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SCA/8452/1998 23/ 23 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No.8452 of 1998
For
Approval and Signature:
HONOURABLE
MS.JUSTICE HARSHA DEVANI
Sd/-
HONOURABLE
MR.JUSTICE
R.M.CHHAYA Sd/-
=====================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
YES
2
To
be referred to the Reporter or not ?
YES
3
Whether
their Lordships wish to see the fair copy of the judgment ?
NO
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
NO
5
Whether
it is to be circulated to the civil judge ?
NO
=====================================================
DISCO
GARMENTS PVT LTD. & 1 - Petitioner(s)
Versus
UNION
OF INDIA & 3 - Respondent(s)
=====================================================
Appearance
:
MR UDAY JOSHI for
M/S
TRIVEDI & GUPTA for the Petitioners
MR
PS CHAMPANERI for Respondent(s) : 1 -
4.
=====================================================
CORAM
:
HONOURABLE
MS.JUSTICE HARSHA DEVANI
and
HONOURABLE
MR.JUSTICE R.M.CHHAYA
Date
: 20/06/2011
ORAL
JUDGMENT
(Per
: HONOURABLE MR.JUSTICE R.M.CHHAYA)
(1) By
way of this petition under Article 226 of the Constitution of India,
the petitioners have, inter alia, challenged the order dated
09.09.1996 passed by the Additional Director General of Foreign Trade
imposing fiscal penalty of Rs.10 lac (Annexure-F to the petition) and
has also challenged the order dated 03.04.1998 passed by the
Appellate Committee in Case No.10 (Annexure-I to the petition)
whereby the fiscal penalty was reduced to Rs.5 lac instead of Rs.10
lac.
(2) The
petitioners in this petition have, inter alia, prayed as under:
“(a) YOUR
LORDSHIPS may be pleased to issue a writ of mandamus or any other
appropriate writ or order quashing the order imposing a fiscal
penalty of Rs.5 Lakhs imposed on the petitioners under the impugned
order (Annexure-G) passed by the respondent No.2.
(b) xxx
(c) Alternatively,
YOUR LORDSHIPS be pleased to waive the penalty be waived in entirety
subject to the condition that the petitioner fulfills the balance
export obligations in a period of 5 years to be granted from such
date as this Hon’ble Court deems proper.
(d) xxx”
(3) The
factual matrix arising out of this petition are that petitioner No.1
is a company incorporated under the provisions of the Companies Act,
1956 and was, at the relevant time, engaged in the business of
manufacturing and exporting readymade garments. The
petitioner-Company was granted industrial approval vide order dated
31.05.1984 for manufacture of readymade garments. Petitioner No.2 is
the shareholder of petitioner No.1-Company and is also director of
the petitioner-Company.
(4) The
industrial approval granted vide order dated 31.05.1984 by the
Ministry of Industry, Department of Industrial Development (SIA), New
Delhi, was valid upto 31.05.1986. Pursuant to the said approval, the
petitioners established a 100% export oriented unit at Navsari for
manufacturing of the readymade garments. As per the conditions laid
down under the said letter of approval, the entire production of
readymade garments manufactured by the petitioners was to be exported
within a period of ten years with value addition of not less than
40%. It transpires from the record that the petitioners started
production on and from 30.07.1986.
(5) It
was stated that the Director of the petitioner-Company was in-charge
of day-to-day affairs of the petitioner-Company. It was further
stated that in course of business petitioner No.2 met with a serious
accident while at Zambia and had to undergo extensive treatment at
Zambia as well as at Mumbai, more particularly during the months of
June and July 1992. It was stated that petitioner No.2 again met with
an accident in the month of April 1996, which arrested his free
movement and affected his physical and mental condition. It was
stated that in addition to this because of general slackness in the
business and more particularly on the imports from India the same
adversely affected the production activity of the petitioner-Company
in India and hence, the petitioner-Company could not work to its
fullest capacity and could not fulfill the export obligation.
