Mohan Machines Ltd. vs Union Of India (Uoi) And Anr.
2007 Latest Caselaw 1929 Del

JUDGMENT

S. Ravindra Bhat, J.

Page 2796

1. The petitioner seeks a direction for quashing the order of the Joint Director General, of Foreign Trade, dated 24-1-1997, (hereafter 'the impugned order') in appeal, issued under the Foreign Trade and Development Act, 1992 (hereafter 'the Act').

Page 2797

2. Two purchases orders were placed on the petitioner on 20th September 1984, and 11th March 1985, by the National Diary Development Board, ('NDDB') under a world Bank project. The NDDB is, a Government of India Enterprise. According to the purchase orders, the petitioner had to fabricate and supply 21 barrels for broad guage Rail Milk tankers. The first purchase order was for supply of 11 barrels and the second was for the supply of 10 barrels. The Broad gauge Rail Milk Tankers were to have stainless steel sheet content of 59701 Kgs., suitable for carrying 40 thousand liters per barrel, complete with all other components and fittings for a FOB value of Rs. 60,42,000/-. As the supplies were to be made under a World Bank project, it was a 'deemed export' by it petitioner to NDDB, Anand.

3. It is an undisputed fact that as against the first order for 11 barrels, the petitioner manufactured two barrels with stainless steel purchased from the local market, and supplied them to the purchaser. A Special Imprest license No. 3197096 dated 14th September, 1988 was issued by the Controller of Imports and Exports to the petitioner to meet the export order for the balance 19 barrels. In terms of the license, the petitioner was to import Stainless Steel/Coils-AISI 304 of the following specifications:

  a) S.S. Sheets 3.15 M.M.        47,500 Kgs.
b) S.S. Plates 5.00 M.M.        12,967 Kgs.
c) S.S. Sheets 2.00 M.M.         2,375 Kgs.
                                -------------
                                62,842 Kgs.
 

The approximate CIF value of the consignment to be imported was Rs. 24,19,909/- and the Import Duty leviable was exempted, as a corresponding export obligation of FOB value of export of Rs. 60,42,000/- was imposed upon the petitioner.
 

4. The 40,000 litres capacity stainless steel barrels for Rail Milk tankers, having Stainless Steel Sheet contents of 59,701 Kgs. For a FOB value of Rs. 60,42,000/- were to be supplied in 9 months, to be calculated from the date of clearance of the first consignment or from 30 days of import of the first consignment, whichever was earlier. However, against the balance order of 19 Barrels, the petitioner expressed its inability to supply 10 barrels to the NDDB, against the Purchase order dated 11th March 1985. The same was treated as cancelled, although the formal cancellation of the order took place as late as on September 3rd 1993. Since cancellation of the order for 10 barrels was agreed to on principle between the petitioner and NDDB, and the latter had to supply only 9 barrels (against the balance order of 11 barrels), the Import License dated 14th September 1988, granted to the petitioner was revised by duty Exemption Entitlement Certificate (DEEC) No. 006143 dated 14th September 1998, as follows:

  Particulars Specification                      Quantity       CIF Value

S.S. Sheets/Coils AISI 304 3.14 M.M.          22,500 Kgs.     7,87,500
S.S. Plates AISI 304 5.00 M.M.              6,142.26 Kgs.     3,19,397
S.S. Sheets/Coils AISI 304 2.00 M.M.        1,125.00 Kgs.       39,375
                                           ----------------- ----------
                                            29,767.26 Kgs.    11,46,272
                                            ================= ==========

 

Page 2798
 

5. The petitioner imported stainless steel sheets and plates of the CIF value of Rs. 10,51,021/- as under:
  S.S. Sheets 3.15 mm        22,000 Kgs.
S.S. Sheets 2.00 mm         1,700 Kgs.
Plates 5.00 mm              7,000 Kgs.
                          -------------
                            30,700 Kgs.
 

6. As the quantity of imports exceeded the quantity sanctioned under the amended import license, by 1,432.74 Kgs., the petitioner paid Customs duty in the amount of Rs. 1,02,109/- on such excess quantity imported. With the payment of the Customs duty on the excess quantity of steel imported, the CIF Value stood reduced to Rs. 10,01,962/-.

7. The petitioner supplied to the NDDB 9 Stainless Steel Barrels, and the proportionate FOB value of the export made by it, was in the sum of Rs. 25,01,687/- on the CIF value of import in the sum of Rs. 10,01,962/- In this view of the matter, the petitioner alleges that it adequately fulfillled its export obligation under the Import License. Four Barrels were, however, supplied beyond the nine month period, for which the NDDB allegedly agreed to an extension of time.

