Customs, Excise and Gold Tribunal - Tamil Nadu
Psa Sical Terminals Ltd. vs Commissioner Of Customs on 25 November, 2003
Equivalent citations: 2004(165)ELT109(TRI-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. The appellants are aggrieved with the Order-in-Original No. 18/2003, dated 4-7-2003 confirming demands of over Rs. 21,60,84,019/- on the ground that they have not complied with the terms of the Concessional Notification No. 28/97-Cus., dated 1-4-97. In terms of the said notification, under proviso to Section 28(1) of the Customs Act, there is also confirmation of interest besides an order of confiscation of capital goods, imported under various bills of entry. However the same has been directed to be released on payment of fine of Rs. 4.50 crores. There is a penalty of equal amount of the duty demanded in the matter.
2. The appellant is a private container terminal operator at Tuticorin Port. They had imported various types of gantry cranes, rail mounted quay side container cranes with accessories and two units of rail mounted quay side container cranes and two units of rubber tyred gantry cranes against EPCG Licence No. 0430000001, dated 20-8-99 and claimed the benefit of the said notification for clearance of the goods in terms of the said licence.
3. In terms of the conditions of the said licence they have to fulfil export obligation equivalent to 46 million US dollar. As per condition 2 of the Notification 28/97-Cus., dated 1-4-97 they were to execute a bond with surety or security as specified by the Assistant Commissioner undertaking to fulfil the export obligation as Nil%, 10%, 20%, 30%, and 40% during first, second, third, forth and fifth year respectively and accordingly they executed bond with Bank Guarantee equivalent to the concessional duty availed.
4. It is stated in Paras 4, 5, 6 and 7 as follows :
4. As per the condition No. 3, the importer has to produce evidence regarding the extent of export obligation fulfilled within 30 days of the expiry of each year from the date of issue of licence from second year onwards. The export obligation claimed to have been fulfilled was filed on 12-1-2002 in Appendix 10C of the EXIM Handbook of Procedures wherein vide column (h), they have claimed that they have achieved cumulative export of 6598842.76 US Dollar. Further, the Canara Bank, Tuticorin have certified that all service exports as shown above were denominated in US Dollar and payment had been realized. Intelligence revealed that the importer availed the EPCG scheme by misstating that they were realizing the service charges in US Dollar but payment was received in Indian rupees. Detailed investigation revealed that all the money were realized only in Indian currency as per the clarification letter dated 9-1-2002 of the Bank Manager, Canara Bank, Tuticorin. The importer vide their letter dated 18-1-2002 claimed that Tariff Authority for Major Ports (TAMP) was the proper authority for fixing tariff for the various services rendered by them vide Notification No. TAMP/90/99 TPT dated 28-12-99; that the TAMP had fixed the tariff for various operation undertaken in the container terminal; that for some services, the service charges are denominated in Dollars and for some services in Indian rupees; that for fulfilment of export obligation they had gone according to the Dollar denominated services duly approved by TAMP; that they provide services to vessel operators and MLOs; that the freight charges and other container related charges collected by MLOs from the shippers constituted Dollar earnings and so earned Dollar earnings are paid to them and hence they represent foreign exchange earnings for the country; that they receive their payment in Indian rupees after conversion of Dollar as per exchange rate.
5. The importer have given the following services are Dollar de-nominated as per the Notification No. TAMP/90/99 TPT dated 28-12-99.
SI. No. Item Vessel operators Dollar denomi-nated Main Line opera-tors Dollar de-nominated
1. Opening and closing of hatch covers YES
2. Shifting containers in ves-sel YES
3. Quay crane charges YES
4. Stowage and planning, lashing /unlashing of con-tainers and supervision services YES
5. Container wharfage YES
6. Reefer container & YES
(a) Services connecting or disconnecting
(b) Services on Board a vessel connecting and disconnecting, monitoring and supply of electricity at reefer yard
7. Shut out of containers YES
8. Stevedorage for tranship-ment containers YES
9. Storage of containers YES
6. Shri S.R. Ramakrishnan, Managing Director of M/s. PSA Sical vide his statements dated 21-2-2002 and 4-3-2002 stated that Dollar denominated charges collected for various services rendered as per the order of TAMP cited supra should he taken into account towards fulfilment of export obligation. He also accepted non-intimation of receipt of Indian rupees after conversion from US Dollar, to the Customs department. He was not able to give any specific reply to the explanation 'export obligation in relation to service providers' (means realizing service charges for the various services rendered by the use of capital goods in freely convertible foreign currency) given for export obligation in Notification No. 28/97-Cus., dated 1-4-97.
7. Vide letter dated 5-2-2002, the importer informed that the TAMP, in consideration of EPCG sanction issued a detailed order prescribing a scheme for their foreign exchange earnings; that whatever the services denominated by them in Dollar should be taken into account as services for which payment received on foreign currency; that such receipts of payments need not be in physical terms to the service provider; that as long as the Government realizes payments in foreign exchanges for service provided by them they have fully satisfied the Notification 28/97-Cus. Along with the above letter, the importer have also forwarded a copy of the letter dated 2-1-2002 written by Deputy Director General of Foreign Trade to the DGFT, New Delhi the Para 2 of which is as follows :-
"Para 2 :- The licence holder have come with a request to issue a letter to the effect that Dollar denominated services collectable in Indian rupees as approved by TAMP constituting services towards fulfilment of export obligation in respect of the EPCG licence issued to them vide their letter dated 10-10-01 (Copy enclosed). Since there is no specific provision in the policy, this office has already requested them to settle the matter directly with the Custom House, at Tuticorin, on the basis of evidence of US Dollar earnings for the service rendered."
