Rotomac Electricals Ltd. vs Union Of India & Anr
2016 Latest Caselaw 3716 Del

           *IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                           Date of decision: 18th May, 2016

+              W.P.(C) No.8417/2015 & CM No.18002/2015 (for stay).
       ROTOMAC ELECTRICALS LTD.                  ..... Petitioner
                  Through: Mr. Biswajit Bhattacharyya, Sr. Adv.
                           with Mr. Chandrachur Bhattacharyya,
                           Adv.
                                   Versus
       UNION OF INDIA & ANR                                ..... Respondents

                    Through:           Mr. Sanjeev Narula, CGSC, Mr. Ajay
                                       Kalra and Mr. Satvir Singh, Advs. for
                                       UOI.
CORAM:-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1. The petition impugns (i) the adjudication order dated 5th April, 2010 of

the Deputy Director General of Foreign Trade in exercise of powers under

Section 11(2) read with Section 11(4) of the Foreign Trade (Development and

Regulation) (FTDR) Act, 1992 imposing penalty of Rs.3,46,30,500/- on the

petitioner and its directors; (ii) order dated 5th January, 2015 of the Additional

Director General of Foreign Trade in exercise of powers under Section 15 of

the FTDR Act dismissing the appeal preferred by the petitioner; and, (iii) the

order dated 21st / 24th August, 2015 of the Reviewing Authority and Director

General of Foreign Trade (DGFT) in exercise of powers under Section 16 of

the FTDR Act of rejecting the review application filed by the petitioner.

2. Notice of the petition was issued, though no interim relief granted.

Counter affidavit has been filed by the respondents. The petitioner did not opt

to file rejoinder. Counsels were heard on 2nd December, 2015 and judgment

reserved.

3. It is the case of the petitioner (i) that it is engaged in the business inter

alia of repair and manufacture of traction motors and their spare parts,

insulation materials, tapes and mica products; (ii) that it made an application

dated 28th January, 1999 to the DGFT for issuance of an advance licence under

the Duty Exemption Scheme under the FTDR Act and commenced exporting

the goods as the petitioner already had export orders in hand; (iii) that on 22 nd

December, 1999 the petitioner was issued advance licence for Rs.69,26,100/-

under the Duty Exemption Scheme and which licence was subject to the

condition that the petitioner shall fulfil an export obligation of Rs.1,07,58,600/-

as Free on Board(FOB) value within the stipulated period which was mentioned

of "18 months", meaning, that there was no cut-off date before which export

could not have been made; (iv) the petitioner submitted the requisite Bank

Guarantee (BG)/Legal Undertaking (LUT) with the Customs Authority inter

alia providing that in the event of default in meeting the export obligation, the

petitioner shall be liable to pay an amount equivalent to the amount of duty

with 15% interest per annum from the date of import of the first consignment

till the date of payment; (v) the petitioner fulfilled the export obligation within

the stipulated period i.e. by 20th April, 1999; (vi) the petitioner was issued three

Bank Certificates of Export and Realisation (BCER) of a total value of more

than the export obligation required to be fulfilled by the petitioner; (vii) that the

petitioner was also issued shipping bills dated 16th February, 1999, 29th

January, 1999 and 20th April, 1999 against the aforesaid BCER; (viii) the

petitioner however misplaced the original shipping bills and though requested

the Customs Authorities for duplicates thereof but to no avail; (ix) that the

petitioner as per para 7.25 of the Handbook of Procedure (1997-2002), as proof

of fulfilment of export obligation was required to submit the BCER and the

Duty Entitlement Exemption Certificate (DEEC) book containing details of

exports and imports; (x) that by mistake the petitioner could not get the entries

of the exports aforesaid made / entered in the DEEC book but since the DEEC

book is nothing more than a reflection of entries of the relevant shipping bills,

the same is not material; (xi) that the petitioner received show cause notice

dated 31st April, 2004 for purported non-fulfillment of export obligation under

the licence aforesaid; (xii) the petitioner submitted a reply dated 19 th May, 2004

to the show cause notice; (xiii) another notice dated 16th December, 2004 was

served on the petitioner and to which a reply dated 31 st December, 2004 was

submitted; and, (xiv) that yet further show cause notices dated 25th May, 2005,

1st December, 2009 and 1st January, 2010 were served on the petitioner and to

which replies dated 14th June, 2005, 8th December, 2009 and 19th January, 2010

were submitted.

