2010 (5) TMI 416 - HC - Customs

petitioners had been exporting their goods under the Quota Policy 2000-04 and had been allotted quotas in respect of Group-I and Group-II textiles - petitioners by forging various export documents, used the quota allotted to them in Group-I to actually export goods falling under Group-II in the open market to the other exporters from time to time - according to the respondents, the actions of the petitioners in forging Group-I quotas to export Group-II quotas resulted in the complete quota for total exports from India under Group-II being used up well before the year end resulting in an embargo being imposed by the authorities - all subsequent exports of Group-II textiles to the USA were prevented - The other law abiding exporters, who had been allotted quotas under Group-TI, were thus could not export and suffered great loss as they were unable to fulfill their export contracts by way of bank guarantee furnished in Writ Petition No. 952/2006 may be ordered to continue for a period of six months - Held that - during the pendency of the remanded proceedings with direction to keep it alive till the adjudication is complete - absence of any financial liability as on date against the petitioners no security much less by way of bank guarantee can be ordered by this Court - absence of any financial liability against the petitioners as on date, in our considered view, no security much less by way of bank guarantee can be ordered.

Issues Involved:

1. Breach of Quota Policy 2000-04.
2. Imposition of penalties and compensation.
3. Authority and jurisdiction of the Enforcement Committee.
4. Validity of orders beyond the Quota Policy period.
5. Procedural fairness and principles of natural justice.
6. Reliance on bank guarantees and subsequent fraud allegations.
7. Application of Foreign Trade (D & R) Act, 1992.

Detailed Analysis:

1. Breach of Quota Policy 2000-04:
The petitioners were accused of breaching the Quota Policy 2000-04 by forging export documents to use quotas allotted under Group-I for exporting Group-II goods. This resulted in monetary gains for the petitioners and a loss of foreign exchange for the country. The discrepancies were discovered through reconciliation of export and import details in Namesake Statements from the US authorities.

2. Imposition of Penalties and Compensation:
The Enforcement Committee debarred the petitioners from exporting textile products for three years and demanded compensation and penalties. The petitioners argued that the Quota Policy did not provide for financial penalties or compensation, only for debarment from obtaining entitlements. The respondents contended that the penalties were justified to compensate for the loss of foreign exchange and to penalize the petitioners for their fraudulent activities.

3. Authority and Jurisdiction of the Enforcement Committee:
The petitioners challenged the authority of the Enforcement Committee to impose penalties and compensation, arguing that it exceeded its powers under the Quota Policy. The respondents maintained that the Committee had the authority to take all necessary steps to enforce compliance with the Quota Policy, including imposing penalties.

4. Validity of Orders Beyond the Quota Policy Period:
The petitioners argued that the penalties imposed extended beyond the period of the Quota Policy, which ended on 31st December 2004. The respondents countered that the notification dated 9th November 2004 extended the operation of certain provisions of the Quota Policy and authorized the imposition of penalties even after the end of the quota regime.

5. Procedural Fairness and Principles of Natural Justice:
The petitioners contended that the impugned orders were issued without proper notice and opportunity to be heard, violating principles of natural justice. The Court noted that the show cause notices did not reference the notification dated 9th November 2004 or indicate the exercise of powers under it, which was cited in the impugned orders.

6. Reliance on Bank Guarantees and Subsequent Fraud Allegations:
The respondents argued that the bank guarantees furnished by the petitioners justified the recovery of compensation. The petitioners countered that the bank guarantees had been discharged and were not in force. The Court observed that the terms of the bank guarantees were not put to the petitioners for their reaction.

7. Application of Foreign Trade (D & R) Act, 1992:
The respondents invoked provisions of the Foreign Trade (D & R) Act, 1992 to justify the penalties. The petitioners argued that the Act's provisions were not invoked at the time of issuing the show cause notices. The Court noted that a second show cause notice under the Act was issued during the pendency of the petitions.

Conclusion:
The Court quashed and set aside the impugned orders and remanded the matters back to the authority-in-original for fresh consideration, restricted to the question of whether compensation, penalties, and other directions could be issued. The remanded proceedings were to be conducted following principles of natural justice within six months. The Court rejected the respondents' prayer to continue the bank guarantee during the remanded proceedings.

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