5. The Customs authority in terms of the above facts alleged that the policy did not recognise such rupee to denominate services towards fulfilment of export obligation against EPCG licence. It was alleged that the export obligation in relation to service provider means receiving the service charges in freely convertible foreign currency for the services rendered and hence the charges received in Indian rupees could not be considered towards fulfilment of export obligation. It was further alleged that as per explanation (iv) of condition itself of the said notification, the concept of dollar denominated service received in Indian rupees cannot be deemed to have been received in foreign exchange towards fulfilment of the export obligation and hence proceedings were initiated against the appellant to show cause to the Commissioner of Customs as to why the duty concession availed vide the said notification should not be denied and the duty, interest and penalty should not be imposed.
6. The appellant vide their reply dated 12-6-2002 to the show cause notice in Paras 16.1 to 16.15 is extracted herein below :
16 M/s. PSA Sical Terminals Ltd., Chennai vide their reply dated 12-6-02 to the Show Cause Notice stated as follows (Para 16.1 to Para 16.15):-
16.1 They are a joint venture between South India Corporation (Agencies) Ltd. of India and PSA Corporation Limited of Singapore (Port of Singapore); that the company was incorporated in 1998 for the purpose of executing a 30 year Build, Operate and Transfer (BOT) licence agreement for the development, Operation, maintenance and management of a container terminal at the 7th berth of the Tuticorin Port. The agreement with the Ministry of Surface Transport was on 15-7-98. They applied for EPCG licence under the supporting service for maritime transport as a service provider and obtained the approval from the Committee of Secretaries on 4-8-99. Following this, EPCG licence No. 0430000001, dated 20-8-99 was obtained as a producer of supporting services for maritime support for importation of two numbers of quay cranes and 4 numbers of rubber tyred gantry cranes at 11.5 million US Dollar. The TAMP approved their tariff on 29-12-99. Operation was commenced on 7-1-2000. The TAMP while fixing the tariff indicated the services which are Dollar denominated and separately Rupees denominated. The following services are Dollar denominated, vide DGFT, Chennai, approval -
SI. No. Item Vessel operators Dollar denomi-nated Main Line operators Pollar denominated
1. Opening and closing of hatch YES covers
2. Shifting containers in vessel YES
3. Quay crane charges YES
4. Stowage and planning, lash-ing/unlashing of containers and supervision services YES
5. Container wharfage YES
6. Reefer container & YES
(a) Services connecting or disconnecting
(b) Services on Board a ves-sel connecting and dis-connecting, monitoringand supply of electricity at reefer yard
7. Shut out of containers YES
8. Stevedorage for transhipment YES containers
9. Storage of containers YES 16.2 On entering the second year they submitted progress report to the Tuticorin Customs relating to the fulfilment of their export obligation. Commerce Ministry has accepted their fulfilment of export obligation, but Tuticorin Customs have not accepted. They have not only questioned their eligibility to EPCG licence but also questioned the legality of Dollar denominated tariff as fixed by TAMP a statutory authority created by Government of India under Major Ports Act. TAMP has not been recognised by Tuticorin Customs and Dollar rates for various services fixed by TAMP were rejected and a Show Cause Notice has been issued. Thus, an anomalous situation has arisen where one arm of Government does not recognize the legitimacy of another arm of Government. A joint venture which has to necessarily follow the directions of both the wings of Government has been put into an unenviable position of not knowing whom to follow.
16.3 The first and the fourth allegation deal with non-compliance of export obligation in terms of Notification 28/97. According to the department the concept Dollar denominated services received in Indian rupees cannot be deemed to have been earned in foreign exchange. As per allegation 7(a), EPCG and the fulfilment of export obligation are matters between Commerce Ministry and the applicant and that TAMP does not come into the picture. The department's contention is that physical earnings are in rupees and hence do not count for EPCG in terms of Notification 28/97. Number of letters written to the department explaining that no port service provider can function without the tariff being notified in the Government Gazette by TAMP, but the department does not accept this picture.
16.4 The following submissions are made in respect of allegations 1 and 4. As per EXIM Policy (Ch. 15 Para 15.2) service providers are eligible to avail EPCG scheme, the supporting service for maritime transport is one of the approved services under the EPCG scheme. In EXIM Policy 2002-2007, a service provider has been defined as a person providing a service in India relating to exports paid in free foreign exchange or for such services paid in Indian rupees, which are otherwise considered as free foreign exchange by RBI. RBI in their letter dated 28-4-2000 have clarified that such rupee earnings of the terminal operator are deemed to be earned in foreign exchange. The RBI's letter reads as follows :-
"Please refer to your letter, 7th April, 2000 on the captioned subject. In this connection, we advise that any such payment which would have been otherwise received in foreign exchange but paid in Indian rupees out of the amount remittable to Overseas Principal thereby reducing out go of foreign exchange can be considered as (1) deemed to be received in foreign exchange (2) deemed to be earned in foreign exchange"
16.5 In their case, the RBI has examined the issue and issued a similar letter dated 17-5-2002 confirming the position as above. Thus, RBI has already clarified in their case and in the case of other private operator with similar EPCG licence that rupee earnings from MLOs and VOs for Dollar denominated services constitute foreign exchange earnings and RBI's clarification should settle the issue. It is only correct and proper that Tuticorin Customs accepts the above position and the specific nature of the port related service industry, particularly in view of the definition of service provider in EXIM Policy 2002-07. The present contention in EXIM policy is not a new development. It is only in the nature of a clarification for an earlier established policy, which will be clear in view of the fact that RBI was consulted in this matter by the Ministry of Surface Transport in 1991 itself. Further, bulk of their export obligation falls in the EXIM Policy 2002-07 and in view of this clear position there has been no violation of Notification 28/97.