(6) As
the petitioner-Company did not fulfill the conditions of the letter
of approval, the respondent authority issued a notice dated
08.08.1995 as contemplated under section 4(L) for action under
section 4-I of the Imports & Exports (Control) Act, 1947 and also
as contemplated under Clause 10 for action under Clause 8 of the
Imports (Control) Order 1955 read with section 20(2) of the Foreign
Trade (Development & Regulation) Act, 1992. It was alleged in
the said notice that the petitioner-Company was required to
fulfill export obligation and was to achieve the value addition as
per the conditions of approval. It was alleged that the
petitioner-Company failed to furnish evidence in token of having
fulfilled the said export obligation and to achieve the value
addition to the satisfaction of the Development Commissioner and on
that basis it was alleged that the petitioner-Company has
misutilized the goods so imported under the approval granted. It
was further alleged that why action should not be taken as
contemplated under section 4-I of the Act 1947 and asking the
petitioners to produce before it for hearing. In response to the said
notice, the petitioners filed interim reply dated 11.11.1995. It
transpires from the record that the respondent authority gave
personal hearing on 15.11.1995 and, as per the directions given at
that time, the petitioners also made further written statement dated
17.11.1995. It is the case of the petitioners that at the time of
personal hearing all the relevant details as regards the goods
imported by the petitioners upto March 1986 and for the further
period of April 1986 to September 1995 and so also the value of goods
exported by the petitioner-Company upto September 1986 and thereafter
during the period from October 1986 to November 1995 were submitted
before the authority. It is also stated that in order to get the
correct figures relating to the import and exports so submitted by
the petitioner-Company, the same were referred to the Development
Commissioner, Kandla Zone and requested the said authority to certify
the petitioners’ annual export performance for the preceding ten
years. However, the petitioners were informed that the record are not
traceable and the quarterly/annual report submitted by the
petitioners since 1986 were also not traceable.
(7) The
petitioners thereafter, vide communication dated 07.04.1996 informed
the respondent authority i.e. respondent No.3 herein that the
petitioner, since initiation of production, as 100% EOU has been
calculating the value addition on the basis of the difference between
FOB value of all exports realised by the petitioners and the value of
all the inputs imported. It was also brought to the notice of
the authority that the petitioner-Company has been audited twice in
the year by the government audit and at no point of time, any audit
objection as regards calculation of the petitioner-Company has been
raised or found to be erroneous. It was submitted on behalf of the
petitioners before respondent No.3 that the formula applied by the
authority is a new formula for computation of value addition and was
also brought to the notice that in the concerned Import-Export Policy
i.e. Import-Export Policy for 1984-85 during period when the
petitioners were granted license to establish EOU there was no such
formula. It was stated that the petitioners also pointed out the
personal difficulty on the part of the director and according to the
petitioners the value addition was to the tune of 42.69% for the
value of the goods imported and, therefore, submitted before the
authority that there is no breach of the condition of the approval.
(8) By
impugned order dated 09.09.1996 the adjudicating authority came to
the conclusion that the petitioner-Company under the old formula had
achieved value addition to the tune of 28.45% whereas the prescribed
value addition was 40% and, therefore, found the petitioner-Company
guilty of contravening the provisions of Section 4-I of the Imports &
Exports (Control) Act, 1947 and Clause 8(1) of the Import (Control)
Order, 1955 read with Section 20(2) of the Foreign Trade (Development
& Regulation) Act, 1992 and imposed fiscal penalty of Rs.10 lac
under section 4-K of the aforesaid Act, 1947 read with Section 20(2)
of the Act 1992.
(9) Being
aggrieved by the said order, the petitioner-Company preferred an
appeal before the Appellate Committee. The Appellate Committee
considered the appeal of the petitioner-Company and found that the
major reason for shortfall was certainly beyond the control of the
petitioner-Company. However, found that there was a shortfall in
export obligation as well as value addition beyond doubt and while
considering the case of the petitioner-Company in sympathetic manner,
concluded that the grounds for non-fulfillment of the export
obligation were genuine problems. The Appellate Authority was pleased
to reduce the fiscal penalty from Rs.10 lac to Rs.5 lac and was
pleased to partly allow the said appeal vide order dated 03.04.1998.
Being aggrieved by the aforesaid orders the
present petition is filled raising various grounds in the petition.
(10) Respondent
No.3 has filed an affidavit-in-reply and has countered the
contentions raised by the petitioners. It has been contended that the
orders impugned in the present
petition are legal, just and reasonable and have been passed
after considering all aspects, including the extent of infringement
committed by the petitioner-firm. It has also been contended that the
petitioner-firm has committed default in fulfillment of export
obligation of the petitioner-unit as per the agreed term of the
letter of approval and the same having been confirmed beyond any
doubt the penalty of Rs.5 lac, as per the order dated 03.04.1998, is
just and proper and has prayed to dismiss the petition.
(11) Heard
Mr. Uday Joshi, learned advocate for M/s. Trivedi & Gupta for the
petitioners, and Mr. P.S. Champaneri, learned Assistant Solicitor
General appearing for the respondents.
(12) Mr.Joshi,
learned advocate for the petitioners, urged that the very initiation
of the proceedings under 4-I
of the Act 1947 is bad and illegal. It was further pointed out that
it transpires from the show cause notice itself that the main and the
only allegation is non-fulfillment of export obligation and that
would not attract liability to penalty under any of the clauses of
4-I of the Act, 1947 and, therefore, the very initiation of
proceedings vide notice dated 08.08.1995 is not well-founded. It was
further argued that the very exercise of powers under section 4-I of
the Act 1947 is without jurisdiction
and, therefore, both the orders impugned in the present petition
deserve to be quashed and set aside. It was also argued that there is
no allegation against the petitioner-Company that the petitioners had
violated any terms of the license. It was submitted that the
petitioners have used and/or
utilized the goods imported under the approval for its own export
oriented unit only. It was pointed out that only because the
petitioners could not fulfill the export obligation to the full
extent, due to the reasons and difficulties narrated before the
authorities, the petitioner-Company could not fulfill the obligation.
