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CASE NO.: Appeal (civil)  2378 of 2007

PETITIONER: M/s Taarika Exports and Anr

RESPONDENT: Union of India and Anr

DATE OF JUDGMENT: 07/05/2007

BENCH: Dr. ARIJIT PASAYAT & D.K. JAIN

JUDGMENT: J U D G M E N T  

CIVIL APPEAL NO.       2378          OF 2007 (Arising out of SLP (Civil) No. 25852 of 2005)

Dr. ARIJIT PASAYAT, J

1.      Leave granted.  

2.      Challenge in this appeal is to the order passed by a  Division Bench of the Delhi High Court dismissing the Letters  Patent Appeal filed against the order of a learned Single Judge.  

3.      Background facts in a nutshell are as follows:  

4.      A show cause notice was issued to the appellants under  Section 4L of the Imports and Exports (Control) Act, 1947 (in  short the ’Act’) for action under Section 4-I and under clause  10 for action under clause 8 of the Import (Control) Order,  1955 (in short ’Control Order") read with Section 20(2) of the  Foreign Trade (Development & Regulation) Act, 1992 (in short  "Foreign Trade Act")  for not exporting the goods as also  utilizing the imported goods and failure to export within the  stipulated time.  The appellants during the material point of  time were engaged in the import and export activities under  the Import and Export Code. On 13.10.1991 the Regional  Licensing Authority had issued an advance licence to the  appellants. The appellants undisputedly used the license in  full so far as the import of raw materials thereunder free of  customs duty is concerned but only a part of the finished  goods under the said licence was exported. Resultantly, there  was a shortfall on account of export obligation. Appellants  submitted that the conditions under the licence were  unrealistic and, therefore, non-fulfillment of the obligation was  beyond their control. The show cause notice in question was  issued on 7.5.1995 proposing, inter alia, imposition of fiscal  penalty for non fulfillment of export obligation under the  licence as well as for mis-utilization of the goods valued at  Rs.9,10,125/- imported under the said licence free of customs  duty. Appellants submitted their reply to the show cause  notice. The Additional Director General of Foreign Trade (in  short ’DGFT’) passed an order dated 13.11.1995 imposing a  penalty of Rs.45 lakhs for shortfall in export obligation to the  extent of Rs.27,20,462/-. An appeal was preferred before the  Appellate Committee. By order dated 12.8.1997 the Appellate  Committee dismissed the appeal of the appellants.  

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Subsequently, a writ petition was filed under Article 226 of the  Constitution of India, 1950 (in short the ’Constitution’) before  the Delhi High Court. The writ petition was numbered as CWP.  623 of 1998. By judgment and order dated 30.5.2003 learned  Single Judge dismissed the writ petition holding that there  was no ground to interfere with the orders of the adjudicating  authority as well as the Appellate Committee. A Letters Patent  Appeal was filed which as noted above was dismissed by a  Division Bench.   

5.      Stand of the appellants is that what was really alleged  related to a technical non-compliance of an export obligation.  Such a compliance cannot be expected and demanded as the  same was impossible to be done on the basis of quantity of  raw materials that the appellants were allowed to import  under the concerned licence.  

6.      Learned counsel for the respondents on the other hand  submitted that the authorities below and the High Court have  clearly noted the infractions and the penalty imposed was  within the permissible limit of Section 4-I(1) of the Act read  with Section 20(2) of the Foreign Trade Act.  

7.      Relevant portions of the show cause notice read as  follows:

"1. You had obtained an advance licence  No.0300410 dated 13.10.1991 for a cif value of US$  40,400 for import of the following items:

1.      Dupion Yarn 1210 Kgs. 2.      Mulberry Raw Silk  75.00 Kgs. 3.      Fusing lining anatrial 6750 Kgs.

2. The said licence was issued from the office of Jt.  DGFT, Bombay. The above said licence was issued  to you.  Subject, inter alia, to the following  conditions:

(1) You would export 5400 Nos. of  Mulberry mixed jackets/blazer with  fussing lining material for an fob value of  Rs.36,42,800/- (US$ 1,41,603.66) within  a period of nine months from the date of  clearance of the first consignment.

(2) To ensure fulfillment of export  obligation you would, before clearance of  the first consignment, execute a  bond/LUT.

(3) The goods imported against the said  advance licence would be utilized  exclusively in the manufacturing of the  resultant products.

(4) In the event of the licencee falling (a)  to fulfill the export obligation within the  prescribed time limit stipulated above or  (b) to produce the prescribed  documents/information within 30 days  after the expiry of the export obligation  period; the bond/LUT agreement  condition shall be enforced and the  licencee shall be liable to the different

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follow up, penal actions prescribed in the  Import Export Police and Handbook of  procedure 1992-93. The licensee shall  also pay without demur to the customs  authorities the concerned duty on the  proportionate quantity of goods  corresponding to the products not  exported. Any shortfall will also be liable  to adjustment from any application for  licence pending in this office or received  in future.

(5) The action in clause 4 shall be without  prejudice to any other action that may be  taken against the licencee under the  Import and Export (Control) Act, 1947  and Import (Control) Order dated  07.10.1955 as amended.

3. In terms of the above conditions you executed an  indemnity -cum-guarantee bond with the licencing  office on 14.01.1992. It is observed that you  requested the Jt. DGFT, Bombay on 21.02.1992 for  amendment of licence to import only dupion yarn  1100 kgs. and mulberry raw silk of 250 Kgs. and  delete item at Sl. No. 3 fusing lining material of CIF  value of US$ 6,750/- and committed to fulfil the  export of resultant product for an fob value of US$  1,41,603.66 and also to amend the export  description i.e., mulberry mixed silk garments  (shorts, pants, blazers and skirts) containing dupion  yarn of 1100 kgs. and mulberry raw silk of 250 Kgs.  The request was considered by Jt. DGFT, Bombay  on 31.03.1992 and the licence was accordingly  amended.

