Dkm Cassette P. Ltd. vs Union Of India & Ors.
2010 Latest Caselaw 4858 Del

  IN THE HIGH COURT OF DELHI AT NEW DELHI

                                    W.P.(C) 741/1998


   DKM CASSETTE P. LTD.                                      ..... Petitioner
               Through Mr. M.P. Devnath and
               Mr. Absheik, Advocates

                    versus


  UNION OF INDIA & ORS                           ..... Respondents
                Through Mr. Ravinder Agarwal, CGSC with
                Mr. Nitish Gupta, Advocate for R-3.


   CORAM: JUSTICE S. MURALIDHAR


           1.       Whether Reporters of local papers may be
                    allowed to see the order?                           No

           2.       To be referred to the Reporter or not?              Yes

           3.       Whether the order should be reported                Yes
                    in Digest?

                                     ORDER

21.10.2010

CM APPL No. 10659/2010 (for restoration)

For the reasons stated therein, this application is allowed. The petition is

restored to its file.

The application is disposed of.

WP (Civil) No. 741/1998

1. The Petitioner is aggrieved by the impugned order dated 22 nd April 1996

passed by the Additional Director General of Foreign Trade („ADGFT‟),

Respondent No. 3 herein holding the Petitioner guilty of contravening the

provisions of Section 4-I of the Import & Export (Control) Act, 1947 („IEC

Act‟) and Clause (8) of the Import (Control) Order, 1955 read with Section 20

(2) of the Foreign Trade (Development& Regulation) Act, 1992 („FTDR

Act‟) levying the penalty of Rs. 55 lakhs on the Petitioner. The Petitioner

also challenges the order dated 12th August 1997 passed by the Appellate

Committee Cell (ACC), Respondent No. 2 upholding the above order.

2. The Petitioner applied to the Secretariat of Industrial Approvals („SIA‟),

Department of Industrial Development, Ministry of Industry, Government of

India in July 1985 for setting up a 100% export oriented unit („EOU‟) for the

manufacture of video-cassette shells. By a letter dated 4th November 1985 the

SIA permitted the Petitioner to establish a 100% EOU with a capacity of 6

lakh pieces of video cassette shells per annum. Among the conditions in the

said allotment letter was that the unit should achieve a value addition of 45%

with the value of imported capital goods being set at Rs.30.08 lakhs. The

further condition was that the entire production should be exported. The letter

also set out the list of capital goods permitted to be imported.

3. On a representation by the Petitioner the SIA by a letter dated 30th January

1987 reduced the value addition from 45% to 31.7% and enhanced the value

of imported goods/capital to Rs.50,16,000/-.

4. The Petitioner states that between October 1989 and August 1991 it

manufactured and exported video cassette shells valued at Rs. 20,04,675.28

with a value addition of around 33%. It is stated that all the imported raw

materials were used in the manufacture of the export products and there was

neither any misuse nor misdeclaration of the imported goods. In 1992 the

Petitioner‟s unit started facing labour problems which led to the closure of the

factory. Consequently, the Petitioner closed down the manufacturing activities

and could not meet the export obligation. The Petitioner approached the

Development Commissioner (SEEPZ) on 9th February 1994 requesting him to

recommend to the SIA that the Petitioner‟s unit should be withdrawn from the

100% EOU scheme. The Joint Development Commissioner forwarded a note

to the Under Secretary, Ministry of Commerce on 15th March 1994 suggesting

that the Petitioner‟s proposal should be placed before the Board of Approvals

(„BOA‟) in the Ministry of Commerce. This note recorded that the labour

strike was continuing and the Petitioner‟s unit had been closed down. On 18th

March 1994 the Development Commissioner wrote to the Additional

Secretary and Chairman of BOA in the Ministry of Commerce recommending

the debonding of the Petitioner‟s unit. It was also recommended that no penal

action should be taken against the Petitioner on its debonding. The Petitioner

wrote to Ministry of Commerce on 5th April 1994 requesting for an early date

for debonding. On 24th May 1994 the BOA in the Ministry of Commerce

permitted debonding of the Petitioner‟s unit subject to the following

conditions:

"(1) That the unit shall deposit a penalty of 10% of the cif value of the imported capital goods (value of imported goods being Rs. 52,82,087/) towards non-fulfillment of export obligation. The amount was to be deposited with the import licensing authority with whom the unit had executed the LUT.

(2) That the unit shall undertake an export obligation of 25% of the annual production for a period of five years or for an amount equal to five times the cif value of the imports whichever was higher."

