Jain Exports Pvt Ltd & Another vs Union Of India
2009 Latest Caselaw 3348 Del

R-4
*     IN THE HIGH COURT OF DELHI AT NEW DELHI


+                    W.P.(C) 3437/1991


%                               Date of decision: 25th August, 2009

      JAIN EXPORTS P. LTD. & ANR.                   ..... Petitioners
                       Through: Mr. Rajesh Rawal & Mr. Ankur
                       Sethi, Advocates.

                     versus

      UOI                                            ..... Respondent
                          Through: Mr. Darpan Wadhwa & Ms. Divya
                          Jha, Advocates for UOI.


      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA

      1. Whether Reporters of local papers may be
         allowed to see the judgment?
      2. To be referred to the Reporter or not?
      3. Whether the judgment should be reported
         in the Digest?


                              O R D E R

%

1. The petitioner no. 1/Jain Exports Private Ltd. on the basis of

additional import licence had imported empty oxygen cylinders as spares

for artificial respiration apparatus under para 186(8) of the Import Policy

for 1981-82. The petitioners have filed on record bill of entry for home

W.P. (C) 3437/1991 Page 1 consumption in which the import made by the petitioner no. 1 has been

described as anti seamless steel cylinders for medical oxygen gas.

2. The said imports were made by the petitioner No. 1 in the month of

December, 1981 and cleared by the Customs Department on 27th February

1982.

3. The Office of the Chief Controller of Imports and Exports issued

letter dated 8th July, 1983 to the petitioner no. 1 calling upon them to

explain and clarify validity of the import of empty seamless steel cylinders

for medical oxygen gas. Subsequently, show cause notice dated 29th April,

1985 was issued to the petitioner no.1 and several others, under Section

4(l) read with section 4 (i) of the Imports and Exports (Control) Act, 1947

(Act, for short) and Clause 10 read with Clause 8 of the Imports (Control)

Order 1955 (Order, for short). It was alleged that the petitioner no. 1 had

imported medical oxygen cylinders against the additional licenses for total

cost insurance and freight value of Rs. 16,39,210/-, contrary to para 115

of the Import Policy for the year 1981-82. It was also alleged that the

import of oxygen cylinders was not covered under paragraph 186 (8) of

the Import Policy 1981-82.

4. The petitioner no. 1 submitted their reply dated 13th July, 1985 but

the same was not accepted and a penalty order dated 30.5.1991 was

passed under Section 4(i) of the Act, imposing penalty of Rs. 10 lakhs on

W.P. (C) 3437/1991 Page 2 the petitioner no. 1. In addition, the partners/directors of the petitioner

no.1 were barred from importing goods, receiving imports licences etc.

and allotment of imported goods through STC/MMTC or similar agencies

for the period 15.5.1991 to 31.3.1992. First appeal filed by the petitioner

No. 1 was dismissed vide order dated 22nd October, 1991.

5. Learned counsel for the petitioners has raised three contentions.

Firstly, no penalty could have been imposed under the Act in view of

paragraphs 323 and 324 of the Exports and Import Handbook of

Procedure for the relevant years. It was stated that only the Customs

Authorities had jurisdiction to impose penalty after goods were imported

and the impugned orders passed under the Act are without jurisdiction.

Secondly, there is no finding in the impugned order that the petitioner no.

1 had any mensrea, and therefore, the order imposing penalty cannot be

sustained. Lastly, the oxygen cylinders imported by the petitioner No. 1

were covered by Chapter 90.18 of the Order and, therefore, on merits

there was no illegality in the imports.

Paragraphs 322, 323 and 324 of Chapter xiii of the Handbook of

Imports and Exports Procedure 1981-82 read as under:

"322. Import is validly covered by a licence when the description, value and the quantity of imported goods are in accordance with the

W.P. (C) 3437/1991 Page 3 licence and the shipment/dispatch of the goods from the supplying country takes place within the period of validity of the licence.

Imports not covered by licences.

323. If any article, requiring a licence, is imported or sought to be cleared without a valid licence, its entry into the country will be treated as unauthorized and the importer/owner of the goods will be liable to punishment under the provisions of the Customs Act, 1962 without prejudice to any other action that may be taken in this behalf under the Imports and Exports (Control) Act, 1947 and the Other issued thereunder. In such cases, the import Trade Control authorities will not regularize the import by an expost-facto licence nor will they amend the existing licence in any manner to cover such imports.

