BEFORE: D N Panda, C J Mathew

Kishore K Acharya, M L Grover, Roopam Kapoor

14 Dec 2017


D.N. Panda, Member.

[1] Adjudication was made denying the benefit of Notification No. 64/2008-Cus dated 9.5.2008 against the claim of the appellant that the car imported under EPCG scheme being imported without payment of duty, appellant has violated the condition of notification. Accordingly, the duty forgone at the time of import shall be recoverable.

[2] While adjudicating in this manner, learned adjudicating authority directed confiscation of the car and imposition of penalty under law.

[3] Learned Counsel for appellant submits that two show-cause notices dated 13/08/2014 and 02/02/2015 were issued to adjudicate alleging that two vehicles imported by M/s Hotel Tunga Regency Pvt. Ltd. were used for personal purpose of the Director in violation of the EPCG scheme for which benefit of exemption from payment of duty availed at the time of import was wrong and recoverable. This is apparent from page 514 depicting para 18.1 of the impugned order.

[4] The adjudicating authority did not find any evidence as to personal use of its Director to hold violation of the EPCG scheme in the entire course of his adjudication. On the basis of irrelevant materials adjudication was done to deny the duty exemption allowed earlier and to recover the same. According to Revenue there was no maintenance of log book. Vehicles were not used for ferrying foreign tourist but were used by Directors. The vehicles were not found in the premises of the hotel. Statements of the security personnel did not provide a basis to hold that the vehicles were used for foreign tourists or similar such purpose.

[5] Inviting attention to the EPCG licence it is the submission on behalf of the appellant that a copy thereof available at page No. 4 of the paperbook, no way requires any log book to be maintained except requiring the purpose of the import to avail duty exemption and also fulfilling the export obligation providing transport services to the foreign customers of the hotel. The actual user condition of the vehicles was fulfilled and foreign exchange requirement was also fulfilled adding to the earning of hotel. The registration addresses of the vehicles is also clear from the registration certificate and appellant has not violated any condition of the EPCG licence issued to it by the DGFT authority. That authority clarified in the letter dated 24/07/2006 that so long as the vehicles is not mis-used and has served the purpose of import, the duty exemption benefit is undeniable. So also the authority clarified that the invoice issued for hotel accommodation provided shows that vehicle was used for transportation of the foreign tourist. Foreign exchange received is also patent from record. Therefore there was no violation of the import condition.

[6] So far as the allegation of violation of condition of the import is concerned, referring to para 2.1 of the impugned order, it is explained that EPCG scheme is also extended to the provision of service and import of vehicle for use in export service. Inviting attention to the para 5.4 of the impugned order, it is claim of the appellant that the grant of exemption benefit served its purpose, with the export obligation discharged and foreign exchange requirement is met. The DGFT has also issued export obligation discharge certificate without any objection for such issuance.

[7] Epcg licence nowhere requires that the vehicle should necessarily be parked in hotel and log book is to be maintained in a particular form while the law require maintenance of records during the specified period. Even the Customs exemption notification, copy of which is available at page 23 of the compilation, nowhere prescribed any form in this regard nor also specified any particular type of register to be maintained to call that as log book.

[8] In terms of para 2 of the notification the requirement is that total foreign exchange earned in the previous year and the current period is the eligibility criterion for grant of exemption. Similarly, there is also prescription as to average foreign exchange earning in the preceding 3 years period. Thirdly, the essential condition of registration of the vehicle is for use thereof for foreign tourists only. In testimony of such use, the registration certificate issued by transport authority was to be produced to the Customs authorities. The appellant fulfilled all the three conditions of the para 2 of the notification without any violation thereof.

[9] Allegation of Customs having been confined to the issue framed in the order-in-original as aforesaid, there was no contravention of notification condition by appellant for which learned authority could not find any violation of Policy requirements well as the Notification requirement. Accordingly, the authority, proceeded to examine the only issue as to whether there was a personal use of the vehicle or not. He has not brought out any cogent and credible evidence and reason showing that the vehicles were used by Directors and not at all used for foreign tourists/visitors.