8. The petitioner was issued a Show Cause Notice dated 20th October 1994, by the Deputy Director General of Foreign Trade, proposing action against it for alleged non-fulfillment of export obligation against the Import License, and DEEC Book No. 006143. The petitioner was charged with having failed to discharge the export obligation according to conditions attached to the license. It was called upon to furnish, within 15 days, the documents, or show cause within 15 days why action not be taken against it for forfeiture of Bank Guarantee/enforcement of Legal Agreement and to enforce the other conditions of the Bond/LUT executed by it, apart from declaring it a defaulter. The Deputy Director General of Foreign Trade passed an ex-parte Forfeiture Order dated 22nd November 1994, holding that the petitioner had violated the Import License and the legal Agreement and declaring it a defaulter, thereby, disentitling it to any License/RO/CCS, either under any scheme of Advance/Special Imprest/Pass Book License or under any other provisions of Import Trade Policy.

9. Aggrieved by the ex-parte forfeiture order, the petitioner preferred an appeal to the Joint Director General of Foreign Trade. By order dated 17.08.96, the Jt. Director General declared the petitioner as defaulter, and upheld the Forfeiture order. The petitioner filed a writ petition, which was disposed by this Court with the direction that the Jt. Director General should issue a fresh order after hearing the Petitioner. Thereafter, on 24th January 1997, the Joint Director General of Foreign Trade, in compliance with the order dated 16th December, 1996 of this Hon'ble Court, in C.W.P. No. 3853 of 1996, passed the impugned order, dismissing the petitiioner's appeal dated 28th December 1994, against the ex-parte Forfeiture order dated 22nd November 1994, and holding that the action already initiated against the petitioner was valid and justified.

Page 2799

10. The relevant extracts of the impugned order are as below:

a) About the non production of duly completed and authenticated DEEC 9EXPORT) M/s. Mohan Machines Ltd., after verifying the facts on official record of having received the same from this office, have accepted the receipt of the same and have expressed regrets for non submission of the same duly completed. The reason attributed for non submission is that the same might have been misplaced in their office. Suggestion has also been made to decide this case in their favor without any insistance on the production of DEEC (export).

b) In respect of non receipt of payment against supplies made under invoice No. 1001. It has been mentioned by M/s. Mohan Machines Ltd., that the same has been adjusted against some earlier dues payable by them to the project authority and have also made a suggestion for verification of the correct facts by this office directly from the project authority.

c) In respect of some supplies allegedly made to the project authority after the expirty of export obligation period M/s. Mohan Machines Ltd., have sought a time from this office to enable them to make a request for extension in the obligation period to the Hqrs. office of CCI andE (now DGFT).

Accepting their default M/s. Mohan Machines Ltd., have also suggested that the same should be treated as a default of a technical nature and the action initiated by thhis office is unjustified and unwarranted.

7. After careful consideration of the matter and totality of the case following orders are made:

i) The approach adopted by this office was just and fair, in as much as full opportunity with the facility of personal hearing was provided to M/s. Mohan Machines Ltd., at all possible times to comply with the requirement of import and export policy/procedure. M/s. Mohan Machines Ltd., has not contested this fact during the personal hearing. The facility of duty free imports is provided for time bound completion of export obligation. Any violation in this regard is to be treated as breach of rules and procedure of the relevant import and export policy procedure which ultimately leads to initiation of action in accordance with the prescribed procedure. This fact has also not been contested by the officials of M/s. Mohan Machines Ltd., during the personal hearing. Consequently the action taken by this office to enforce bond, bank guarantee and issuance of demand notice is fully justified.

ii) A submission has been made by M/s. Mohan Machines Ltd., in their letter dated 24.12.96 as already referred to above to consider the request for fulfillment of export obligation in absence of DEEC (export). This suggestion is not at all acceptable. The submission of DEEC (export) duly completed and authenticated by the project authority is an essential requirement, as it is the only document which can be relied upon for proper compliance of the obligation imposed on M/s. Mohan Machines Ltd., It has also been established beyond doubt that DEEC (export) had all long been in the possession of M/s. Mohan Page 2800 Machines Ltd., and on the contrary the company has made a misleading accusation to show that the same was never given to them by this officer, which is resulted into non submission of the same duly completed and authenticated as required. As has been explained ab ove without the submission of these document it is not possible to consider the matter. Hence the suggestion made by the party to dispense with the requirement of submission of DEEC (export) is not accepted.

