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2015 (12) TMI 1045 - CESTAT NEW DELHI

2015 (12) TMI 1045 - CESTAT NEW DELHI - 2016 (336) E.L.T. 116 (Tri. - Del.) - Denial of the benefit of EPCG license - Import of cars - export obligations - cars were not put to proper use inasmuch as they were not used for providing transport facilities to the guests of the hotel to earn foreign exchange. - cars were insured as personal vehicles - cars were carrying the registration number in the incorrect colour code and different perceptions about the use to which the cars were put. The statem .....

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igation. This Policy does not envisage that a service provider importing the goods under EPCG authorisation will have to change the character of service depending upon the goods imported which means that a hotel importing laundry equipment will have to render service of washing clothes of foreign tourists and earn foreign exchange in the process. Therefore, it cannot be construed that hotel importing cars will have to provide transportation to the foreign tourists and earn foreign exchange in th .....

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. - 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 custom notificatio .....

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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 car are to be used by foreign tourist, implying thereby that while other capital goods could be used indirectly or laterally, the cars could not be so used and were to be used by foreign tourists. - HEL has not obtained export obligation discharge certificate and the licences have not been redeemed and during the course of adjudication, HEL has .....

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rs are not sustainable in the eyes of law. Accordingly, the impugned orders are set aside. - Decided in favour of assessee. - Appeal Nos. C/378 to 382/2010-CU(DB) And C/589 And 591/2010, No. C/646/2010 - Final Order Nos. C/A/53455-53462/2015-CU(DB) - Dated:- 17-11-2015 - Ashok Jindal, Member (J) And R. K. Singh, Member (T) For the Appellants : Shri S K Pahwa, Adv. & Shri Rohan Pahwa, Advs For the Respondents : Shri B K Singh, Adv., Shri Gavit Chauhan, Adv. And Shri I C Joshi, Advs ORDER Per .....

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d of by a common order. 3. The facts in brief are that HEL is providing "Hotel Services under the category of Tourism and Travel related services" mentioned in Appendix 10 of the Handbook of Procedures relating to Foreign Trade Policy 2004-2009. M/s HEL obtained EPCG authorisation dated 20.08.2007 in respect three Mercedes Benz cars and another such authorisation dated 1.11.2007 in respect of one Rolls Royce car. The export obligation against this EPCG authorisation was to be fulfilled .....

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rounds: (a) The cars were not put to proper use inasmuch as they were not used for providing transport facilities to the guests of the hotel to earn foreign exchange. (b) As the cars were parked at the residence of the Directors of HEL. (c) The cars were insured as personal vehicles. (d) The cars were carrying the registration number in the incorrect colour code and different perceptions about the use to which the cars were put. The statements of drivers indicate that the cars were used by the D .....

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the cars were insured as commercial vehicle. It is his submission that due to international economic recession and terrorists attack on hotels in Mumbai, the flow of tourists to India was seriously affected and in the absence of high net worth tourists, the said luxury cars could not be used for transporting tourists, as there was no demand. However, the cars were otherwise being put to use in the hotel service. He submits that the case of the Revenue is that the cars are to be used to earn fore .....

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ject of an export obligation equivalent to eight times of duty saved on capital goods to be fulfilled in eight years reckoned from issue of date of EPCG authorisation. The capital goods as defined in para 9.12 of the policy which means any plant, machinery, equipment or accessories required for rendering services and includes those required for replacement, modernisation, technological upgradation or expansion. The service providers includes providers of hotel services, can import any plant, mac .....

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l export obligation is completed. As per para 9.4 of the Policy actual user means, who may be either industrial or non-industrial and para 9.6 of the Policy, "actual user" means a person who utilise the imported goods for his own use in any service industry. Therefore, it means that cars imported by HEL were to be used by HEL in their service industry. He further submits that para 5.4(i) of the policy envisages fulfilment of export obligation by export of services rendered by HEL. It i .....

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horisation will have to change the character of service depending upon the goods imported. Therefore, it cannot construed that the hotel importing cars will have to provide transportation to the foreign tourists and earn foreign exchange in the process. It only means that cars are to be used for providing the hotel services to foreign guests. He further submits that the customs Notification No. 97/2004-Cus has been issued by the Central Government to operationalise the policy provisions. Therefo .....