Custom's jurisdiction.

324. The clearance of goods and the assessment of duty will be dealt with by the Customs authorities. It is within the jurisdiction of the Customs Authorities to determine whether or not the goods imported are in conformity with the description given in the licence. Although in case of doubt in regard to the correct description of goods given in the licence or any other matter concerning the import, the Customs authorities may consult the Import Trade Control authorities, the matter rests with the Customs authorities finally."

7. The three paragraphs have to be read harmoniously to understand

the intention behind the said paragraphs and interpret them. Paragraph

W.P. (C) 3437/1991 Page 4 323 of the said Handbook states that any article requiring a licence to be

imported would be treated as an unauthorized import, if there was no

licence or valid licence for the said import and the importer/owner of the

goods would be liable to penalty under the Customs Act, 1962 without

prejudice to any action that might be taken under the Act and the order

made thereunder.

8. Paragraph 323 further clarifies that the trade import control

authorities cannot regularize the import by grant of ex-post facto licenses

nor were they entitled to amend the existing licences after the imports

were made. Punishment under the Customs Act, 1962 was independent of

and without prejudice to the action under the Act/order. Thus, as per

paragraph 323, provisions of the Customs Act, 1962 and Act operate in

their own field and separately, though the two enactment were connected

and related. Action against violation of the two Acts could be taken under

the respective provisions of the said Acts. Punishment under the

provisions of Customs Act, 1962 was without prejudice to other action

which the authorities might take under the Act and the order passed

thereunder.

9. Imposition of penalty or punishment under the Customs Act, 1962

does not absolve or undo the default under the Act. An order of

punishment under the Act could be passed even when a person was liable

W.P. (C) 3437/1991 Page 5 to be punished or had been punished under the Customs Act, 1962. It is

not necessary that a person should have been punished under the

Customs Act, 1962 to be punished under the Act. Punishment under the

Customs Act, 1962 was not a pre-condition for levy of penalty under the

Act.

10. Paragraph 324 of the Handbook clarifies that the customs authorities

had the right and jurisdiction to decide whether or not goods imported

were in conformity with the licence, though they might have consulted the

Import Trade Control Authorities. The final authority in this regard were

the customs authorities. Paragraph 324 of the Handbook applied to

situations where the goods were produced for clearance and an

assessment order was to be passed by the Customs Authorities. Under

the provisions of the Customs Act, the Customs Authorities had exclusive

and sole jurisdiction to determine validity of import for Customs Act, 1962

and the quantum of duty payable on the said goods. The Customs

Authorities could consult Import Trade Control Authorities but the final

authority to adjudicate under the Customs Act, 1962 rested with the

customs authorities exclusively.

11. In view of the aforesaid interpretation it is not possible to accept the

contention of the petitioner that once the goods were imported and

cleared by the Customs authorities the respondents under the Act could

W.P. (C) 3437/1991 Page 6 not have issued notice, or lacked jurisdiction and authority to impose

penalty under the Act.

12. Section 127 of the Customs Act, 1962 reads as under:-

"127. Award of confiscation or penalty by customs officers not to interfere with other punishments. - The award of any confiscation or penalty under this Act by an officer of customs shall not prevent the infliction of any punishment to which the person affected thereby is liable under the provisions of Chapter XVI of this Act or under any other law."

13. Thus, infliction of penalty order under the Customs Act does not

prevent authorities under any other law from inflicting penalty for violation

of the said Act on the same person. Irrespective of penalty imposed under

the Customs Act, 1962, penalty can be imposed if there is violation of any

other enactment. It is not correct as suggested by the petitioner that

Section 127 of the Customs Act, 1962 is applicable only when confiscation

or penalty is imposed under the said Act and only in such cases penalty

can be inflicted under any other enactment. Section 127 only clarifies that

penalty under the Customs Act, 1962 does not bar or prohibit infliction of

punishment/penalty under any other enactment. Therefore,

punishment/penalty can be imposed under the Customs Act, 1962 or any

other enactment. Penalty under the Customs Act, 1962 is not a necessary

pre-condition or a mandatory condition before penalty can be imposed

W.P. (C) 3437/1991 Page 7 under any other enactment.