It was further submitted that the petitioners had not sold or
otherwise parted with any of the imported goods to any other persons.
It was therefore, submitted that there is no contravention of
the Imports & Exports (Control) Act, 1947, which warrants
imposition of the penalty as envisaged under section 4-I of the Act
1947. It was further submitted that the petitioners have not violated
any of the conditions of the approval.
(12.1) Mr.Joshi
also pointed out that condition No.11 of the approval clearly lays
down that the unit would be liable to pay penalties “if
leviable” and in such a case the authority will have to show as
to how it is attracted. It was further pointed out that the said
condition No.11 is not a blanket provision and before coming to the
conclusion that the penalty is leviable, the authority has to show
that the petitioner-Company has violated any conditions of the
approval. It was further pointed out that, however,
in the case of the petitioners non-fulfillment of export obligation
has been wrongly termed as mis-utilization of goods in absence of any
allegation or proof thereof and both the authorities below have not
applied their mind on the very applicability of the provisions
of section 4-I of the Act 1947. It was submitted that the respondents
lack jurisdiction
to proceed against the petitioners under section 4-I of the Act 1947
for violation of the export obligation and, therefore, the
impugned notice as
well as impugned
orders in the present petition are contrary, unjust and against
fundamental principles of imposition of penalty. It was also
submitted that as far as the point of jurisdiction
and applicability of the provisions of section 4-I of the Act 1947 is
concerned, the same has not been urged before the authorities below.
However, it being a pure question of law and goes to the very root of
the matter, this Court, at the time of admission of the petition, has
been pleased to permit the petitioners to raise that point in the
present petition. It was also submitted that
impugned show cause notice
does not pin-point breach of any conditions and does not envisage any
eventuality as prescribed under any of the clauses of section 4-I of
the Act 1947. It was therefore, emphasized that no penalty is
leviable under section 4-I of the Act. It was, therefore, submitted
that both the impugned orders deserve to be quashed and set aside and
the present petition be
allowed.
Mr.Joshi, in order to buttress
his argument, has relied upon the following judgments.
(i) Deejay Neelum Marble
Industries Pvt. Ltd. Vs. Union of India, 2006 (202) E.L.T. 401
(Raj.);
(ii) Suryovonics Ltd. Vs.
Ministry of Commerce, 2010 (254) E.L.T. 73 (A.P.); AND
(iii) DKM Cassette P. Ltd.
Vs. Union of India, 2010 (260) E.L.T. 404 (Del.).
(13) As
against this, Mr.P.S.Champaneri, learned Assistant Solicitor General
appearing for the respondents, has supported the orders passed by
respondent Nos.2 and 3. It was submitted that the orders do not call
for any interference and it cannot be said that the authorities below
have committed any error. It was submitted that after proper
application of mind and on the basis of facts found on record,
the orders have rightly been passed by both the authorities
below. It was also submitted that non-mention of particular provision
in the show cause notice would not vitiate the penalty and/or the
entire proceedings and inquiry. It was submitted that as per the
conditions laid down in the letter of approval it was incumbent upon
the petitioner-Company to fulfill the export obligation. It was
pointed out that non-fulfillment of export obligation therefore
amounts to breach of undertaking and the same amounts to
mis-utilization of goods. It was submitted that clause (a) of
section 4-I of the Act 1947 would be attracted and, therefore, the
authorities below have
rightly imposed fiscal penalty. It was also urged that the
petitioners have not taken the contentions viz. to the effect that
section 4-I of the Act 1947 is not attracted either below the
adjudicating authority or before the appellate forum and, therefore,
the petitioners are precluded from taking such contention for the
first time before this Court. It was therefore submitted that the
powers are rightly exercised by the respondent authorities and it
being an admitted position that the petitioners have not fulfilled
the export obligation the petitioner-Company is liable to pay penalty
as envisaged under section 4-I of the Act 1947 and hence, urged that
the present petition is devoid of any merits and the same deserves to
be dismissed.
(14) At
the outset it may be noted that the petitioners have not urged either
before the adjudicating authority or the appellate forum that
any provision of section 4-I of the Act 1947 is not attracted. It
transpires from the record that the petitioners have amended the
petition at the time of admission and vide order dated 23.04.1999
while admitting the matter this Court had permitted the petitioners
to raise the said question of law to the effect that the case of the
petitioners does not fall within any of the clauses of section 4-I of
the Act 1947 and, therefore, we see no reason not to permit the
petitioners to raise the same at the stage of final hearing, it being
a question of law.