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ose of Notification No. 97/2004-Cus has the same meaning as assigned to it in the Foreign Trade Policy and export obligation means in relation to rendering service receiving payments in freely convertible foreign exchange for the service rendered through the use of capital goods. Therefore, the export obligation in relation to importers rendering service means receiving payments in freely convertible foreign exchange for the service rendered through the use of cars. This does not convey that the .....

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paragraph 9.36 of the Foreign Trade Policy. As per said proviso, it is clear that cars are only to be used by foreign tourists staying as guests in the hotel is not in line with even the language of the notification. Therefore, there is no divergence between the provisions of the Foreign Trade Policy and the exemption notification. To support this contention he relied following decisions: (a) CC, New Delhi Vs. Som Dut Builders Ltd. - 2009 (236) ELT 478 (Tri.-Del.) (b) M Far Hotels Ltd. Vs. CC, .....

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further, submits that allegation of Revenue is that logbooks of the cars in question were maintained differently from the logbooks of other cars or the control of these cars was with Directors while the control of other cars was with the staff or the cars were being used by the family members of the Directors. With regard to this, he submits that it is not the case of the department that cars were not used by the Directors for the purpose of the hotel. In fact, these cars are parked in the hote .....

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on No. 97/2004-Cus., the cars were to be used for transporting foreign guests by the hotel and it is an accepted position that cars were not so used at all. He further submits that case laws relied upon by the ld. Counsel for the appellant HEL and its Directors cannot be treated as an authority as the decision has not considered the provisions of customs notification inasmuch as there was no analysis of the customs notification in those decisions. He further submits that the decision of the Hon& .....

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cision of this Tribunal. He further submits that HEL have undertook to the DGFT authorities that the cars will be used for providing the service to the foreign guests and that HEL had applied for obtaining export obligation discharge certificate, in view of their fraudulent intentions, the action of the department is not premature. 6. In rebuttal to the argument advanced by ld. Counsel for Revenue, Shri S.K. Pahwa submits that the arguments of Revenue are untenable as it is not the case of HEL t .....

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also submitted that the definition of capital goods, neither the definition of the export obligation by itself nor when read in conjunction with the proviso relating to managed hotels suggested 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 service. In fact, custom notification does not provide how to .....

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ue in the case of Surya Samudra Holiday Resorts Pvt. Ltd. (supra) is of the Larger Bench decision is not correct as in Larger Bench proceedings;there is a collective application of mind by three Members on an issue which is referred to the Larger Bench whereas in the case of difference of opinion matter, the third Member has to choose between one of the two opinions of the differing Members. This issue has been examined by the Hon'ble Gujarat High Court in the case of Commissioner Income Tax .....

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relating to use of car imported under EPCG scheme. 7. Heard both sides. Considered the submissions. 8. The facts of the case are not in dispute, therefore, the same are not required to be recorded herein. 9. After analysing all arguments advanced before us, the following issues emerges: a) Whether, the proceedings initiated against HEL and its Directors for contravention of import under Notification No. 97/2004 ibid is premature or not? b) Whether, the imported cars were required by the HEL to b .....

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operators or tour transport operators and companies owning/operating golf resorts subject to condition that: (i) total foreign exchange, earning from hotel, travel and tourism and gold tourism sectors in current and preceding three licensing years is ₹ 1.5 crores or more. (ii) "duty saved" amount on all EPCG Authorisations issued in a licensing year for import of motor cars, sports utility vehicles/all purpose vehicles shall not exceed 50% of average foreign exchange earnings fr .....

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filment of the export obligation- (i) Export obligation shall be fulfilled by export of goods, manufactured/services rendered by the applicant. Export obligation shall be, over and above, the average level of exports achieved by applicant in preceding three licensing years. Such average would be the arithmetic mean of export performance in last 3 years. Export obligation may also be fulfilled by exports of group company/managed hotel which has EPCG Authorisation. However, in such cases, addition .....

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lfilment of export obligation. 9.6 "Actual User (Non-Industrial)" means a person who utilises the imported goods for his own use in (i) any commercial establishment carrying on any business, trade or profession ; or (ii) any laboratory, Scientific or Research and Development (R&D) institution, university or other educational institution or hospital; or (iii) Any service industry." 9.36 "Managed Hotel" means hotels managed by a three star or above hotel/hotel chain un .....

