REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.     5222               0F 2008 (Arising out of S.L.P.(C) No.16917 of 2006)

GENERAL INSTRUMENTS COMPANY — APPELLANT

VERSUS

UNION OF INDIA & ORS. — RESPONDENTS

J U D G M E N T

D.K. JAIN, J.:

Leave granted.

2. This appeal,  by  special  leave,  arises out  of  the  judgment

and order dated 7th April, 2006 passed by the High Court of

Judicature at Bombay in Writ Petition No. 1174 of 2003.

3. Material facts leading to these proceedings are as follows:

In the year 1982, M/s Rashtriya Chemicals & Fertilizers

Limited  (hereinafter  referred  to  as  ‘RCF’),  a  Government  of

India Undertaking, floated a global tender for supply of various

types  of  capital  goods  required  for  its  Thal  project.

Responding  to  the  said  tender  notice,  the  appellant,  a

partnership firm, through its managing partner, Mr. Manohar

M.  Kulkarni,  an  ex-army  man,  submitted  its  quotation  for

supply  of  thermocouple  compensating  cables  and extension

cables. The tender was accepted by RCF and by a purchase

order  dated  13th October,  1982,  they  agreed  to  purchase

cables worth Rs. 17,49,000/- from the appellant.

4. In order to avail of customs duty exemption on the import of

certain raw materials required in the manufacture of capital

goods to be supplied to RCF, on 22nd November, 1982, the

appellant applied to the Joint Chief Controller of Imports &

Exports  (for  short  ‘JCCI’),  Bombay,  for  issuance  of  an

import  licence  with duty exemption entitlement  certificate

etc.  for  import  of  raw  materials  free  of  duty  or  at  a

concessional rate of duty in terms of Import Policy Book for

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AM 83.  According to the appellant, as they were not clear

about the form on which they had to make the application,

on the covering letter filed with the applications, with copies

to  the  Advance  Licensing  Committee  as  well  as  to  the

Special  Imprest  Licensing  Committee  at  New  Delhi,  a

request was made to forward the said applications to the

concerned cell so that an appropriate licence is issued for

the aforesaid purpose.

5. On  processing  of  the  application,  the  office  of  JCCI,

Bombay, vide their letter dated 30th November, 1982, called

upon  the  appellant  to  furnish  the  essentiality  certificate

from  RCF.   Accordingly,  the  appellant  obtained  the

essentiality certificate from the project authority i.e. RCF, to

the effect that they have agreed to purchase goods valued at

Rs. 17,49,000/-, from the appellant for their Thal  project

under  the  global  tendering  procedure  and  that  the  Thal

project is fully financed by the Government of India.   In the

certificate  issued  by  RCF,  it  was  also  stated  that  the

appellant  was  eligible  for  availing  concessional  rate  of

import  duty  on  the  raw materials  imported  by  them  for

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manufacture of cables in terms of para 14 of Import Policy

1981-82.   The  appellant  forwarded  the  said  certificate  to

JCCI, Bombay.    In spite of clear knowledge that the Thal

project  of  RCF  was  fully  financed  by  the  Government  of

India, the Controller of Imports & Exports, Bombay issued a

Special Imprest Licence (SIL), to the appellant on 30th May,

1983,  under  AM  84  policy,  permitting  the  appellant  to

import  listed  raw  materials,  for  approximate  value  of

Rs.5,78,300/-; without payment of customs duty.  However,

the licence was subject to the following conditions:

“(a) The  appellant  shall  supply  to  RCF  export items as per list attached thereto for an f.o.b value of Rs.17,49,000/- within 6 months from the date of clearance of the first consignment against the said licence.

(b)To  ensure  fulfilment  of  the  export  obligation under  the  said  licence,  the  appellant  shall execute a bond with 100% bank guarantee as per the  proforma  given  in  Appendix-38  of  the Handbook  of  Import  Export  Procedure  1981-82 for a sum of Rs.12,14,623.

(c) Goods imported against the said advance licence shall  be  utilised  in  accordance  with  the provisions  of  Customs  Notification  No.11/F- No.602/14/8/DBK dated 09.06.78, as amended from time to time.

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(d)Cash  assistance,  if  any,  will  be  as  per  the instructions issued by the Ministry of Commerce from time to time.