(15) In
order to appreciate the rival contentions raised by both the
sides it would be necessary to refer to the relevant conditions of
grant of approval dated 13.01.1994:
“(1) The entire (100%)
production shall be exported;
(2) You shall undertake to export
the entire production (100%) excluding rejects not exceeding 5 (five)
percent for a period of 10 (ten) years. For this purpose, you will
furnish the requisite legal argument/bank guarantee;
(3) The value addition shall be a
minimum of 40% (Forty per cent);”
Along
with the said letter by way of annexure conditions were prescribed
attached to the letter of intent and permission. The relevant
conditions (being condition Nos.1, 2, 3, 4, 5, 6 and 11) to decide
the present controversy are as under:
“(1) The production of the
undertaking under this scheme shall be undertaken to be manufactured
in bond and the customs authorities shall provide bond facilities to
an undertaking or unit approved for grant of special facilities under
this scheme.
(2) The entire production of
unit/undertaking approved under this scheme shall be exported for a
period of 10 years or less from the date of commencing commercial
production as may be specified by Government. A legal
undertaking in this regard will be executed by the undertaking. If
the duration of the export obligation is not specified, it will be
deemed as 10(Ten) years.
(3) Import of capital goods, raw
materials and components for production under this scheme shall be
exempt from customs duty.
(4) The finished products
authorised for manufacture under this scheme will be exempted from
excise and other central levies.
(5) No export benefits would be
available on exports made under this scheme.
(6) The undertaking may be
permitted to sell in the domestic tariff area a percentage of
‘rejects’ which may not exceed 5% (or such percentage as may be fixed
by the Board) of authorised production under this scheme. On any such
sales within the domestic tariff area, the undertaking will pay
leviable customs duty at current rates on all imported inputs,
central excise duty leviable at current rates on all inputs therefore
as also on such ‘rejects’ sold in the domestic tariff area or an
amount equal to the aggregate of such duties as may be fixed by
Government.
(7) xxx
(8) xxx
(9) xxx
(10) xxx
(11) If the undertaking fails to
fulfill its export and other obligations under this scheme, it will
be liable to pay all penalties, customs and excise duties and such
other amounts as may be decided by the Government.”
It is an
admitted position that as the petitioners could not fulfill the
export obligation and could not achieve the value addition as per
Condition No.3 enumerated above, a show cause notice came to be
issued on 08.08.1995. It is also worthwhile to enumerate Clause 2, 3,
4 and 5 of the said notice, which are as under:
“2. AND WHEREAS under the
condition of the aforesaid letter of intent/approval/permission they
inter-alia were required to fulfill the expert obligation and to
achieve the value addition as per the said conditions.
3. AND WHEREAS they have failed
to furnish evidence in token of having fulfilled the said export
obligation and to achieve the value addition to the satisfaction of
the Development Commissioner M/s. Textiles Export Processing Zone,
M/s. Textiles thereby also implying misutilisation of the goods
imported under the said letter of intent/approval/permission.
4. AND WHEREAS the above
infringement constitutes violation of the Import & Export Policy
in force at that point of time.
5. Now, therefore, in exercise
of the powers vested in me under Section 4-K of the Imports &
Exports (Control) Act, 1947 and under Clause 8 of the Imports
(Control) Order, 1955 read with Section 20(2) of the Foreign Trade
(Development & Regulation) Act, 1992, the said M/s. Disco
Garments’ Navsari are hereby called upon to show cause within 30 days
of the receipt of this notice as to why action should not be taken
against them for imposition of penalty under Section 4-I of the said
Act and for debarring them and their Proprietor/Partners/Directors
from importing any goods, receiving import licences, customs
clearance permits and allotment of imported goods through STC/MMTC or
any other similar agency under Clause 8(1) of the said Order.”
From the
above it is clear that the show cause notice issued under the
relevant provisions of the Act and more particularly condition No.3
recites that the petitioners failed to furnish evidence in token of
having fulfilled the export obligation and to achieve the value
addition to the satisfaction of the Development Commissioner and
thereby it is alleged that the same amount to misutilization of
imported goods under the letter of approval and, therefore, the show
cause notice came to be issued.
(16) It
also transpires from the record that in reply to the show cause
notice the petitioners had clearly stated before the adjudicating
authority that because of the accident as well as slackness in the
business and also because of negligence on the part of the bankers of
the petitioners, the consignment papers were sent to a wrong party in
Dubai. It was also pointed out by the petitioners that from the
date of commencement of production till April 1995 the
petitioner-Company had totally exported goods worth Rs.4,12,31,195/-
and had claimed that the value addition as per the calculation of the
petitioners was to the tune more than 42%.
