2011 (6) TMI 522 - HC - Customs

Non-fulfilment of export obligation and breach of condition of value addition to the tune of 40% - Held that - mere non-fulfillment of export obligation and not achieving value addition to the tune of 40% as per the conditions of the letter of approval would not fall under any of the clauses of Section 4-I of the Imports & Exports (Control) Act, 1947. It cannot be concluded that there is any misutilization or misdeclaration on the part of the petitioners. petitioners are not liable to pay penalty. petition, therefore, deserves to be allowed.

Summary

Issues Involved:
1. Challenge to the fiscal penalty imposed by the Additional Director General of Foreign Trade.
2. Jurisdiction and applicability of Section 4-I of the Imports & Exports (Control) Act, 1947.
3. Non-fulfillment of export obligations and value addition requirements.
4. Alleged misutilization of imported goods.
5. Procedural aspects and adherence to legal principles in imposing penalties.

Detailed Analysis:

1. Challenge to the Fiscal Penalty:
The petitioners challenged the order dated 9-9-1996 by the Additional Director General of Foreign Trade, which imposed a fiscal penalty of Rs. 10 lac, later reduced to Rs. 5 lac by the Appellate Committee on 3-4-1998. The petitioners sought a writ of mandamus to quash the penalty or alternatively, to waive it entirely if they fulfilled the remaining export obligations within five years.

2. Jurisdiction and Applicability of Section 4-I of the Imports & Exports (Control) Act, 1947:
The petitioners argued that the initiation of proceedings under Section 4-I of the Act was illegal and without jurisdiction, as the main allegation was non-fulfillment of export obligations, which does not attract liability under Section 4-I. The court noted that the petitioners had not raised this jurisdictional issue before the lower authorities but allowed it to be considered as it was a pure question of law.

3. Non-fulfillment of Export Obligations and Value Addition Requirements:
The petitioners, a company engaged in manufacturing and exporting readymade garments, failed to meet the export obligations and value addition requirements stipulated in their industrial approval. They attributed this failure to accidents involving the director, general business slackness, and issues with their bankers. The adjudicating authority found that the company achieved only 28.45% value addition against the required 40%, leading to the imposition of the penalty.

4. Alleged Misutilization of Imported Goods:
The show cause notice alleged that the petitioners failed to fulfill export obligations and achieve value addition, implying misutilization of imported goods. However, the court found no allegations or evidence of misapplication or diversion of goods. The penalty was based solely on non-fulfillment of export obligations, which does not fall under any clause of Section 4-I.

5. Procedural Aspects and Adherence to Legal Principles in Imposing Penalties:
The court emphasized that Section 4-I is a penal provision requiring strict construction. Non-fulfillment of export obligations does not attract penalty under Section 4-I. The authorities failed to specify which sub-clause of Section 4-I was violated. The court cited similar judgments from other High Courts, reinforcing that penalties under Section 4-I cannot be imposed for non-fulfillment of export obligations alone.

Conclusion:
The court quashed the impugned orders dated 9-9-1996 and 3-4-1998, ruling that the provisions of Section 4-I were not applicable. The petitioners were not liable to pay the penalty, but the authorities could take other actions under relevant laws for non-fulfillment of export obligations. The petition was allowed, and the rule was made absolute without any order as to costs.