iii) As regards the non receipt of payment against some supplies from the project authority, there is no reason to accept the submission made by M/s. Mohan Machines Ltd., in their letter dt. 24.12.96, because it is the responsibility of M/s. Mohan Machines Ltd., only to give proof of receipt of payment and this office has no reason to intervene anywhere on their behalf. The acceptable supplies under deemed export are those which are financed through World Bank funds and a legitimate proof is essential to establish the fact that supplies have been made and the payment has been received in a legitimate manner. In absence of the proper certification no such supplies can be accepted towards the discharge of obligation. Therefore I am also not at all conviced with the suggestion made by M/s. Mohan Machines Ltd., that this office should cross check the facts from the project authority. Hence all such supplies which are not paid for cannot qualify towards the discharge of export obligation. Further, all those supplies made after the due date of obligation cannot be accepted unless proper extension is obtained from the office of DGFT, New Delhi.

iv) M/s. Mohan Machies Ltd., vide letter dated 24.12.96 has sought sufficient time from this office for making representation to CCIandE (now DGFT) for getting extension in the export obligation period to cover the supplies made after the due date of obligation. For this purpose no permission is needed from this office. M/s. Mohan Machined Ltd., being a regular exporter are award of this fact. They can always make such representation without any permission from this office to any authority.

v) M/s. Mohan Machines Ltd., vide letter dt. 24.12.96 has also contended that the default on their part should be treated as a technical one and our action is unjustified and unwarranted. This contention is absolutely wrong and incorrect. M/s. Mohan Machines Ltd, know and have accepted that they are under specific time bound obligation. M/s. Mohan Machines Ltd., also know and they have made imports of duty exempt material to the full extent for the manufacture and supply of specific products and are required to submit the proof with complete supporting documents within a specified time frame indicated on the license. The company has voilated this aspect. M/s. Mohan Machines Ltd., have also accepted that in respect of some supplies even the payment have also not been given by the project authority. In addition to this some supplies have been made after the expiry of the export obligation period without any lawful sanction. The company has also not submitted certain vital documents viz. DEEC (exports) duly completed and authenticated by the project authority, Page 2801 invoices duly attested by the project authority and proof of payment in respect of certain supplies. It is therefore not possible to treat such lapses as a technical one. It has also been established to the satisfaction of the representative appeared for personal hearing that DEEC (export) was collected by shri A.K. Bhalla, Sr. Manager personally on 11.09.90. It is therefore proved that M/s. Mohan Machines Ltd., had all long been trying to evade their liability of performing the time bound export obligation. The action of enforcing the bond, bank guarantee and issuance of demand notice to M/s. Mohan Machines Ltd, is therefore right, correct and fully justified'.

11. It is alleged that the impugned order shows non-application of mind to the facts of the case and mechanically justifies the forfeiture orders. Learned Counsel submitted that the Petitioner was required to export stainless steel Barrels of NDBB within nine months. The period was to begin from the date of clearance of the first consignments of 30 days of importation of first consignment whichever was earlier. Counsel relied on the impugned orders to say that the first consignment of import was cleared on 25.9.1990. It was urged that in the written submissions furnished to the Joint Director General, the date of receipt of first consignment was discussed as 25.10.1990; therefore, the export obligation period started 30 days from that day i.e 25.11.1990. The nine month period ended on 25.8.1991. This was sought to be substantiated by copies of the Bill of Entry for Home consumption, enclosed Along with the written submissions before the Joint Director General.

12. Learned Counsel urged that the Petitioner had filed copies of Invoice Nos. 3016, 3024, 1003 and 1004 relating to supply of five stainless steel Barrels and four Invoice Nos. 1001, 2003, 2006 and 3005 relating to supply of four stainless steel Barrels. It was urged that the impugned order failed to note that the Petitioner had annexed relevant documents issued by the NDBB confirming supplies had been made against the invoices. Therefore, the Respondent fell into error in finding that there was no certification by the NDBB that supplies were made.

13. Learned Counsel urged that the finding that in the absence of DEEC (Export) Book, the supplies made could not be considered for acceptance towards discharge of export obligations was in error. It was contended that the DEEC book no doubt contains details made and certified by the Project Authority. Yet the stand that no other evidence would be accepted or looked into was entirely arbitrary. Learned Counsel submitted that the Petitioner established that five stainless steel Barrels had been in fact imported within the time. As far as the balance four were concerned, requests were made on 6.1.1991 and 6.7.1991 for extension of time. The response to these was made much later on 23.10.1992. Lastly reliance was placed upon copies of the NDBB documents, certifying payment to the Petitioner as well as the Certificate of Payments issued by the NDBB i.e the Project Authority in Form 1(A). It was submitted that all these were produced along with the appeal and the written submissions, before the Joint Director General.