(17) While
passing the order-in-original dated 09.09.1996 respondent No.3 came
to the conclusion that even as per the report of the Development
Commissioner the petitioner firm commenced the production from
30.07.1986 and that they have not fulfilled the export
obligation and has not achieved stipulated value addition came to the
conclusion that the petitioner-Company has achieved value addition
only to the tune of 20.45% as against stipulated value addition of
40% and has thereby made default in export obligation and value
addition and have therefore rendered themselves guilty of
contravention of the provisions of section 4-I of the Imports &
Exports (Control) Act, 1947 and also as contemplated under Clause 10
for action under Clause 8 of the Imports (Control) Order 1955 read
with section 20(2) of the Foreign Trade (Development &
Regulation) Act, 1992 and, therefore, has been pleased to impose
fiscal penalty of Rs.10 lac.
(18) The
appellate forum i.e. respondent No.2 also in its order dated
03.04.1998 while considering the appeal has come to the conclusion
that there is shortfall in export obligation as well as value
addition beyond doubt. However, sympathetically considering the
difficulties expressed by the petitioners has been pleased to reduce
the fiscal penalty from Rs.10 lac to Rs.5 lac.
(19) The
impugned show cause notice as well as the impugned orders in the
petition are, therefore, based on solitary ground that the
petitioners have not fulfilled the export obligation as per the
conditions of letter of approval and has not achieved the value
addition as per the conditions thereof and have committed breach of
undertaking.
(20) In
view of the aforesaid discussion and factual background of the case,
we find that there is no allegation whatsoever to the effect that the
petitioner-Company have misapplied the goods imported under the
letter of approval nor there is any allegation against the
petitioner-Company that the goods manufactured out of the goods so
imported have been diverted elsewhere. It is also an admitted
position that neither the show cause notice nor the orders impugned
in the present petition mention, which clause of section 4-I of the
Act 1947 is attracted and as aforesaid the only ground for initiation
of action under section 4-I of the Act 1947 is non-fulfillment of
export obligation.
(21) Section
4-I of the Act 1947, which is relevant for the present, reads as
under:
“4-I Liability to penalty :
(1) Any person who,-
(a) in relation to any goods or
materials which have been imported under any licence or letter of
authority, uses or utilizes such goods or materials otherwise than in
accordance with the conditions of such licence or letter of
authority, or
(b) being a person to whom any
imported goods or materials have been delivered by recognized agency,
uses or utilizes such goods or materials or causes them to be used or
utilized, for any purpose other than the purpose for which they are
delivered to him or
(c) having made a declaration
for the purposes of
obtaining —
(i) a licence or letter of
authority to import any goods or materials, or
(ii) allotment of any imported
goods or materials, is found to have made in such declaration, any
statement which is incorrect or false in material particulars; or
(d) acquires, sells or otherwise
parts with or agrees to acquire, sell or otherwise part with, any
imported goods or materials in contravention of the conditions of any
licence or letter of authority in pursuance of which such goods or
materials had been imported; or
(e) acquires, sells or otherwise
parts with or agrees to acquire, sell or otherwise part with, any
imported goods or materials in contravention of the terms of any
allotment made by any recognized agency; or
(f) contravenes any direction
given under a control order with regard to the sale of goods or
materials which have been imported under any licence or letter of
authority or which have been received from, or through, a recognized
agency, shall be liable to a penalty not exceeding five times
the value of the goods or materials have been confiscated or are
available for confiscation.
Explanation – For the
purposes of this section, “value” has the meaning
assigned to it in sub-section (1) of section 14 of the Customs Act,
1962.
(2) If any person abets the
commission of any act or omissions, which act or omission would
render any person liable to a penalty under sub-section (1) or
attempts to commit any act aforesaid, the person so abetting or
attempting should be made to a penalty not exceeding five
times the value of the goods or materials in respect of which such
abetment or attempt has been made, or one thousand rupees, whichever
is more whether or not such goods have been confiscated or are
available for confiscation.
(3) A penalty imposed
under sub-section (1) or sub-section (2), may, if it is not paid, be
recovered as an arrear of land revenue. Provided that the
adjudicating authority may, by order attach any money belonging to,
or owed to, the person on whom any penalty has been imposed
under sub-section (1) or sub-section (2), and such attachment shall
be made in the same manner in which an attachment is made by a civil
court.”
The
above provision is a penal provision which requires strict
construction of the same. It clearly lays down the importer’s
liability to pay penalty upto five times of the value of the import,
if any of the clauses enumerated in the said provision gets attracted
and by no stretch of imagination it can be culled out that
non-fulfillment of export obligation would attract liability to pay
penalty under any of the clauses of section 4-I of the Act 1947. We
find that it is not the basis on which the show cause notice is
issued. The authority below, while passing the order-in-original as
well as the order-in-appeal have merely taken into consideration the
failure on the part of the petitioners for non-fulfillment of export
obligation and the value addition and have straightway come to the
conclusion that provision of section 4-I of the Act 1947 is attracted
and have imposed fiscal penalty, as aforesaid.
