Dencap Electronics (P) Ltd. vs Addl. Dir. General Of Foreign ...
2005 Latest Caselaw 887 Del

JUDGMENT

B.C. Patel, C.J.

1. The present appeal is preferred by the original writ petitioners against the judgment and order passed by the learned single Judge in WP(C) No. 7709/2003, dated 4-5-2004.

2. The appellant No. 1 is a private limited company having its office at Goa, of which appellant No. 2 is the Director. A license was issued in favor of appellant No. 1 on 6-9-1997, known as Export Promotion Capital Goods license (for short "EPCG license") for import of second-hand machinery, namely, (1) Sleeving Assembly Taping Machine, (2) Testing machine and miscellaneous equipment for CIF value of Rs. 83,53,050/- equivalent to US $ 2,33,000. In view of the conditions imposed, the appellant No. 1 was obliged to export items, namely aluminium electrolyte capacitors for FOB value of Rs. 4,17,65,259/- equivalent to US $ 9,32,000 within a period of five years from the date of issuance of the license. The said machinery was imported on payment of concessional rate of duty at the rate of 10% amounting to Rs. 10,12,390/-. The appellant executed a bank guarantee on 15-9-1997 in favor of the revenue to secure the duty foregone i.e. Rs. 21,81,7007/-. The machinery, after its import, came to be installed at the unit of the appellant No. 1 at Goa.

3. In view of unforeseen and unfortunate conditions such as global economic crisis and certain disputes and demands raised by the Customs and Excise Department, there was complete disruption of manufacturing activities at the appellant's unit. In view of these circumstances and the fact that the foreign collaborator, Mr. Eric Lee became bankrupt in the year 1999, the appellant was not in a position to export at all. The appellant was called upon by the Office of the Deputy Director General of Foreign Trade, Panjim vide letter dated 29-10-1999 to submit six monthly progress reports of exports made by the appellant company duly certified by a Chartered Accountant. A copy of the said letter is produced on record vide Annexure P-2. It was pointed out by the appellant vide letter dated 31-12-1999 that the unit had closed down in May, 1999 and, therefore, the export obligation could not be fulfillled.

4. The Deputy Commissioner of Customs issued a show cause notice on 22-3-2000 under Section 28 of the Customs Act, 1962 (hereinafter referred to as "the Act"), inter alia, alleging that the appellant had failed to fulfill export obligation as also the conditions specified in Notification dated 1-4-1997 and the appellant was called upon to show cause as to why the machinery should not be confiscated under Section 111(c) of the Act and further why Custom duty of Rs. 21,81,700/- and interest till date of payment should not be imposed under Section 112 of the Act for non-fulfilment of the export obligation.

5. It is contended by the appellant that a detailed reply was given to the show cause notice, inter alia, pointing out the reasons for failure to fulfill the export obligation. However, the Commissioner made an order confiscating the machinery under Section 111(c) of the Act with an option to redeem the same under Section 125 of the Act on the payment of fine of Rs. 10,00,000/-, payment of differential duty of Rs. 21,81,700/- and interest @ 24%. Over and above these, the Commissioner also imposed a penalty of Rs. 2,00,000/- under Section 112 of the Act. A copy of the said order dated 30-8-2000 is placed on record vide Annexure P-4.

6. In view of the fact that the unit suffered a loss of Rs. 37,00,000/-, it was impossible for them to pay the entire duty and penalty, an appeal was preferred before the CEGAT, Bangalore only with respect to imposition of penalty of Rs. 2,00,000/-. The appellants were directed by the Tribunal vide order dated 6-6-2001 to deposit an amount of Rs. 50,000/- out of the total amount of Rs. 2,00,000/- as a condition for hearing the appeal, a copy of which is placed on record vide Annexure P-5.

7. The bankers of the appellants, namely, Canara Bank, vide letter dated 5-10-2001/- informed that the Customs Department made a claim of Rs. 21,81,700/- in view of the bank guarantee in the subject matter and that the bankers were paying the said amount to the Customs Department. It further transpires that under a Panchnama dated 7-11-2001 the Customs Department of Goa took possession of the confiscated machinery and the machinery was shifted to the Customs Warehouse, Goa on 18-12-2001 from the factory of the appellant.

8. It is contended by the appellants that though the period for completion of export obligation in fact expired only in August, 2002, in March 2000, almost two years in advance, the authorities had started taking coercive action against the appellant for non-fulfilment of export obligation.