4. The respondents have vide adjudication order dated 5th April, 2010 supra

imposed penalty of Rs.3,46,30,500/- on the petitioner for the reason of the

export obligation period of the petitioner having expired on 21 st June, 2001 and

the petitioner having not submitted export details in the requisite manner

supported with the bank certificate/documents towards fulfillment of export

obligation and treating the petitioner as 100% defaulter in the fulfillment of

export obligation.

5. The petitioner preferred statutory appeal and in which as aforesaid

repeated opportunities were given to the petitioner to submit the documents.

The Appellate Authority has vide impugned order dated 5th January, 2015

dismissed the appeal finding/observing/reasoning (i) that Part-II of the DEEC

book submitted by the petitioner was not logged and endorsed by the Customs;

(ii) copy of the shipping bill does not have file number / authorization number

and thus could not be accepted towards fulfillment of export obligation; (iii)

MODVAT non-availment certificate from Central Excise had not been

submitted though form A.R.4, Serial Number 3(a) stated that goods had been

manufactured availing facility of MODVAT Credit; (iv) only copy of BRC had

been submitted and original BRC had not been submitted; (v) the petitioner had

been unable to produce shipping bills showing authorization number/file

number; (vi) the petitioner had not produced duplicate/bank certificate copy of

BRC; (vii) though the petitioner was repeatedly advised to provide documents

required as per policy/procedure but had failed to; and, (viii) that it was thus

clear that the petitioner did not have the requisite documents required to prove

that it had fulfilled the export obligation in respect of the advance licence

aforesaid.

6. The petitioner as aforesaid availed of the statutory review but which has

been rejected vide impugned order dated 21st / 24th August, 2015 on the

grounds of inadmissibility observing (i) that the petitioner before the Review

Authority also, inspite of dismissal of the statutory appeal for non-submission

of documents had only produced copy of MODVAT non-availment certificate;

and, (ii) no ground for review was made out.

7. It is the contention of the petitioner before this Court in the petition (i)

that the three BCER submitted by the petitioner established export of goods of

the value more than for which export obligation was imposed under the

advance licence aforesaid; (ii) that all the said Bank Certificates bear the same

advance licence number and that export proceeds were received by the Bank

and thus the question of non-fulfillment of the export obligation did not arise;

that the exports were also established by the copies of the shipping bills; (iii)

that the insistence of the respondents on the documents mentioned in the

appellate order is not reasonable and inexplicable; (iv) that there was thus no

basis for the conclusion that the petitioner has misutilised the licence; (v) that

the petitioner ought not to be penalised for technicality; (vi) reliance in the

petition itself is placed on Mohan Machines Ltd. Vs. Union of India 2008

(100) DRJ 239 holding that non-production of DEEC book with relevant entries

could not be a ground to impose penalty for non-fulfillment of export

obligation if there are sufficient documents available to substantiate the claim

of fulfillment of export obligation; (vii) Directorate of Enforcement Vs.

Deepak Mahajan AIR 1994 SC 1775 to contend that penalty cannot be

imposed on technicality; (viii) Gokaldas Images Ltd. Vs. Union of

India (2005) 116 DLT 47 holding that what is imposed for non-fulfilment of export

obligation is penalty and thus if the export obligation is shown to have been

fulfilled, no question of penalty arises; and, (ix) Hindustan Steel Limited Vs.

State of Orissa AIR 1970 SC 253 to contend that the proceedings are in the

nature of quasi criminal proceedings and penalty will not ordinarily be imposed

unless there is deliberate defiance of law or dishonest conduct.

