IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 31.3.2011
CORAM:
THE HONOURABLE MR.JUSTICE P.JYOTHIMANI
W.P.No.5120 of 2011
Haji Sattar & Sons
New No.58, Old No.81/1
Acharappan Street
Chennai 600 001
rep. by its Partner,
Siraj Ashraj Sharif .. Petitioner
Vs.
1. State Trading Corporation of India Limited
by its Manager, R.Rajeswari
Chennai House, 4th Floor
6, Esplanade, Chennai 600 108.
2. The Additional Director General, DRI
4th Floor, Sir Vithaldas Thackersey Marg
Opp:Patkar Hall, New Marine Lines
Mumbai 400 020. .. Respondents
PRAYER: Petition under Article 226 of the Constitution of India for issue of a writ of Mandamus to direct the 1st respondent to retrieve the original licence in No.0550001823, dated 26.4.2010 issued by the Office of the Joint Director General of Foreign Trade, Ministry of Commerce, Government of India, New Delhi from the office of the second respondent and effect clearance of the goods, viz., 3000 Mts of Maize (Corn), Imported under Tariff Rate Quota Scheme (TRQ Scheme) for the period April 2010 to 31st March, 2011 in terms of the agreement dated 7.10.2010 entered into between the petitioner and the first respondent and the licence above referred.
For Petitioner : Mr.B.Kumar, Sr.Counsel
for M/s.B.Satish Sundar
For Respondents : Mr.S.Umapathy
for 1st respondent
Mr.K.Ravi Anantha Padmanaban
for 2nd respondent
ORDER
The writ petitioner is a registered partnership firm and they are dealers in Pulses, Grams, Grains etc. The firm is registered under the Tamil Nadu Value Added Tax Act and the Central Sales Act and they have also been allotted Import and Export Code by the Office of the Joint Director General of Foreign Trade, Ministry of Commerce, Government of India, Chennai.
2. In respect of one of the items viz., Maize (Corn), the import is being effected through canalizing agencies. In this case, the first respondent, viz., State Trading Corporation of India Limited, is an Agency, acting on behalf of the petitioner for the purpose of importing Maize from Argentina. Licence has been issued by the Joint Director General of Foreign Trade, Ministry of Commerce, New Delhi to enable the first respondent to effect import and that licence enables the import of Maize on or before 31.03.2011.
3. The petitioner has entered into an agreement with the first respondent on 07.10.2010 for the purpose of carrying on the trade in importing the said goods. Under the agreement, the first respondent has undertaken to import 3000 MTs of Maize (Corn) at the rate of USD 565 per MT in Chennai Port/Nheva Port at Mumbai valued at USD 16,95,000/-, which is equivalent to Rs.7,89,87,000/- and the concessional rate of duty is as per the notification issued by the Government of India for the financial year 2010-2011 in notification No.33 of 2010, dated 12.3.2010. One of the main condition for such import is that the import must be for the utilisation of the actual user and the same has to be completed on or before 31.3.2011.
4. After getting remittance of the amount of invoice, the first respondent, who acts on behalf of the petitioner, has to clear the goods. Under the terms of the agreement, especially Clause 20, the petitioner has given an undertaking to abide by the various circulars, notifications, etc. issued by the Government of India from time to time. That apart, the petitioner has given indemnity to the first respondent against any loss or cost, including taxes, customs duty, damages, demurrage, penalties etc.
5. For the year 2009-2010, the petitioner, through the first respondent, has effected import of certain quantity and the remaining quantity has entered into the Port of Chennai as well as the Port of Mumbai. It appears that in the meantime there has been some investigation effected by the second respondent, viz., Director of Revenue Intelligence, on the basis that the petitioner is using the benefit of the notification by importing maize at concessional rate against the terms of licence and mainly on the ground that the petitioner is not having a manufacturing unit of its own at Chennai and therefore, it amounts to deliberate deception by the petitioner.