(e) In  the  event  of  failure  to  fulfil  the  export obligation within the time stipulated,  the bond will be enforced and the licence holder shall pay customs duty on the proportionate  quantity of the material corresponding to the products not exported.”

6. The  requisite  Bond  in  terms  of  the  aforementioned

condition (b) was accordingly, executed on 17th June, 1983.

The  appellant  imported  raw materials  from time  to  time,

aggregating to C.I.F. value of Rs.3,01,439/-, and cleared the

same without payment of duty in terms of the Bond.   It is

not in dispute that the appellant has utilised entire quantity

of  the  imported  raw  materials  in  the  manufacture  of

resultant products,  valued at Rs.17,59,382/-; supplied  to

RCF in order to fulfil export obligation, as stipulated in the

licence, against the export obligation of Rs.17,49,000/-.  

7. Having  thus,  fulfilled  the  export  obligation,  the  appellant

approached  the  project  authority,  viz.  RCF,  for  requisite

endorsement on Duty Exemption Entitlement Certificate (for

short  ‘DEEC’).   Initially  RCF  declined  to  make  the

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endorsement,  on  the  ground  that  the  Thal  Project  was

financed  by  the  Government  of  India  and  not  by

organisations  like  the  World  Bank,  OECF,  ADB,  etc.  as

contemplated under the Exemption Notification No.210/82

dated 10th September, 1982.  However, later on, RCF made

the  requisite  endorsement  on  the  DEEC  book  on  2nd

February, 1988 to the effect that the appellant had supplied

goods valued at Rs.17,59,382/- during the period from 27th

July, 1983 to 10th May, 1984.

8. It  appears  that  in  the  meanwhile,  a  show-cause  notice

dated 5/6th September, 1985, had been issued by the JCCI,

Bombay,  calling  upon the appellant  to show cause  as  to

why  Bond,  in  the  sum  of  Rs.12,14,623/-,  furnished  by

them, should not be enforced as the appellant had violated

clause 1 of the Licence and Clause 5 of the Bond.   The

appellant  was  required  to  appear  before  Mr.  G.R.  Nair,

Deputy  Chief  Controller  of  Imports  &  Exports  on  20th

September,  1985,  at  3:15  p.m.  for  a  personal  hearing,

which, in fact, was granted on 29th September, 1985.  Not

being satisfied with the cause  shown,  a cyclostyled order

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dated 4th December, 1985, was passed by Smt. R. Johny,

Controller  of  Imports  and  Exports,  holding  that  the

appellant had failed to fulfil  the export  obligation in time

and had failed to furnish prescribed documents within the

prescribed period, and thus, violating condition No.5 of the

Bond.  Accordingly, the appellant was directed to remit the

Bond  amount  of  Rs.12,14,623/-;  to  surrender  the  valid

R.E.P. licence remaining unutilised and to pay forthwith the

customs  duty  with  interest  @  18%  on  proportionate

quantity  of  the  exempt  materials.  In  other  words,  the

supplies made by the appellant to RCF were not treated as

discharge of export obligation in terms of condition (a) of the

Licence.  The  appellant  was  declared  to  be  a  defaulter

thereby debarring it from getting any licence under the duty

exemption  scheme  or  under  any  other  provisions  of  the

Import Export Policy announced from time to time.  

9. Consequent upon the forfeiture order dated 4th December,

1985, the Controller of Imports & Exports, vide letter dated

20th December,  1985,  denied  cash  assistance  to  the

appellant.   The  appeal  preferred by the  appellant against

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the forfeiture order dated 4th December, 1985 was rejected

vide order dated 21st May, 1986 issued by Smt. R. Johny,

Controller of Imports & Exports on the grounds that: (i) part

‘F’ of DEEC book duly certified by the project authority had

not been submitted and (ii) certificate of exports in original

nor  the original  export  documents  were  furnished by the

appellant.  Incidentally, the forfeiture order as well as the

appellate  order  was  passed  by  the  same  officer,  namely,

Smt. R. Johny, though the appellate order is purported to

have been issued with the approval of JCCI.

10.Aggrieved thereby,  the appellant preferred second appeal

before  a  Committee  of  Joint  Director  General  of  Foreign

Trade, New Delhi.