8. The respondents in their counter affidavit have pleaded (i) that the

petitioner having approached this Court in exercise of its power of judicial

review, the power of judicial review can extend only to the decision making

process and not to the decision; reliance in this regard is placed on Tata

Cellular Vs. Union of India AIR 1996 SC 11 and on judgment dated 15th

September, 2014 of this Court in W.P.(C) No.4007/2014 titled Guru Premsukh

Memorial College Engineering Vs. All India Council For Technical

Education; (ii) that without the petitioner fulfilling the mandatory requirement

of DEEC book (Part-II) logged for exports and signed by the Customs showing

fulfillment of export obligation in quantities terms with FOB value and original

BRCs showing that foreign exchange has been realized, it is not possible to

ascertain how much import and export in terms of quantity wise has been made

by the petitioner; (iii) export obligation has to be fulfilled both in terms of

quantity wise and value wise as per condition no.5 of the Advance Licence; the

petitioner did not submit the original DEEC book (Part-II) of exports, it proves

that the petitioner has not fulfilled the export obligation in terms of quantity;

(iv) it is also to be ascertained whether the money earned in the BRCs is for

that quantity of exports which are allowed in the Advance Licence; (v) without

fulfillment of export obligation in terms of quantity, the petitioner might have

realised foreign exchange but the export has to be fulfilled in terms of the

quantity; (vi) copies of the shipping bills submitted do not contain the Advance

Licence number and thus the quantity wise export obligation has not been

proved; (vii) the DEEC book containing the details of exports and imports duly

attested by the Customs Authority is the primary / major document to prove the

fulfillment of actual Export Obligation in terms of quantity; and, (viii) that

ample opportunities were given to the petitioner.

9. The senior counsel for the petitioner argued (i) that the show cause notice

dated 31st March, 2004 did not contain any proposal for levying penalty; (ii) all

that the petitioner was required to establish was of having fulfilled export

obligation, be that from whatsoever documents; and, (iii) that the matter is

squarely covered by Dencap Electronics (P) Ltd. Vs. Addl. Dir. General of

Foreign Trade 2006 (194) E.L.T. 389 (Del.) (DB) laying down that since

penalty is levied for non-fulfillment of export obligation, if there is a reasonable

interpretation which will avoid the penalty, that must be adopted.

10. Per contra, the counsel for the respondents contended (a) that Dencap

Electronics (P) Ltd. supra was a case of no export; here the petitioner is

claiming to have exported but has no proof of having paid customs duty

thereon; (b) that the export even if effected is in contravention of law; (c) that

as per the terms of Advance Licence the petitioner could have exported only the

goods mentioned therein and none of the documents on the basis of which the

petitioner desires the respondent to hold that the petitioner has fulfilled the

export obligation are proof of export of those goods; (d) merely because the

petitioner may have brought in the foreign exchange would not mean that the

petitioner has exported the goods which it was as per the terms of the Advance

Licence required to export; (e) that as per the Rules, the petitioner was required

to produce the DEEC book in fulfillment of the export obligation and which

admittedly had not been produced; (f) that as per para 7.25 supra of the

Handbook of Procedure, the petitioner is required to furnish (i) BCER in the

form prescribed and (ii) DEEC book containing details of imports and exports

duly endorsed and signed by the Customs Authorities and the petitioner has not

produced the same; (g) that Mohan Machines Ltd. supra is a case of advance

authorisation and is not applicable; and, (h) that Dencap Electronics (P) Ltd.

also is not applicable in the factual scenario and therein the petitioner was

found to be not in breach whereas the petitioner here is in breach.

11. The senior counsel for the petitioner in rejoinder argued (i) that the

adjudication order imposing penalty is beyond the show cause notice; (ii) that

though the adjudication order imposes penalty on the directors of the petitioner

also but admittedly no show cause notice was given to them; and, (iii) that the

petitioner exported the same goods which was required to export; attention in

this regard is drawn to the BCER and to the copies of Bills of Lading.

12. What immediately becomes vivid on encapsulation as aforesaid of the

controversy is, that the petitioner also admits that what it was required as per

the Rules to submit in proof of fulfillment of export obligation, it has not

submitted. The petition does not also challenge the Rules requiring the

petitioner to submit particular documents in fulfillment of export obligation and

which the petitioner is unable to submit. However what the petitioner wants this

Court to do, without challenging the Rules and without fulfilling the

requirement thereof, is to nevertheless relieve the petitioner of the rigors of

non-fulfillment of export obligation. Significantly it is also not the case of the

petitioner that even if it is found to be in non-fulfillment of the export

obligation it is not liable for the demand imposed on it. What the petitioner

further wants this Court to do in exercise of its power of judicial review under

Article 226 of Constitution of India is to sit in appeal over the concurrent

finding of fact of the Adjudicating Authority, Appellate Authority and the

Reviewing Authority, of the documents submitted by the petitioner not

establishing fulfillment by the petitioner of the export obligation under the

Advance Licence.