Page 2802

14. Learned Counsel for the Respondent reiterated contents of the counter affidavit and submitted that the Petitioner had not fulfillled the export obligation within the validity of the license which was to export on 26.7.1991. Consequently, it was issued a show cause notice for personal hearing. Earlier it was issued with a caution letter on 26.2.1993 advising it to furnish all required documents in Paras 1 to 6 of the handbook of procedures 1992-97 since the export obligation period had expired. There was no response; as a result the show cause notice was issued ultimately leading to the forfeiture order. It was further urged that the Petitioner had not supplied the original documents i.e DEEC exports and Statement of Import and Export duly certified by the Chartered Accountant to fulfilll its export obligation. Counsel denied that no proper opportunity was given or that the Joint Director General had not applied its mind while making the impugned order.

15. The NDBB was imp leaded as a party respondent in these proceedings. It filed two affidavits in the second affidavit dated 14.6.2005, it averred, inter alia, as follows:

2. That it is most humbly and respectfully submitted that the answering respondent had issued the following two Purchase Orders under the World Bank Project to the petitioner.

(i) Purchase Order No:PUR:15.7:OF:RAIL:16653 dated 20.09.84 for supply of 11 Nos. Rail Milk Barrels.

(ii) Purchase Order No:PUR:15.7:OF:RAIL:32416 dated 11.03.85 for supply of 10 Nos. Rail Milk Barrels.

3. The Purchase Order No: PUR:15.7:OF; RAIL:32416 dt. 11/03/1985 for supply of 10 barrels under the World Bank Project for Rail Milk Barrels was cancelled by the answering respondent as the petitioner showed his inability to comply the said Purchase Order.

4. That as per Purchase Order No: PUR:15.7:OF:RAIL:16653 dt.20/9/1984 under World Bank Project for Rail Milk barrels, the petitioner supplied two barrels, manufactured from local stainless steel material and the balance 9(Nine) barrels manufactured from imported stainless steel material under Special Imprest License obtained by the petitioner.

16. From the above discussion, the principal question to be decided is whether the impugned order upholding the forfeiture and the imposition of sanctions on the Petitioner for its not fulfillling export obligations in terms of the Special Imprest License, is valid and legal.

17. The Petitioner entered into an agreement for import and manufacture of 21 stainless steel Barrels for their use in transportation of milk by rail to the NDBB. Under the prevalent Import Export policy, the Controller of Imports and Exports issued a Special Imprest license on 14.9.1988. The approximate CIF value of the goods to be imported were Rs. 24,19,909/-. The customs duty on these goods were exempted. A corresponding export obligation of FOB value by way of manufacture and supply of stainless steel Barrels to the NDBB for the value of Rs. 60,42,000/- within nine months concerning specified items was imposed. It is a matter of record that the Page 2803 quantities were eventually reduced. A copy of the Minutes of Meeting held between the Petitioner and NDBB on 3.9.1993 and the letter dated 3.9.1993 cancelling the order for 10 Barrels is a part of the record. As a result the quantity was proportionately reduced; the Petitioner had to import stainless steels sheets and plates of the CIF value of Rs. 10,51,021/- and make a corresponding deemed export/supply of the agreed items for the value of Rs. 25,01,687/-.

18. It is a matter of record that a marginal excess quantity was imported; the Petitioner paid Customs Duty of Rs. 1.02 lakhs for such excess quantity.

19. The object of the DEEC Scheme in such cases is to enable the project promoted for the benefit of a State or State aided enterprise, to customs duty waiver provided the deemed export obligation, in terms of the license is followed. In this case the main grounds on which the Respondent rejected the Petitioner's contentions were that it had failed to import the quantities in time and correspondingly did not fulfill its export obligation i.e manufacture of the goods within time, more importantly did not produce the DEEC book containing the entries in respect of its claim.

20. The Petitioner has averred the quantities imported the relevant dates as set out in Paras 1 to 10 of the writ petition ' which have also been discussed in these judgments ' have not been disputed by the Respondent. However, its main submission in Para 11 (and also in Para 19) is that the Petitioner did not produce the DEEC Book in support of its claim of having imported the quantities and fulfillled the obligations under the impressed license. The averment in Paras 19 and 20 would at this stage be relevant. They are reproduced below:

19. Under the bonafide belief that the DEEC Book for export had been deposited in the office of the respondent, and in compliance with the direction issued vide the said letter dated 15th April 1996, the petitioner filed in the office of the Joint Director General of Foreign Trade, a letter dated 26th April 1996, wherein, for reasons stated in the said letter, the petitioner explained that DEEC Book for export was already on the record of the original file of the office of Joint Chief Controller of Imports and Exports (CLA).