11.During the  pendency  of  the second appeal,  the  customs

authorities  sought to recover  customs duty amounting  to

Rs.3,71,614.82  from the  appellant  in  respect  of  the  raw

materials  imported  and  cleared  without  payment  of  duty

under  the  Special  Imprest  Licence  (SIL)  dated  30th May,

1983.    The  proposed  action  was  challenged  by  the

appellant  by  preferring  Writ  Petition  No.2038  of  1988.

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However, when the petition was taken up for final hearing

on 21st October, 2002, counsel for the appellant volunteered

to  deposit  the  customs  duty  as  demanded.   Thereupon,

counsel for the revenue made a statement that within two

weeks of  the deposit  of  the said amount, a proper show-

cause  notice  shall  be  issued  and  the  same  would  be

adjudicated in accordance with law.   The Writ Petition was,

thus,  disposed  of  on  the  same  day.   However,  while

disposing of the Writ Petition, it  was ordered that appeal

filed  by  the  appellant  against  the  order  dated  21st May,

1986 shall be disposed of within a period of six months.

12.The Appellate Committee, comprising of two Joint Director

Generals of Foreign Trade, New Delhi, while observing that

the  second  appeal  filed  by  the  appellant  was  not

maintainable as in the current Hand Book of Procedure of

Export-Import  Policy,  there  was  no  provision  for  second

appeal  against  the  forfeiture  order,  in  deference  to  the

directions  given  by  the  High  Court,  heard  the  appeal  on

merits.   Vide  order  dated  21st February,  2003,  the

Committee held that although the forfeiture order and the

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order passed in the first appeal were in accordance with the

policy yet in view of the fact that the forfeiture order had not

been  actually  implemented  at  the  Bank’s  level  and

practically  no  amount  had  been  transferred  out  of  the

appellant’s  account  to  the  Government’s  account,  the

forfeiture  order,  did  not  have  any  financial  effect  on  the

appellant and hence no relief was required to be given in

the second appeal.  Accordingly, the second appeal was also

dismissed.

13.At this juncture, it may also be noted that in the light of

the forfeiture order dated 4th December, 1985, the licensing

authority  had  initiated  departmental  proceedings  against

the appellant and vide an order dated 4th May, 1987, the

Deputy Chief  Controller  of  Imports  &  Exports,  Bombay

debarred the appellant and its partners from receiving any

import  licences,  customs  clearance  permits,  allotment  of

imported  goods  from  any  canalising  agency,  and  from

importing  any  goods  from AM 88  to  AM 90.    The  first

appeal preferred by the appellant against the departmental

order  was  dismissed  by  the  Joint  Chief  Controller  of

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Imports & Exports on 28th July, 1987.  However, the second

appeal  filed  by  the  appellant  was  partly  allowed  by  the

Additional  Chief  Controller  of  Imports  &  Exports  on  18th

June, 1992 by reducing the period of debarment upto 31st

March,  1989.   While  allowing  the  appeal  partly,  the

appellate  authority,  inter alia,  observed that there was no

mis-utilisation of imported goods, and at no point of time

the appellant had concealed any information.  But they had

not been able  to identify and choose a correct  scheme of

import licence to execute the order.  The appellate authority

finally concluded thus:

“The  appellants  may  have  mis-comprehended  the policy in force.  But, they did not object when the special imprest licence under reference was granted to  them  under  the  deemed  export  category  with specific  export  obligation  with  reference  to  100% duty  free  imports.   Since  they  accepted  the conditions of the licence and also executed a bond to  abide  by  the  conditions  of  the  licence  which carried an export obligation, it  was incumbent on them  to  complete  formalities  in  support  of  their contention  of  having  discharged  export  obligation notwithstanding  that  the  imported  goods  were utilised for the execution of the project.  The project they executed or supplied they made towards the execution of the RCF, Thal Project was not a project falling under the category of deemed exports.  This project was not aided by IDA/IBRD.  Their request for conversion of their supplies to RCF, Thal Project in  the  deemed  category  of  exports  was  duly

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considered  by  the  competent  authority  in  the Import  Trade  Control  Organization.  Under  letter dated 30.10.1985, their request was not considered as the supplies made by them to RCF, Thal Project were  not  covered  under  the  category  of  deemed exports.  They were advised to convert the special import licence into project import licence by paying the customs duty with penal interest thereon with the consent of Ministry of Finance.   But they did not do so considering the fact that the appellants mis-understood the provisions of the policy in force and that there was no malafides on their part, I am inclined to take a lenient view.”