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ssembled or manufactured in terms of this notification: (ii) In relation to importers rendering services means receiving payments in freely convertible foreign agency for services rendered through the use of capital goods. Provided also that in respect for hotels the export obligation many also be fulfilled by Managed Hotels as defined in paragraph 9.36 of the Foreign Trade Policy." On going through the above provisions, we find that para 5.4(i) of the Policy envisages fulfilment of export .....

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rt of motor cars, sports utility vehicles or all purpose vehicles inter alia to the hotels. Condition for import of such capital goods in para 5.3 of the Policy is that import of cars shall be subject to actual user condition till export obligation is completed and para 9.4/9.6 means actual user a person who utilises imported goods for his own use in any service industry. Therefore, the said conditions clearly stipulates that the car imported by HEL were to be used by HEL in their service indust .....

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g laundry equipment will have to render service of washing clothes of foreign tourists and earn foreign exchange in the process. Therefore, it cannot be construed that hotel importing cars will have to provide transportation to the foreign tourists and earn foreign exchange in the process. It only means the cars are to be used by HEL for providing hotel services to foreign guests. The custom notification in question has been issued by the Central Government to operationalise the Policy provision .....

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onetheless, it is only after the efforts in harmonizing the two provisions fails, a view that notification is a nature of complementing the Policy can be taken. Therefore, the term capital goods for the purpose of notification in question has the same meaning as assigned to it in the Foreign Trade Policy. The export obligation means in relation to importers rendering services receiving payments in freely convertible foreign exchange for the services rendered through the use of capital goods. The .....

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In, so far as, the expression through use of car is concerned it merely interprets the actual user concept in the definition of export obligation. The Notification does not suggest that export obligation is to be discharged by earning foreign exchange through the use of car by foreign tourist as it is provided in the notification itself that in respect of hotel, export obligation can be fulfilled by "Managed Hotel" as defined in paragraph 9.36 of the Foreign Trade Policy. The "Man .....

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s guests in the hotel is not in line with even the language of the notification. It further says there is no divergence between the provisions of Foreign Trade Policy and exemption notification. 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 b .....

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ue. Therefore, the policy and the custom notification allow import of cars by hotels for use in providing hotel services. 11. Both policy and custom 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 paymen .....

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irectors. 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 custom notification does not provide for such indirect or lateral use of the capital goods imported under EPCG scheme. It .....

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ering 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 no where 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, th .....

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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. 12. The argument advanced by the ld. Special Counsel for the Revenue that the case laws relied upon by the ld. Counsel for HEL and its Directors have not examined the provisions of exemption notifications, therefore, the same cannot be relied. We do not agree with the ld. Special Counsel of the Re .....

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er providing hotel services or the services of a travel agent. These importers were not substantially in a position to use the cars linearly for earning foreign exchange while providing their respective services. In this backdrop, it was no possible that the Tribunal or the High Court would have concluded the issue without considering the legal provisions at the relevant time, in fact that the term export obligation as used in the relevant notification were not analysed only shows that the depar .....

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s there was an apparent element of fraud as the car has been transferred in private name in violation of the policy whereas the car was required to be registered as tourist vehicle. Therefore, the facts of the said case are distinguishable from the facts of the case in hand as in this case, the cars were registered in the name of HEL as 'tourist vehicle' not during the investigation but thereafter also. The ld. Counsel has relied only to the ratio in that case to say that export obligati .....

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n these facts, the foreign exchange earned by the said appellant has not been earned by the use of imported car. In those set of facts, this Tribunal arrived at a decision that the foreign exchange earning out of the service rendered without the use of capital goods would not found part of discharge of export obligation. Definitely this is not the case in hand. In the case of Surya Samudra Holiday Resorts Pvt. Ltd. (supra) also the Tribunal had not analysed how and in which manner car is require .....

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y or indirectly in providing hotel services by the hotels. Therefore, the case law relied upon by ld. Counsel for the Revenue is of no help. Further, we find that in the case of Interglobe Enterprises Ltd. (supra) the writ petition was filed by the petitioner for setting aside the investigation proceedings against them with regard to discharge of export obligation and the Hon'ble High Court observed that the car in question was not registered as a commercial vehicle and thereafter investigat .....