5. The Petitioner states that it had complied with the condition at (1) and

requested for a waiver of the second condition. This request was accepted and

the SIA informed the Petitioner on 8th September 1994 that the condition

regarding export obligation would be deleted as the Petitioner could not meet

the export obligation after debonding. The Petitioner then proceeded with the

formalities and on 21st July 1995 the Assistant Collector of Central Excise,

Division 1, Bombay-II granted the Petitioner permission for debonding of raw

material, semi-finished goods, finished goods and scrap and waste. The

capital goods were also permitted to be cleared at depreciated value after

payment of applicable rate of duty. Although in para 16 of the petition the

Petitioner had submitted that due to its poor financial condition it could not at

the time of filing the petition pay the 10% penalty, during the course of

hearing learned counsel for the Petitioner stated that the said penalty amount

had since been paid.

6. Thereafter the impugned order dated 22nd April 1996 was passed by the

ADGFT levying a penalty of Rs. 55 lakhs on the Petitioner for violation of

Section 4-I IEC Act. The said order indicated that a show cause notice dated

17th August 1995 had been issued to the Petitioner. In response to the above

order, the Petitioner replied on 14th May 1996 denying receipt of the show

cause notice. Further it was pointed out that since a penalty of 10% of the

value of imported goods had already been imposed by the SIA no further

penalty should be imposed by the ADGFT. The Petitioner then filed an appeal

before the ACC in the Ministry of Commerce under Section 20 (2) of the

FTDR Act.

7. Among the contentions raised by the Petitioner before the ACC was that

penalty could not be imposed twice for the failure to meet the conditions upon

which it was permitted to import the goods in question. It was further

submitted that the permission letter allowing the Petitioner to import the

goods in question was not a „licence‟ and, therefore, the provisions of IEC

Act did not get attracted. A reference was made to the guidelines and circular

dated 27th March 1995 issued by the Government of India which made it clear

that prior to that date there was no question of two separate penalties being

imposed for the non-fulfillment of the export obligation. It was lastly

submitted that the impugned order dated 22nd April 1996 passed by the

ADGFT imposing a penalty of Rs.55lakhs on the Petitioner did not indicate

which particular offence as listed out in the sub-clauses of Section 4-I of the

IEC Act had been violated and therefore, the penalty order was on this ground

alone bad in law.

8. The ACC by the impugned order dated 12th August 1997 negatived all the

above submissions. It held that the permission letter did amount to a licence to

import the goods in question. The levy of penalty by the SIA was independent

of the penalty under the IEC Act. It was further held that upon failure to meet

the export obligation, the provisions of Section 4-I (1) of the IEC Act would

stand attracted as non-fulfilment of the export obligation after making the

import should be construed as a misutilisation and the misdeclaration of the

imported goods.

9. Mr. M.P. Devnath, learned Counsel for the Petitioner reiterated the

submissions made before the ACC. In addition, he relied upon the decisions

in Amrit Foods v. Commissioner of Excise 2005 (190) ELT 433 (SC),

Commissioner of Central Excise, Jalandhar v. Max G.B. Limited 2008

(221) ELT 491 (P&H), Commissioner of Central Excise & Customs v.

Nakoda Textile Industries Limited 2009 (240) ELT 99 (Bombay) and,

Optina Impex Pvt. Limited v. Union of India 2003 (151) ELT 493 (Delhi).

Mr. Ravinder Aggarwal, learned counsel for the Respondents relied upon the

decision in Supercom India Limited v. Directorate General Foreign Trade

Ministry of Commerce 104 (2003) DLT 14.

10. The first question to be considered is whether the provisions of the IEC

Act applied considering what was issued to the Petitioner was a letter

permitting import of capital goods and raw material. There can be no doubt

that it was only on account of the letter dated 4 th November 1985 that the

Petitioner was permitted to import under 100% EOU scheme for the

manufacture of video cassette shells. Following this a formal agreement was

entered into between the Petitioner and the Government of India whereby the

Petitioner agreed to comply with the above conditions. Significantly the third

para of the preamble to the agreement notes that the import was to be of

capital goods valued at Rs. 55.35 lakhs, raw materials and components etc.

free of import duty. The fifth para of the preamble further states that "whereas

as a condition of the licence granted to the unit, the Government has

stipulated that the unit must earn foreign exchange by exporting 100% of the

production of the export product, namely video cassette shells for a period of

ten years ......." Clause 6 of the said agreement reads as under:

"6. In the event of the unit failing to fulfill the export obligation undertaken by it as aforesaid, except when the fulfillment of such obligation is prevented or delayed because of any law, order, proclamation, regulation or ordinance of the Government, the

Government shall be free to issue any directions to the unit regarding the manner of disposal of the export goods and the unit shall be bound to comply with the same. This will be without prejudice to any other action which may be taken against the unit under the provisions of the Imports and Exports (Control) Regulations or any other rules."

