2011 (7) TMI 786 - HC - Customs

Misdeclaration - export of raw cotton - exports of cotton against valid Export Authorization Registration Certificates (EARCs) issued by the Textiles Commissioner - change in policy - held that - But the issue as to whether the Petitioners were guilty of a misdeclaration, when they applied for the registration of their contracts is a matter which would have to be considered by DGFT. This would turn upon whether the Petitioners are correct in their contention that they had, prior to the issuance of a notice to show cause, sent a communication to the authority that the two contracts involving KKM International, a third party supplier should be deleted from the purview of their application. This is a significant aspect which has a bearing on the bona fides of the Petitioners conduct. Whether the Petitioners did make a misdeclaration is an important issue which must be adjudicated upon. That issue turns on an assessment of fact which must be left to the DGFT to determine. In the circumstances, we are of the view that a fresh decision should be rendered by the DGFT in accordance with law. The issue as to whether the Petitioners were guilty of a misdeclaration, when they submitted their application for the registration of their contracts is kept open to be adjudicated upon by the DGFT. The impugned order dated 19 April 2011 is set aside, to facilitate a fresh order on remand.

Issues Involved:
1. Legitimacy of the Export Authorization Registration Certificates (EARCs) issued to the Petitioners.
2. Allegation of misdeclaration by the Petitioners.
3. Application of a new policy retroactively to the Petitioners' case.
4. Compliance with principles of natural justice.

Detailed Analysis:

1. Legitimacy of the Export Authorization Registration Certificates (EARCs) Issued to the Petitioners:

The Petitioners, engaged in exporting raw cotton, applied for the registration of eleven contracts through the Textiles Commissioner's online registration system between 1 October and 10 October 2010. The Textiles Commissioner issued a press note on 30 September 2010, stating that actual exports would commence from 1 November 2010 and the exportable surplus was quantified at 55 lac bales of raw cotton. The online application system was closed on 10 October 2010 after receiving applications for the entire surplus. The Petitioners received physical delivery of three EARCs for 8,000 Metric Tones but faced issues with the remaining eight applications due to alleged misdeclaration.

2. Allegation of Misdeclaration by the Petitioners:

The Textiles Commissioner issued a show cause notice on 25 November 2010, alleging that the Petitioners attempted to secure EARCs by using contracts of another seller, KKM International, which was deemed an abuse of the online system. The Petitioners claimed they had communicated on 4 November 2010 to reject the two contracts related to KKM International. However, there was a dispute on whether this communication was received. The Textiles Commissioner rejected the applications on 14 December 2010 due to willful misdeclaration. This order was later set aside by a Division Bench on the grounds of a breach of natural justice, and the jurisdiction was transferred to the DGFT.

3. Application of a New Policy Retroactively to the Petitioners' Case:

The Deputy Director General, Foreign Trade (DGFT), passed an order on 19 April 2011, allocating 675 bales to the Petitioners based on the prorata principle from a new policy announced on 29 December 2010. The Petitioners contended that a vested right had accrued under the earlier policy dated 7 September 2010. They argued that their applications were incorrectly treated as fresh applications under the new policy, which was impermissible. The DGFT's application of the new policy retroactively was deemed erroneous by the court as the Petitioners' claims should have been adjudicated based on the earlier Memorandum.

4. Compliance with Principles of Natural Justice:

The initial rejection of the Petitioners' applications was set aside due to a breach of natural justice. The DGFT's subsequent order did not address the misdeclaration issue, which was pivotal. The court emphasized the need for a fresh decision by the DGFT, ensuring compliance with principles of natural justice. The DGFT was directed to reassess whether the Petitioners were guilty of misdeclaration and to provide a reasoned order after giving the Petitioners an opportunity to be heard.

Conclusion:

The impugned order dated 19 April 2011 was set aside to facilitate a fresh adjudication by the DGFT. The DGFT was instructed to take an expeditious decision, considering the bona fides of the Petitioners' conduct and whether they were guilty of misdeclaration. The rule was made absolute, and no order as to costs was issued. The DGFT was directed to pass a reasoned order within four weeks from the date of receiving an authenticated copy of this judgment.

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