Pooja Exporters And Ors. vs Union Of India (Uoi) And Anr.
2004 Latest Caselaw 1430 Del

JUDGMENT

Sanjay Kishan Kaul, J.

1. The petitioner company was engaged in the export of readymade garments and was using mulberry raw silk yarn as a raw material for fabricating the garment for export. The petitioner company carried on the activities from Phagwara (Punjab).

2. It is stated that the petitioner company was not in the organized sector and used various intermediaries for carrying out the work like twisting, weaving, etc. of the raw material for which facilities are stated not to be available at Phagwara.

3. The petitioner company applied for an advance license and was issued the same on 07.05.1987, which entitles the petitioner to import 6850 kg. of mulberry raw silk yarn of the amount of Rs.17,46,758/- with an export obligation of Rs.53,81,675/-. The license was revised entitling import to the value of Rs.20,74,275/- with the corresponding export obligation of Rs.66,55,025/-. The petitioner company executed a bond backed by bank guarantee for the requisite amounts.

4. It was further stated that an exporter like the petitioner company was also entitled to procure the raw material indigenously and make exports, but only with prior permission of the licensing authority and in such a case, raw material could be sold in he market. The petitioner company was stated to have complied with the export obligations of a higher value than prescribed and the same was done by 22.07.1989.

5. The dispute relates to a part of the consignment imported by the petitioner company weighing 3536.52 kg. of the value of Rs.8,37,281/- contained in 60 bales and cleared at the port of Bombay against the bill of entry dated 24.08.1987. The duty involvement in case of such import is stated to be to the tune of Rs.5,86,808/-. These goods were to proceed to Phagwara but were, however, sent via Bangalore. It was stated that a few of the bales were given for twisting, weaving, etc. Some complaints are stat d to have been made and the DRI Authority in a raid seized 51 bales. Thirty of the bales were with the transporter and 17 bales were with third-parties, while 4 bales are stated to be seized from the office of the petitioner company at Bangalore. The explanation given by the petitioner company is that these 17 bales were lying for the purpose of twisting and weaving.

6. The petitioner company was issued a show-cause notice dated 17.04.1989 under Section 4L for action under Section 4-I of the Imports and Exports (Control) Act, 1947 ( hereinafter to be referred to as, `the said Act' ) and clause 10 for action under clause 8 of the Imports (Control) Order, 1955 ( hereinafter to be referred to as, `the said Order' ) as amended. The said show-cause notice set out the relevant conditions on which the advance license was issued and the same are as under:

'' i) the firm would export pure silk sarees, fabrics, dupattas made up of 100% mulberry raw silk weighing 5070 kg. for an f.o.b. value of Rs.53,81,675/- within a period of 9 months from the date of clearance of first consignment or from 30 days after the date of import of the first consignment, whichever was earlier;

ii) to ensure fulfilllment of export obligation they, before clearance of the first consignment, would execute bond/legal agreement;

iii) the goods imported against this advance license would be utilised in accordance with the provisions of Customs Notification No. 44-Customs dated 19.2.87;

iv)in the event of their failure to fulfilll the export obligation within the prescribed time limit, the bond/legal agreement would be enforced and the shortfall in the export obligation would be adjusted against their future AU/REP entitlements. They would also pay to the Customs Authorities duty on proportionate quantity of raw material corresponding to the products not exported; and

v) the above action would be without prejudice to any other action that might be taken against the license holder under the provisions of Import Trade Control Regulations.''