13. In my opinion, the scope of the jurisdiction of this Court in exercise of

power of judicial review does not extend to, without quashing the Rule

aforesaid, granting relief to the petitioner even though it is non-complaint

therewith or to interfere with the factual finding of the three Statutory

Authorities. Paragraph 7.25 of the Handbook of Procedures, on which the

petitioner also relies, titled " Fulfillment of Export Obligation" unequivocally

provides that the licence holder "shall" furnish i) BCER in the form annexed;

and, ii) DEEC containing details of imports and exports duly endorsed and

signed by the customs authority, in support of having fulfilled the export

obligation. Such procedures have been laid down to do away with

adjudication, whether export obligation has been fulfilled or not. Once the

authorities, for admitted non furnishing by the petitioner of documents

prescribed, have in accordance with the said Rule concluded that the petitioner

has not fulfilled the export obligation, no fault can be found therewith. This

Court under Article 226 is not to distribute reliefs, to which the petitioner in

accordance with law and Rules is not entitled to. The power under Article 226

is only to ensure that the authorities whose action is subject matter of judicial

review, have acted in accordance with law.

14. What remains to be seen is whether the judgments relied upon by the

petitioner hold to the contrary. I am afraid, I am unable to read Dencap

Electronics (P) Ltd. holding to the contrary. The Division Bench of this Court

in that case was concerned with the import of second-hand machinery on

concessional duty against an export obligation. The Division Bench as a matter

of fact found that though the machine had been imported and trial production

commenced but on account of financial crises and non-cooperation from the

foreign collaborator export obligation could not be fulfilled and the machinery

was confiscated and the Bank Guarantee furnished for the balance import duty

to be realised for non-fulfillment of export obligation was encashed and thus

the entire import duty realised. It was in this scenario that it was held that

Section 11 of the FTDR Act providing for contravention of the provisions

thereof and the rules, orders and export and import policy was not attracted as

there was no contravention on the part of the importer.

15. The counsel for the respondent is correct in contending that the facts of

the present case bear no similarity whatsoever to Dencap Electronics (P) Ltd.

Here, the petitioner is not pleading any circumstances beyond its control for

non-fulfillment of the export obligation. It is also not the case of the petitioner

that the import duty, in lieu whereof it was to fulfill the export obligation, has

been paid by it or recovered from it, for it to be said that the obligation to

export no longer survives. Rather, it is the plea of the petitioner that it has

fulfilled the export obligation though is unable to prove the same in the manner

required by law.

16. Similarly in Mohan Machines Ltd. there was no doubt that the export

obligation had been fulfilled and it was in view thereof that it was held that for

technical lapses the petitioner should not be penalised.

17. However nothing on record of the present case leads to the conclusion

least suggest that export obligation has indeed been fulfilled. Rather the case of

the petitioner is of having fulfilled the export obligation even prior to the date

of issuance of the Advance Licence. I fail to see how the exports effected prior

to the date of Advance Licence, imposing obligation to effect export within 18

months thereof, can be said to be against the Advance Licence. A perusal of the

Advance Licence shows that against the column "category of licence" the

words "Quantity Based Advance Licence" were entered. The counsel for the

respondent during the hearing also handed over a copy of the Public Notice

No.79 (RE-2005)/2004-2009 dated 2nd January, 2006 issued by the DGFT in

exercise of powers under Paragraph 2.4 of the Foreign Trade Policy, 2004-09

laying down Guidelines for disposal of the old cases of Advance Licences

issued before 31st March, 2002 where the licencee is unable to produce the

logged DEEC books and demonstrated that the petitioner was in non-fulfilment

thereof also. Attention was also invited to the Customs Notification No.48/99-

Customs, dated 29th April, 1999 and 50/2000-Customs and 51/2000-Customs,

both dated 27th April, 2000 providing that in order to ensure proper monitoring

and utilisation of inputs imported against Advance Licences, a DEEC book is

issued along with Advance Licence and at the time of import and export against

the Advance Licence entries are made in the DEEC book by Customs to keep

record of import/export made against it. Obviously the petitioner, even before

the Advance Licence was issued, could not have the DEEC book and it is clear

as sky that the exports even if made were not against the Advance Licence and

the petitioner is clearly in violation of its obligation thereunder and there is no

reason for interference with the orders impugned.

