Custom, Excise & Service Tax Tribunal
Ramesh Narang vs Jnch, Nhava Sheva on 26 April, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NOS: C/87759 & 87760 /2014
[Arising out of Order-in-Original No: 10/2014 dated 13th March 2014 passed by the Commissioner of Customs (Export), JNCH, Nhava Sheva]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
No
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Narang International Hotels Pvt Ltd
Ramesh Narang
Appellants
versus
Commissioner of Customs (Export)
JNCH, Nhava Sheva
Respondent
Appearance:
Shri Suresh Balasubramaniam, Advocate for Appellants Shri Roopam Kapoor, Commissioner (AR) for Respondent CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 26/04/2016 Date of decision: 25/10/2016 ORDER NO: ____________________________ Per: C J Mathew:
Two appeals arising out of order-in-original no. 10/2014 dated 13th March 2014 of Commissioner of Customs (Export), JNCH, Nhava Sheva are taken up for disposal in this proceeding. In the impugned order two Bentley cars imported by appellant-company under the Export Promotion Capital Goods (EPCG) scheme were confiscated but allowed to be redeemed on payment of fine of Rs 50,00,000, duty foregone of Rs 2,59,43,151 was confirmed as due for recovery under proviso to section 28(1) of Customs Act, 1962, penalty of like amount under section 114A of Customs Act, 1962 imposed on appellant-company and ` 20,00,000/ on Shri Ramesh Narang.
2. Appellant-company, running a number of hotels and operating a flight catering service, had imported the two luxury vehicles valued at ` 112,16,536/ and ` 111,36,009/- vide bills of entry no. 994821/19.11.2007 and 996166/19.11.2007 against authorization no. 033017208/23.8.2007 and 033017292/30.8.2007 at a concessional rate of duty of 5%. The Export Promotion Capital Goods (EPCG) scheme in the Foreign Trade Policy issued by the Director General of Foreign Trade in exercise of powers under the Foreign Trade (Development& Regulation) Act, 1992 permits import of permitted capital goods at a concessional rate with the condition that stipulated value of goods shall be exported or foreign exchange earned by rendering of prescribed services within eight years of issue of authorization. The concessional rate of import duty is extended by notification no. 97/2004-Cus dated 27th September 2004 that stipulate the conditions to be fulfilled to enable the import and after clearance.
3. The vehicles were seized on 20th September 2012 but released provisionally under section 110 of Customs Act, 1962. In the impugned order, the adjudicating authority has proceeded with action under Customs Act, 1962 for failure to comply with the conditions pertaining to furnishing of installation certificate within six months of import and for failure to evidence the fulfillment of export obligation. It is the finding of the adjudicating authority that the cars had been imported under authorization that required foreign exchange to be earned through car rentals/transport for foreign tourists but had not been utilised for the said purpose and, instead, was found parked at the residence of the Directors of the appellant-company for personal use. The impugned order arrived at this conclusion based on the absence of any records of earning foreign exchange from the prescribed activity and from the statements of various persons in the employment of the appellants. The appellant-company, during the pendency of investigations, had, in accordance with the requirements of the scheme in the Foreign Trade Policy and Handbook of Procedures, applied to the licencing authority on 21st September 2012 for Export Obligation Discharge Certificate (EODC) which was under correspondence at the time of issue of impugned order. The authorization issued by the licencing authority under the Export Promotion Capital Goods (EPCG) scheme is rendered operational by registering it with the Customs authorities at the port of import and by compliance with the pre-clearance conditions of the notification no. 97/2004-Cus dated 27th September 2004 including execution of bond. Discharge certificate from the licencing authority is the prelude to closure of the bond executed with the Customs authorities.
4. Learned Counsel for appellants contends that the issues raised in the notice leading to the impugned order stood settled with the decision of the Tribunal in M/s Goldfinch Hotels Pvt Ltd [2015 (328) ELT 282 (Tri-Mumbai] and M/s Hotel Excelsior Ltd v. Commissioner of Customs (I&G), New Delhi [2015-TIOL-2661-CESTAT-DEL] . He also argued that last word in the determination of fulfillment of export obligation should be that of the licencing authority who had yet to decide on the application filed by the appellant; according to him, the conclusion of proceedings by adjudicating authority is premature and usurpation of authority vested an another statutory body.
