Deemed foreign exchange earnings can satisfy EPCG export obligation for rupee receipts on dollar-denominated port services.

Rupee receipts for dollar-denominated port services may be treated as fulfilment of export obligation under the EPCG scheme where the foreign-exchange regulator has clarified that such amounts are deemed to be received in foreign exchange. The note states that the export policy's reference to "service provider" was given the same substance as the later policy language, and the RBI clarification governed the meaning of free foreign exchange for scheme purposes. It also notes that suppression was not made out because the tariff structure and collection method were within the authorities' knowledge, so duty, interest, confiscation and penalty were unsustainable on a narrower reading of the notification.

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Issues: Whether the appellant, a service provider operating under the EPCG scheme, could treat rupee receipts for dollar-denominated port services as fulfilment of export obligation under Notification No. 28/97-Cus., and whether the demand of duty, interest, confiscation and penalty was sustainable.

Analysis: The tariff structure fixed by the port tariff authority treated certain services as dollar-denominated, while the actual collections were made in Indian rupees. The Reserve Bank of India clarified that amounts which would otherwise have been received in foreign exchange but were paid in Indian rupees out of amounts remittable to the overseas principal could be treated as deemed to be received and earned in foreign exchange. The term "service provider" in the relevant export policy was found to have the same substance in the later policy, and the clarification of the RBI was held to govern the meaning of free foreign exchange for the purpose of the scheme. The contention of suppression was not accepted, as the tariff structure and the manner of collection were within the knowledge of the concerned authorities, and the demand could not be sustained on a contrary interpretation of the scheme.

Conclusion: The appellant was held entitled to count the rupee receipts for dollar-denominated services towards export obligation, and the duty demand, interest, confiscation and penalty were unsustainable.

Final Conclusion: The appeal succeeded in full and the impugned order was set aside with consequential relief.

Ratio Decidendi: Where the competent foreign-exchange regulator expressly treats rupee receipts for services otherwise payable in foreign exchange as deemed foreign exchange earnings, customs authorities must apply that clarification consistently with the export policy and cannot deny EPCG benefit on a narrower construction of the notification.

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