9. The Deputy Director General of Foreign Trade, Mumbai issued a show cause notice on or about 24-5-2002 informing the appellants about proposed imposition of penalty under Section 11 of the Foreign Trade (Development and Regulation) Act, 1992 for the alleged non-fulfilment of export obligation under EPCG license, and for the alleged violation of Rules 10,13 and 14 of the Foreign Trade (Regulation) Rules, 1994.

10. The appellants gave a reply in detail on or about 20-6-2002, inter alia, requesting to drop the proposed action to impose penalty and to withdraw the show cause notice. However, the Deputy Director General of Foreign Trade, Mumbai, without considering the background imposed the penalty of Rs. 9,00,0007- on the appellants vide his order dated 12-7-2002. A copy of which is produced at Annexure P-12.

11. It is against the aforesaid order dated 12-7-2002 an appeal was filed before the Additional Director General of Foreign Trade, New Delhi to set aside the order of penalty. Respondent No. 1 thereafter on 29-7-2003 rejected the appeal. A copy of the said order is placed on record vide Annexure P-14.

12. It is against the aforesaid order at Annexure P-14 the appellants approached this Court by filing WP(C) No. 7709/2003. Learned single Judge of this Court issued a notice and after hearing the parties by an order dated 4-5-2004 dismissed the writ petition observing that the respondents had considered the matter and taken a lenient view. It is against this judgment at Annexure P-19 that the present appeal is preferred before this Bench.

13. Chapter 6 of Export and Import Policy 1997-2002 relates to Export Promotion Capital Goods Scheme. Under the scheme, as indicated in Chapter 6, capital goods, both new and second-hand, may be imported under the Export Promotion Capital Goods (EPCG) Scheme. The import of second-hand capital goods under the scheme shall be subject to such conditions as prescribed in the Handbook Volume I. Capital goods were permitted to be imported at concessional rate of Customs duty subject to an export obligation to be fulfillled over a period of time as indicated in Clause 6.2 in Chapter 6. The conditions are indicated in Clause 6.5 under the caption "Export obligation". Handbook of Procedures, Volume I refers to Export Promotion Capital Goods Scheme in Chapter 6. The competent authority, as indicated in Clause 6.8 of the Handbook of Procedures, Volume I, has to consider the application as per the CIF value. There are Committees such as Regional EPCG Committee, Zonal EPCG Committee, Headquarters EPCG Committee and the Committee of Secretaries. So far as the fulfillment of export obligation is concerned, Clause 6.11 indicates the manner in which the obligation is required to be fulfillled. Within a period of five years1 the obligation is required to be fulfillled. In the first year there is no obligation. However, in the second, third, fourth and fifth years, there is an obligation to export 10%, 20%, 30%, and 40% respectively so as to make it 100%.

14. Our attention is drawn to the provisions contained in Clause 6.11 for non fulfillment of the export obligation. The same reads as under :-

Where export obligation of any particular year is not fulfillled in terms of the above proportions, such license-holder shall within 3 months from the expiry of the said year/block year, pay duties of customs plus 24% of an amount equal to that proportion of the duty leviable, on the goods which bears the same proportion as the unfulfilled portion of the export obligation bears to the total export obligation.

The license-holder shall, if he fails to discharge a minimum of 25% of the export obligation prescribed for any particular year for three consecutive years under 10% EPGG scheme or for any particular block of two years for two consecutive blocks under Zero duty EPCG scheme, be liable to pay forthwith, the whole of duties of customs plus 24% interest leviable on the goods imported.

15. It was submitted that in the instant case machinery was imported in September, 1997 and the trial production commenced in March, 1998. However, on 29-10-1999, vide Annexure P-2, Foreign Trade Development Officer, Goa, called upon the appellant to furnish a report about the export, as according to the respondents, no information was conveyed that the appellant exported material. It may be noted that Clause 6.15 of the Handbook of Procedures, Vol. I refers to extension of export obligation period. The said clause reads as under :-

6.15. Extension of export obligation period. - The competent authority as mentioned in paragraph 6.8 may consider, on merits, request for extension in export obligation period and grant one or more extensions but not exceeding a total period of one year from the date of expiry of the original export obligation period, subject to such terms and conditions as may be prescribed by them.

16. Even if the importer, who has imported capital goods under the EPCG scheme, fails to discharge the obligation to export, as indicated in Clause 6.16 of the Handbook of Procedures, Vol. I, he shall be liable for action under the Foreign Trade (Development and Regulation) Act, 1992, the Orders and Rules made there under, the provisions of the Policy and the Customs Act, 1962.