[10] Appellant maintained proper books of accounts to establish that foreign exchange earned from the hotel activity including travel cost from foreign tourist service towards provision of service to them. There is no mistake pointed out by Revenue to show maintenance of accounts was not proper except raising objection on the log book. Foreign exchange earning was not at all questioned by Customs. According to appellant, neither violation of the condition of the Policy nor condition of the notification as well usage of the vehicle was alleged except alleging that vehicles were used by the Directors. But law does not prohibit solitary use by Director in unavoidable circumstances which does not amount to violation of the condition of the Policy or Notification or DGFT licence.

[11] Appellant relies on the decision of the Hon'ble High Court of Delhi in the case of Commissioner of Customs (Air Cargo Export) v. Hotel Excelsior Ltd., 2016 336 ELT 595 (Del.) to submit that the notification does not require imported cars to be used only for transporting foreign guests of the hotel, in absence of such condition stipulated, Revenue failing to answer to the Courts on such count, the Court rejected Revenue's contention and held that so long as foreign exchange is earned by the Hotel and imported cars are being used, there cannot be said to be a violation of any statutory requirement. For convenience of reading he placed para 3 of the judgment which reads as under:

"3. As rightly pointed out by the CESTAT, the Department was unable to show any stipulation in any notification issued by the Central Board of Excise and Customs or any other notification specifically requiring the imported cars to be used only for transporting foreign guests of the hotel. Even before this Court, learned counsel for the Department was unable to show any such stipulation. In the circumstances, the Court is unable to disagree with the reasoning of the CESTAT that as long as foreign exchange is earned by the hotel and the imported cars are being used, there cannot said to be a violation of any statutory requirement. "

[12] Referring to the order of the Tribunal in Hotel Excelsior Ltd v. Commissioner of Customs (I&G), New Delhi,2016 336 ELT 116 (Tri.-Del.) which was the subject-matter of the decision of the Delhi High Court, appellant invited attention to Para 11 of the said order to submit that the Tribunal was of the clear view that Policy as well as Customs notification does not specify in which manner a car is required to be used by a hotel and the conditions prescribed therein, which reads as under:

"11. Both policy and customs notification does not specify how a car or in which manner a car is required to be used by the hotel. The Hotel can possibly use the car in the following manner :

(a) The car can be used for providing transportation facilities to foreign guests on complementary basis.

(b) The car can be used for transportation facility to the foreign guests on payment basis in foreign exchange.

(c) The cars can be used as marketing tool in the lean season for interacting and building relating with international tour operators for enhancement of business.

(d) The cars in question also get used for upgrading the status and building the brand of the hotel.

(e) The car can be used otherwise in providing Hotel Service by the Hotel in any manner.

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. The customs notification does not provide for such indirect or lateral use of the capital goods imported under EPCG scheme. It was also not the case of the department the provisions of foreign trade policy do not permit such indirect or lateral use of the cars. However, it has not been canvassed by the ld. Counsel for the Revenue that how this customs 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 nowhere 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 cars 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 as 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."

[13] Inviting attention to page 122 of the reported judgment it is the submission on behalf of the appellant that actual user condition does not warrant any stipulation to hold against the appellant and the relevant paragraph is reproduced below:

"10. We also note that the appellants do not suggest that the department has to follow only the provisions of Foreign Trade Policy but the department on the same time has no jurisdiction to administer the provisions of customs notification. Therefore, the provisions of Policy and the notification are to be viewed harmoniously and in a case where harmonious interpretation is available in that case department cannot take contrary view and can interpret the notification in its own way. Neither the definition of capital goods nor the definition of export obligation by itself or when read in conjunction with the proviso relating to "Managed Hotels" suggests 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 hotel services."

[14] On the aforementioned premises, appellant's submission is that the foreign exchange earning was fulfilled as required by the decision of the Hon'ble High Court of Delhi cited and also fulfilled user condition as held by the Tribunal. Present case is not a case of any violation of any condition of import licence or condition of notification, as well as EPCG licence for which Revenue's allegation fails to stand and adjudication is baseless.