14.Being dissatisfied  with order  dated 22nd February,  2003,

the appellant preferred a fresh Writ Petition in the Bombay

High Court.  During the pendency of the Writ Petition, the

appellant  sought  leave  of  the  Court  to  make  a  fresh

representation  to  the  concerned  Ministry,  seeking

conversion of Special Imprest Licence (SIL) dated 30th May,

1983  into  a  Project  Import  Licence.   However,  the  said

representation  was rejected on 22nd August, 2003 on the

ground that there was nothing like “Project Import Licence”

and as the imports were made in the year 1983 when the

Project Import Regulations of 1965 were in force, it was not

possible to verify the conditions after twenty years.   

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15.In the judgment under appeal, after elaborate discussion

and  particularly  having  regard  to  the  afore-extracted

observations of second appellate authority in its order dated

18th June,  1992,  the  High Court  came to  the  conclusion

that : (i) forfeiture order against the appellant was uncalled

for; (ii) even though the second appellate authority has held

that  there  is  no  financial  implication  on  account  of  the

forfeiture  order,  yet  on  account  of  the  said  order,  the

appellant was made liable to pay entire customs duty with

interest and penalty; (iii) the lapse on the part of licensing

authorities in issuing a licence with Bond conditions which

were  impossible  to  perform  had  serious  financial

implications on the appellant; (iv) once it is accepted that it

was  a  mistake  to  issue  Special  Imprest  licence  to  the

appellant and the conditions attached to the Bond and the

licence  were  wholly  impossible  to  perform,  the  licensing

authorities ought to have taken remedial steps immediately,

particularly when Rule 8 of the Foreign Trade (Regulation)

Rules,  1963,  empowered  JCCI  to  rectify  the  error  by

amending the licence.  Finally, the High Court disposed of

the Writ Petition with the directions that : (a) in the light of

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order dated 21st February, 2003, the Bond/bank guarantee

executed by the appellant on 17th June, 1983 shall not be

enforced; and (b) within six weeks from the date of its order,

JCCI,  Bombay  shall  amend  the  Special  Imprest  Licence

(SIL) into a licence which may entitle the appellant to seek

regularisation of the imports already made under the said

licence at concessional rate of duty, if permissible under the

Customs Act.  However, the High Court declined to grant

appellant’s  prayer  for  Cash  Compensatory  Support,

hereinafter  referred  to  as  CCS,  permissible  under  the

Special Imprest Licence (SIL).   It  is this part of the order

which is impugned in the present appeal.

16.Mr. M.M. Kulkarni, a partner of the appellant-firm, sought

permission to argue the case on behalf of the appellant on

the ground that on account of several rounds of litigation,

spanning over  two decades,  because  of  erroneous licence

issued  by  the  licensing  authorities,  the  firm  had  closed

down and, therefore, did not have the financial capacity to

engage the services of a lawyer.  We granted the permission

and heard him at some length.

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17.At this juncture, it will be relevant to note that during the

course  of  hearing  on  23rd January,  2008,  learned  senior

counsel  appearing  on  behalf  of  the  Director  General  of

Foreign Trade fairly  stated that in view of  the aforenoted

observations of the High Court, he would discuss the case

with the officers of the concerned department and possibly

the  appellant  might  get  some  relief,  particularly  in  the

matters relating to 13 independent orders/import licences,

confiscated/forfeited by the licensing authority by virtue of

order  of  forfeiture  dated  4th December,  1985.   Further

hearing in the matter was, thus, deferred.

18.Pursuant to and in furtherance of the said offer, the office

of  the  Zonal  Joint  Director  General  of  Foreign  Trade

examined the representation made by the appellant on 14th

March, 2008.  A personal hearing was also granted to the

representative of the firm.  Vide order dated 8th April, 2008,

the  Foreign  Trade  Development  Officer  informed  the

appellant  that  out  of  CCS  claim  of  Rs.5,52,032.92,  they

have been found to be eligible for claim of Rs.4,19,916/-,

and  the  department  was  ready  to  pay  the  said  amount.