17. In the instant case the Deputy Director General of Foreign Trade vide order dated 12-7-2002, a copy of which is produced at Annexure P-12, in exercise of powers under Section 13 of the Foreign Trade (Development and Regulation) Act, 1992 imposed a fiscal penalty of Rs. 9,00,000/- (Rupees nine lakhs only) on the appellant and also its director under Section 11(2) of the said Act. The authority passing the order arrived at the conclusion as under :-

... It is thus, transpired that they have not made any efforts whatsoever in complying the conditions of EPCG license which was obtained by furnishing undertaking/declaration and other requisite documents at the time of preferring the EPCG application. Hence, I conclude that violation of the conditions of the license contravening Rules 13 and 14 of Foreign Trade (Regulation) Rules, 1993 as even in the adjudication stage, the noticee firm is silent about their commitment fulfillling of governmental obligation as per the conditions of the license which were required to be met within the period prescribed therein. However, taking into consideration that fact that the Bank Guarantee for Rs. 21,81,700/- so executed by the noticee firm had since been forfeited and had remitted to the Government account and also on account of seizure of the imported material by the Customs/Central Excise worth Rs. 84,36,581 /- in view of which the gravity of misuse not existed for a long duration, I am of the opinion that further harsh punishment is not in the right direction of justice and therefore not affordable to the noticee firm.

18. It is very clear that the Deputy Commissioner of Customs also issued a show cause notice dated 22-3-2000 in exercise of powers under Section 28 of the Customs Act alleging that the appellant failed to fulfill the export obligation and the conditions specified in Notification No. 28/97, dated 1-4-1997 and thereafter a show cause notice was issued as to why the goods should not be confiscated under Section 111(c) of the Act as also the customs duty of Rs. 21,81,700/- and interest thereon should not be recovered under Section 112 of the Act for non-fulfilment of export obligation. Ultimately the Commissioner, hearing the matter, gave an option to redeem the goods under Section 125 of the Act by paying a fine of Rs. 10,00,000/- and on payment of differential duty of Rs. 21,81,700/- with interest at the rate of 24%. Over and above a penalty of Rs. 2,00,000/- was imposed under Section 112 of the Act. The appellants did not opt for option to redeem the capital goods and, therefore, the bank guarantee furnished by the appellants was encashed and the amount of customs duty came to be recovered. Not only that, but on account of seizure of imported material, the Revenue got the machinery worth Rs. 84,36,581/-. Thus, under the Act the Customs duty has been recovered on account of non-fulfilment of export obligation.

19. The order made under the provisions contained in the Foreign Trade (Development and Regulation) Act, 1992 was challenged by referring an appeal. The appellate authority held that adjudicatory authority has imposed a penalty of Rs. 9,00,000/- leniently i.e. by not imposing the maximum penalty of 5 times of the value of the imported second-hand capital goods as per powers vested in him under the Foreign Trade (Development and Regulation) Act, 1992 but just 10.70% of CIF value of imported machinery was imposed and required no interference. Against which the writ petition was preferred. The learned single Judge of this Court on 4-5-2004 held that no interference is called for.

20. Chapter IV of the Foreign Trade (Development and Regulation) Act, 1992 relates to search, seizure, penalty and confiscation. Section 11 of the said Act reads as under :-

11. Contravention of provisions of this Act, rules, orders and export and import policy -

(1) No export or import shall be made by any person except in accordance with the provisions of this Act, the rules and orders made there under and the export and import policy for the time being in force.

(2) Where any person makes or abets or attempts to make any export or import in contravention of any provision of this Act or any rules or orders made there under or the export and import policy, he shall be liable to a penalty not exceeding one thousand rupees or five times' the value of the goods in respect of which any contravention is made or attempted to be made, whichever is more.

(3) Where any person, on a notice to him by the Adjudicating Authority, admits any contravention, the Adjudicating Authority may, in such * class or classes of cases and in such manner as may be prescribed, determine, by way of settlement, an amount to be paid by that person.

(4) A penalty imposed under this Act may, if it is not paid, be recovered as an arrear of land revenue and the Importer-exporter Code Number of the person concerned, may, on failure to pay the penalty by him, be suspended by the Adjudicating Authority till the penalty is paid.

(5) Where any contravention of any provision of this Act or any rules or orders made there under or the export and import policy has been, is being, or is attempted to be, made, the goods together with any package, covering or receptacle and any conveyances shall, subject to such requirements and conditions as may be prescribed, be liable to confiscation by the Adjudicating Authority.