(22) The
Delhi High Court in the case of DKM Cassette P. Ltd. Vs. Union of
India, 2010 (260) E.L.T. 404 (Del.) while interpreting section
4-I of the Act 1947 as well as considering the identical case has
held as under:
“16. Section
4-I IEC Act is a penal provision which admits only of a strict
construction. It sets out the circumstances under which the
importer’s liability to pay penalty up to five times the value
of the import gets attracted. A careful reading of the various
sub-clauses of Section 4-I IEC Act would show that the failure to
fulfill an export obligation is not listed out expressly as an
instance attracting the liability to pay penalty thereunder.
In the circumstances, if the ADGFT in the instant case intended to
levy a penalty on the petitioner under Section 4-I IEC Act, it
was incumbent on him to indicate which of the sub-clauses of Section
4-I(1) IEC Act stood attracted. On this aspect, there can be no doubt
that there was non-application of mind by the ADGFT. Nothing is
discernible from his order dated 22nd April 1996 as to which of the
sub-clauses of Section 4-I IEC Act, if any, was attracted. The order
simply states that the offence is under Section 4-I. This is wholly
insufficient for the purposes of imposing a penalty on the
strength of Section 4-I read with Section 4K of the IEC Act.
17. The
need for a penalty order having to specifically indicate the
precise provision under which the penalty is being imposed was
emphasized by the Supreme Court in Amrit Food v. Commissioner of
Central Excise, U.P. That was in the context of penalty
imposed under Rule 173Q of the Central Excise Rules, 1944. It was
observed that in the absence of any indication as to which particular
clause of Rule 173Q had been contravened, the penalty could
not have been imposed. The above judgment has been followed by High
Courts in Commissioner of Central Excise, Jalandhar v. Max G.B.
Limited and Commissioner of Central Excise & Customs v. Nakoda
Textile Industries Limited. The decision of this Court in Supercom
India Limited v. Directorate General Foreign Trade Ministry of
Commerce relied upon by Mr. Aggarwal is of no assistance since the
Court proceed on the footing that sub-clause (1)(a) of Section 4-I
applied. No point appears to be have been urged, and therefore
considered, on whether in fact that sub-clause applied.
18. It
was sought to be contended by Mr. Aggarwal that it was Section
4-I(1)(a) of the Act stood attracted. In the first place it must be
noticed that this is not the basis on which the ADGFT proceeded to
impose the penalty.
A fresh reason cannot be supplied for the conclusion reached in the
said order. A reading of Section 4-I(1)(a) IEC Act would show that it
is attracted when the goods have been imported under any licence and
such goods have been used or utilized “otherwise than in
accordance with the conditions of such licence or letter of
authority.” There was no finding by the ADGFT that the
petitioner has either misutilised or misdeclared the imported goods.
There was no such finding by the ACC either. The surmise of the ACC
was that failure to meet the export obligation would tantamount to
misutilisation of the imported goods. There was no warrant for such a
presumption particularly in the absence of any express words to that
effect under Section 4-I(1)(a) of the IEC Act. The failure to meet
the export obligation could be on account of various reasons not
relatable to any of the sub-clauses under Section 4(I)(1). However,
it was incumbent on the ADGFT (and later the ACC) while imposing
a penalty
with the aid of the said provision to precisely indicate which
sub-clause of such provision stood attracted in the facts of the
present case. Clearly the petitioner had stated that it has utilized
the imported goods in the manufacturing of video cassette shells. It
could not export those goods on account of labour unrest. It cannot,
therefore, be concluded that there was either misutilisation or
misdeclaration by the petitioner to attract Section 4-I(1)(a) of the
IEC Act.”
(23) Similarly,
in the case of Deejay Neelum Marble Industries Pvt. Ltd. Vs. Union
of India, 2006 (202) E.L.T. 401 (Raj.), the High Court of
Judicature at Rajasthan while considering an identical case has
also held as under:
“11. The
petitioner has admittedly not violated condition No.3 had Condition
No.10 and even any other condition mentioned in Schedule-I. The
Schedule-II appended with the licence pertains to export conditions
attached to the import licence dated 20-10-1980. According to the
respondents the petitioner violated export conditions, specifically
the condition No.4 and that warranted initiation of proceedings
under Section 4-I(1)(a) of the Act of 1947. The condition No.4 of
Schedule-II provides for earning foreign exchange by exporting
annually not less than 25% production for a period of five years from
the 18th months after commissioning the plant and equipment and
commencement of production. A reading of Section 4-I(1)(a) of the Act
of 1947 establishes it well that the proceedings to impose penalty
can be instituted and penalty
can be imposed, upon
a licencee:-
(i) in
relation to any goods or materials which have been imported under any
licence or letter of authority;
(ii) uses
or utilise such goods or materials;
(iii)otherwise
then in accordance with the conditions of such licence or letter of
authority.