[15] Per contra, Revenue's submission is that the vehicles imported by the appellant were not used for the purpose that was intended to be used which has violated the condition of the Policy as well as Notification and EPCG licence. EPCG licence requires vehicles to be registered as tourist vehicle and should fulfill conditions of the licence prescribed by the transport authorities. There was a total violation of the condition of the transport policy attached to the Policy without using the vehicles as tourist vehicle in view of the following evidence gathered by investigation:

(1) vehicles were found to be used by Directors

(2) there was no logbook maintained to show about journey of the foreign tourist.

(3) Log book which was not mentioning the origin and destination of travel by the foreign tourist.

(4) Logbook does not corroborates with the foreign exchange earnings.

(5) Vehicles were not at all parked at the Hotel premises at all times.

(6) The persons employed by the company confirmed that the vehicles were not parked in the premises and use of the vehicle was not proved.

(7) Two statements gathered from the drivers demonstrate that the vehicles were not used for tourist vehicle purpose.

[16] According to Revenue, even the documentary evidences failed to establish that the vehicles were exclusively used for the tourism purpose of the foreign tourists. There is no dispute by the appellant that the vehicles were used by the Directors (although appellant says at times used). So also appellant could not establish with clean hands that the vehicles were exclusively used for the tourism purpose of the foreign visitors to the hotel. Even some of the documents that is placed by the appellant that does not show receipts of the hotel fully establishing correlation between the use of the vehicle and earning from the vehicle as well as use thereof. All these evidences establish that the actual user condition was violated depriving the appellant from the Notification benefit which requires to be strictly construed as has been held by the apex Court in the case of Gammon India Ltd v. Commissioner of Customs, 2011 269 ELT 289 (SC) and also in the decision of the Tribunal in Surya Samudra Holiday Resorts (P) Ltd. v. Commissioner of Customs (Export), Mumbai, 2010 256 ELT 433. Against this, it is the submission of the appellant that such order is set aside by the apex Court.

[17] Revenue'S further submission is that the EPCG licence impose obligation on the appellant both on user criterion as well as earning of foreign exchange, it was the burden of the appellant to establish that it has fulfilled the condition of the notification, policy as well as the EPCG licence. That not being fulfilled by the appellant, strict construction of the exemption notification required to discharge its burden of proof to get exemption. Appellant failing to prove its case is not entitled to any benefit of the Customs Notification as well as Foreign Trade Policy. Accordingly, adjudication order sustains. Therefore Tribunal should look into the entire gamut of the show cause notice to appreciate the allegation therein to arrive at a decision.

[18] Heard both sides and perused the records.

[19] While grievance of Revenue is that the car was not found in the premises of the hotel and no foreign tourists were found therein, but that was used for the personal purpose of the appellant hotel, there cannot be claim of notification benefit, pleading of the appellant was that when it maintained several records to establish the import of the car, registration thereof by the Registering Authority for tourism purpose of the foreign tourists, there was no enquiry conducted to show that car was not used for such purpose, for which the plea of Revenue should not sustain. Appellant also relied on the decision of Hon'ble High Court of Delhi in the case of Commissioner of Customs (Air Cargo Export) Vs. Hotel Excelsior Ltd., 2016 336 ELT 595(Del) to buttress its claim that notification does not require use of the car solely for tourism and earning from use by the foreign tourists and no such condition is stipulated in the Notification. Revenue having failed to prove that the vehicle was not used for the purpose of foreign tourists and not also proved that there was no foreign exchange earned, the appellant should not suffer. It had maintained logbook and car was used for foreign tourists and foreign exchange was earned.

[20] Revenue'S grievance that logbook was not maintained to show the journey particular of the foreign tourists indicating origin and destination of the tour, there was no possibility of linking of foreign exchange earning from the foreign tourists is absolutely erroneous. Plea of Revenue did not sustain when the Revenue did not find out frequent use of the vehicle by Director instead of being used by the foreign tourists. Mere use of the car by Directors in exigency does not debar the appellant from the notification benefit. A plethora of documents submitted by the appellant could not rule out use of the vehicle for the foreign tourism and stray use of the vehicle by Director shall not dis-entitle the appellant when appropriate foreign exchange earning remain undoubted and uncontroverted by the Revenue.

[21] Following the decision of Hon'ble High Court of Delhi in the case of Hotel Excelsior , it is not desirable in law to hold against the appellant following the judicial discipline.

[22] Accordingly, appeal is allowed.

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