By TIOL News Service

NEW DELHI, DEC 14, 2015: THE appellants, Hotel Excelssior Ltd (HEL) and its directors are in appeal against the order demanding duty on three Benz cars and a Rolls Royce car imported by the Hotel under EPCG Scheme by availing concessional rate of duty under exemption Notification No 97/2004 Cus dated 17.06.2004. The demand was raised consequent to the investigations by DRI which revealed that the cars imported were not used for transportation of the guests of the hotel to earn foreign exchange, but were parked at the residence of the Directors of the Hotel, were insured as personal vehicles and were used by the Directors of the Hotel. Revenue is also in appeal seeking enhancement of fine and penalty.

The assessee contended that Notification No. 97/2004-Cus dated 17.6.2004 does not suggest that export obligation is to be discharged by earning foreign exchange through the use of cars by foreign tourists. It is also provided in the notification that in respect of hotels, the export obligation can also be fulfilled by the “managed hotels” as defined in paragraph 9.36 of the Foreign Trade Policy. 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.

After hearing both sides, the Tribunal held:

Para 5.4( i ) of the Foreign Trade Policy 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. 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 custom notification in question has been issued by the Central Government to operationalise the Policy provisions. Therefore, the provisions in Foreign Trade Policy and the custom notification are to be interpreted harmoniously. 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.

In this case, the 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. 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 is antithetical to arbitrariness; the logic that the nature of goods will determine a to how the law would be interpreted emphasizes that it is the understanding of the department about the use of the goods that will decide the interpretation of law and thus introduces an element of arbitrariness. HEL is not required to use cars in question for transporting the foreign tourist to earn foreign exchange.

In view of the above, and by relying on the precedent decisions of the Tribunal in similar cases, the appeals filed by HEL and its Directors were allowed and the appeal filed by revenue was dismissed.

(See 2015-TIOL-2661-CESTAT-DEL)