2011 (2) TMI 1146 - HC - FEMA

Non fulfillment of export obligation under EPCG Licence - penalty - as per petitioner there is a clear violation of principles of natural justice as order imposing penalty has been passed without hearing the petitioner on merits - Held that - Since the order of the second respondent, which resulted in passing of the impugned recovery proceedings by the third respondent Tahsildar, was not communicated, as per law, the petitioner had no knowledge of the proceedings of the second respondent and thereby his valuable rights has been affected. Non-service of the original order of adjudication, imposing penalty ex parte, is good enough reason to set aside the impugned proceedings of the third respondent Tahsildar, as the order adverse to the petitioner has been passed by the second respondent without proper service as contemplated by law. The order for recovery is causing great prejudice due to infraction of law The third respondent s proceeding to recover the penalty amount from the petitioner will, therefore, be arbitrary and prejudicial to the petitioner only on account of violation of principles of natural justice. In such view of the matter, the petitioner on receipt of a copy of this order is permitted to file an appeal within the prescribed time limit. In favour of assessee.

Issues:
1. Failure to communicate the penalty order to the petitioner in accordance with the law.
2. Validity of the recovery proceedings initiated by the third respondent based on the penalty order.
3. Applicability of the General Clauses Act in the absence of specific provisions for service under the Foreign Trade (Development and Regulation) Act, 1992.
4. Compliance with principles of natural justice in imposing penalties under the Act.
5. Remedies available to the petitioner against the penalty order.

Analysis:

1. Communication of Penalty Order:
The petitioner contended that the penalty order imposing a substantial amount was not served on them as required by law. The respondents argued that the department's practice of dispatching notices by ordinary post was sufficient. However, the court emphasized the importance of proper notice before imposing penalties under the Foreign Trade (Development and Regulation) Act, 1992. The lack of proof of actual service on the petitioner raised concerns about the validity of the penalty order.

2. Recovery Proceedings Validity:
The recovery proceedings initiated by the third respondent were based on the penalty order issued by the second respondent. Since the original order was not communicated to the petitioner in the prescribed manner, the court deemed it as non-service, making the recovery proceedings arbitrary and prejudicial. The court highlighted the violation of principles of natural justice in the absence of proper communication of the penalty order.

3. Applicability of General Clauses Act:
In the absence of specific provisions for service under the Foreign Trade (Development and Regulation) Act, 1992, the court referred to Section 27 of the General Clauses Act, 1897. This section mandates service by registered post for documents unless a different intention appears. The failure to follow this procedure was deemed a violation of natural justice, impacting the validity of the penalty order and subsequent proceedings.

4. Compliance with Principles of Natural Justice:
The court stressed that the imposition of penalties under the Act required proper notice and an opportunity for the person concerned to present their case, including a personal hearing if requested. The lack of established service on the petitioner raised doubts about the adherence to these principles, casting doubt on the validity of the penalty imposition.

5. Remedies Available to the Petitioner:
The court permitted the petitioner to file an appeal against the penalty order within the prescribed time limit upon receipt of a copy of the court's order. The period during the court proceedings would not count towards the limitation period for filing the appeal. The petitioner was advised to diligently pursue the appeal, and the third respondent was directed to proceed with recovery only if no favorable orders were obtained.

In conclusion, the court found in favor of the petitioner regarding the non-communication of the penalty order, emphasizing the importance of adhering to principles of natural justice in imposing penalties under the Act. The petitioner was granted the opportunity to appeal against the penalty order within the specified time frame, with instructions for both parties to act accordingly based on the appeal outcome.

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