EPCG hotel car imports: export obligation need not be met only through foreign tourist transport.

Import of motor cars by hotels under the EPCG framework was examined against the actual user condition and export obligation requirements. The Tribunal's reasoning treated the policy and exemption notification harmoniously and held that, while the export obligation period was still running and the cars remained with the importer, immediate duty demand and penalties were premature. It also held that the cars were not required to be used only for transporting foreign tourists; compliance could be met through use in the hotel's service business and other modes of earning foreign exchange. The appeals succeeded and the impugned orders were set aside.

---

---

Issues: (i) Whether proceedings initiated against the hotel and its directors for alleged contravention of the EPCG import conditions under Notification No. 97/2004-Cus were premature; (ii) Whether the imported cars were required to be used only for transporting foreign tourists in order to earn foreign exchange.

Issue (i): Whether proceedings initiated against the hotel and its directors for alleged contravention of the EPCG import conditions under Notification No. 97/2004-Cus were premature.

Analysis: The relevant policy and notification framework allowed import of motor cars by hotels subject to actual user conditions and fulfilment of export obligation within the stipulated period. The export obligation period had not expired, the cars remained with the importer, and the facts did not establish final misuse or diversion so as to justify immediate demand of duty and penalties before the period for discharge of obligation was over.

Conclusion: The proceedings were held to be premature and unsustainable.

Issue (ii): Whether the imported cars were required to be used only for transporting foreign tourists in order to earn foreign exchange.

Analysis: The Tribunal read the Foreign Trade Policy and the exemption notification harmoniously and held that neither instrument prescribed that cars imported by hotels must be used only as tourist transport for foreign guests. The expression relating to export obligation through services rendered was understood to cover use of the cars in the hotel service business, including indirect or lateral use, and not to confine compliance to a single mode of earning foreign exchange.

Conclusion: It was held that the imported cars were not required to be used only for transporting foreign tourists.

Final Conclusion: The appeals filed by the hotel and its directors succeeded, the departmental appeal failed, and the impugned orders were set aside with consequential relief.

Ratio Decidendi: Where the governing policy and exemption notification permit hotel-sector import of cars for service use, the customs authorities must construe the provisions harmoniously and cannot insist that export obligation be discharged only through direct transport of foreign tourists if the cars are otherwise used in the hotel's service activity and the export obligation period is still running.

---