14. Section 4(j) of the Act reads as under:-

"4(j). Confiscation or penalty not to interfere with other punishments.- No confiscation made or penalty imposed under this Act shall prevent the infliction of any other punishment to which the person affected thereby is liable under the provisions of this Act or under any other law for the time being in force."

15. A penalty order under the Act was independent and did not prevent infliction of punishment under any other law for the time being in force. Section 4(j) was inserted on 25th January, 1976, i.e., after the Customs Act, 1962 was enacted.

16. In the present case, no punishment or penalty has been imposed

under the Customs Act, 1962 and, therefore, the plea of double

punishment or jeopardy has not been rightly raised by the petitioner.

However, it may be suffice to notice here that penalty under Section 4(i)

of the Act is a civil liability and not punishment by a criminal court. The

Supreme Court in Soni Vallabhdas Liladhar and Another versus The

Assistant Collector of Customs, Jamnagar, AIR 1965 SC 481 in

paragraph 10 has held as under:-

"10. It is urged that when Section 186 lays down that the award of any confiscation, penalty or increased rate of duty under the Sea Customs Act shall not prevent the infliction of any punishment to which the person affected thereby is liable under any other law, it necessarily forbids by implication infliction of any punishment to which

W.P. (C) 3437/1991 Page 8 the person affected thereby is liable under the Sea Custom Act itself. In this connection our attention is drawn to certain observations in Leo Roy Frey v. Superintendent District Jail. It is true that in that case this Court referred to Section 186 of the Act; but that case was not directly concerned with the question whether a prosecution under Section 167(81) of the Act is permissible after the award of confiscation, penalty or increased rate of duty under Section 167(8) of the Act in view of Section 186. Clause (81) in Section 167 was introduced by the amending Act 21 of 1955. Before that there were 80 clauses in the section, and the scheme of those clauses, was that a person could either be dealt with by the award of confiscation, penalty or increased rate of duty, or by a prosecution before a Magistrate. It was in those circumstances that Section 86 provided that the award of confiscation, penalty, or increased rate of duty would not bar infliction of any other punishment under any other law. The intention of the legislature by this provision in Section 186 was clearly to allow a prosecution under any other law even though there might be award of confiscation, penalty or increased rate of duty under the Act. Section 186 was thus meant for permitting prosecution in addition to action under the Act in the shape of confiscation, penalty or increased rate of duty; it was never intended to act as a bar to any prosecution that might be permissible after the award of confiscation, penalty or increased rate of duty. It was merely an enabling section and not a barring section and seems to have been put in the Act ex abundanti cautela. When however clause (81) was introduced in Section 167, it became possible in some cases where goods had been confiscated and penalty inflicted under the Act by the Customs Authorities to prosecute persons also under clause (81) of the Act. That however would

W.P. (C) 3437/1991 Page 9 not change the nature of the provision contained in Section 186 which was an enabling provision and not a barring provision. If the intention was to bar prosecutions in consequence of the award of confiscation, penalty or increased rate of duty, the words of Section 186 would have been very different. We cannot therefore read in Section 186 a bar by implication to a prosecution under the Act simply because Section 186 enables prosecution under any other law. In this view of the matter, Section 186 is no bar to the prosecution for an offence under the Act in connection with a matter in which the award of confiscation, penalty or increased rate of duty has been made." (emphasis supplied)

17. In view of the above discussion, the first contention of the petitioner

is rejected.

18. The second contention of the petitioner is edificed on the Division

Bench judgment of this Court in Dencap Electronics (P) Limited

versus Additional Director General of Foreign Trade, 2006 (194)

DLT 389. The said judgment relying upon the decision of the Supreme

Court in M/s. Hindustan Steel Limited versus State of Orissa, 1969

(2) SCC 627 has held that penalty under Section 11(2) of the Foreign

Trade(Development and Regulation) Act, 1992 for failure to carry out

statutory obligation is a result of quasi criminal proceedings and penalty

should not be imposed unless the party obliged had acted deliberately in

defiance of law or was guilty of contumacious or dishonest conduct or had

acted in conscious disregard of his obligation. The said decision of the

W.P. (C) 3437/1991 Page 10 Division Bench has to be examined and applied in the light of subsequent

decision of the Supreme Court in Union of India and Others versus

Dharamendra Textile Processors and Others, (2008) 13 SCC 369. In

the said decision, three Judges of the Supreme Court considered case law

on the subject relating to mental intention and requirement to establish

mensrea in cases of statutory penalty. Reference was made to a larger

Bench in view of the decision of the Supreme Court in Dilip N. Shroff

versus Joint Commissioner of Income Tax, Mumbai and Another,

(2007) 6 SCC 329 on the question of mensrea in cases of concealment of

income. After referring to the case law on the subject relating to penalty,

the Supreme Court did not agree with the decision in the case of Dilip N.