7. In view of the aforesaid conditions, the petitioner company was found to have prima facie violated the terms of the advance license in the following terms:

'' 3.It has come to notice that they imported 60 bales of mulberry raw silk weighing 3536.520 kg. valued at Rs.8,37,281/- vide bill of entry No. 009027 dated 24.8.87. The Customs duty involved is of the order of Rs.5,86,808/-. M/s. Pooja Exporters who obtained the above-mentioned advance license as a manufacturer-exporter should have utilised the imported silk in their factory at Phagwara. However, instead of bringing the imported goods to their factory, they are alleged to have sold the goods to various parties in Bangalore. The Directorate of Revenue Intelligence, Bangalore seized the duty free imported raw silk from the premises of several firms of Bangalore as per details given below:-

Name and Address of the firm Quantity seized

1. M/s. Sri Shivananda Silk Koti, 2 bales 67/38, Maradi Building, Ct. Street, Bangalore.

2. M/s. B.T.V. and Sons, No. 12, 4 bales Anakallapa Lane, Narayanasettypet, Bangalore-2.

3. M/s. Vasavi Silk and Sarees, 10 bales Shop No. 12, Paras Market, No. 12, Appaji Rao Lane, C.T. Street Cross, Bangalore-2.

4. M/s. Laxmi Weaving Factory 1 bales No. 1, 8th Cross, Magadi Road, Bangalore-23.

5. M/s. Shantilal Transport Co., 30 bales 75-B, Usmankhan Road, Bangalore.

6. M/s. Pooja Exporters, 5/81, 4 bales 1st Floor, Cubbonpet, 26th Cross, Bangalore-2. ---------- TOTAL 51 bales ---------- This action on the part of M/s. Pooja Exporters give reasons to believe that the duty free imported goods have either been utilised by them otherwise then in accordance with the conditions of the advance license or they had no intention to utilise these goods as per conditions imposed on the said advance license. This violation on their part attracts the provisions of Section 4-I(1)(a)and(c) of the Imports and Exports (Control) Act, 1947, as amended as also the provisions of Clause 8(1) (b) (f) and (g) of the Imports (Control) Order, 1955, as amended.''

8. The purchaser firms were also alleged to have prima facie abetted in the misutilisation in the imported goods. The notice, thus, called upon the parties to produce certain documents and to show-cause why penalty be not imposed under Section 4-I(1)(a) of the said Act.

9. Section 4-L prescribes that a penalty will not be imposed unless due opportunity is given to owner of the goods, etc. informing them of the grounds on which the confiscation of penalty has to apply. The relevant portion of the said Section is as under

'' 4-I. (1) Liability to penalty. - Any person who, -

(a) in relation to any goods or materials which have been imported under any license or letter of authority, uses or utilises such goods or materials otherwise than in accordance with the conditions of such license or letter of authority; 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 license or letter of authority in pursuance of which such goods or materials had been imported; or ''

10. The Import and Export Policy for April, 1985 - March, 1988 in Chapter I dealing with introduction and definitions inter alia defined `actual user' as under:

'' (1)''Actual User'' means a person, who applies for/secures a license for the import of any item or an allotment of an imported item required for his own use, and not for business or trade in it. Thus, in the case of an industrial undertaking, the item concerned shall be utilised for the manufacturing processes or operations conducted within its authorised premises (or made available to jobbing units or other units outside for intermediate processing only as part of such production effort). In the non industrial category, such as hospitals, research and development units or any other institutions, commercial establishments and individuals, the concerned item shall be utilised for its/his own use, i.e., for the purpose for which the item was sought for import.''

11. In order to appreciate the controversy, it may also be stated that the Duty Exemption Scheme was specified in Appendix 19 (Chapter XVI) of the said Policy and states that advance license, namely, Duty Exemption Entitlement Certificate (DEEC) is issued to registered exporters for import of exempt material specified in Annexure-I to the Appendix and the resultant product has to be exported outside the country. Para 16 of the said Appendix provides as under: '' Duty Exemption Entitlement Certificate : 16.The licensing authority issuing a license under this Scheme will also simultaneously issue the connected Duty Exemption Entitlement Certificate in the form given in Appendix XVI-E of the Hand Book. These certificates will be issued in two parts - one for imports and the other for exports. Both the parts of the DEECs duty completed in all parts by the Customs will have to be surrendered to the licensing authority concerned along with the prescribed documents in fulfilllment of the export obligation imposed on them.''