6. It appears that summons have been issued to the petitioner under Section 108 of the Customs Act, 1962 (for brevity, “the Act”), in response to which the petitioner has also submitted his objections. It also remains a fact that subsequent to the objections given by the petitioner, the department has not taken any further action. It is relevant to note that after such objection is received, it is always open to the department, under Section 28 of the Act, to issue show cause notice and after completing the adjudication process, effective orders can be passed, including that of confiscation and other measures which are enumerated under the provisions of the Act. In the case on hand, such steps are not yet taken and except the issuance of summons under Section 108 of the Act and receipt of objections from the petitioner, no further action has been taken as on date by the second respondent.
7. It also remains a fact that the licence issuing authority, which is the Ministry of Commerce, to whom the second respondent is stated to have complained about the conduct of the petitioner, has also not initiated any action. But the apprehension of the second respondent is that the petitioner should not be allowed to take advantage of the concessional rate under the notification, while its hands are not clean, especially when the petitioner is not having a manufacturing unit. According to the second respondent, the maize (corn) imported cannot be straightaway marketed and it should certainly be subjected to manufacturing activity by the actual user before marketing.
8. It is also brought to the notice of this Court that it is due to the steps taken by the second respondent, the first respondent has handed over the licence issued by the licensing authority, namely the Ministry of Commerce, to the second respondent and in view of the same, in spite of the goods reaching the port of destination, the first respondent is unable to take delivery and with the result, the contract between the first respondent and the petitioner could not be given effect to, especially when the goods are perishable in nature and the goods, as per the terms and conditions of the licence, are to be cleared on or before 31.3.2011, viz., today, failing which the very purpose of the contract of business becomes thwarted. Therefore, the petitioner has filed the present writ petition for a direction against the first respondent to retrieve the original licence handed over by the first respondent to the second respondent, so as to take delivery of the imported maize for the period 2010-2011 before 31.3.2011 in terms of the agreement dated 7.10.2010.
9. At this juncture, it is relevant to point out that when the second respondent has taken such steps by issuing summons, etc., by treating it as coercive action, the petitioner has approached the Bombay High Court and before the Bombay High Court, the second respondent has given an undertaking that they would not proceed to recover any customs duty due from the petitioner till the completion of the adjudication process. It was recording the said statement of the second respondent, the writ petition before the Bombay High Court came to be closed.
10. In the counter affidavit filed by the second respondent, the second respondent has now taken a stand that while it is true that such undertaking was given before the Bombay High Court, in the course of investigation the second respondent came to know that import made by the petitioner, through the first respondent, even in the year 2009-2010 to the tune of 2000 MTs was improper and the concession granted by the Government has been misused by the petitioner and for the present import during the year 2010-2011 also the investigation shows that there has been gross illegality.
11. According to the second respondent, on visiting the spot belonging to the petitioner, they have found that there was no machine and nothing of that sort is available so as to enable the petitioner to make the imported goods usable as per the terms and conditions and therefore, it is stated that if only the deposit is made by the petitioner to the value of 50% of the goods sought to be imported, the goods will be released, subject to further adjudication which will be effected by the authorities competent.
12. Mr.B.Kumar, learned Senior Counsel appearing for the petitioner would submit that while it is true that the summons were issued under Section 108 of the Act, for which the petitioner has given his objection, the adjudication process has not been commenced by the authorities so far and in such view of the matter, one cannot come to a conclusion as if the licence stands cancelled or that there is violation of the terms of the licence. According to him, even if there is a violation of terms of licence, it is the licensing authority, viz., the Ministry of Commerce, which has to take action.
13. The learned Senior Counsel would fairly submit that it is not as if the second respondent has no jurisdiction to investigate, but while exercising the jurisdiction to investigate, the second respondent has to follow the provisions of the Act and the licensing authority must take appropriate action in the manner known to law. As per Section 28 of the Act, unless proper show cause notice is issued, which is the starting point of adjudication, in which event the petitioner will have to submit his objections by way of defence, even the licensing authority cannot take appropriate final action under Section 124 of the Act either for confiscation of the goods or to pass any order in the nature of penalty.