The
three ingredients to face action under Section 4-I(1)(a) of the Act
of 1947 relates to the use of imported goods and materials. These are
not concerned to non performance with export conditions. Meaning
thereby, that the penalty
under Section 4-I of the Act of 1947 is against the violation of
user obligations and not against export obligations. It is also
pertinent to note that under the Act of 1947 which stood repealed
under the Act of 1992 there is no provision for imposing any penalty
for violation or not adherence of export obligations.
12. The
respondents by notice impugned sought to institute proceedings
against the petitioner under Section 4-1 of the Act of 1947 for
violation of export obligations and not for any user obligation. It
is not the case of the respondents that the petitioner used or
utilized equipment and machineries imported under the licence dated
20-10-1980 otherwise then in accordance with the conditions of
licence in question. The specific case of the respondents is that the
petitioner failed to earn foreign exchange in accordance with the
condition No.4 of Schedule-II appended with the licence.
13. The
condition No.4 of Schedule-II appended with the licence is an export
obligation and not a user obligation, therefore, initiation of
proceedings for violation of it, under Section 4-I of the Act of
1947, is incompetent. The respondents lacks jurisdiction
to proceed against the petitioner against Section
4-I of the Act of 1947 for violation of export obligation as penalty
under Section 4-I of the said Act can be imposed only if a licence
holder uses or utilise goods and materials imported under a licence
otherwise then in accordance with the conditions of licence.”
(24) Similarly,
in the case of Suryovonics Ltd. Vs. Ministry of Commerce, 2010
(254) E.L.T. 73 (A.P.), the Andhra Pradesh High Court while
considering the alleged breach under section 4-I(1) of the Act
1947 has held as under:
“12. There
cannot be any dispute as to the attraction of the aforesaid
provisions. On
a bare reading it provides for a penalty where there is a
failure discharge the export obligation from any person using or
utilizing such goods or materials otherwise than in accordance with
the conditions of licence or later on authority. Considering
aforesaid provisions in Taarika Exports and Another v. Union of India
And Another [2007 (212) E.L.T. 15 (S.C.) = (2007) 5 SCC 254] the
Supreme Court held that the plea of any such person to the fact that
there is any incompatibility of compliance of obligation,
cannot be a valid ground to avoid the liability. In that case,
after issuance of a show cause notice to the petitioner for not
exporting goods utilizing the benefits under Act, 1947 and Act 1992,
within the stipulated time by the said petitioner who is engaged in
export and import activities under the Export and Import Code in
pursuance of the licence granted to them, an explanation was given
stating that the conditions under the licence were unrealized and
therefore non fulfillment of the application is beyond their
control. The said explanation was rejected by the authorities
and imposed the penalty. Dismissal of the writ
petition by the High Court and further appeal to the Supreme Court,
it was held that such a plea cannot be entertained since it was
found by the authority that there was an infraction of
the conditions imposed by the licence. Therefore in those
circumstances, it was held that the imposition of the penalty is
correct. This case stands dissimilar to the case on
hand on facts.
13. Further
coming to the facts of the present case, as stated there is no
serious dispute on the part of the respondents both in the counter
affidavit filed in reply to the writ nor even during the course of
arguments on behalf of the respondents about the factum of issuance
of licence to the petitioner and the events which lead to present
situation. There is no dispute nor any
explanation forthcoming on behalf of the respondents as to why the
delays as pointed out by the writ petitioner since inception even at
the stage of grant of the licence could not be avoided and as to how
the petitioner can be held responsible. The delay as pointed
out is virtually runs to almost 54 months from 20.8.1986 to final
approval by IDBI on 20.2.1991. The petitioners cannot be blamed
on this account. There is no dispute to the fact that the party
at the other end viz., ECD sold itself to M/s.Cannon a multinational
company of Japan and a new establishment under the name and style
“United Solar Systems Corporation exist in the year
1991. Further the said new company in parallel sought to
establish another unit on the same lines as that of the petitioner’s
Phase -I in the land situate at border of Mexico and tried to
take advantage of NAFTA agreements and fresh agreements of
goods between US and Mexico. There is thus a total
remission on the part of the said new company at the other end which
has lead the petitioner to opt for alternatives apart from pursuing
exports to the extent possible. Even this fortuitous
circumstances are not within the bounds of the petitioner. The
petitioner admittedly exported to a tune of Rs.68.09 lakhs , no
doubt far below the original quantity. However, the respondents
have acted upon the application filed by the petitioner on 12.3.1992
seeking for debonding for the purpose of domestic sale and the second
respondent did issue such permission from 4.6.92, 29.12.93 and
8.8.1995 permitting withdrawal of 100% EOU scheme and , yet the
proceedings were initiated for imposition of penalty and nothing on
any of these aspects appears to have been taken into consideration.