11. A collective reading of the above clauses of the agreement shows that the

letter dated 4th November 1985 by which the Petitioner was permitted to make

import was in fact accepted and acted upon by both parties as a licence to

import. That apart on 30th March 1985 Ministry of Commerce issued an order

No. 23/88-91 being Open General Licence No. 23/88 under Section 3 of the

IEC Act. This gave a general permission to all actual users approved by the

Government as 100% EOU for the import of raw materials, components etc.

One of the conditions in the said OGL order inserted by a subsequent

amendment dated 8th September 1988 was Clause 5A which reads as under:

"5A. The importer shall maintain in the prescribed form proper account of the import consumption and utilization of all imported materials and of the exports made by him and submit them periodically as required to the Ministry of Commerce, Export Commissioner in the office of the Chief Controller of Imports & Exports and the licensing authority concerned. The importer shall adhere to the minimum value added condition stipulated by the Government in his case. He shall also conform to all other terms and conditions incorporated in the permission letter or letter of intent or industrial licence issued to him. Failure to abide by any of the said terms and conditions shall be construed as violation of this Open General Licence and the Importer shall be liable to penal action under the provisions of the Imports and Exports (Control) Act, 1947 (18 of 1947) and rules framed thereunder, without prejudice to any other action such as conciliation or revocation of permission letter or letter of intent or industrial

licence."

12. The above Clause 5 A in the OGL order is a further pointer that the failure

to meet the export obligation in terms of the permission letter dated 4th

November 1985 would not only attract penalty as a result of such violation

but under the provisions of the IEC Act as well. Consequently, this Court

finds no error having been committed by the ACC which held that permission

letter issued by the Petitioner should be construed as an import licence and for

any failure to comply with the conditions attached thereunder action could be

independently taken by the SIA as well as the office of the ADGFT under the

IEC Act.

13. The next question that arises for consideration is whether the impugned

order of the ADGFT levying penalty of Rs. 55 lakhs on the Petitioner, which

has been affirmed by the impugned order of the ACC is sustainable in law. A

perusal of the order passed by the ADGFT it shows that it was an ex parte

order. Service was presumed to have been effected on the Petitioner. There

was no discussion of any of the provisions of the IEC Act at all. Merely

because the firm did not avail of the opportunity of personal hearing, the

ADGFT straightway proceeded to hold the Petitioner guilty of the

contravention of Section 4-I of the IEC Act read with Section 4-K of the IEC

Act and imposed a penalty of Rs. 55 lakhs. There was no mention in the said

order as to which particular clause of Section 4-I IEC Act stood attracted in

the facts of the case.

14. On this aspect the subsequent order dated 5th July 1991 of the ACC is

really not much of an improvement. On the other hand the ACC concurred as

under:

"The Board of Approval permits an applicant to set up an EOU unit, it entitles specific privileges incorporated in the Exim Policy which includes duty free import of capital goods and raw material. The obligation of the appellant is to achieve a minimum stipulated value addition as mentioned in the LUT and an export obligation. In case the unit fails to perform, the very purpose for which the privileges were granted is lost. The Government consciously forgoes duty and seeks to promote exports in the larger interest of the country and balance of payments. Therefore, it is a distorted argument to make that non-fulfillment of commitment does not amount to mis-declaration or mis- utilization of the conditions of the licence. Thus, the said non- performance are covered under the Act and the Additional DGFT was fully competent to proceed against the appellant under the said provisions of the Act."

15. This Court is unable to agree with the above reasoning. Section 4-I of the

IEC Act reads as under:

"4-I Liability to penalty: (1) Any person who, -

(a) in relation to any goods or materials which have been imported under any licence or letter of authority, uses or utilizes such goods or materials otherwise than in accordance with the conditions of such licence or letter of authority, or

(b) being a person to whom any imported goods or materials have been delivered by recognized agency, uses or utilizes such goods or materials or causes them to be used or utilized, for any purpose other than the purpose for which they are delivered to him or

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

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

materials, or

(ii) allotment of any imported goods or materials, is found to have made in such declaration, any statement which is incorrect or false in material particulars; or

(d) acquires, sells or otherwise parts with or agrees to acquire, sell or otherwise part with, any imported goods or materials in contravention of the conditions of any licence of any licence or letter of authority in pursuance of which such goods or materials had been imported; or

(e) acquires, sells or otherwise parts with or agrees to acquire, sell or otherwise part with, any imported goods or materials in contravention of the terms of any allotment made by any recognized agency; or

(f) contravenes any direction given under a control order with regard to the sale of goods or materials which have been imported under any licence or letter of authority or which have been received from, or through, a recognized agency, shall be liable to a penalty not exceeding five times the value of the goods or materials have been confiscated or are available for confiscation.