5. Learned Authorised Representative would not concede to that submission and pointed out that the output service in re Goldfinch was hotel and tourism related services whereas the authorization required appellant-company to provide car rentals/transport service for foreign tourist which denied them the entitlement to claim fulfillment of export obligation by inclusion of revenues from hotel and flight catering operations. It was submitted that the licencing authority also had directed the appellant to clarify on this. He also contends that the ruling of the Tribunal in Surya Samudra Holiday Resorts Pvt Ltd v. Commissioner of Customs [2010 (256) ELT 433 (Tri-Mumbai] and of the Honble High Court of Kerala in Commissioner of Customs v. Kumarakom Lake Resort [2011 (268) ELT 153 (Ker)] are more pertinent to the appellants situation.
6. In re Surya Samudra Holiday Resorts Pvt Ltd, the Tribunal was called upon to settle a dispute relating to a luxury car imported under the Export Promotion Capital Goods (EPCG) scheme by a hotel but was transferred from Thiruvananthapuram in Kerala to Benguluru in Karnataka; it was taken up for investigation after being issued with Export Obligation Discharge Certificate (EODC) by the licencing authority. The primary issues addressed were the nexus required between the imported capital goods and the source of foreign exchange earnings claimed for the discharge, the scope and limits of action that could be initiated by Customs authorities when discharge of export obligation had been certified by the licencing authority and the extent of compliance with the condition of installation that should suffice. The contrary opinions on these very issues in the separate decisions of the constituents of the Bench required the matter be to be referred to Third Member. Consequent upon such reference, the majority opinion held that the there was no bar on action being initiated under the Customs Act, 1962 provided that the instructions of the Central Board of Excise & Customs to refer the matter to the licencing authority was also complied with. The Third Member opined that awaiting for the outcome of such referral could jeopardize recovery if the limitation period in section 28 of Customs Act, 1962 barred such action. The reference also held that export obligation was to be discharged by use of the cars in or around the place at which it was installed. The findings in the decision of the Honble High Court of Kerala in re Kumarakom Lake Resorts was on the facts and circumstances of that particular import and arising from the view that 5. Joint Director General of Foreign Trade recklessly and indifferently issued the discharge certificate under the EPCG scheme without reference to the customs notification under which concessional rate of import duty was availed by the respondent. We do not find any legal principle to have been settled therein for us to follow. It is also noteworthy that the decisions of the Tribunal and the High Court on the matter of jurisdiction of Customs authorities to initiate action were rendered in the context of the licencing authority having issued the discharge certificate with further recourse to benefits and privileges under the scheme no longer available to the holder of authorization under the Export Promotion Capital Goods (EPCG) scheme and can hardly be alleged to be premature. We are, undoubtedly, to be guided by these decisions on the principle that there is no bar on customs authorities initiating action for confiscation and for recovery of duty that was foregone as quid pro quo for the importer binding itself to comply with conditions that were found to have been breached. However, in applying that principle, circumstances peculiar to each case will determine that appropriateness of the stage at which such intervention may be warranted.
7. Nowhere in the proceedings has it been adduced that the compulsions of statutory deadlines led to the issue of show cause notice. We do not consider that such a compulsion would ever arise in denying the availment of benefit of notifications issued under the Customs Act, 1962 for implementation of schemes in the Foreign Trade Policy. Such exemptions or concessions are conditional upon furnishing of a bond undertaking to pay the duty foregone, or part thereof, and interest in the event of non-compliance. A finding of non-compliance without resort to section 28 of Customs Act, 1962 would suffice to invoke the relevant provisions for recovery of dues payable to government. We notice that the appellant having made available copies of the correspondence with the licensing authority for issue of Export Obligation Discharge Certificate, the adjudicating authority was privy to the clarifications sought by licencing authority who was yet to take a decision in the matter.
8. In addition to the circumstances discussed supra, we consider it appropriate to call to mind some aspects and peculiarities of the Export Promotion Capital Goods (EPCG) scheme in so far as it applies to the appellant. The importer is permitted to clear capital goods at concessional rate in return for fulfilling export obligation of eight times the duty foregone within a period of eight years from date of issue of authorization to import. Import of motor cars are permitted only to hotels, travel agents, tour operators or tour transport operators and companies owing/operating golf resorts whose total foreign exchange earning in current and preceding three licencing years is Rs 1.5 crores, with duty foregone in authorizations in a licencing year limited to half of the average foreign exchange earnings in the preceding three licencing years and subject to vehicle being registered as tourist vehicle. The corresponding notification no. 97/2004-Cus dated 17tth September 2004 imposes, inter alia, the condition of proportionate achievement of export obligation to the extent of half in the first block of six years and the remaining half in the next block of two years.
9. 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. That is the finding in re Hotel Excelsior Ltd. Therefore, the finding in the impugned order that use by Directors, or for use other than ferrying tourists, is a breach of the conditions of exemption is not sustainable.