16.6 Even before the creation of TAMP, the Government of India, Ministry of Surface Transport has followed a similar policy denominating some of the services of post service providers in Dollar terms and receipt in the hand of service providers in rupees; Letter dated 17-12-91 of Ministry of Surface Transport (copy enclosed) which will make it clear that the scheme of earning of Dollar denominated services amounting to foreign exchange was made operational after approval from Ministry of Finance and RBI. TAMP has merely continued with this policy. In addition to the above development in 1991, container handling and related charges were also approved to be Dollar denominated, based on the logic that container is extension of vessel hatch (TAMP order No. MBPT dated 22-8-97). Thus the whole scheme of Dollar denominated services being counter as foreign exchange earnings was evolved after acceptance of Finance and RBI, The fact that for payments to be made by MLOs and VOs for Dollar services accustoms notified rate of exchange is used is further proof that these payments to PSA Sical amounts to Dollar payments.
16.7 As regards the TAMP's role, as per Section 47A speaks about the constitution and incorporation of TAMP. Section 48 speaks about scale of rates for services performed by board or other person.
Section 48 reads as follows :-
"48. Scale of rates for services performed by board or other persons. -
The authority shall from time to time by notification in the Official Gazette frame a scale of rates at which and a statement of conditions under which any of the services specified hereunder shall he performed by a board or any other person authorised under Section 42 at or in relation to the port or port approaches -
(a) Transhipping of passengers or goods between vessels in the port or port approaches.
(b) Landing and shipping of passengers or goods from or to such vessels to or from any wharf quay, jetty, pier, dock, berth, mooring, stage or execution land or building in the possession or occupation of the board or at any place within the limits of the board or post approaches.
(c) Carnage or porterage of goods on any such place.
(d) Wharfage, storage or demurrage of goods on any such place.
(e) Any other service in respect of vessels, passengers or goods. (2) Different scales and conditions may be framed for different classes of goods and vessels."
16.8 The provisions of Sections 47 and 48 of Major Ports Trust Act will clarify that they had to by law approach TAMP for their tariff. As per the Clause 7.3.1 of the License Agreement with Government they had to necessarily follow the rules and regulations stipulated by TAMP in all matters relating to tariff. TAMP has issued an order dated 27-11-2000 in which Para 4 makes it clear that rate of conversion for Dollar denominated services to rupees was done in consultation and in association with CBEC. If the earnings of Dollar denominated services are not to be treated as earnings equivalent to Dollars, then the following questions arise which will prove that the entire Show Cause Notice is due to misconception arising out of in complete reference to all the levy (policies, orders and past clarifications of relevant authorities) of the EPCG scheme applicable to service providers undertaking supporting service for maritime transport providers.
What is the reason for the statutory authority to undertake such an elaborate exercise to identify Dollar denominated charges ?
Why should RBI issue a circular confirming that earnings through Dollar services amount to foreign exchange ?
It is possible for Tuticorin Customs to contend that circulars and order of RBI and TAMP are of no consequence ?
16.9 The second allegation is that out of nine services denominated in TAMP's order as Dollars denominated, five charges viz. 3, 4, 5, 6 and 9 were recovered as terminal handling charges from importers or exporters as they are not part of the freight charges collected either from VOs or MLOs. A careful reading of the TAMP's order will reveal that the order itself answers this allegation whether terminal charges are entitled to Dollar denomination and hence also entitled towards EPCG export obligation. Para (iii) in Page 10 states that the most important feature of the proposal is about denomination of all the tariff's in Dollar terms. It has been the constant stand of this authority that only vessel related charges can be Dollars denominated, cargo related charges can only be denominated in rupee terms. From the extracts of Para xviii (Page 16), it could be seen that it is Government of India which ordered the services at Sl. Nos. 3, 4, 5, 6 and 9 to Mumbai Port Trust in Dollar terms and the same policy has been adopted in respect of their case. RBI has also clarified that the Dollar denominated services provided to MLOs and VOs contribute foreign exchage earnings and hence Dollar denominated charges as approved the TAMP and collected from VOs and MLOs in rupees constitute foreign exchange earnings. Their services are integrated and recognized and duly approved by the designated authority of Government of India (TAMP). The jurisdiction of TAMP indicating the service which can be Dollar denominated should be appreciated otherwise the whole exercise by permitting EPCG facility to port sector will become a meaningless proposition making the efforts of Commerce Ministry and TAMP futile.
16.10 The third allegation is that PSA Sical has requested Deputy DGFT to count Dollar denominated services towards fulfilment of export obligation and that Deputy DGFT has taken a stand that there is no such provision in the EXIM policy and hence directed PSA Sical to take up the issue directly with the Customs is contrary to facts and is based on wrong understanding of the letter of the Deputy DGFT. In Para 2 the Deputy DGFT has stated that PSA Sical has requested to issue a letter to the effect that Dollar services will count for export obligation. Dy. DGFT has only stated that there is no specific provision in the policy to issue such a letter and has not stated as alleged in the Show Cause Notice that there is no provision in the policy to count Dollar services towards export obligation. The words 'there is no provision in the policy' refers to the letter requested to be issued by the Deputy DGFT. The Show Cause Notice uses these words to convey the wrong impression that the Dy, DGFT supports Tuticorin Customs stand. In fact, the Chennai Dy. DGFT have accepted the fulfilment of PSA Sical and to 'Dollar services counting towards export obligation. EXIM Policy 2002-07 (clause 9.47) clarifies the stand already taken by DGFT that whatever RBI confirms as Dollar earnings will be counted towards export obligation RBI has clearly clarified to the effect that rupee earnings of terminal operators in respect of their Dollar services are deemed to be earned in foreign exchange.
16.11 The fifth allegation is that PSA Sical in their application of May, 99 seeking EPCG licence have not stated that while their invoice will be in Dollar their actual earnings will be in rupees and hence suppression of facts. The allegation is based on misconception of the facts relating to port sector. There has not been any suppression of facts at the time of application for EPCG licence. The submission was based on facts and policies as applicable to port sector and appropriately notified which were -
(i) In 1991, certain vessel related services by major ports were approved to be Dollar denominated; but the Ports are authorized to collect the charges only in rupees. This was done after consultation with Finance Ministry and RBI.
