Gujarat High Court
Disco vs Union on 20 June, 2011
Author: Harsha Devani
Bench: Harsha Devani
Gujarat High Court Case Information System
Print
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* Top