The Hindu Business Line : Uplifting logic for luxury cars

PARLIAMENT'S Standing Committee on Finance has submitted its final report on tax matters. The document, tabled in Parliament last Friday, doesn't spare the usual `holy cows' such as farm income and export promotion schemes.

The former issue is sure to elicit heated arguments from whoever will choose to espouse the cause of the farmer. On the latter, protest may be less since the Committee has cited data on misuse of export promotion schemes. Amount evaded during 2002-03 to 2004-05 through the blatant misuse of various export promotion schemes was Rs 3,442 crore.

"There is an urgent need to review all the existing export promotion schemes after obtaining necessary inputs from the Director-General of Foreign Trade (DGFT) and the Directorate of Revenue Intelligence (DRI) so as to make them evasion proof," the report says.

The Committee has made a specific reference to the import of luxury cars. It seems that, of the 499 vehicles imported till date, 61 were identified to have been misused! "What is particularly disturbing is that import licences have been reported to be issued to non-existent or fictitious firms," the Committee rued.

Okay, what happens when the DRI finds instances of misuse? For answer, let me walk you through a case that the Delhi High Court decided recently.

Interglobe is "a travel corporation with a truly international vision," informs www.interglobe.com. In comparison, this line may seem plain: "A service provider engaged in the business of arranging international tours and travels." But the latter is from the text of the high court's judgment dated January 17, in Interglobe Enterprises Ltd vs Union of India.

In November 2005, officials of the DRI had, in the course of an investigation, seized three out of seven `luxury cars' (BMWs) from the corporate office of Interglobe in DLF City, Phase-III, Gurgaon. The cars had been imported by Interglobe under Export Promotion Capital Goods (EPCG) Scheme. As per the Scheme, capital goods could be imported at a concessional customs duty of 5 per cent, "subject to an export obligation equivalent to five times of CIF (Cost, Insurance and Freight) value of such goods to be fulfilled by the importer over a period of 8 years."

In Interglobe's case, DRI was of the view that the export obligation towards the cars had not been properly fulfilled. Cars could be released, however, upon payment of differential customs duty and furnishing a bank guarantee, said the Department. Interglobe reasoned that it had obtained `discharge certificates' from the DGFT for two of the cars, and that the company's request for a similar certificate for the third car was pending.

Arguing for Interglobe, Arun Jaitley said that DGFT was the final authority to determine whether or not the export obligation under the Scheme had been fulfilled. DGFT's certificate was sufficient to conclusively prove that the goods had been validly imported, and export obligation satisfied, said Jaitley. He averred that the DRI investigation was `extremely harmful for the general reputation' of the company, which was planning to launch its own airlines.

Then came an interesting twist to the argument. Jaitley said that the Scheme did not envisage fulfilment of the export obligation only by reference to the forex earnings by use of the capital goods. To explain, he gave the example of lift imported by an hotelier for installation in the hotel. It was impossible to determine forex earnings out of the use of the lift once the same was installed, reasoned Jaitley. The larger establishment alone could generate forex receipts, he said, to emphasise that forex obligation could be satisfied "even if the capital goods were not themselves generating or capable of generating any forex."

For the Government, it was P.P. Malhotra, the Additional Solicitor General, who said that the Scheme envisaged "the existence of a definite nexus between the import of the goods and their use for the fulfilment of the export obligation." Imported BMWs had not been used for the business of Interglobe, nor was any forex revenue generated out of such use, said Malhotra. The cars were not even registered under the Motor Vehicles Act as tourist vehicles, nor were they plied to carry the passengers, it was contended.

Justices T.S. Thakur and B.N. Chaturvedi of the High Court heard the case and said that the ongoing investigations would unravel whether the imported BMWs were ever inducted into the business of the importer. "Expression of any opinion by this Court at this stage would in that view be premature and would amount to pre-judging the issue," they added.

However, "to protect the interests of both the sides especially when the cars would progressively depreciate by continued disuse and want of adequate maintenance, care and protection," the court ordered the release of seized cars upon Interglobe providing a bank guarantee.

E&OE@TheHindu.co.in

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