Shroff (supra) and approved of the ratio in the case of Chairman, SEBI

versus Shriram Mutual Fund and Another, (2006) 5 SCC 361 holding

that in cases of breach of a statutory provision, penalty imposed partakes

character of breach of a civil obligation, which cannot be equated with

criminal proceedings. Requirement and presence of mensrea in civil

obligation is not necessary unless the statutory provision is to the contrary.

The decisions in Dharamendra Textile Processors and Chairman,

SEBI (supra) are subsequent and after decision of the Division Bench of

the Delhi High Court in the case of Dencap Electronics (P) Limited

(supra). The ratio of the decisions of the Supreme Court is, therefore,

W.P. (C) 3437/1991 Page 11 applied. In Chairman, SEBI (supra), it was observed:-

"35. In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. On a careful perusal of Section 15-D(b) and Section 15-E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow."

19. Section 4(i) of the Act under which penalty is being imposed, reads

as under:-

"4(i). Liability to penalty.- (1) Any person who,-

(a) in relation to any goods or materials which have baeen imported under any licence or letter of authority, uses or utilises 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 a recognized agency, uses or utilizes such goods or materials or causes them to be used or tilised, for any

W.P. (C) 3437/1991 Page 12 purpose other than the purpose for which they were delivered to him; or

(c) having made a declaration for the purpose of obtaining-

(i) a licence or letter of authority to import any goods or materials, or

(ii) any amendment of such licence or letter of authority, or

(iii) 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 sales 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, or one thousand rupees, whichever is more, whether, or not such goods or materials have been

W.P. (C) 3437/1991 Page 13 confiscated or are available for confiscation."

20. Section 4(i) of the Act does not use the words like deliberate,

intentional and willful in the sub-clauses a to f. There is no specific

reference to mental intention or mensrea on the part of the person against

whom the proceedings are initiated. Section 4(i) indicates an element of

strict liability. Of course, it has to be established that the person

concerned had actually violated or was guilty under Clauses a to f. Once it

is found that a person had in fact violated sub-clauses a to f, penalty could

be imposed without need to establish and prove mensrea or mala fide

intention.

21. Section 4(i) of the Act, however, gave wide discretion to the

authorities to impose penalty not exceeding five times of the value of the

goods or material or Rs.1,000/-, whichever was more. The minimum

penalty, which could be imposed, therefore, was Rs.1,000/-. The

maximum penalty could be five times of the value of the goods or the

material. Penalty could be imposed between the maximum amount or the

minimum amount, i.e., within five times of the value of the goods or

material or Rs.1,000/-. While fixing the quantum of penalty the authorities

had to take into account the conduct of the person including his intention,

cause, nature of fault whether it was technical violation or only a venial

breach. Thus, the authorities had wide discretion in fixing the quantum of

W.P. (C) 3437/1991 Page 14 penalty, which could be imposed. Once penalty was imposable, one of

the guiding factors on question of quantum of fine/penalty was the

conduct of the person. In Chairman, SEBI (supra), the Supreme Court

had referred to the discretion of authorities and the nature of the penalty

and it was observed as under:-

"Hence, we are of the view that once the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary. Discretion has been exercised by the adjudicating officer as is evident from imposition of lesser penalty than what could have been imposed under the provisions. The intention of the parties is wholly irrelevant since there has been a clear violation of the statutory Regulations and provisions......."