(ii) In August, 1997, container handling and related charges were also approved by the Government to be Dollar denominated based on the logic that container was an extension of vessel hatch.
16.12 Since Dollar denominated charges collectable in rupees, container as extension of vessel hatch, etc. are not the inventions of PSA Sical and are terms contained in various notified Government orders and circulars, they cannot be accused of suppression of information. All information furnished was based on notified Government circulars. DGFT is statutory authority which will have to notify the Dollar services for export obligation and aware of the RBI's position to the effect that rupee earnings of terminal operators will be deemed to foreign exchange. Based on RBl's clarifications in their letter dated 28-4-2000 and 17-5-2002 the DGFT has accepted their export obligation. DGFT has not raised any issue regarding earnings of Dollar denominated services of PSA Sical and aware that similar EPCG licence has been given to NSICT. However, to remove even the slightest confusion, the Commerce Ministry has clarified the matter in the EXIM Policy 2002-07. The Show Cause Notice questions the authority of several statutory organizations of Government of India such as TAMP, Ministry of Surface Transport, RBI and DGFT.
16.13 The sixth allegation is that M/s. PSA Sical has persuaded TAMP to fix service charges in Dollar and in order to meet their complete export obligations amounting to 4 times the value of imports, PSA Sical approached TAMP to include several services other than storage charges and vessel hatch charges in US Dollar to ensure that there is no shortage of Dollar earnings to meet their export obligation. The above allegation is not correct. A statutory authority like TAMP cannot be persuaded and misled to issue wrong order. TAMP is a statutory Government body vested with the authority to fix tariffs for port operations who have their established procedures as well as clean policy as to what services are to be denominated either in US Dollar or in rupee. This is done in a transparent manner after an elaborate public hearing. Perusal of copy of TAMP's order fixing tariff in respect of Mumbai Port Trust in 97 will reveal that in their case, no special favour or benefit has been extended in denominating Dollar services which is also clearly explained as Clause 7(iii) in their order.
16.14 The seventh allegation is that EPCG is not a matter concerning TAMP and the allegation in sub-para 7(a) to 7(c) containing some statement are not relevant to the issue under consideration by Tuticorin Customs. The entire allegation is copied from TAMP order (Para vi in Page 12). TAMP in its order has summarized all the issues raised by various bodies in their public hearing and also the pleas put forth by the applicant. All these issues have been discussed elaborately in the TAMP's final conclusions and orders have been issued denominating some services as Dollar denominated and others as rupee based. The Show Cause Notice which does not recognize the final conclusions and orders of the TAMP strangely recognizes some of the issues raised before the final order is passed which is not fair. The answers to the allegations are contained in TAMP's order.
16.15 The eight allegation is repetition of earlier allegation that PSA Sical by misrepresentation to DGFT obtained EPCG licence and misled TAMP to fix a number of services as Dollar denominated and that in terms of Notification 28/97 PSA Sical have not fulfilled their export obligation. For the above allegation complete justifications have been furnished that every act of them is legal and valid. They have made truthful and factual statements in EPCG application. EPCG licence was issued after due verification of every parameter by Commerce Ministry and approved by a Committee of Secretaries. RBI's letter of 28-4-2000 and 17-5-2002 answer all the allegations contained in the Show Cause Notice. Commerce Ministry has accepted fulfilment of their export obligation and have issued a clear clarification in EXIM Policy 2002-07 as to what amounts to foreign exchange earnings for a service provider. In matters of foreign exchange, RBI is the final authority and requested the department not to go against those orders. They are a joint venture between two reputed organizations and all their statements and activities are transparent and within the parameters of various laws. They have obtained EPCG Licences in a bona fide manner and fulfilled their export obligations as per law. The allegation in the Show Cause Notice are baseless and due to misconception of the functioning of the port sector and various statutory authorities governing it as well as an in complete reference of various orders related to the matters. They requested to drop the proceedings and accept their export obligation. Finally, they wanted to be heard in person.