10. A case for invoking the provisions of Customs Act, 1962 for failure to furnish the installation certificate prescribe in paragraph 2(5) of notification no. 97/2004-Cus dated 17th September 2004 is canvassed by Revenue. However, it cannot but be borne in mind that motor vehicles and conveyances comprise a special category of capital goods that are not amenable to installation at a fixed place and, by its very design, is intended to be mobile rendering the requirement of installation certificate to be a condition that is impossible to perform. A waiver of the condition of installation in the conventional sense is implicit in issue of authorization for import of motor vehicles and in its registration by Customs authorities. Neither can it be expected to put to use after installation without moving from the premises of the importer. To impart a rigorous interpretation to conditions enumerated in an instrument framed primarily for regulating import of machinery or fixed assets and solely because it is an exemption notification which is, generally, required to be enforced strictly cannot be construed to pass the test of reasonableness. Nor can it be construed that reasonableness is displayed in equating parking with installation. Policy circular no. 26/2009-14 dated 17th March 2010 thus admits to the scheme being extended to imports that cannot be installed. Failure to tailor an element of the notification to adjust to altered circumstances cannot be held to the detriment of a holder of valid licence issued by a competent statutory authority. As held by the Tribunal in re M/s Goldfinch Ltd and re M/s Hotel Excelsior Ltd, the ingredients of alienation of ownership or failure to register the vehicle under the Motor Vehicles, 1988 are lacking in the notice alleging non-compliance with the condition of production of installation certificate. We do not find the impugned order to be unreasonable in holding that condition of installation has been breached by appellant.
11. We are not in doubt that the facts unearthed by the investigators do evidence use of the imported cars for personal use and for purposes other than earning of foreign exchange but that, to the extent that such use is not violation of the conditions of import in the scheme or in the corresponding exemption notification, does not suffice to conclude that the vehicles were not used for the purposes for which import at concessional rate of duty was permitted by the authorization.
12. Appellant-company has applied to the licencing authority for issue of Export Obligation Discharge Certificate (EODC). Such application does not terminate the validity of the authorization or to accrue credit of further earning of foreign exchange in the manner envisaged in the scheme to meet any shortfall in achievement of obligation that may yet be determined by the licencing authority. It is not in doubt that the licencing authority is competent to determine that export obligation has been discharged. That such authority is vested as the final authority to do so is amply clear in the decision of the Honble High Court Of Bombay in Bhilwara Spinners v. Union of India [2011 (267) ELT 49 (Bom)] holding thus:
22. Once the licencing authority has found that the licencing conditions have been fulfilled, it would not be open to the customs authorities too contend that the imports under the licence are contrary to law and take action against the licence holder. Consequently, 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. For the reason of not having awaited the completion of the deadline prescribed in the exemption notification for compliance with first report of prescribed proportion of achievement of obligation and of deciding on the extent of achievement of export obligation without proper authority, we find that that the proceedings are not legally sustainable.
13. We notice that one aspect of fulfillment of export obligation has not been considered in the judgments and decisions cited on behalf of Revenue. The various judgments that have been relied upon or followed have dealt with export promotion schemes in the Foreign Trade Policy (or the predecessor Export Import Policy), corresponding notifications under Customs Act, 1962 and the jurisdiction to ascertain fulfillment of export obligation but exclusively relate to conditions that require export of goods. Both the privileged imports and the obligated exports in those disputes were, indubitably, handled through customs ports and in accordance with the procedure laid down in Customs Act, 1962. Domain knowledge of the manner and mode of achievement of export obligation vests in the customs formations; verification for ascertainment before certification must necessarily be referred to customs ports and none other. The statutory authority to assess the nature and value of export goods carries with it the inherent authority to decide upon acknowledgement of a particular export or set of goods as acceptable. However, in the matter of services as a source of foreign exchange an entirely different tale unfolds. There can be no two opinions that customs statutes are enacted for, and deal exclusively with, import or export of goods. Services have no place therein and there is no enabling authority to levy duties on import or export of services. Hence, neither domain knowledge nor domain expertise vests in the customs authorities to be capable of or empowered to decide on their own that export obligation prescribed for services has not been achieved. Even the proximate and fraternal kinship with levy and collection of service tax through the higher echelons of customs hierarchy does not confer that authority because the definition of services are separate and distinct which in chapter 9 of the Foreign Trade Policy is:
9.52 Services include all the tradeable services covered under General Agreement on Trade in Services and earning free foreign exchange 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.
14. There is no allegation of breach of any other condition in the exemption notification.
15. For the above reasons, the demand of duty and confiscation of the cars fails as do the various penalties. The impugned order is set aside. Appeals are allowed with consequential relief.
(Pronounced on 25/10/2016) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical) */as 15 15