company which admittedly provides "Hotel and Tourism related Services". There is no finding against the Appellants that the registration documents showing registration only for Tourist purpose and submitted to the customs authorities are bogus or contrary to the records of RTO. Condition (iii) of para 2(1) of the Exemption Notification has thus been complied with.

+ It can neither be presumed that the Appellants cannot or would not complete their export obligation under the EPCG license, nor can the vehicle be confiscated on this presumption. Department has not proved that the actual user condition has been violated by disposing of or transferring the vehicle by sale or lease or any other manner before completing the export obligation.

In the matter of the allegation leveled in the SCN that the "Ghost" was parked at the residence of the CMD and not at the hotel, the Bench observed -

"There is no condition stipulating to park the vehicle imported under EPCG scheme at a particular place, or to seek its registration only from any particular RTO office. Mere parking of the vehicle at a particular place cannot be considered as violation of actual user condition or proof of the usage of vehicle in a particular manner or of transfer of ownership."

Relying on the DGFT Policy Circular No. 26/2009-14 & judgments of the Delhi High Court in the cases of Interglobe Enterprises Ltd. & Air Travel Bureau Ltd. relating to import of vehicles under EPCG scheme, the Bench also noted -

+ Just like a "lift" imported under EPCG scheme can be used by every guest, CMD and staff of the Hotel without violating the actual user condition, there cannot be any impediment in use by them of the vehicle imported under EPCG scheme in connection with "Hotel and Tourism related services", as long as the vehicle is also used in providing these services in discharging the export obligation.

+ It is not mandatory that the Hotel of the Appellant Company should have charged separately for the use of the vehicle to collect money in foreign exchange specifically under the head of transportation charges with separate accounting of the same.

+ The essential requirement is that the vehicle shall be an added attraction for the foreign tourist and/or shall be put to use for the business activity for which the same was imported. Whereas it is alleged that the guests for whom the vehicle was provided were personal guests of the CMD, it is claim of the appellant company that the guests are VVIPs for the company's business activities, which is "Hotel and Tourism related services".

+ We find that when the vehicle was seized, neither the period for completion of Export Obligation had expired, nor any proceedings were initiated against the appellant by DGFT for non-fulfillment of Export Obligation or for any failure in submission of any mandatory details prescribed by DGFT by way of any Public Notice. There is no statutory requirement for maintaining any particular form of accounts/log book for day to day activity. In the absence of any positive evidence to show the abuse, when the substantial period for completion of export obligation is still pending, it cannot be presumed that there was never any intention to use the vehicle for providing services. DGFT has not cancelled the EPCG license by giving any finding of fraud or mis-representation in obtaining the EPCG License.

On some of the other interesting inferences drawn by the Revenue and alleged in the SCN & crystallised in the order-in-original, the Bench held as under -

The CMD stated that the special unleaded petrol was available only at a particular petrol station and hence he was getting the fuel from that place. Appellant Company which is owning the hotel is a private limited company where the majority shares are held by another private limited company along with the family members of the CMD. Substantial shares of the second private limited company are again held by the family of the CMD. Hence, in a larger sense the minor expenses of the different entities do not make any substantial difference to the family and it therefore cannot be gainfully said that if fuel expenses or salary of a driver were not borne by the hotel, the car was not used by the hotel.

Neither it is in violation of any mandatory condition of the EPCG License nor of the Exemption Notification. Neither the person in whose name the visitor pass was issued has been questioned, nor can such a Pass be a conclusive evidence to prove that the vehicle was not being used by the Hotel for providing services.

Since there is no safe and sufficient parking at Hotel, the Rolls Royce car is parked at the residence of the CMD and sometimes at the premises of Hotel.

The Driver whose statement was recorded has been driving four different vehicles and was not kept to exclusively drive the subject vehicle. This driver cannot be presumed to be competent to identify the nationality of the guests. Guests of Indian origin from Asian countries do not look different from resident Indians. Further, the non-resident Indians are also bound to spend in foreign exchange during the short periods of stay in India. Hence no conclusive inference can be derived from the version of the driver.

We cannot expect that in the Corporate Sector one can expect the employees to meddle in every affair and to keep themselves abreast of all the developments of a company. When certain people say that they have not noticed the vehicle being used for transporting guests of the hotel, it can only be taken to establish their lack of knowledge of that fact and nothing more than that. Presumptions and assumptions cannot be sufficient to uphold the allegations.

The crucial conclusion drawn by the Bench can be summed in its words thus -

+ Neither any condition imposed either in the Foreign trade Policy or the Handbook of Procedure has been violated by the Appellant, nor have any proceedings been initiated against the Appellant under the provisions of FTDR Act, 1992.

+ It is seen that the Ministry of Commerce which was responsible for the issuance of the Foreign Trade Policy was in the best position to construe its own provisions, Public Notices and the Policy Circulars. It is to be presumed that while formulating the Foreign Trade Policy even the Departments of Revenue must have been duly consulted. Therefore, with regard to the language used in Para 2.4 of the Foreign Trade Policy, it is the view expressed by the Ministry of Commerce, which must be taken to be that voice.

+ All procedural aspects whether or not notified by the Ministry of Finance, if contrary to what is specified in Public Notice / Handbook of Procedure, would give way to those specified in the Public Notice.

+ The obvious reason is that the benefits conferred and promised under the FTP issued under FTDR Act cannot be denied either in view of the absence of any Notification or any contrary or ambiguous Notification or Circular issued under the Customs Act, 1962.

+ If the Central Government in its wisdom introduces a beneficial scheme or provision under the FTDR Act, the benefit of such legislation are to be made available by another Department of Central Government namely the Customs Department for which purpose Notifications and Circulars are issued under the Customs Act, 1962. Neither such Notifications and Circulars can be interpreted to take away the benefit which is otherwise available under the FTP and HBP, nor any further clarification or instructions may be insisted by the Customs Department, when the provisions of the FTP and HBP mandate grant of such benefit. The benefits conferred under the FTP therefore cannot be denied to the Appellant.

+ Neither the Foreign Trade Policy nor the Exemption Notification lay down the nature of day to day 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 service provider has been given the freedom to use the imported capital goods in whatever way he considers best to earn the incremental foreign exchange. The Department has not produced any tangible evidence to prove that the actual user condition has been violated or the vehicle has been sold / transferred. 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.

The Tribunal held that the impugned Order-in-Original is erroneous and was, therefore, set aside. The appeals filed by the hotel and the CMD were allowed with consequential reliefs.

For the record, the Revenue appeal was dismissed.

(See 2015-TIOL-976-CESTAT-MUM)