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We have carefully considered the submissions from both sides. We have not been shown any violation of any specific provision of EXIM Policy and the EPCG licence or violation of any specific condition of the exemption notification governing the imports of car for the service sector. The relevant portion of the Commissioner's finding dropping the proceedings are reproduced below:- "25. The principal allegations of the Department are that the importer had stated that the purpose of the imp .....

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t these cars were registered for private/personal use with the licensing authority under Motor Vehicle Act and not for commercial use. 26. Neither the Import Policy nor the Customs Notfn. 49/2000-Cus. dated 27-4-2000 lay down the nature of record to be maintained by the licensee in respect of foreign exchange earned from the imported capital goods. It is nowhere provided that details of each journey undertaken or name of foreign guest who used the car or the amount and mode of payment should be .....

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rport to hotel. This is a complementary facility provided by hotel to their guests. In the nature of the hotel industry a major part of their marketing strategy is to interact with major tour group operators who provide bulk business and such interaction is at the convenience of the tour operator and not the hotel which is the buyer. 27. The importers are required to use imported cars for earning incremental foreign exchange as required under EPCG scheme. The Customs Notfn. or the Export Import .....

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n exchange earning. 28. In these circumstances there is no violation of the requirement of the EPCG scheme or the Customs notification. The show cause notice is dropped". 15. Further in the case of M Far Hotels Ltd. (supra) wherein the facts are as under. The appellant violated the conditions notification under which vehicle was imported and also EPCG licence as the said vehicle was not used for the purpose of which it was imported. The main contention of the Revenue is that foreign exchang .....

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al authorities of the DGFT. It states that vehicle imported under the EPCG scheme should be registered as vehicle for tourist purpose only. The said circular is reproduced below: Vehicles imported under EPCG Scheme to be registered as vehicle for "tourist purpose only" [Add on page 648 of FTP & Handbook of Procedures Vol. 1, 2008-ED.J] Subject: Import of Motor Car etc. under EPCG Scheme-(para 5.1 of FTP) Attention is invited to Para 5.1 of Foreign Trade Policy wherein import of Mot .....

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learing such vehicles that such vehicles have to be registered as a vehicle "for tourist purpose only". This would make purpose of import of vehicles absolutely clear and would also facilitate registration. b. in all past cases where Export Obligation Discharge Certificate (EODC) has not been obtained by 30.06.2008 and where vehicles were not registered as Tourist Vehicles, EPCG authorization holders will get them registered as Tourist Vehicles, by 31-08-2008. Regional Authorities of D .....

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Delhi Dt: 27-12-2006 To The Joint Director General of Foreign Trade Bangalore [Kind Attn. Shri M. Balagangadharan, Joint DGFT] Subject: Import of Cars under EPCG Scheme - reg. Sir, Please refer to your letter No. 7/21/EPCG.MISC.Statement/06 dated 3-11-2006 with regard to the DRI communication under their reference No. S/IV/43/2005/661, dated 4-7-2006 received in that officer 2. The matter has been examined in detail. In their communication DRI has raised two Issues:- i. The cars imported under .....

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t/Commercial vehicles has been notified on 14-6-2006 and included as a part of the Foreign Trade Policy 2004-09. Prior to this date, there was no such stipulation in the Foreign Trade Policy. Therefore, foreign exchange earnings by use of these vehicles not registered as Commercial/Tourist vehicles cannot be denied the benefits of considering the same towards fulfillment/discharge of EO, so long as no other misuse/transfer of such a vehicle/registration of such vehicle in the name other than the .....

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t 2(ii) above, in the working of hotel, tourism and travel service industry the vehicles are part of an overall package drawn by these service providers for the tourists. This package may include hotel accommodation, food, beverages and travel cost and charges for utilizing imported vehicles would not be billed separately to the tourist. It is therefore not practically possible for these sectors to show export earnings separately from use of these vehicles. Therefore, the views expressed by the .....

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instructions may be followed scrupulously and wherever the EODC etc. has been cancelled based upon the recommendations of DRI or any other authority, the same may be reviewed and dealt with in line with the instructions contained in this letter. However, wherever there is a specific order from any court of law in this regard, the same may be brought to the notice of the Headquarters. 6. This issues with the approval of Competent Authority. 11. On going through that letter it is seen that the DRI .....