12. The show-cause notice issued was contested by the petitioner company on the ground that the goods were en route to Phagwara and 17 bales were with cottage industries for twisting and weaving. It was further stated that since the petitioner's industry was in unorganized sector it was permissible to carry out the said activities at Bangalore and the licensing authorities had consented for the said work.

13. The Additional Director of General of Foreign Trade passed an order dated 10.07.1995 imposing a fiscal penalty of Rs.10 lakhs on the petitioner company and its partners and of Rs.25,000/- each on the firms. This penalty was imposed on the basis of certain findings arrived at by the authority. A finding was arrived at that the petitioners could not be absolved from obtaining prior permission to transfer the goods for weaving. The first consignment was seized, but the second consignment was not seize on account of the fact that by that time permission had been obtained from the Regional Licensing Authority to take the goods to Bangalore for weaving. This was not done for the first consignment. The plea of the petitioners that they were exempted from indicating the name of the supporting manufacturer was negated on the ground that the same was applicable to a merchant exporter while the petitioner company had imported as a manufacturer exporter. It was found that the goods imported under the first consignment as per the DEEC Book were to be utilised in the factory of the petitioner at Phagwara and prior permission to transport the goods to Bangalore for weaving purposes was required. The statements were recorded and the stand taken by the other forms in whose possessions the bales were found substantiated the point that the petitioner company had, in fact, attempted to sell the goods and had not taken the goods to Bangalore for weaving purposes. M/s. Sri Shivananda Silk Koti stated that they did not have reason to believe that the goods imported and offered for sale were not freely transferable and bought the goods in ordinary course of business. However, since these goods were not utilised and were subsequently seized by DRI, they had not misutilised the goods. The said party was found guilty of abetting in contravention of purchasing 2 bales. M/s. Laxmi Weaving Factory stated that the goods were obtained for testing prior to purchase and as the quality of denier was sub-standard, they requested the seller to take back the material, but before the seller could take back the material, the same was seized by the DRI. Again, they were found guilty. Sri Vasavi Silks and Sarees stated that 10 bales have been offered for sale and 9 bales had been left, but without receiving any payment by the petitioner company. It was, thus, pleaded that no sale could be said to have taken place as the purchase was not complete. The finding arrived at was that there was an intention to sell. M/s. B.T. Venkatar maiah and Sons stated that the petitioner company approached them and offered to sell the yarn at which stage the party demanded documents before negotiating the price. Instead of producing the documents, the petitioner company dumped the bales at the entrance and promised to produce the documents. The goods were seized before they were taken back by the petitioner. Substance was, however, found in the plea of the transporter M/s. G. Shantilal Transport Co. that they had merely carried the material and not purchased them as the company was engaged in the business of transporting material. They were, however, also found guilty of abetting in transporting the goods prior to purchase.

14. The mitigating factor found by the authority was that payments were not made though attempt was made to sell the goods.

15. The petitioner aggrieved by the said order filed an appeal before the appellate authority, respondent No. 2. This appeal was dismissed on 06.08.1997, but the penalty was reduced from Rs.10 lakhs to Rs.7.5 lakhs.

16. It is further stated that benefits of the export carried out independent to the impugned action have also not been granted to the petitioner company.

17. The Collector of Customs, Bombay for the said violation took action by an order dated 04.04.1990 in respect of 17 bales for which duty had to be paid and redemption fine of Rs.60,000/- was imposed, which was duly paid by the petitioner company.

18. The appellate authority noted that there was no entry in DEEC Book regarding the supporting manufacturers, but the mitigating circumstance was that the sale was not complete, though there was an intention of sale. Further, the party had obtained permission to dispatch the second consignment of the imported goods to the supporting manufacturers in Bangalore. The total customs duty involvement came to Rs.5.8 lakhs and the necessary exports had been accomplished. It was, in these circumstances, that t e penalty was reduced.