(6) The goods or the conveyance confiscated under sub-section (5) may be released by the Adjudicating Authority, in such manner and subject to such conditions as may be prescribed, on payment by the person concerned of the redemption charges equivalent to the market value of the goods or conveyance, as the case may be.

21. It is not the case of the respondents that the appellants imported the machinery in contravention of the provisions of the said Act. It is the case of the revenue that the appellants failed to export the goods in view of the obligations. Thus, there is no question of making any export in contravention of the provisions of this Act. The appellants imported the second-hand machinery in accordance with the existing policy at the relevant time. The appellant did not commit breach while importing the machinery. It is not even alleged by the revenue that the appellant committed breach of any of the provisions contained in the Foreign Trade (Development and Regulation) Act, 1992 at the time of import of the capital goods.

22. There is a provision in the Customs Act, 1962 for confiscation of improperly imported goods, etc. The relevant part of Section 111 of the Act reads as under :-

111. Confiscation of improperly imported goods, etc. - The following goods brought from a place outside India shall be liable to confiscation :--

  (a) to (n)        xxx            xxx             xxx
 

(o) any goods exempted subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer.
 (p) xxx              xxx              xxx
 

23. Goods were not totally exempted from payment of duty. However, 10% duty was imposed and for the remaining bank guarantee was offered which was encashed on failure to export the goods. Thus, entire duty was recovered. In the absence of any allegation that the import of machinery was in contravention of the Foreign Trade (Development and Regulation) Act, 1992, there is no question of invoking Section 11. Merely as the appellant has failed to export any goods, there is no question of invoking Section 11 of the said Act. This is a case where the appellant imported the machinery in accordance with law, trial production commenced, but on account of financial crisis and non-cooperation from foreign collaborator, could not fulfill the obligation and the machinery came to be confiscated, and therefore, it cannot be said that any breach is committed so as to invoke Section 11 of the aforesaid Act. It is not pleaded that export was in contravention of the provisions of the Act or any rules or orders made there under or the export and import policy.

24. Section 111 of the Customs Act, 1962 has been invoked and action has been taken. A reading of Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 makes it very clear that if at the time of import of the capital goods, if there was any contravention of the Act, the provision would apply. After importing in accordance with law, merely for non-fulfilment of export obligation, for the reasons beyond the control of a person it cannot be said that at the time of import he committed an offence or committed a breach. When after following the procedure laid down in the Act a license has been issued, capital goods have been imported, installed and trial production commenced, it cannot be said that at the time of import, there was an intention not to export the goods. Sub-sections (1) and (2) of Section 11 of the said Act cannot be attracted in a case when there is a failure to export the goods when it is beyond the control of a person. If at all one would like to export the goods or import the goods, then he has to do the same in accordance with the provisions of the said Act. If it is found that there is a positive act on the part of a person concerned by exporting the goods in breach of said Act, then sub-section (2) of Section 11 can be attracted. But in the instant case in absence of any act of export, it cannot be said that there is a contravention of the provisions contained in Section 11 of the aforesaid Act.

25. Section 11(2) of the aforesaid Act refers to import of goods. If the contention of the respondents is accepted, then the fact that the policy itself indicates the manner in which the export obligation is to be discharged and any failure, for the reasons if found sufficient, the period can be extended. That itself is sufficient to indicate that non-fulfilment of obligation to export automatically does not amount to a breach.

26. On behalf of the appellants it was submitted that the respondents cannot be permitted to take contrary stands in different matters with regard to the question of law. It was submitted that learned single Judge of this Court (one of us) had an occasion to examine the provisions contained in Section 11(2) of the aforesaid Act in the case of Gokaldas Images Ltd. and Ors. v. Union of India and Anr. 116 (2005) DLT 47 wherein the holder of a license failed to export the garments. On behalf of the Union of India it was submitted that Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 is for a different purpose as the same relates to a stage after the export and import when there is a contravention of the provisions. The policy provides for certain pre-requirements which is a stage prior to export, and by which the exporter becomes entitled to export, it was further submitted before the Court that the issue is linked with the basic concept of providing for such regulation of export under the said Act which is to augment the foreign exchange. It was submitted that what is sought to be imposed under the policy is not really penalty, but performance of guarantee. Keeping these aspects and other aspects in mind, as also various decisions, the court pointed out in para 28 as unden-

28. It will, thus, be seen that what is sought to be done is clearly in furtherance of the objects of the said Act as well as the Policy, Section 11 of the said Act would have no application in this field. Section 11 falls in Chapter IV of the said Act dealing with search, seizure, penalty and confiscation. The export has to be made according to the provisions of the said Act, Rules and Orders and penalties are provided for violating the same while making the export. Sub-Section (2) of Section 11 refers to contraventions of the provisions of the said Act, Rules and Orders by a person who makes or abets or attempts to make any export. Thus, a mechanism has been set up under Section 11 of the said Act where exports are made or attempt to be made in violation of the same.