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many things including the use of the vehicle. From the clarification, it is clear that it is not very necessary that the appellants have to show the amount of foreign exchange earned because of the exclusive use of the car, due to practical difficulties. The appellants also have stated that in many cases, they may allow the use of the vehicle as complement to Tourists. In those cases, they may not be billing them separately. And it would be very difficult and there wilt be practical difficultie .....

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t fair to deny the benefit of the exemption notification. Even the DGFT circular directing vehicles to be used for tourist purpose has been issued on 07-05-2008. On going through the DGFT circular as well as the clarification given which we had already reproduced, it is seen that in these matters a broader view has to be adopted. Moreover, there is time for fulfillment of export obligation up to 2011. It is also very premature on the part of the Customs to have demanded duty from the appellants. .....

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sition of heavy penalties. Hence, we set aside the impugned order and allow the appeals with consequential relief." Admittedly, the case of the Revenue is similar that the foreign exchange should be earned by use of car. Therefore, the facts of the cases before us are similar to the case of M Far Hotels Ltd. (supra). 16. We further observed that in the case of Air Travel Bureau Ltd. (supra) the cars were confiscated for violation of notification as well as conditions of EPCG license. As the .....

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have fulfilled the export obligation as prescribed. 6.4 We agree with the contention of the learned DR that the Customs authorities are empowered to look into the compliance of the conditions of the notification independently. However we, in the present case, find that the notification has a link to provisions of the EXIM policy and the understanding of the DGFT authorities on the said provisions cannot be brushed aside without valid reasons. 6.5 Further, we have not been shown that the imported .....

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the licence till the date of import of the cars are also to be taken into account for the purpose of computing the export obligation is a debatable point. The export obligation as per the EXIM policy refers to one which is fulfilled using the goods imported. However, a submission was made that the value of export earnings from the date of import of cars are also substantially higher and the same fully covers the export obligation as stipulated under EXIM Policy/EPCG licence. It is also submitted .....

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hould be fulfilled with the direct use of the imported items namely cars in the said case. Both the interpretations were not accepted, the Court took a balance of view by interpreting the EPCG policy in the following manner:- 'The true position appears to us to be that while capital goods may or may not be capable of generating convertible foreign exchange by their independent use as is the position in the case of the lift in a hotel or the cars imported by the travel agent, the least that t .....

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have been able to fulfill the obligation under EPCG license as pointed above, which was the very condition imposed in the said license by the DGFT. DGFT has redeemed the license and has taken the view that the respondents have fulfilled their export obligation. No doubt, the opinion of the DGFT would not be conclusive and any such certificate cannot press the power of the authority to reopen even a concluded matter if it is shown that the such conclusion was vitiated by fraud concealment of fac .....

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against the order of the High Court of Delhi has been dismissed by Hon'ble Apex Court reported in 2011 (268) ELT A110 (SC). 17. We also note that the identical issue came up before the Bombay Bench of this Tribunal in the case of Goldfinch Hotels (P) Ltd., (supra) wherein the case of the Revenue was that the appellant had no intention to abide by the conditions of EPCG licence and Exemption notification. Therefore exemption was wrongly availed and show cause notice was issued. In that case .....

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details of each journey undertaken or name of foreign guest who used the car or the amount and mode of payment should be recorded. The service provider has been given the freedom to use the imported capital goods in whatever way he considers best to earn the incremental foreign exchange. The main requirement are that the required incremental foreign exchange be earned in a specified period; the imported vehicle shall be registered for tourist purpose only, and should not be sold or transferred. .....

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lity that the vehicle was imported solely for personal use of the CMD of the Hotel. In these circumstances, we find that even if the mandatory conditions of Exemption Notification are construed strictly, there is no violation of any condition of the EPCG license, FTP or the Customs Notification. 27. We have also perused the judgement of this Tribunal in Surya Samudra Holiday Resorts (P) Ltd. - 2010 (256) ELT 433 (Tri.-Mum). The said judgement was rendered in a totally different context, inasmuch .....

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was transferred by registering as a private vehicle in the name of the-Managing Director of the appellant therein from earlier registration in Trivandrum as a tourist vehicle. In view of the above findings, this judgement is not applicable in the facts of the instant case. 28. The appellant has also raised the issue of erroneous rejection of the request for mandatory examination of witnesses as prescribed under section 138B of the Customs Act, 1962 on the issue of the relevancy of statements in .....

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