14. He would also submit that the term “actual user”, which is the subject matter of condition under the licence is being misunderstood by the department. The term “actual user”, according to him, does not mean that the petitioner itself has to use it. The actual user need not always subject the goods imported to any manufacturing process. According to him, as per the terms of the Foreign Trade Policy, even a small instance of re-packing of the goods imported would amount to processing. Therefore, as per the submission of the learned Senior Counsel, what the petitioner does is that, after import of the goods, it takes it to the godown and fills the same in smaller quantities in packages and that packaging would amount to processing, which makes the goods imported capable of being used.
15. On the other hand, Mr.Ravi Anantha Padmanaban, learned counsel appearing for the second respondent would vehemently contend that when the terms and conditions of licence are breached by the petitioner, the second respondent being a Revenue Intelligence authority cannot be expected to keep quiet and it is their duty to bring to the notice of the licensing authority about the gross illegality committed by the petitioner and it is in that process the second respondent is performing statutory duties and therefore, it is the duty of the second respondent to prevent abuse of such concession having been granted by the Government.
16. It is also his submission that when the petitioner is not even having place for doing manufacturing activity, the claim made by it as if they are importing goods for the benefit of the public is fraudulent. According to him, the petitioner having availed concessional duty on a commodity which is eatable, is selling it to the public at a higher rate, which is not the intention of the Government notification.
17. Mr.S.Umapathy, learned counsel for the first respondent, who is the real licensee, would submit that while on the one hand the first respondent is bound by the terms of the contract entered by it with the petitioner, on the other hand, the first respondent is bound by the statutory activities of the second respondent in the form of investigation and therefore, by virtue of the investigation conducted by the second respondent, the first respondent had no other option than handing over the original licence to the second respondent and hence, the first respondent is unable to carry out the contractual terms in respect of the goods which are lying in the port.
18. I have heard the learned counsel on either side and perused the records.
19. Rival submissions have been made regarding the term “actual user” used in the terms of contract. In the terms of licence issued by the Department of Commerce, Director General of Foreign Trade, in favour of the first respondent, it is specifically stated that the same is subject to a condition, viz., “licence has been issued with actual user conditions beside other usual conditions of import licence” and it is also not in dispute that the import has to be completed by 31.3.2011, viz., the consignment must be cleared before the said date and therefore, there is an urgency.
20. Under the terms of the contract between the petitioner and the first respondent, under which the first respondent is acting as an agent of the petitioner in making import, the petitioner has given an indemnity in favour of the first respondent in Clause 23, which is as follows:
“23. It is further agreed by “HSS” that in the event STC is required to incur any expense for defending its interest at any forum, “HSS” undertakes to indemnify STC without any protest or demur and shall always keep STC fully indemnified and agree to hold STC harmless against any cost including taxes/duties, loss, claim, damage, demurrage, costs, penalties, liabilities, legal cost, short shipment, claims on account of quantity/quality/making/ weight/specifications etc., of whatsoever nature.”
21. That apart, it is no doubt true that the petitioner has undertaken to follow and act as per the notifications and circulars issued by the Director General of Foreign Trade from time to time. Therefore, it is not certainly open to the petitioner to say that the second respondent has no jurisdiction to investigate and that is also not the case of the learned Senior Counsel for the petitioner.
22. In addition to the indemnity clause 23 of the agreement, the petitioner has also given a specific indemnity by way of an undertaking in favour of the first respondent on 10.2.2011, agreeing to keep the first respondent indemnified against any loss/claim/liability, etc. on account of any activity of the petitioner.
23. The first respondent, on surrendering of the licence, has intimated the same to the petitioner by letter dated 13.1.2011 and also requested it to sort out the pending issue with the second respondent for paying 50% of customs duty for the quantity imported during 2009-2010, since the actual user conditions were not followed by the petitioner as stipulated in the licence. But, as admitted by the learned counsel for the second respondent, the second respondent is not insisting for the duty in respect of the year 2009-2010 and hence, we are only concerned about the present year 2010-2011, in which it is alleged that import has been made by breach of various conditions of licence.