19. The petitioners have impugned both the aforesaid orders in the present writ petition.

20. Learned counsel for the petitioners contended that the show-cause notice was under Section 4-I(1)(a) of the said Act, which can be imposed only where the goods are used otherwise than in accordance with the conditions of the license or letter of authority. It was submitted that no such allegation was made out against the petitioners and reasoning of the authorities below shows that what has really been found against the petitioner company is an attempt to sell. It was further stated that at best this issue could be dealt with under Section 4-I(1)(d), which also actually refers to sale or otherwise parting with. No sale has occurred since the transaction was not complete and at best it could be otherwise parting with, though this is disputed by the petitioners. Since there was no show-cause notice in respect of the finding arrived at, there could be no question of imposition of penalty. In this behalf, learned counsel relied upon judgment of the Supreme Court in Metal Forgings v. Union of India, . In that case, it was held by the Supreme Court that show-cause notice should be specific about the provisions and the facts on which the same is based.

21. Learned counsel further submitted that the reliance placed by the authorities and the respondents on para 24(2) of Appendix 19 of the Import and Export Policy is misconceived since at the relevant stage of time, the said Policy was not in existence. The reliance has been placed on this paragraph by the respondents to submit that only in case of merchant exporters of goods specified in para 6 of Appendix 13 of the Policy the licensing authority may allow the case on merits without insisting on a joint brand with the supporting manufacturer as the said paragraph refers to exporter other than manufacturer exporter. It was submitted that this is the Policy for the period 1989-1991. The relevant paragraph is as under: ''24 (2)*If the appellant is not a manufacturer/exporter of the resultant products, the export bond/legal agreement shall be executed jointly by the manufacturer/exporter holding the license and the exporter(s) supporting manufacturer/s whose name/s appear/s in the DEEC. For this purpose, the applicant registered exporter will have to indicate the name/s and address/es of the manufacturer/s in whose factory/ies of the manufacturer/s in whose factory/ies the resultant product/s are proposed to be manufactured and their name/s will be included in the DEEC. In the case of merchant exporters of goods specified in para 6 of Appendix 13 of this Policy, the Hqrs./Regional Advance Licensing Committees may allow, on merits, for execution of such bond/legal agreement by the exporter, without insisting on a joint bond with their supporting manufacturers.''

Amended vide 70-ITC(PN)/85-88 dt. 11.2.86.

22. Learned counsel also submitted that in matters of imposition of penalty, the proceedings are quasi criminal judicial proceedings and must be strictly construed. In this behalf, learned counsel referred to judgments of the Supreme Court in M/s. Oswal Woollen Mills Ltd. and Anr. v. Union of India and Ors., and Amba Lal v. Union of India and Ors., 1983 E.L.T. 1321 (S.C.).

23. The last grievance made by learned counsel for the petitioners was that abeyance orders were passed against the petitioners on 02.11.1987, 06.06.1988, 23.12.1988, 10.07.1989 and 16.03.1900 with the result that the export which was carried out during t is period and subsequently, the benefits like draw-backs duty free license, etc. as per the entitlement of the petitioner company were not granted to it. A specific prayer (iii) in the writ petition has been made in respect of this aspect. In so far as this aspect is concerned, learned counsel for the respondents did not dispute the proposition that once the abeyance orders lapsed, the benefits as admissible to the petitioners can be granted.

24. However, in so far as the issue of imposition of penalty is concerned, learned counsel for the respondents defended the same. Learned counsel placed reliance on DEEC Book to contend that terms of the same are binding on the petitioners. DEEC has been issued in favor of the petitioner company and states that the same has been so issued by the Deputy Chief Controller of Imports and Exports, relevant portion of the same is as under: '' ...to the above Importer and covered by the list of materials specified under Pact `C' of this Certificate would be eligible to exemption from import duty subject to the condition specified in the Notification on the subject. The exempt material will be used in the manufacture of the corresponding resultant product as specified under Part `E' of this Certificate in the factory/factories of the importer specified in Part `A' of this Certificate except in respect of ancillaries of the resultant product which may be manufactured in the factory/factories specified in Part `B' of this Certificate.''

