Pranav B Prem

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a duty demand of ₹76.28 lakh, along with interest and penalties, raised against Interglobe Enterprises in connection with three cars imported under the Export Promotion Capital Goods (EPCG) Scheme in the early 2000s. The order was passed by a Bench comprising Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member), which held that the Directorate General of Foreign Trade’s (DGFT) Export Obligation Discharge Certificate (EODC) is determinative of compliance and cannot be ignored without substantive evidence to the contrary.

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The dispute concerned three cars imported between 2001 and 2003 under concessional duty rate notifications, namely Notification Nos. 49/2000 and 44/2002. Interglobe Enterprises claimed to have fulfilled the corresponding export obligations through foreign exchange earnings from tourism-related services such as commissions, reservation fees and other income linked to the company’s travel and airline operations. The DGFT had issued EODCs for two licences in 2004 and 2005, while the application for the third licence remained pending at the time the Directorate of Revenue Intelligence (DRI) initiated investigations in 2005. The DRI seized the vehicles but they were subsequently released pursuant to a Delhi High Court order upon furnishing bank guarantees.

A show cause notice was issued in August 2006 alleging misuse of the EPCG scheme. This culminated in a January 2010 order by the Commissioner of Customs confirming the duty demand, interest and penalties. The department argued before the Tribunal that the foreign exchange earnings cited by the appellant were not attributable to the specific use of the imported vehicles and that the cars had private registration numbers instead of commercial registrations. It maintained that the export obligation should be fulfilled solely from earnings arising from the “exclusive” use of the imported vehicles. It relied on the Supreme Court’s decision in Commissioner v. Surya Samudra Holiday Resorts (P) Ltd., in which the duty demand for misuse of a high-end EPCG-imported vehicle was upheld.

Interglobe Enterprises denied the allegations and submitted that the DGFT itself had clarified, through letters dated 29 November 2005 and 27 December 2006, that for hotels, travel and tourism service providers, export obligations could be fulfilled from overall foreign exchange earnings rather than income exclusively traceable to the imported vehicles. The appellant also pointed out that mandatory commercial registration for tourist vehicles was introduced only in June 2006, several years after the imports in question. The cars were physically present at the appellant’s premises during the DRI search, which showed there was no diversion or misuse.

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The Tribunal examined the DGFT’s policy and the clarifications issued. It held that the EODC issued by the DGFT is binding unless there is concrete evidence that the certificate was obtained by suppression or misrepresentation. The Bench underscored that the Supreme Court, in Surya Samudra, had criticised earlier Tribunal findings suggesting that EODCs were not conclusive and clarified that DGFT’s certification is determinative of export obligation compliance under the EPCG scheme. It also distinguished the present case from Surya Samudra, noting that in the Supreme Court case, the imported Ferrari was transferred out of the state, re-registered privately, and found to have been used in violation of conditions — circumstances entirely absent here.

The Tribunal rejected the department’s contention that foreign exchange must arise exclusively from the use of the imported cars. It accepted DGFT’s consistent policy position that EPCG obligations for tourism-sector entities could be satisfied through overall foreign exchange earnings. It emphasised that the department had not produced any evidence of alternative use of the vehicles, nor was there any material showing transfer, sale, or use inconsistent with the EPCG conditions.

The Tribunal also accepted that since the requirement of tourist/commercial registration came into effect only in June 2006, it could not be retrospectively applied to imports made during 2001–2003. The vehicles’ private registration, therefore, could not be treated as a violation for the relevant period.

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Allowing the appeal, the CESTAT quashed the Commissioner’s order in its entirety, setting aside the customs duty demand of ₹76.28 lakh, along with interest and penalties. The Tribunal held that Interglobe Enterprises had fulfilled its EPCG obligations as certified by the DGFT and that there was no legal basis for the department to disregard the EODCs or impose liability.

Appearance

Shri B. L. Narasimhan, Ms. Anjali Gupta and Shri Ashwani Bhatia, Advocates for the Appellant
Shri Nikhil Mohan Goyal, Authorized Representative for the Respondent

Cause Title: Interglobe Enterprises Limited V. Commissioner of Customs, New Delhi

Case No: Customs Appeal No. 124 Of 2010

Coram: Justice Dilip Gupta (President), Hemambika R. Priya (Technical Member)