Explanation - For the purposes of this section, "value" has the meaning assigned to it in sub-section (1) of Section 14 of the Customs Act, 1962.

(2) If any person abets the commission of any act or omissions, which act or omission would render any person liable to a penalty under sub-section (1) or attempts to commit any act aforesaid, the person so abetting or attempting should be made to a penalty not exceeding five times the value of the goods or materials in respect of which such abetment or attempt has been made, or one thousand rupees, whichever is more whether or not such goods have been confiscated or are available for

confiscation.

(3) A penalty imposed under sub-Section (1) or sub-section (2), may, if it is not paid, be recovered as an arrear of land revenue. Provided that the adjudicating authority may, by order attach any money belonging to, or owed to, the person on whom any penalty has been imposed under sub-section (1) of sub-Section (2), and such attachment shall be made in the same manner in which an attachment is made by a civil court."

16. Section 4-I IEC Act is a penal provision which admits only of a strict

construction. It sets out the circumstances under which the importer‟s liability

to pay penalty up to five times the value of the import gets attracted. A careful

reading of the various sub-clauses of Section 4-I IEC Act would show that the

failure to fulfil an export obligation is not listed out expressly as an instance

attracting the liability to pay penalty thereunder. In the circumstances, if the

ADGFT in the instant case intended to levy a penalty on the Petitioner under

Section 4 -I IEC Act, it was incumbent on him to indicate which of the sub-

clauses of Section 4-I (1) IEC Act stood attracted. On this aspect, there can be

no doubt that the there was non-application of mind by the ADGFT. Nothing

is discernible from his order dated 22nd April 1996 as to which of the cub-

clauses of Section 4-I IEC Act, if any, was attracted. The order simply states

that the offence is under Section 4-I. This is wholly insufficient for the

purposes of imposing a penalty on the strength of Section 4-I read with

Section 4K of the IEC Act.

17. The need for a penalty order having to specifically indicate the precise

provision under which the penalty is being imposed was emphasized by the

Supreme Court in Amrit Food v. Commissioner of Central Excise, U.P. That

was in the context of penalty imposed under Rule 173Q of the Central Excise

Rules, 1944. It was observed that in the absence of any indication as to which

particular clause of Rule 173Q had been contravened, the penalty could not

have been imposed. The above judgment has been followed by High Courts in

Commissioner of Central Excise, Jalandhar v. Max G.B. Limited and

Commissioner of Central Excise & Customs v. Nakoda Textile Industries

Limited. The decision of this Court in Supercom India Limited v. Directorate

General Foreign Trade Ministry of Commerce relied upon by Mr. Aggarwal

is of no assistance since the Court proceeded on the footing that sub-clause

(1) (a) of Section 4-I applied. No point appears to be have been urged, and

therefore considered, on whether in fact that sub-clause applied.

18. It was sought to be contended by Mr. Aggarwal that it was Section 4-I (1)

(a) of the Act stood attracted. In the first place it must be noticed that this is

not the basis on which the ADGFT proceeded to impose the penalty. A fresh

reason cannot be supplied for the conclusion reached in the said order. A

reading of Section 4-I (1) (a) IEC Act would show that it is attracted when the

goods have been imported under any licence and such goods have been used

or utilized "otherwise than in accordance with the conditions of such licence

or letter of authority." There was no finding by the ADGFT that the Petitioner

has either misutilised or misdeclared the imported goods. There was no such

finding by the ACC either. The surmise of the ACC was that failure to meet

the export obligation would tantamount to misutilisation of the imported

goods. There was no warrant for such a presumption particularly in the

absence of any express words to that effect under Section 4-I (1) (a) of the

IEC Act. The failure to meet the export obligation could be on account of

various reasons not relatable to any of the sub-causes under Section 4(I)(1).

However, it was incumbent on the ADGFT (and later the ACC) while

imposing a penalty with the aid of the said provision to precisely indicate

which sub-clause of such provision stood attracted in the facts of the present

case. Clearly the Petitioner had stated that it has utilized the imported goods

in the manufacturing of video cassette shells. It could not export those goods

on account of labour unrest. It cannot, therefore, be concluded that there was

either misutilisation or misdeclaration by the Petitioner to attract Section 4-I

(1) (a) of the IEC Act.

19. This Court therefore, finds that the orders of the ADGFT and the ACC are

unsustainable in law. Accordingly, the impugned order dated 22 nd April 1996

passed by the ADGFT and order dated 12th August 1997 passed by the ACC

are hereby set aside.

20. The writ petition is allowed in the above terms, but in the facts and

circumstance of the case with no order as to costs.

S. MURALIDHAR, J.

OCTOBER 21, 2010 rk