25. Part A is the name and address of the factory of the certificate-holder where the resultant product will be manufactured and gives the name of the petitioner company with the address of Phagwara. Part B is to state the name and address of the factories where the ancillaries to the resultant product will be manufactured. Part B states '' as above'' and, thus, there is no separate ancillary mentioned. Part C mentions the goods and the quality, which is 100% mulberry raw silk.

26. Learned counsel for the respondents, thus, submitted that the petitioner company violated the terms of the license on the very first consignment and the advance license shows that the same has been issued to the petitioner as '' SSI manufacturer export r''. The license also states as under: ''

(i)This license shall be subject to the conditions in force relating to the goods covered by the license as described in the relevant Import Trade Control Policy Book, or any amendment thereof made up to and including the date of issue of the license, unless otherwise specified.

(ii)This license shall be subject to the conditions applicable to the class of Importer concerned as contained in the relevant Import Trade Control Policy Book and the Hand Book of Import Export procedures, or any amendment thereof made up to and including the date of issue of the license, unless otherwise specified.''

27. Appendix 19 of the Import and Export Policy of 1985-88 deals with Duty Exemption Scheme which mentions that the license issued to the manufacturer exporter would be subject to actual user condition and the definition of `actual user' is given, which has been stated here-in-above. It is, thus, submitted that the item could be utilised for the manufacturing process or operations conducted within the authorised premises and the petitioner was not permitted to trade in mulberry raw silk and, thus, the good should not have gone to Bangalore. The replies given by the persons in whose possessions the bales were found also show that the attempt was made to sell the goods. In fact, a lenient view is stated to have been taken on account of the fact that sale ad not taken place.

28. I have considered the submissions advanced by learned counsel for the parties.

29. In my considered view, the terms of the license and the Policy applicable at that time have to be considered to come to the conclusion whether there has been any violation of the terms of the license. The Policy in question is of 1985-88 and Appendix 19 contains the Duty Exemption Scheme under which the petitioner company got the advance license. There is no dispute that the petitioner company has complied with export obligations. The license issued to the petitioner was in the capacity as a manufacturer exporter and the license itself specified that the same was subject to the conditions applicable in respect of the relevant Import Trade Control Policy Book and the Hand Book of Import and Export. DEEC was issued to the petitioner company in view of the advance license being issued in terms of Para 16 of the Appendix 19 of the Policy. DEEC itself stipulated that the same was being issued for import of goods specified in Part C, which were eligible to exemption for import duty subject to conditions of the notification. Thus, subject to compliance of export obligations, the goods specified in Part C could be imported. The said Part specifies the goods as mulberry raw silk. The manufactured product is specified in Part E, which is pure silk saree fabric, dupattas made of 100% mulberry raw silk, suit pieces and are to be manufactured in the factory of the importer specified in Part A. Part A specifies the factory of the petitioner at Phagwara. The exception is stated in respect of ancillaries of the resultant product which can be manufactured in factory / factories specified in Part B of the Certificate. However, Part B of the Certificate only stated '' as above'' which implies that it was to be only at Phagwara. Thus, no ancillary place of manufacture was specified in DEEC.

30. I am, thus, of the considered view that in case the petitioner wanted to or had the object of sending the raw material for certain ancillary manufacturing processes, then Part B ought to have specified the name of such ancillary manufacturers. This w s, however, not done.

31. The petitioner was conscious of the requirement of obtaining prior permission in case such goods were to be sent to the ancillary manufacturer even if not specified in DEEC. Thus, an application was made on 16.07.1988 to which the petitioner received a response on 22.07.1988 stating that in terms of Para 244(2) of Import and Export Policy for 1988-1991 transfer can take place in favor of actual users for further processing. However, this is for the period 1988-1991.