7. The appellants in their personal hearing before the Commissioner referred to the expression 'freely convertible foreign currency appearing in Notification No. 28/97 and stated that the said expression has been defined in the notification. They stated that the said expression is required to be interpreted in the light of the EXIM Policy and RBI clarification. The current EXIM Policy 2002-2007 in Para 9.47 has defined 'service provider' to mean "supply of a service in India relating to exports paid in free foreign exchange or for such services paid in Indian rupees which are otherwise considered as foreign exchange by RBI". The appellant submitted that the RBI has been constituted under Section 3(1) of the RBI Act, 1934, It is stated that RBI is responsible for matters relating to foreign exchange. Section 3 of the Foreign Exchange Management Act, 1999 under Chapter II relates to Regulation and Management of Foreign Exchange which specifically provides that same as otherwise provided in the Act, rules and regulations or with the general or special permission of the RBI no person shall deal in foreign exchange in any manner specified therein. The FEMA confers considerable powers on the RBI on matters relating to Regulation and Management of Foreign Exchange. Armed with statutory powers on matters relating to foreign exchange any clarification by RBI on such matters is binding on all agencies including the Government. They stated that the appellant made reference on 17-4-2002 to the Exchange Control Department of RBI, Mumbai seeking clarification in the context of para 9.47 of the EXIM Policy 2002-2007 for which the RBI clarified that any such payment which would have been otherwise received in foreign exchange but paid in Indian rupees out of the amount remittable to Overseas Principal thereby, reducing outgo of foreign exchange can be considered as (i) "deemed to be received in foreign exchange (ii), deemed to be earned in foreign exchange". The appellants further relied on the clarification given by the RBI on 28-4-2000 in response to a similar query by Nhava Sheva International Container Terminal. The said clarifications were issued with an intent to give effect to Commerce Ministry's scheme and hence the Commerce Ministry spelt out in the current EXIM Policy 2002-2007 in respect of certain service providers payments received by them even in. Indian rupees would be treated as if the same has been received in free foreign exchange appearing in the said notification; in the absence of any definition of the same in the notification itself it has to be understood in the context of EXIM Policy and clarification issued by RBI having a statutory force and therefore binding on customs. It was stated that customs have no legal authority to place an interpretation on the expression "freely convertible foreign currency" in a manner which is repugnant to what is provided in clear terms in the EXIM policy as that would frustrate the very objective of providing facility of importing capital goods by port related service providers under EPCG scheme. It is also stated that in December, 1991 Ministry of Surface Transport issued a policy direction to all major ports for notifying vessel related charges in US dollars but to collect the same only in Indian rupees. It was stated that with the setting up of TAMP under Major Ports Trust Act, the power for fixing scale of tariff and conditions is exercised by this body and its order is legally binding on the appellant i.e. company. The said order in continuation of earlier Government policy categorically states that all payments irrespective of denomination would be received by the company only in Indian rupees. Therefore it was stated, that the clarification given by RBI is legally permissible for the customs to assign their own meaning to the expression 'freely convertible foreign currency", in Notification No. 28/97 particularly when neither the notification nor the Customs Act defines of harmonious constructions. They have also stated that inconsistency as such between the relevant customs notification and RBI clarification. They relied on the judgment of Sullons & Sons (I) Pvt Ltd. v. UOI as reported in 1995 (75) E.L.T. 229 (Cal.) in which the Calcutta Court decided in the context of import of flower seeds by post and its eligibility to exemption in terms of a customs notification which required production of certain import permit. Applying the doctrine of harmonious construction, the Court held that conditions regarding imports of specified goods being regulated by the Ministry of Agriculture, the notification of such Administrative Ministry relaxing the petitioner had obtaining such import permit for imports by post will prevail over customs notification even though the customs notification had retained the requirements of imported flower seeds by post and sought duty free clearance under Notification No. 265/88 as amended which had been denied by the customs for want of a valid permit from the Ministry of Agriculture when such requirement had been withdrawn by the said Ministry, but Customs Notification possibly by default retained such condition. The Court held that in such a situation, Customs notification will become unworkable and of no effect. Accordingly it held that notification of Administrative Ministry would prevail over customs notification. It was further held that if there is any doubt as to the interpretation of fiscal statute, the Court shall always lean in favour of an interpretation, which will lighten the burden of tax of the litigant and relied on the judgment of Diwan Brothers v. Central Bank of India as reported in AIR 1976 S.C. 1503. Further reliance was placed on the judgment rendered by the Tribunal in the case of Swarup Fibre Industries as reported in [1990 (48) E.L.T. 418 (T)] further reliance placed as reported in 1996 (82) E.L.T. 81 (T) wherein it has been observed that construction attributing redundancy to a legislation is not acceptable. It was stated that RBI clarification about treating payment in Indian rupees as if the same is received in foreign exchange is to be treated as creating a legal fiction. Reference is made to the Hon'ble Supreme Court's decision in the case of UOI v. Jalayan Udyog as reported in [1996 (82) E.L.T. 81 (T)] wherein it was observed that it is well settled proposition that where a fiction is created by a provision of law, the Court must give full effect to the fiction and it should not allow its imagination to be bogged by any other consideration. They also stated that there was no suppression or misstatement on their part in its dealing with either customs or TAMP or DGFT for that matters before any authority in the matter relating to import of subject capital goods as has been elaborately explained by them. They submitted that larger period is not extendable in terms of the provisions of Section 28 of the Act nor penalty is imposable. He relied on the judgment rendered by the Madras High Court in the matter of UOI v. Oceanic Export Corporation as reported in 2000 (116) E.L.T. 19 (Mad.). The Commissioner after due consideration of the written submissions and oral submissions submitted before him did not agree with the contentions and held that they were required to comply with the terms of the notification in US dollar denominations only. The findings given in Paras 22 to 26 are extracted herein below :
"22. In the case of service providers, the EPCG licence holder is required to fulfil export obligation specified in the licence by earning free foreign exchange by rendering services through the use of such capital goods. In the instant case, the licence was issued in accordance with the EXIM Policy 1997-02. The new EXIM Policy (2002-2007) was announced by the Government and the definition of service provider was amended with effect from 1-4-2001 to include a new category, namely, supply of a service in India regarding exports paid in free foreign exchange with effect from 1-4-2002, it has been further amended to lead as under :
"Supply of a service in India relating to exports paid in free foreign exchange or for such services paid in Indian rupees which are otherwise considered as free foreign exchange by RBI (under new EXIM Policy 2002-2007)".
Under the relevant EXIM Policy (1997-2002), admittedly, there was no definition of the service provider like this. It is an admitted fact that the firm has not received the payments in freely convertible foreign currency, i.e. US Dollars and the firm has received only Indian rupees, which fact has been confirmed by the Manager, Canara Bank, Beach Road, Tuticorin vide his letter dt. 9-1-2002.
23. As far as the clarification given by the RBI is concerned, it is to be seen that the clarification given by the RBI vide their letter dated 17-5-02 was not there in the relevant EXIM Policy (1997-02) and pertains only to EXIM Policy 2002-2007. As such the benefit of this clarification cannot be made available to the present case wherein the Capital goods were imported during 1999. So far as the applicability of the amended definition of service provider is concerned, it is always applicable in prospective, until and unless it is categorically spell out that retrospective effect is to be given. Moreover, the export obligation has been fixed in the EPCG Licence itself, as per the policy (EXIM Policy 1997-02) in force, at the time of import of the Capital goods. Hence, the contention of the importer that bulk of their export obligation falls in the EXIM Policy 2002-07 and definition of a service provider as per the EXIM Policy 2002-07 is to be made applicable to their case is not acceptable.