27. On behalf of the revenue it was submitted that the real question is whether penalty can be imposed under Section 11 of the said Act for the failure to fulfill the export obligations under the Export Import Policy 1997-2002. It was contended that the import was permitted with a view to promote exports, and having failed to export the goods, there is a contravention of the policy and hence, the appellant is liable to a penalty as indicated in sub-section (2) of the Foreign Trade (Development and Regulation) Act, 1992. It was further submitted on behalf of the revenue that the Apex Court has held in the case of Director of Enforcement v. MCTM Corporation Pvt. Ltd. and Ors. that contravention of Foreign Exchange Regulation Act, 1947 would attract penalty under Section 23 of the said Act. In that case the respondents failed to repatriate the foreign exchange lying in Malaysia which they had a right to receive in India and had thereby failed to take or refrain from taking action which had the effect of non-securing the receipt of the foreign exchange in this country. The Board in that case took the view that since it was not a case where foreign exchange had been surreptitiously held abroad with any mala fide motive, though it was retained in Kualalumpur deliberately and intentionally, the contravention of the provisions was of a technical nature and, therefore, reduced the penalty to Rs. 2,000/- on each of the directors and to Rs. 20,000/- on the company in respect of the first charge and Rs. 5,000/- each in the case of directors in respect of the second charge. Foreign exchange was earned and the same was required to be repatriated within a reasonable period of time from the date when the right to receive the same accrued. Reading the language of Section 10 of the Foreign Exchange Regulation Act, 1947, the scheme of the Act and the fact that the foreign exchange was already earned by the company, but was not repatriated, the wrong was complete. The Apex Court in para 19, after considering the appellant's no objection to the waiving of the entire amount of penalty on the directors, held that the company is liable so far as the penalty is concerned. There was inordinate delay in repatriation of the foreign exchange and the country was deprived of the foreign exchange to subserve the common good. Thus, there was positive act in not remitting the foreign exchange despite earning the same. There was the question of retaining foreign exchange. The counsel for the respondents placed reliance on this decision which is of no assistance to him at all.

28. In the case of Mukta Sons v. Union of India and Ors. the Court was called upon to examine the applicability of Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 after invoking the bank guarantees. In the said case for fulfillment of export obligation a bank guarantee of Rs. 12,00,000/- covering the real cost of gold prevailing as on the date of advance as fixed by the authority, and another bank guarantee in the sum of Rs. 2,70,000/- was furnished for difference between domestic and international price of gold and other governmental duties, levies and customs duty on that quantity which was not exported. Pending an application for extension of time to export, both the bank guarantees were invoked in November, 1994 and thus the cost of full amount of gold as well as national and international price difference came to be recovered. It is required to be noted that the petition was filed in this Court as the amount of pre-deposit was not furnished in the form of a bank guarantee, and thus, the appeal came to be dismissed on 11-6-1999. Review application was filed and in the meanwhile the petitioner received an order from the respondent for deposit of Rs. 20,00,000/- which was the penalty imposed upon it, failing which recovery proceedings were threatened. It is at this stage the petition was filed challenging the order-in-original and the order-in-appeal. However, it is required to be noted that only three grounds were raised which are as under :-

(1) Without giving an opportunity of hearing, the order was made;

(2) Section 11(2) cannot be invoked after invocation of the bank guarantees; and

(3) The order-in-appeal is vitiated since it has not been passed by the appellate committee legally constituted.

It is in this background the Court rejected the petition. The Court in para 9 observed that admittedly two bank guarantees covered only the cost of the gold which was supplied to the petitioner. On behalf of the respondent it was submitted that the learned single Judge pointed out that as far as penalty proceedings are concerned, they are of different nature and respondents were authorised to initiate the same by virtue of powers under Section 11(2) of the said Act for failure on the part of the petitioner to fulfill its expert obligations, it was submitted that in view of this, in the instant case, despite the bank guarantee being invoked, action can be taken under Section 11(2) of the said Act.