22. Learned counsel for the petitioner has relied upon Union of India

versus Rajasthan Spinning and Weaving Mills, 2009 (238) ELT 3

(SC) in which Section 11 AC of the Central Excise Act, 1944 was

interpreted and the judgment in the case of Dharamendra Textile

(supra) interpreting the said Section was examined and clarified. Section

11AC of the Central Excise Act, 1944 deals with cases of non-levy or non-

payment or short levy or short payment or erroneous refund by reason of

fraud, collusion, willful misstatement, suppression of facts or contravention

of the provisions of the Act or the Rules with the intention to evade

W.P. (C) 3437/1991 Page 15 payment of duty. Noticing the language of Section 11AC and the

requirements stipulated, the Supreme Court observed as under:-

"18. One can not fail to notice that both the proviso to Sub section 1 of Section 11A and Section 11AC use the same expressions: "...by reasons of fraud, collusion or any wilful mis- statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty...." In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A (1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.

19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word

W.P. (C) 3437/1991 Page 16 suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section."

23. Thereafter, reference was made to the case of Dharmendra

Textile (supra) and it was observed as under:-

"23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under Sub-section (2) of Section 11A. That is what Dharamendra Textile decides.

24. It must, however, be made clear that what is stated above in regard to the decision in Dharamendra Textile is only in so far as Section 11AC is concerned. We make no observations (as a matter of fact there is no occasion for it!) with regard to the several other statutory provisions that came up for consideration in that decision."

24. Observations made above, supports the above reasoning on the

question of discretion relating to quantum of penalty.

25. Section 4(i) of the Act has been quoted above. The said Section did

not require or stipulate presence of fraud, collusion, willful misstatement or

W.P. (C) 3437/1991 Page 17 suppression of fact and intention of the person on whom the penalty could

be imposed.

26. The third issue pertains to merits and whether empty gas oxygen

cylinders were imported as per the terms of the licence, i.e. spares for

artificial respiratory system. The petitioner had imported 2721 pieces of

empty seamless steel cylinders. These were claimed to be imported as

spares for artificial respiratory system under paragraph 186(8) read with

Chapter 90.18 of Schedule 1 to the Order. As per the respondents, empty

seamless steel cylinders fall under paragraph 115 of the Import Policy for

1981-82 for which the petitioners did not have a valid licence and in terms

of paragraph 115(4) import of medical gas cylinders was permitted and

allowed to meet the full requirements of the actual users. Serial No. 90.18

of the Import (Control) Order, 1950 reads as under:-

"90.18 Mechano-therapy appliances; massage apparatus, psychological aptitude testing apparatus; artificial respiration, ozone therapy or similar apparatus; breathing appliances (including gas masks and similar respirators)."

27. Paragraph 115 of the export import policy is as under:-

"115(1) Applications for import of Gas Cylinders will be considered by Chief Controller of Imports and Exports, New Delhi, irrespective of the value involved. The application should be made in the form prescribed for import of Capital Goods.

W.P. (C) 3437/1991 Page 18 (2) Applications will be considered, on merits, having regard to indigenous production. The CCI&E, New Delhi will formulate suitable guidelines in consultation with the administrative Ministry and the technical authorities concerned so that import is allowed to the extent the demand cannot be met from the indigenous sources.

(3) Import of LPG cylinders will not be allowed. (4) Import of medical gas cylinders will be allowed to meet the full requirement of Actual Users.

(5) Import of high pressure cylinders will also be allowed as spares to Actual Users in accordance with the provisions made in Chapter

9. As components, their import may be allowed to Actual Users under the procedure for supplementary Licences as provided in Chapter

6."

28. Serial No. 90.18 refers to artificial respirator systems. Paragraph

186 (8) of the import policy 1981-82 permits import of spares for the items

falling in the various serial numbers of Schedule 1 of the Order, including

Chapter 90 which includes artificial respirators. The respondents in the

impugned orders have held that paragraph 115 specifically deals with

oxygen cylinders and, therefore, the said paragraph would apply. There is

merit in the said findings of the respondents. Oxygen cylinders are bought

and sold in the market as a separate apparatus and equipment. What was

covered by Serial No. 90.18 and paragraph 186(8) were artificial respirator

systems and spare parts thereof.

29. In view of the aforesaid, I do not find any merit in the present writ

W.P. (C) 3437/1991 Page 19 petition and the same is dismissed. The bank guarantee furnished by the

petitioners will be encashed. Respondents will be also entitled to recover

the balance amount of the penalty imposed in accordance with law. No

costs.

SANJIV KHANNA, J.

AUGUST 25 , 2009.

         Vn/VKR




W.P. (C) 3437/1991                                                 Page 20