24. As per condition No. 3 of the Notification 28/97-Cus., dated 1-4-97, the importer has to produce evidence regarding the extent of export obligation fulfilled within 30 days of the expiry of each year from the date of issue of licence from second year onwards. The export obligation claimed to have been fulfilled was filed on 12-1-2001 in Appendix 10C of the Handbook of Procedures wherein vide Column (h), the importer have claimed that they have achieved cumulative export of US Dollar 65,98,842.76 and the Canara Bank, Tuticorin has also certified that all service exports as shown above were denomipated in US Dollar and payment of the same had been realized. But, the fact of receiving the payments in Indian rupees which have been confirmed by the Manager, Canara Bank, Tuticorin vide their letter dated 9-1-02 have been suppressed from the Customs Department.
25. Though all the service charges were denominated in Dollar by TAMP, the service charges were received in Indian rupees. The Charges for services as notified by the TAMP on 28-12-99 are listed in Para 4 of this Order for easy understanding. The Sl Nos. 3, 4, 5, 6 and 9 of the list were recovered from the importer or the exporter as terminal handling charges. They are not a part of freight charges collected either by the VOs and MLOs from the shipper and hence the contention that the MLOs and VOs pay this out of dollar earnings is not correct. Moreover, only the services rendered by the use of the capital equipments could be considered towards fulfilment of export obligation. The services covered by Sl. Nos. 5, 6, and 9 of the list have not been rendered by the use of the capital goods and hence, the charges collected for such services cannot be considered towards fulfilment of export obligation.
26. The DGFT have also replied vide letter dated 2-1-02 to the importer that there is no specific provisions in the policy with regard to Dollar denominated services collectible in Indian rupees (as approved by TAMP) constitute services towards fulfilment of export obligation in respect of the EPCG Licence to settle the matter with the Customs House, Tuticorin on the basis of evidence of US Dollar earnings for the services rendered. Thus, it is evident that the importers have to be put to the acid test as to whether their claim towards fulfilment of export obligation is established by documentary evidence, which they have miserably failed in doing so, as seen from the findings above."
8. The Commissioner in the impugned order has relied on the judgments of the Apex Court, High Court and the Tribunal which lay emphasis on the strict friction of the notification and has given utterance to the same. While he has not referred to the harmonious construction. The notification is required to be done with an intention to cross legal friction and the foreign exchange is controlled by the RBI and the rates are fixed by TAMP. The Commissioner has considered all these points but however in Para 23 has conceded the point that clarification given by the RBI pertains to EXIM Policy 2002-2007 and such clarification cannot be made available to the present case whether the capital goods were imported during 1999.
9. Ld. Sr. Counsel Shri Arshad Hidayatullah pointed out that the term 'service provider' had the same wording as in the previous EXIM policy 1997-2002 and the same clarification would apply even retrospectively. It was argued at great length that once the statutory provision lays down certain conditions and terms and law is promulgated with regard to foreign exchange the authorities are bound by the said regulation. It was argued that TAMP lay down the rates and clarify that the exchange rate will be in rupee and all charges are payable under tariff fixed by TAMP (Tariff Authorities for Major Port) which is gazetted on 29th December, 1999. It was also pointed out that the Central Board of Excise were privy to the said fixation of prices by statutory authority and therefore it cannot be said that the customs authority was not aware of the fixation of the charges to be paid in rupee and all the statutory provision which have been gazetted. In the light of the gazetted tariff provisions and the terms which are gazetted therein, the customs authority cannot take their own stand in contra to the other bodies who also dealt with the said provisions of law. It was argued that the service rendered by the appellant is an integrated activity and all its services are necessary including the incidental and ancillary services. Hence the service charges for all those services denominated by TAMP in US dollars from the beginning till the end of a container handling cycle go towards fulfilling the export obligation in the light of the language used in the said notification in Explanation (iv). It was argued that the said notification in the context of definition of 'export obligation' uses the words "for services rendered through the use of such capital goods". It was stated that the dictionary meaning of 'through' in the Oxford Dictionary is "from beginning to end of (an experience or activity)". It was argued that the said notification had to be given a wider interpretation and hence from the beginning to the end of the activity of container handling the entirety of the service charges denominated in the US dollars were eligible to be treated towards fulfilling the export obligation. Much reliance was placed on RBI's letter clarifying the terms that service charges can be rendered payable in rupees and that the appellant had discharged their liability.
10. Sr. Counsel after taking us through the entire order, their reply, document on record as well as on the judgment cited concluded that they had complied with the terms of the notification in fulfilling the terms by exceeding the minimum percentage laid down prescribed in the notification. A chart was filed which showed that the percentage for the first year was 9.4%; for the second year 28.6%; for the third year 46.8% and for the fourth year was 67.2%. He further argued that the appellants are still under licensing authority and did not yet complete the obligation. It is premature for the customs authorities to have initiated the action. More particularly when they have already fulfilled the terms of the obligation as laid down in the notification. In this regard, the Tribunal judgment rendered in the case of Mechano Paper Machines Ltd. v. CC, Calcutta as reported in 2002 (149) E.L.T. 344 wherein it was observed in Para 4 of the order that when licence still subsist it was not open to the department to have taken the action to recover the amount. It was argued that DGFT has not cancelled their licence and it was not proper for the department to have proceeded to initiate action. There was no suppression in the matter and the demands are time-barred. Specific reference was made that when clarification is given by the competent authority the same is binding on the customs authority. In this regard the judgment rendered in the case of General Traders v. CC as reported in 2000 (124) E.L.T. 971 was relied. Reliance was made on the judgment rendered in the case of M.G. Abrol v. Shantilal Chhotelal and Co. as reported in AIR 1996 (SC) 197 wherein it has been laid down that where the goods are not prohibited goods, customs authorities had no jurisdiction to proceed and impose penalty or to confiscate the goods. It was argued that the activity was regulated by the RBI and TAMP and clarifications were received from them and hence there was no suppression in the matter. Further reliance is made on the judgment rendered in the case of Bombay Chemicals Pvt. Ltd. v. UOI and 14 Ors. as reported in 1982 (10) E.L.T. 171 wherein a similar proposition was upheld that the customs authorities are bound by the certificate issued by the D.G.T. & D under Notification dated 1-3-1968 and cannot ignore or bypass it on the ground that it was issued under mistake or misrepresentation.