4. According to information available on record and  in the absence of any documentary evidence  furnished by you, it is evident that you had made  import 1177.00 Kgs. of dupion yarn and mulberry  raw silk 70.00 kgs. against the said advance licence  in January 1992. However, you had exported 2429  pcs. of mulberry silk garments weighing dupion  yarn  33.141 kgs. and 78.889 of mulberry raw silk  for fob value of Rs.9,62,337.92 and failed to export  the remaining quantity of 2971 pcs for fob value of  Rs.27,20,452/- within the stipulated time. Vide  letter dated 22.12.92 you made a request to Jt.  DGFT Bombay office for grant of extension of six  months enabling them to export the balance  quantity by 30.04.1993. You again applied to Jt.- DGFT Bombay office for another extension which  was rejected by RALC in its meeting held on  09.04.1993. As such the period of export obligation  expired on 30.04.1993. Subsequently you  approached this office advance licensing committee  several times for extension in export obligation  period against the subject advance licence but your  request was rejected every time. You were also  advised by this office on 29.11.94 to produce   certain documents/information in r/o. advance  licence in question. You sent your reply on  05.12.1994 and supplied this office photocopies of  advance licences relating to earlier advance licences  and other related documents but failed to produce

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the requisite documents in r/o the advance licence  in question. However, you were again reminded on  02.02.1995 to furnish the requisite  information/documents. In reply to this office letter,  you furnished the photocopies of bank certificate of  export and realization, etc. but again you failed to  send us the requisite information / documents."  

The adjudicating authority inter-alia noted as follows:

"The said licence was issued to them by the office of  the Joint Director General of Foreign Trade,  Bombay, subject, inter-alia, to the following  conditions:

(i)     They would export 5400Nos. of mulberry  mixed silk jackets/blazer viith fusion lining  material for an FOB value of Rs.36,42,800/-  (US$ 1,41,603.66) within a period of nine  months from the date of clearance of first  consignment.

(ii)    To ensure fulfillment of export obligation they  would, before clearance of the first  consignment, execute a bond for Rs.  42,74,529.16 with Bank Guarantee for Rs.  5,91,729.16.

(iii)   The goods imported against the said Advance  licence would be utilized exclusively in the  manufacturing of the resultant product.

(iv)  In the even of their failure (A) to fulfill the  export obligation within the prescribed time  limit stipulated above or (B) to produce the  prescribed documents/information within 30  days after the expiry of the export obligation  period, the bond/LUT agreement condition  shall be enforced and the licensee shall be  liable to the different follow up, penal actions  prescribed in the import-export police and  handbook of procedures, 1990 \027 93. The  licensee shall also pay, without demur to the  customs authorities, the concerned duty on  the proportionate quantity of goods  corresponding to the products not exported.  Any shortfall will also be liable to adjustment  from any application for licence pending in  that office or received in future.

(v) The action in clause (iv) shall be without  prejudice to any other action that may be  taken against the licensee under the Import  (Control) Order, 1955, as amended."          8.      The Appellate Committee also analysed the position and  concurred with the view expressed by the adjudicating  authority.

9.      We find that the authorities have analysed the factual  position in detail and have concluded that there was  infractions of the conditions imposed under the licence. It is to  be noted that before the learned Single Judge a plea was taken

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that the goods are still lying with the appellants. There was no  question of the appellants having used or utilized them in  violation of the conditions imposed by the licence.  Learned  Single Judge noted that no such plea was taken by the party  earlier. Neither in the reply to the show cause notice nor  before the Appellate Committee such a plea had been taken.  Before this Court also an attempt was made to submit that the  goods are lying in stock and, therefore, there was no question  of utilization. No material in this regard is produced before the  authorities as was rightly observed by the learned Single  Judge.  

10.     The penal provision is contained in Section 4-I(1) of the  Act. The same reads as follows:

"4-I(1).  Liability to penalty.- 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;  shall be liable to  penalty not exceeding five times the value of goods  or materials, or one thousand rupees, whichever is  more, whether or not such goods or materials have  been confiscated or are available for confiscation."  

11.     The stand that the conditions were incapable of  compliance seems to be at variance with the stand taken  earlier. By letter dated 22.12.1992 appellants made a request  to the Regional Licensing Authority for grant of extension of  six months to enable them to export the balance quantity by  30.4.1993. They again applied to the Joint Director General of  Foreign Trade, Bombay Office for further extension. The same  was rejected. Period of export obligation expired on 30.4.1993.  Subsequently, the appellants approached DGFT office several  times for extension of export obligation period which was  rejected. Therefore, the plea that the conditions were incapable  of compliance has been rightly turned down by the authorities  and the High Court.  

12.     Finally, it was submitted that considering the value of the  articles involved, imposition of penalty of Rs.45 lakhs is  extremely high.  The minimum penalty provided is Rs.1,000/-  and the maximum is five times of the value of goods involved.

13.     Considering the value of the articles involved we are of  the view that penalty of Rs.20 lakhs instead of Rs.45 lakhs  would meet the ends of justice.  It is submitted that pursuant  to the order of this Court dated 9.12.2005 a sum of Rs.20  lakhs had been deposited by the appellants. If that is so, there  shall not be requirement of making any further deposit.     

14.     The appeal is disposed of accordingly with no order as to  costs.