24. Mr.B.Kumar, learned Senior Counsel has brought to the notice of this Court about the terms of Foreign Trade Policy issued by the Government of India and some of the definitions. The term “actual user”, which is defined in Clause 9.4, is as follows:
“9.4. “Actual User” means an actual user who may be either industrial or non-industrial”
He has also brought to the notice of this Court the definition of the term “manufacture” as found in Clause 9.36, which is as follows:
“9.36. “Manufacture” means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, re-packing, polishing, labelling, re-conditioning repair, remaking, refurbishing, testing, calibration, re-engineering, manufacture, for the purpose of FTP, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining.”
According to him, the term “manufacture” includes not only the manufacture process like fabrication, etc., but also includes a small instance of re-packing and therefore, according to him, when the petitioner imports goods from Argentina and re-packs the same, it involves manufacture process so as to treat it as actual user.
25. Be that as it may, these rival submissions made by the respective counsel are to be ultimately decided by the licensing authority on investigation and on adjudication process being completed and it is not for this Court, at this stage, to express any opinion on the merits of the same. But the fact remains that as on date the adjudication process has not yet commenced. As it is stated earlier, it is to be reiterated that except the summons issued under Section 108 of the Act, for which the petitioner has given explanation, neither the second respondent nor the licensing authority has taken any action. It does not mean that the second respondent or the licensing authority has no jurisdiction to continue. It is always open to the licensing authority as well as the second respondent to continue the process, but that must be in accordance with law.
26. As it is seen, under Section 28 of the Act notice will be issued in respect of the short levy, erroneous refund, etc. and Section 124 of the Act enables the issuance of show cause notice by the authority concerned before confiscation of goods, etc. Section 124 of the Act is as follows:
“Section 124. Issue of show cause notice before confiscation of goods, etc.-
No order confiscating any goods or imposing any penalty on any person shall be made under this Chapter unless the owner of the goods or such person –
(a) is given a notice in writing with the prior approval of the officer of customs not below the rank of a Deputy Commissioner of Customs, informing him of the grounds on which it is proposed to confiscate the goods or to impose a penalty;
(b) is given an opportunity of making a representation in writing within such reasonable time as may be specified in the notice against the grounds of confiscation or imposition of penalty mentioned therein; and
(c) is given a reasonable opportunity of being heard in the matter :
Provided that the notice referred to in clause (a) and the representation referred to in clause (b) may at the request of the person concerned be oral.”
In the absence of such proceedings having been initiated and proceeded with either by the second respondent or the licensing authority, it is not possible to accept the contention of the learned counsel for the second respondent that a presumption must be drawn that as on date there is a breach of licence conditions committed by the petitioner and in any event, that cannot be a ground for the second respondent in refusing to permit the petitioner, through the first respondent, to effect import in accordance with the terms of the licence and in accordance with the terms and conditions of the contract between the petitioner and the first respondent.
27. A Division Bench of the Bombay High Court in Commissioner of Customs (E.P.) v. Jupiter Exports, 2007 (213) ELT 641 (Bom.) has held that whether the licence issued by Director General of Foreign Trade is valid or not is to be determined by the Director General of Foreign Trade and not by the customs authorities. The Bombay High Court, in paragraph (22), has held as follows:
“22. With regard to the issue as to whether a license issued by the D.G.F.T. is valid or not is an issue that has to be determined by the D.G.F.T. and not the Customs Authorities. It is now well settled that until the licenses are cancelled by the licensing authority they are deemed to be valid. The Honble Supreme Court in case of Titan Medical Systems Pvt. Ltd v. Collector of Customs, New Delhi, 2003 (151) ELT 254 (SC) has held that once an advance licence was issued and not questioned by the licensing authority, the Customs authorities cannot refuse exemption on an allegation that there was no misrepresentation. If there was any misrepresentation, it was for the licensing authorities to take steps in that behalf. In the present case, the licensing authority sought to cancel the licenses, but in appeal, the order was set aside and remanded for de novo consideration. No further order has been passed thereafter. In the circumstances, till today the licenses are valid. Even if the license was subsequently cancelled, the Supreme Court in the case of Sampat Raj Duggar v. Union of India, 1992 (58) ELT 163 (SC), following East India Commercial Co. Ltd. v. Collector, 1983 (13) ELT 1342 (SC) = 1963 (3) SCR 338 has held that on the date of the import the goods were covered by a valid import license. The subsequent cancellation of a licence is of no relevance nor does it retrospectively render the import illegal.”