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However,  as  regards  the  balance  CCS  claim  etc.,  and

interest thereon, the letter reads thus:

“Since  balance  claim  of  Rs.1,31,953/-  was  not supported  by  the  required  documents,  vide  this office  letter  dated  26.3.2008  you  were  advised  to furnish  documentary  evidence  showing  that  the project  was  funded  by  bilateral  or  multilateral external  assistance.   Against  this  letter,  you  had replied vide your letter dated 31.3.2008 stating that the project was funded by OECF Fund.  In support of  your  contention  you  have  quoted  certain information from web site of OECF and claimed that project was funded by OECF, but no documentary evidence  from the  project  authority  i.e.  RCF  Ltd. (Rashtriya  Chemicals  &  Fertilisers  Ltd.)  was furnished by you in support of your claim.  In fact, you  have  furnished  a  project  authority  certificate dated 18.3.1983 issued by the RCF Ltd. in support of W.P. No.1174/03 filed before the Hon’ble Bombay High Court, which was annexed as Exhibit – D to the  petition  at  page  No.31  showing  project  was funded by Govt. of India Fund.

You  had  also  appeared  for  personal  hearing  on 7.4.2008 and contended that Part ‘F’ of DEEC Part II  was  certified  by  the  project  authority  i.e.  RCF Ltd.,  therefore,  it  is  construed  that  supplies  were funded  by the OECF Fund and requested  to give benefit for this amount also.  Your this contention cannot be hold good since Part ‘F’ of DEEC Part II merely bears the information of invoice no. & date, description  of  supplied  items,  quantity  and  FOR value thereof.    But it has nothing to do with the source  of  finance  of  the  project.   In  fact,  the supplies  were  financed  by  Govt.  of  India  Fund; therefore, this supply does not fall under para 131 of Hand Book of Procedure, as such, not eligible for CCS benefit to the extent of Rs. 1,31,953/-.

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Regarding additional claim of Rs.14,478/- raised by you vide your letter dated 31.3.08,  it is to inform you that this claim was not originally included in the  writ  petition  No.1174/03  field  before  the Hon’ble High Court of Bombay, which is a subject matter  of  SLP  No.16917/2003  filed  before  the Hon’ble Supreme Court of India.  Even this claim is not  supported  by  the  required  documents, therefore,  your additional  claim of CCS cannot be considered.

Regarding payment of interest, it is hereby informed that  the  debarring  order  was  in  force  and maintained  by  the  Appellate  Authority  vide  their Order  dated  18.6.1992.   It  was  in  force  upto 27.2.2008 i.e. till the date of Order of the Hon’ble Supreme  Court  of  India  in  respect  of  SLP  No. 16917/2003.  There was no delay at the part of the deptt.  As such, no interest can be paid against the above claim.”

19.It is clear from the afore-extracted communication that a

substantial claim for CCS stands allowed and the balance

claim  of  Rs.1,31,953/-  has  been  disallowed  for  want  of

documentary evidence to show that the project was funded

by  bilateral  or  multilateral  external  assistance.   It  is

pertinent  to  note  that  in  the  said  letter  there  is  no

indication  as  to  why  in  the  first  instance  CCS claim for

Rs.4,19,916/- had been denied to the appellant.

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20.It was submitted by Mr. Kulkarni that having come to the

conclusion that on the facts of the case, order of forfeiture

dated  4th December,  1985  was  not  warranted,  the  High

Court erred in not granting the consequential relief viz. the

claim  for  CCS,  as  the  same  had  been  denied  only  on

account of the forfeiture order, declaring the appellant to be

a defaulter.  It was also contended that, in any case, there

was no justification in respondents’ withholding the CCS in

respect  of  other  independent  export  orders,  when  all  the

conditions specified therein had been fulfilled.  We may also

note  that  in  the  written  submissions  filed  after  the

conclusion of  the  hearing,  it  is  stated  that RCF has now

issued a certificate, dated 27th May, 2008, showing that two

orders,  namely,  KC  263  and  KT  995  were  financed  by

Overseas  Economic  Corporation  Fund  (for  short  ‘OECF’)

and thus, CCS against both these orders are payable.   It

was, thus, pleaded that the respondents should be directed

to forthwith release the CCS claim along with interest for

the delayed payment.