32. In so far as the imports in question were concerned, for the second consignment, the petitioner did take permission to take the goods via Bangalore for carrying out necessary intermediary processing. This was not done for the first consignment. I am unable to accept the plea of the petitioners that there was no requirement to obtain prior permission for the said purpose in view of what has been stated above.

33. The story put forth by the petitioners of intermediate processing itself seems doubtful in view of the fact that the stand taken by different parties in whose possession 17 bales were found shows that the attempt was made to sell the goods to them by he petitioner company, but the sale was not completed. Different reasons were given for the sale not being completed. Money was stated not to be paid. In one case, it was stated that the third-party was unaware of the condition of the license, in another case, they had sought copy of the license, etc. The possession of these bales with third-parties, who have taken a stand completely contrary to that of the petitioners, itself belies the case of the petitioners. There is no reason why these third-pa ties would be inimical to the petitioners and all of them have taken a consistent stand of the petitioner company attempting to sell the goods to them. There is also no dispute about the fact that such sale was not permissible.

34. There is no doubt about the proposition that a party must be put to specific notice of the allegation against the party and the provisions under which the petitioner company has been proceeded against to give an effective reply. The petitioner has replied upon judgment of the Supreme Court in Metal Forgings's case (supra) for the said purpose. The question, however, remains as to whether the petitioner company was, in fact, put to such notice.

35. The allegation against the petitioners have been clearly and unambiguously mentioned. The notice has been issued under the provisions of Section 4-I of the said Act. However, in the operative paragraph, it has been stated that the petitioner company should show-cause as to why penalty should not be imposed under Section 4-I(1)(a). Specific reference has not been made to Section 4-I(1)(d) since the finding is that no sale has taken place, though certainly the goods were handed over to third-parties. Thus, the general provision was mentioned, though the specific clause has not been mentioned. In my considered view, the petitioner company was put to notice in view of the allegations that the matter in controversy related to the attempt on the part o the petitioner company to sell the goods, though specific clause of the provision had not been mentioned. The petitioners undoubtedly parted with the goods.

36. The aforesaid would also not make any difference since even if the provisions of Section 4-I(1)(a) of the said Act are seen, utilisation of the goods cannot be contrary to the advance license. The processing had to take place at the factory premises of the petitioners at Phagwara as per DEEC Book. However, contrary to the same, the goods were handed over at Bangalore to third-parties for processing, if the version of the petitioners was to be believed. This itself would violate the provision even it actually the processing had not taken place.

37. The aforesaid issues have really arisen because the petitioner company was caught by DRI prior to completion of the transaction and if possibly the DRI had waited, the actual transaction would also have been completed. The fact that the sale did not actually get completed and that subsequently the petitioner had taken permissions in respect of the different consignments has been considered as a mitigating circumstance by both the authorities. The appellate authority has, in fact, reduced the amount of penalty on that account. Even if the actual user definition includes making available to jobbing units outside for intermediate processing as a part of production effort, the license must specify and provide for it in Part B, which it did not, since the petitioner failed to disclose the same and obtained permission only subsequently.

38. In my considered view, the findings arrived at by the two authorities is not such as should call for interference by this Court in exercise of jurisdiction under Article 226 of the Constitution of India. However, on the issue of quantity of penalty, am of the considered view that taking into consideration that the total customs duty involvement is about Rs.5.8 lakhs, the export commitments having been fulfillled and the petitioners having paid the redemptions fine, the same be reduced to Rs.5 lakhs. The amount to be paid by the petitioners in one month from today.

39. It may, however, be noted that in view of the stand taken by learned counsel for the respondents, and rightly so, as the abeyance orders have come to an end, the petitioners should be entitled to benefits in respect of the exports made for the said period and subsequently thereto and to that extent, prayer (iii) is liable to be granted. The needful be done within a period of three months of the petitioners sending the details of benefits which the petitioners are entitled to and have not been granted to the petitioners.

40. The writ petition is disposed of in the aforesaid terms leaving the parties to bear their own costs.