18. I am also unable to agree with the senior counsel for the petitioner that

the words "18 Months" entered against the column "Export Obligation

Period" on the Advance Licence dated 22nd December, 1999 permitted the

petitioner to fulfil the export obligation prior to 22nd December, 1999 also.

The said words required the export obligation to be met during 18 months

commencing from 22nd December, 1999 and which the petitioner does not

even plead. The exports against which the petitioner wants his export

obligation under Advance Licence dated 22nd December, 1999 to be fulfilled

are stated to have taken place on 16th February, 1999, 29th January, 1999 and

20th April, 1999.

19. Supreme Court as far back as in S.B. International Limited Vs.

Assistant Director General of Foreign Trade (1996) 2 SCC 439 held on an

examination of the Duty Exemption Scheme under the Imports and Exports

Policy of the Government of India that (i) the object behind the scheme is to

enable the exporter to import raw materials, components etc. required for the

purpose of producing goods for export; (ii) it is a facility provided by the

Government - an incentive; (iii) there is no right to advance licence apart

from the policy; (iv) no citizen has a fundamental right to import, much less

import free of duty; (v) by granting the advance licence, the Licensing

Authority tells the licensee - "I am permitting you to import raw material,

components etc. of a particular value free of duties but you must export

goods of a particular value within a particular date. If you fail to do so, you

will be liable to levy of penalties and other action according to law"; (vi) the

duty free import of raw materials etc. is permitted to enable the exporter to

sell his goods abroad at a more competitive price, thereby fetching precious

foreign exchange for the country; (vii) mere making of an application does

not create any right in the applicant since he has no pre-existing right to such

licence; (viii) his right is only that which is given by that policy; (ix) the

situation could have been different if the policy had said that a person

exporting goods of a particular value shall be entitled to an import licence of

a particular value; in such a case, the export of goods can be said to create a

right in the applicant to get an import licence of the specified value; (x)

however under the policy one has to ask for an import licence promising to

export goods of a particular value within a particular time; (xi) it is difficult

to appreciate how can it be said in such a situation that mere filing of an

application creates a vested legal right to obtain a licence; (xii) it is the date

of licence that is relevant and not the date of application therefor; (xiii) the

mere fact that the authorities have a discretion to take into account the

exports made after the date of application for advance licences makes no

difference to this position; it is in the nature of yet another concession; (xvi)

what is relevant is that the licence granted is an advance licence - it is

granted in advance of export - rather to enable the export; and, (xv) the grant

of licence is neither a mechanical exercise nor a formality and is granted

only after proper scrutiny and there is no vested right in favour of an

applicant.

20. The said view has since been consistently followed. Reference may be

made to (i) Aval Exports Vs. Union of India (2004) 115 DLT 184, LPA

976-977/2006 preferred whereagainst was dismissed vide judgment dated 8th

October, 2013; (iii) Larsen and Toubro Ltd. Vs. Union of India (2005) 3

SCC 654; and, (iv) Chairman, Indore Vikas Pradhikaran Vs. Pure

Industrial Cock and Chem. Ltd. (2007) 8 SCC 705.

21. It is thus clear that the export effected by the petitioner prior to the

date of issuance of Advance Licence cannot be considered in fulfillment of

Export Obligation under the Advance Licence. The whole case of the

petitioner was premised on said edifice and fails. There is no error in the

factual finding of the Statutory Authorities, of the petitioner having not

fulfilled the Export Obligation. Resultantly, the impugned demand is

justified.

22. There is no merit also in the contention of the orders, insofar as

against the directors of the petitioner, being bad for the reason of the said

directors having not been issued the show cause notice. We may notice that

no director has made grievance in this respect.

23. There is thus no merit in the petition which is dismissed with costs of

Rs.25,000/- to the respondents.

RAJIV SAHAI ENDLAW, J.

MAY 18, 2016 „pp‟..