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21.Mr. Gaurav Agrawal, learned counsel appearing on behalf

of  the  Director  General  of  Foreign  Trade,  filed  written

submissions,  opposing the grant  of  CCS and the interest

thereon.   It  is  pointed  out  that  having  got  the  licence

converted  from Special  Imprest  Licence  to  Project  Import

Licence,  as  per  the  directions  of  the  High  Court,  the

appellant cannot, now, contend that RCF-Thal project being

a foreign funded project, they are entitled to the claim for

CCS.  In support of the submission that CCS is permissible

only in a case of Special Imprest Licence, our attention was

drawn  to  condition  No.4  in  the  Special  Imprest  Licence

dated 30th May, 1983.  Insofar as the claim for interest is

concerned, it is urged that apart from the fact that such a

claim was made for the first time in April, 2003, when W.P.

No.1174/2003 was filed, the order of forfeiture cannot be

said to be malafide  inasmuch as, way back on 30th October,

1985,  i.e.  prior  to the  forfeiture  order,  the  appellant  was

advised to get their import regularised by approaching the

Ministry  of  Finance  by  paying  customs  duty  with  penal

interest but the appellant did not heed to the advice of the

respondents.

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22.It is trite that no man should suffer a wrong by technical

procedure of irregularities.  The Rules or procedures are the

handmaids of justice and not the mistress of the justice.  Ex

debito  justitiae,  we  must  do  justice  to  him.   (Vide  A.R.

Antulay Vs. R.S. Nayak1).   However, in the present case,

although we feel that the appellant has suffered on account

of confusion in the nature of the licence to be issued to it

but  appellant’s  main  prayer  for  conversion  of  Special

Imprest Licence into a Project Import Licence having been

granted  by  the  High  Court,  the  wrong  caused  stands

remedied to a large extent.  

23.Having considered the matter in the light of the afore-noted

subsequent intervening events, in particular the conversion

of Special  Imprest  Licence into Project  Import  Licence,  in

terms  of  direction  (b)  by  the  High  Court,  we  are  of  the

opinion that insofar as CCS claim is concerned, no further

relief can be granted to the appellant.  In that view of the

matter, the certificate, stated to have been now issued by

RCF  to  the  appellant,  and  annexed  with  the  written

submissions  dated  3rd June,  2008,  is  of  no  avail  to  the

1 (1988) 2 SCC 602 20

appellant.  Nevertheless, in our judgment, in view of the fact

that the second Appellate Authority had reduced the period

of  debarment,  pursuant  to  order  dated  4th May,  1987

passed  on  account  of  the  order  of  forfeiture  dated  4th

December, 1985, only upto 31st March, 1989 and the fact

that the High Court vide its order dated 7th April, 2006 has

held  that  order  of  forfeiture  against  the  appellant  was

uncalled for, there was no justifiable reason for the Director

General of Foreign Trade for not releasing CCS amount at

least on the passing of the order by the High Court.  It was

only during the course of hearing of this appeal that learned

counsel for the said respondents offered to get the claim re-

examined and as such now by order dated 8th April, 2008,

the  appellant’s  claim  to  the  extent  of  Rs.4,19,916/-  has

been found to be in order.  In the premises, it is manifest

that  the  respondents  retained  the  amount  due  to  the

appellant as CCS without the authority of law and are liable

to pay the same forthwith.

24.In view of the afore-going discussion, the appeal is partly

allowed;  the  respondents  are  directed  to release  the  CCS

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claim which has been determined to be due to the appellant

within four weeks from today alongwith interest at the rate

of 9% per annum from 7th April, 2006 till the date of actual

payment.

25.We may clarify that we have not expressed any opinion on

the  merits  of  appellant’s  claim  for  CCS  of  Rs.  14,478/-

against  export  order  KT-995  as  also  the  rate  of  customs

duty  payable  by  the  appellant  on  the  imports  of  raw

materials  as appeals  on both the issues  are stated to be

pending  before  the  concerned  appellate  forums.   As  and

when the appeals come up for hearing, these will be decided

strictly on their own merits without being influenced by any

observation hereinabove.

26.The appellant will be entitled to the costs of this appeal.  

…………………………………J.       (C.K. THAKKER)  

…………………………………J.       (D.K. JAIN)

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NEW DELHI; AUGUST 25, 2008.  

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