28. The Supreme Court in Titan Medical Systems Private Limited v. Collector of Customs, New Delhi, 2003 (151) ELT 254 (SC) has held that in respect of duty exemption under a specialised scheme, if there is any misrepresentation, it is for the licensing authority to take steps in that regard. It is relevant to reproduce paragraph (13) of the said judgment, which is as follows:
“13. As regards the contention that the appellants were not entitled to the benefit of the exemption notification as they had misrepresented to the licensing authority, it was fairly admitted that there was no requirement, for issuance of a licence, that an applicant set out the quantity or value of the indigenous components which would be used in the manufacture. Undoubtedly, while applying for a licence, the appellants set out the components they would use and their value. However, the value was only an estimate. It is not the respondents’ case that the components were not used. The only case is that the value which had been indicated in the application was very large whereas what was actually spent was a paltry amount. To be noted that the licensing Authority having taken no steps to cancel the licence. The licensing authority have not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the customs authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf.”
29. In the Division Bench judgment of this Court in Commissioner of Customs (SEA), Chennai v. CESTAT, Chennai, 2009 (240) ELT 166 (Mad.) relied upon by the learned counsel for the second respondent, the Division Bench has held that the investigation agency is not precluded from initiating separate investigation regarding past imports and present imports. In that case, the Division Bench has construed the term “actual user” and while dealing with a case where fraudulent method has been used for getting the benefit under the notification, the Division Bench held that even after the redemption of licence is completed, the customs authorities are empowered to effect investigation to find out as to whether there was any evasion of customs duty. The learned counsel for the second respondent would submit that the said judgment of the Division Bench has been confirmed by the Supreme Court. The proposition laid down by the Division Bench of this Court is not in dispute.
30. It is also not in dispute, as held by the Larger Bench of the Supreme Court in Commissioner of C.Ex., New Delhi v. Hari Chand Shri Gopal, 2010 (260) ELT 3 (SC), that the conditions of notifications have to be scrupulously followed and they are mandatory in nature.
31. However, in the case on hand, it is not as if the second respondent has no power to investigate. What is required to be considered is as to whether the licensing authority has taken appropriate action consequent to the suggestion made by the second respondent or not in the manner known to law. In the context that the licensing authority has not taken any appropriate action as per the recommendations of the second respondent, it is not possible to accept the contention of the learned counsel for the second respondent as if the petitioner must be disentitled from effecting import or the petitioner should be imposed with certain burden for the purpose of effecting import, viz., requiring it to pay 50% of the customs duty. At this point of time, it is relevant to state that till date the customs duty has yet been assessed by the competent authority.
For the foregoing reasons, the writ petition should succeed. Accordingly, the writ petition stands allowed with a direction to the first respondent to retrieve the original licence from the second respondent and the second respondent is directed to hand over the licence to the first respondent, so as to enable the first respondent to effect import in accordance with the terms and conditions of the contract between the petitioner and the first respondent, and the said direction shall be given effect to within two weeks from the date of receipt of a copy of this order. It is made clear that it is always open to the second respondent to complete the investigation in accordance with the provisions of the Act and make necessary recommendations to the licensing authority, in which event it is for the licensing authority to take appropriate action in the manner known to law. It is abundantly clear that the first respondent shall not be made liable for any cost or consequences. No costs. Consequently, M.P.No.1 of 2011 is closed.
sasi
To:
The Additional Director General, DRI
4th Floor, Sir Vithaldas Thackersey Marg
Opp:Patkar Hall, New Marine Lines
Mumbai 400 020