2016 (10) TMI 817 - HC - Customs

Imposition of Fiscal; penalty - SEZ - achieving of minimum value addition which was a part of the condition contained under the letter of permission - doctrine of proportionality - revised value addition formula - the Indian Latex was more expensive as compared to international latex - h respect to clubbing of a period of first block of five years with second block of five years - Held that - The only point which has impress the court is that while inflicting penalty, the well recognized doctrine of proportionality is not being considered by the authorities below. More particularly, the second appellate authority has not even touched that aspect which warrants this Court to consider the case on the issue of proportionality. In that view of the matter, the contentions, as stated above, being meritless, the only course left open for the Court is to consider and examine the issue with regard to proportionality while inflicting penalty. The only fault appears to be of the petitioner-unit is that it has not met with the condition of letter of permission and has failed to achieve the target and as such authorities ought to have considered well recognized doctrine of proportionality which passing impugned orders.. Order set aside - matter remanded back for reconsideration - Decided in favor of petitioner.

Issues Involved:
1. Legality and validity of the impugned order dated 21.10.2015.
2. Non-disposal of pending options and representations before adjudicating the show-cause notice.
3. Imposition of penalty for shortfall in value addition.
4. Denial of option exercised by the petitioner due to delay and principles of natural justice.
5. Stay on recovery and adverse proceedings during the pendency of the petition.
6. Doctrine of proportionality in imposing penalties.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Impugned Order:
The petitioner challenged the impugned order dated 21.10.2015, arguing it was illegal, unfair, discriminatory, perverse, absurd, harsh, barred by law, and time-barred. The petitioner set up an Export Oriented Unit (EOU) for manufacturing rubber hand gloves with a minimum value addition requirement of 45.93%. However, the petitioner achieved only 19.62% value addition in the first five years, resulting in a shortfall. The petitioner contended that the appellate authority did not consider the explanations provided and confirmed the penalty without proper reasoning. The court found that the appellate authority failed to consider the proportionality of the penalty and set aside the impugned order, directing the appellate authority to reconsider the case afresh.

2. Non-disposal of Pending Options and Representations:
The petitioner argued that the respondents could not adjudicate the show-cause notice without disposing of the pending options and representations seeking revision of value addition percentage. The petitioner claimed to have submitted a request for revised value addition on 17.02.1994, which was not on record. The court noted that the petitioner made serious attempts to fulfill the conditions and that the appellate authority did not consider the entire period of ten years for which the unit was allowed to set up. The court directed the appellate authority to reconsider the case, taking into account the proportionality of the penalty.

3. Imposition of Penalty for Shortfall in Value Addition:
The Development Commissioner imposed a fiscal penalty of ?2,27,40,000/- for the petitioner's failure to achieve the prescribed minimum value addition. The petitioner argued that the penalty was imposed without considering the financial constraints and market conditions that affected their performance. The court observed that the authorities did not consider the doctrine of proportionality while imposing the penalty and directed the appellate authority to re-examine the issue of proportionality and pass a reasoned order.

4. Denial of Option Exercised by the Petitioner Due to Delay:
The petitioner contended that the option exercised in terms of the 1989 circular could not be denied solely on the ground of delay and without following the principles of natural justice. The court noted that the petitioner made an attempt to exercise the option within the prescribed time limit, but the request was not on record. The court directed the appellate authority to reconsider the case, taking into account the proportionality of the penalty and the circumstances prevailing at the time.

5. Stay on Recovery and Adverse Proceedings:
The petitioner sought a stay on recovery and adverse proceedings during the pendency of the petition. The court did not explicitly address this issue in the judgment, but the setting aside of the impugned order and the direction to reconsider the case effectively provided relief to the petitioner.

6. Doctrine of Proportionality in Imposing Penalties:
The petitioner argued that the authorities did not consider the doctrine of proportionality while imposing the penalty. The court found that the appellate authority did not address the proportionality of the penalty and directed the authority to re-examine the issue, considering the circumstances and financial constraints faced by the petitioner. The court emphasized that the penalty should be reasonable and just, taking into account the prevailing market conditions and the petitioner's efforts to meet the value addition requirements.

Conclusion:
The court set aside the impugned order dated 21.10.2015 and directed the appellate authority to reconsider the case afresh, re-examine the issue of proportionality of the penalty, and pass a reasoned order. The court emphasized the importance of considering the doctrine of proportionality and the circumstances faced by the petitioner in imposing penalties.

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