29. When a person is permitted to import a second-hand machinery with certain benefits, on furnishing, bank guarantee to be encashed on failure to discharge obligations, it is required to be noted that the same is done for development of business in the country and to provide employment to persons. The revenue is protected by taking the bank guarantee of the differential duty required to be paid. It is not the case of the respondents that the machinery which was imported was prohibited and could not have been imported on payment of customs duty. Metal like gold which was prohibited could not have been imported at the relevant time.

30. That apart, when on account of failure to carry out the obligation, due to reasons beyond control of a person, if the customs duty which is otherwise required to be paid by the person concerned is received by encashing the bank guarantee, the State exchequer does not suffer, except the loss of interest for the period during which the amount remained unpaid and remained in the form of bank guarantee. On account of failure not only the bank guarantee came to be encashed so as to recover the difference of customs duty, but the machinery came to be disposed of in view of the violations of the Customs Act, 1962. As the appellant failed to export, there was a breach of Section 111(o) of the Customs Act, 1962 and, therefore, the machinery came to be confiscated. For the breach which was committed, the appellant was penalised as the machinery came to be confiscated. This happened because the export obligation could not be fulfillled. Therefore, in the opinion of the Court, when by passing an order not only the customs duty has been recovered, but the machinery having been confiscated, there will be no occasion to invoke the provisions of Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992, more particularly, when there is no breach of Section 11(2) of the said Act and a contrary stand is taken by the Union of India specifically in the case of Gokaldas Images Ltd. and Ors. (supra) that Section 11 of the said Act would be attracted to a stage after the export. Therefore, in the opinion of the Court, it cannot be said that there is a contravention of Section 11(2) of the said Act but not fulfillling the export obligation.

31. One must bear in mind the principle enunciated by the Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa wherein the Court was required to examine whether the imposition of penalty for the failure to register as a dealer was justified. The Apex Court pointed out in para 8 as under :-

8. Under the Act penalty may be imposed for failure to register as a dealer - Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether a penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide believe that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out.

32. The Apex Court in the case of Krishi Utpadan Mandi Samiti and Ors. v. Pilibhit Pantnagar Beej Ltd and Anr. considered the case of London and North Eastern Railway Company and Berriman 1946 AC 278 where Lord Simonds quoted with approval the following observations of Lord Esher in the case of Tuck & Sons v. Priester (1887) 19 QBD 629 "We must be very careful in construing that section, because it imposes a penalty. If there is a reasonable interpretation which will avoid the penalty in any particular case, we must adopt that construction. If there are two reasonable constructions we must give the more lenient one. That is the settled rule for the construction of penal sections."

33. The Apex Court in case of Akbar Badruddin Giwani v. Collector of Customs, Bombay considered a case where a person acted on the basis of bona fide belief that the goods were importable under OGL and held in paras 60 and 61 as under :-

60. In the present case, the Tribunal has itself specifically stated that the appellant has acted on the basis of bona fide belief that the goods were importable under OGL and that, therefore, the appellant deserves lenient treatment. It is, therefore, to be considered whether in the light of this specific finding of the Customs, Excise and Gold (Control) Appellate Tribunal, the penalty and fine in lieu of confiscation require to be set aside and quashed. Moreover, the quantum of penalty and fine in lieu of confiscation are extremely harsh, excessive and unreasonable bearing in mind the bona fides of the appellant, as specifically found by the Appellate Tribunal.

61. We refer in this connection the decision in Merck Spares v. Collector of Central Excise and Customs, New Delhi (CEGAT), Shama Engine Valves Ltd., Bombay v. Collector of Customs, Bombay (CEGAT) and Madhusudan Gordhandas and Co. v. Collector of Customs, Bombay (CEGAT), wherein it has been held that in imposing penalty the requisite means read has to be established. It has also been observed in Hindustan Steel Ltd. v. State of Orissa by this Court that (SCR HN, p. 753):

The discretion to impose a penalty must be exercised judicially. A penalty will ordinarily be imposed in cases where the party acts deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation, but not, in cases where there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

34. In view of what is stated hereinabove, we are of the opinion that this appeal is required to be allowed and the order dated 12-7-2002 made by the Deputy Director General of Foreign Trade, Mumbai, Annexure P-12 and that order dated 29-7-2003 made by the Additional Director General of Foreign Trade, New Delhi, Annexure P-14 are quashed and set aside. Consequently the impugned judgment of the learned single Judge is set aside. Ordered accordingly.