11. Jt. CDR Shri V.K. Nayanar argued along with SDR Smt. Bhaghya Devi. Both reiterated the written submissions filed by the Commissioner in the matter. The written submission reiterates the findings given by the Commissioner inasmuch as to the clarifications given by the RBI and the rate fixation by TAMP has no relevance. Commissioner does not dispute, the clarification given by the RBI for having effective the EXIM policy 2002-2007 but states that the said clarification is not applicable for the previous policy 1997-2002. They have stated that there is a deliberate suppression with regard to the calculation of service charges in Indian rupees whereas payments were received in US dollars. This fact was accepted by the Managing Director.
12. On a careful consideration of the submission made we are now required to examine the terms "service provider" which is appearing in EXIM Policy 2002-2007. The Para 3.48 defines service provider means :-
"3.48 "service provider" means a person providing :
(i) Supply of 'service' from India to any other country (ii) Supply of a 'service' from India to the service consumer of any other country in India; (iii) Supply of a 'service' from India through commercial or physical presence in the territory of any other country; and (iv) Supply of a 'service' in India relating to export paid in free foreign exchange".
13. Ld. Sr. Counsel exhibited the EXIM Policy 1997-2002 and showed that the above definition in iv was included by later amendment and therefore clarification given by the RBI with regard to the same terms without change appearing in policy 2002-2007 would apply to the facts of the case. The clarificatory letter dated 28-4-2000 continues to apply. The RBI vide their letter dated 17-5-2002 clarified: "that any such payment which would have been otherwise received in foreign exchange but paid in Indian rupees out of the amount remittable to overseas principal, thereby reducing outgo of foreign exchanges can be considered as (i) deemed to be received in foreign exchange (ii) deemed to be earned in foreign exchange. The RBI by their letter dated 28-4-2000 to the Commercial Manager, Nhava Sheva International Container Terminal Ltd., Mumbai also clarified and confirmed that the charges recovered by Terminal Operator are remittable in foreign exchange and is to be treated as foreign earnings. The letter is extracted :
fjtoZ cSad eqacbZ REserve Bank Mumbai Hkkjrh;
fjtoZ cSaad fons'kh fu;a=.k foHkkx dsUnzh; dk;kZy;
dsUnzh; dk;kZy; Hkou eqacbZ & RESERVE BANK OF INDIA EXCHANGE CONTROL DEPARTMENT CENTRAL OFFICE CENTRAL OFFICE BUILDING MIMBAI - 400001 iksLV ckDl la Post Box No. 1055 QSDl la Fax No. dsUnzh;
dk;kZy; Hkou (Central Off. Bldg.) 10oh-
eafty 10th Flr.
022-2665330 11oha eafty 11th Flr.
022-2654092 022-2611427 (1st Flr.) vej Hkou Amar Bldg.
022-2632088 (3rd Flr.) 022-2654121 (3rd Flr.) eq[;
Hkou Main Bldg 022-2694933 iz'kklu @ Admn.) la- bZ lh-
&&&&&&&&&&&& 199 'kd No. EC _____CO EPD 2411 /21-8-02/99-2000 April 28, 2000 (SAKA) The Commercial Manager, Nhava Sheva International Container Terminal Ltd., Darabshaw House, Level-I, Narotham Morarji Road, Ballard Estate, Mumbai - 400038 Dear Sir,
Clarification and confirmation that charges recovered by Terminal Operator are remittable in Foreign Exchange and is treated as foreign earnings. Please refer to your letter dated 7th April 2000 on the captioned subject. In this connection we advise that any such payment which would have been otherwise received in foreign exchange but paid in Indian rupees out of the amount remittable to overseas Principal, thereby reducing outgo of foreign exchange can be considered as (i) "deemed to be received in foreign exchange"; (ii) "deemed to be earned in foreign exchange. Yours faithfully Sd/-
(C.K. Shah) Assistant General Manager Tinku, Srt. 4"
14. We have gone through the tariff fixation adopted by Tariff Authority for Major Ports (TAMP) by the concerned authority which has been gazetted on 8th December, 1999, No. TAMP/90/99-TPT, dated 29-12-1999 in Para 2.4. is as follows :
"The PSA SICAL Terminals Limited has further reported that it has been successful in obtaining the Export Promotion of Capital Goods (EPCG) Licence and, consequently, the import duties have been reduced to 11%. The reduced import duties have enabled it to reduce the project cost substantially. The terms of the EPCG licence requires it to earn in US dollars, within five years from the date of issue of EPCG licence, an amount equivalent to 4 times the CIF value of the imported equipment. Failing this, a penalty charge will be imposed which amounts to the duty saved plus a 24% interest rate thereon. The applicant has requested that, in order to avoid this penalty, the proposed tariff rates be denominated in US dollar as the existing practice of some Major Port to charge only storage charges and vessel hatches in US dollars is insufficient to meet the EPCG condition. It has also pointed out that the TPT supports US dollar denominated tariff. According to the applicant, this will have no adverse impact on Customers, Shippers, Consignees and the economy of India".
15. The reading of the order in general Para 3.3 it is seen that all rates are stated in Rupees unless otherwise specified. The 'Reference Rate' for conversion of dollar-denominated rates into Indian rupees' equivalent will be the prevailing 'Customs Exchange Rate (Import)'.