Whilst annexing with the said letter, a statement of the imports and exports giving the full details certified by a Chartered Accountant, the petitioner further explained that part 'H', in terms of Appendix XX of Hand Book 1992-97 (Volume-1) was in fact the statement of import and export duly certified by a Chartered Accountant, and annexed with the said letter. A true copy of the said letter of the petitioner dated 26th April 1996, with the duly certified statement of imports and exports attached thereto, are enclosed herewith collectively as Annexure-10. A true copy of the receipt dated 26th April 1996, obtained by the petitioner in confirmation of the said letter dated 26th April 1996, having been filed ind the counter, in the office of the Joint Director General of Foreign Trade, is enclosed herewith as Annexure-11.

20. Having complied with the direction issued to the petitioner by the office of the Joint Director General of Foreign Trade, vide the letter Page 2804 dated 15th April 1996, the petitioner awaited the decision of the Joint Director General of Foreign Trade, on the petitioners' appeal, against the ex parte Forfeiture order dated 22nd November, 1994 of the Assistant Director General of Foreign Trade.

21. In its counter affidavit the Respondents denied Para 11 generally and stated that the DEEC book was not resubmitted in its office. The counter affidavit of the NDBB, on the other hand, is categorical; it submits that two Barrels were manufactured from local stainless steel materials and the balance 9 barrels were manufactured from imported stainless steel material under the Special Imprest License obtained by the Petitioner. The Petitioner has produced copy of the Bill of Entry. In addition it has filed copies of Invoices and payment Invoices for the quantities bill to the NDBB and the payment advise. The Certificate of Payment in Form 1-A issued by the NDBB have also been produced. These documents would show that 5 stainless steel barrels were supplied to the NDBB in terms of the deemed export requirements. These were for the period 26.5.1990 to 7.5.1991. The balance four stainless steel drums were supplied between the period 25.6.1992 and 9.6.1994. The record also shows that till September, 1993 there was no formal cancellation order for 10 stainless steel barrels, issued by the NDBB. The Certificate of the Chartered Accountant, stating that he had examined the obligations forms and books and certifying that 9 drums had been supplied pursuant to the Imprest License dated 14.9.1998 are also part of the record.

22. The Petitioner has relied upon ANNEXURE - 6 and ANNEXURE - 7 which are the copies of submissions made on 26.3.1996 and the list of documents produced along with it. The list of documents show, inter alia, that originals of duty exemption entitlement certificate, as well as invoices, Bill of Entry and carbon copies of 8 invoices and payment advise as well as original Certificate of Payment issued by the Project Authority, NDBB were furnished to the Joint Director General. The impugned order has actually noticed the production of these documents. Yet curiously in Para 7 there is no reference or even discussion about this. The Joint Director General was guided by the submissions said to have been recorded on 24.12.1996. He was particularly influenced by the fact that the DEEC Export Book duly completed had not been furnished.

23. From the above discussion it is evident that the Petitioner had produced sufficient materials in the form of originals of Bill of Entry, Invoices, Payment advise and Certificates of Project Authority, to substantiate its claim that the deemed export obligation had in fact been fulfillled. It is a matter of record that import and such obligations were satisfied so far as supply of stainless steel drums were concerned. These facts have been completely ignored in the impugned order. Besides the most crucial fact i.e that the contract had been performed and all 9 stainless steel barrels supplied to NDBB and even payment released to it upon satisfaction by the customer (i.e. NDBB) clinches the issue. The Project Authority in unequivocal terms has deposed before the Court that the quantities contracted for were supplied to it and the Petitioner was paid for doing this.

Page 2805

24. In view of the above discussion I am of the opinion that the impugned order is in error of law in holding that the Petitioner was not entitled to claim the benefits of the duty exemption under the Special Imprest license. Likewise, the direction to pay to the Customs Authorities duty to the proportionate quantity of exempt material with interest, affirmed by the impugned order, and the forfeiture order dated 21.11.1994 as upheld in the impugned order cannot be sustained. They are accordingly set aside.

25. In view of the above the Petition has to succeed. Ordered accordingly. Rule made absolute in the above terms. In the circumstances there shall be no orders as to costs.