Even the later proceedings would show that the petitioner was given
waiver of condition regarding export obligation as per the
proceedings of the Government of India dated 21.12.1993 followed by
further waiver at different levels. There exists a debonding
letter which has been issued suo-moto both by the Development
Commissioner, Visakapatnam Export Processing Zone on 2.1.2000
and Joint Development Commissioner on 10.2.2000. The
effect of these proceedings and permission granted vide proceedings
dated 4.6.92, 29.12.93 and 8.8.1995 permitting withdrawal of
100% EOU scheme and the circumstances leading thereto are apparently
not kept in view, before invocation of the aforesaid provisions under
Section 4-I of the Act, 1947. From these and the permission
granted by the concerned authorities it amply shows that the
petitioner cannot be found fault with any such failure nor there is
any intentional lapse or latches on his part. The acts of the
company at the other end changing its very nature and petitioner
finding himself at the odd end would only show that there is no such
failure or any intention on the part of the petitioner as such to
violate any of the conditions on his own. Therefore, it
cannot be said that the authorities can straightaway invoke the
provisions under Section 4-I of the Act, 1947 and impose the
penalty. Surprisingly these aspects were not kept in view
before the order of penalty is thrust against the petitioner.
Especially where there is no denial as to these events, the
respondents cannot shut their eyes and invoke such onerous
provision. It is well established that while interpreting any
provision contemplating imposition of penalty, is on the face of it a
penal in nature, cannot be lightly invoked exercised without giving
due adherence to the core facts and circumstances of the case.
It cannot be said as an open and shut case of clear violation
of the petitioner. There are ample reasons which had to
led to present imbroglio. The respondents are well within the
knowledge of these circumstances and they themselves did act on the
application of the petitioner for debonding and allowing
domestic
sale and authorities cannot wholly disown. This is not a
case, where the petitioner himself on his own account without the
knowledge of the authorities, used or misdirected the materials.
Unless an act of violation is directly attributable to the person,
penal liability cannot be extended. Each case has to be
considered on its own merits and circumstances. Therefore, we
are of the view that the entire impugned action since inception by
invocation of provisions of section 4-I of the Act by the authorities
is totally arbitrary and illegal, apart from being unsustainable in
the facts and circumstances of the case.”
(24.1) We
respectfully agree with the ratio of the aforesaid decisions of other
High Courts and hold that the instant case does not fall in any of
the clauses of Section section 4-I of the Act 1947.
(25) In
view of the foregoing discussion, in the instant case the only
allegation against the petitioners is that there is non-fulfillment
of export obligation and breach of condition of value addition to the
tune of 40%, which, as per the show cause notice dated 08.08.1995 is
construed as mis-utilization of goods imported. Considering the facts
of the present case and the ratio laid down by the above
referred judgments, we are of the opinion that mere non-fulfillment
of export obligation and not achieving value addition to the tune of
40% as per the conditions of the letter of approval would not fall
under any of the clauses of section 4-I of the Act 1947. It is also
worthwhile to note that there are no other allegations whatsoever as
regards breach of any conditions of grant of approval, except
what is stated in clause 3 of the impugned show cause notice and
even the appellate authority, taking into consideration the genuine
problems of the petitioners, has been pleased to reduce the fiscal
penalty from Rs.10 lac to Rs.5 lac, It cannot be concluded that there
is any misutilization or misdeclaration on the part of the
petitioners. The respondents cannot be permitted to substitute
the reasons in order to attract the provision of Section 4-I of the
Act 1947. We therefore find that the impugned orders dated
09.09.1996 and 03.04.1998 are unsustainable in the eyes of law and in
the facts of the present case the provisions of section 4-I of
the Act 1947 are not attracted and, therefore, the petitioners are
not liable to pay penalty. It is however, made clear that it would be
open for the respondent authorities to take any other action for
non-fulfillment of export obligation and non-achieving of value
addition as per letter of approval against the petitioners under any
other Acts, Rules and Regulations in force.
(26) The
petition, therefore, deserves to be allowed. The impugned order dated
09.09.1996 (Annexure-F to the petition) and order dated 03.04.1998
(Annexure-I to the petition) are hereby quashed and set aside. Rule
is made absolute and in the facts of the case there shall be no order
as to costs.
Sd/-
[HARSHA
DEVANI, J]
Sd/-
[
R.M.CHHAYA, J ]
***
Bhavesh*
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