16. The Board of Excise was a privy to this fixation of tariff as can be seen from the order. Therefore it cannot be said that the customs is not aware of the meaning of the term which is in dispute. The term which has caused controversy is a commercial and a banking term. It is only appropriate for the RBI to have clarified as to whether the term 'free foreign exchange' should be understood as US dollars or to be understood as Indian rupees. The Foreign Exchange Regulation is done by the RBI. In a circumstance where there is a notification issued by the Customs authority under Section 25 of the Customs Act and its terms are to be read along with clarifications issued by other statutory authorities then it is appropriate to accept the clarification given by the RBI to the term "Free Foreign Exchange" such a clarification has a binding effect on the customs authority. We see that the Commissioner has also not disputed its applicability with regard to the explanation given by the RBI to the term appearing in the EXIM Policy 2002-2007. The spirit of the notification is thereby satisfied when RBI has clarified the issue on savings and earnings of foreign exchange. This term was available in the previous policy as well as has been seen by us in the copy of the EXIM policy 1997-2002, placed before us. Clause (iv) has been added to 3.48 before the close of the period of the EXIM policy. Therefore the clarification be said to be not a binding effect on the customs authorities. The appellants have also explained that services to vessel operators and MLO's and freight charges and other container related charges by MLOs from the shipper constitute the dollar earnings and so dollar earned are paid to them. They have received payments in Indian Rupees after conversion of dollar as per exchange rates. This has not been disputed by the Commissioner in the order. The ld. Commissioner has relied on the Managing Director's statement that the services in India relates to free foreign exchange. It is an erroneous interpretation placed by the Commissioner in the light of the order of the tariff authority for major ports having issued vide order No. TAMP/4/98-Misc., dated 27-11-2000 wherein they have clearly explained in Para 4, that the Central Board of Excise and Customs, had intimated to them that it has not faced any difficulty in the operation of Customs notified rates of exchange. There does not appear to be any difficulty in understanding the term by RBI or TAMP or by the CBEC. It is not possible to accept the fact that there was suppression in the matter and the customs authority were not aware of the facts of the matter. Therefore even the contention taken by the appellant that in any case there was no suppression of facts and that the demands are barred by time is well taken. It is seen that most of the citations relied by the appellant are well known and are clearly applicable to the facts of the case. Once the statutory authority clarifies the term which is normally used by them in their transaction and state categorically that any such payment which would have been received in foreign exchange but paid in Indian rupees out of the amount remittable to Overseas Principal, thereby reducing outgo of foreign exchange can be considered as (i) deemed to be received in foreign exchange (ii) deemed to be earned in foreign exchange, then such clarification is binding on the customs authority. This clarification of the RBI in their letter dated 17-5-2002 clinches the issue and the Commissioner also accepted the clarification for EXIM Policy 2002-2007. We are of the considered opinion that the clarification equally applies to the previous policy since the term 'service provider' has the same definition.
17. In the case of Commissioner of Sales Tax, Madhya Pradesh v. Jaswant Singh, Charan Singh as reported in AIR 1967 SC 1454, the Apex Court in Para 8 of the order laid down in the context of explanation Section 5 of the Colliery Control Order, that the Legislature there had dealt with coal in its strict and technical meaning. The Counsel had relied upon certain other statutory provisions with a view to show that the Legislature has all along been using the word 'coal' as a mineral product only. The Colliery Control Order deals with the collieries and obviously, therefore, the term 'coal' there is used as a mineral product. Therefore the Apex Court laid down that in construing a word in an Act caution is necessary in adopting meaning ascribed to that word in other statutes. As Lord Loreburn stated in Macbeth v. Chislett, [1910 AC 220 at p. 224] "it would be a new terror in the construction of Act of Parliament if we were required to limit a word to an unnatural sense because in some Act which is not incorporated or referred to such an interpretation is given to it for the purposes of that Act alone". The strict sense in which such a word is to be found in another statute may mean the etymological or scientific sense and would not in the context of another statute be applicable. From the Colliery Control Order, 1945 or the other provisions to which our attention was drawn to, it would neither be possible nor safe to adopt the meaning of the word 'coal' we infer that there is a Legislative merely because the word 'coal' has been used as meaning a mineral product in the context of these statutes. It would not, therefore, be possible to discard the meaning of the word 'coal' in this statute as understood in its commercial or popular sense and to adopt its connotation from other statutes passed for different purposes or in context of different objects. This citation is applicable to the facts of the case. It implies that the meaning given to the words and the interpretation by the RBI is required to be accepted as RBI is the controlling authority for the foreign exchange and term not having been defined in the notification, therefore, the Commissioner was not justified in not accepting the same for EXIM Policy 1997-2002.
18. The Commissioner has relied on certain judgment pertaining to strict interpretation of a notification. There are no two opinion about it. In the present context the notification alone is not the subject matter of the interpretation. The aspect pertains to foreign exchange and the authority to control it is by the RBI. In such an event the terms used in the notification are required to be enlarged and understood in the sense in which the RBI has interpreted it. The Tribunal had a say in the context of the separate interpretation with regard to the certificate issued by DGT&D and the same having a binding effect on the customs authority.
19. The further point raised by the Sr. Counsel was pertaining to the issue of show cause notice being pre-mature and in the circumstance when they have already complied with the terms of the EXIM Policy and the licence having not been cancelled by the DGFT, i.e. the licensing authority, then it is a well settled point that the department could have approached DGFT to seek clarification if they so required before proceeding to issue show cause notice. In the case of Mechano Paper Machines Ltd. v. CC, Calcutta (supra) such a premature action has not been appreciated by the Tribunal.
20. In the result, the appellant succeeds on all counts and the appeal is allowed with consequential relief, if any.