2019 (10) TMI 68 - HC - Customs

Imposition of penalty u/s 4 I of the Import and Export (Control) Act, 1947 - Export House - utilization of licenses issued - It is the stand of the petitioner No.1 that it had no knowledge about the issue of subsidiary licences and it was not at all involved in any manner for the issuance of the said licences - HELD THAT - The letter of authority holder had made request for re-validation and for issue of subsidiary licences. The Petitioner No.1 claims that it had not issued any letter of authority in favour of M/s. A.P. Trading Company and there is no evidence available on record to show this. The petitioner No.1 had given the licence to M/s. Veena Commercial Corporation. Therefore, unless it is shown or established that the import of the canalized item is at the instance of the petitioner No.1 or they are involved in some manner with the import or that the petitioner No.1 is in some way concerned with M/s. A.P. Trading Company in the matter of import of the canalized goods, in our opinion, imposing the penalty on the petitioners in the absence of mens rea is unsustainable. As the licence is misused by the letter of authority holder M/s. A.P. Trading Company, in the absence of mens rea which is an essential ingredient of the offence, the petitioner No.1 cannot be held liable to pay the penalty. Petition allowed.

Issues Involved:
1. Validity of the impugned orders dated 21.7.1998 and 13.12.1996.
2. Legality of the recovery notice dated 6.8.1998.
3. Allegations of unauthorized issuance and utilization of subsidiary licences.
4. Whether petitioner No.1 issued a letter of authority to M/s. A.P. Trading Company.
5. Responsibility for the import of canalized items.
6. Applicability of penalty in the absence of mens rea.

Detailed Analysis:

1. Validity of the Impugned Orders:
The petitioners sought quashment of the impugned orders dated 21.7.1998 and 13.12.1996, which imposed a penalty of ?20 Lakhs on petitioner No.1. The orders were based on the allegation that petitioner No.1 had issued a letter of authority to M/s. A.P. Trading Company, which imported Amoxyciline Trihydrate, a canalized item, in violation of the Import and Export policy. The court found no material evidence to support that petitioner No.1 issued such a letter of authority and noted that the request for re-validation and issuance of subsidiary licences was made by the letter of authority holder, not petitioner No.1.

2. Legality of the Recovery Notice:
The recovery notice dated 6.8.1998 was issued following the dismissal of the appeal by respondent No.2. The court's decision to quash the impugned orders rendered the recovery notice invalid, as it was based on the now-invalidated penalty.

3. Allegations of Unauthorized Issuance and Utilization of Subsidiary Licences:
The show cause notice alleged that petitioner No.1 and M/s. A.P. Trading Company obtained and utilized subsidiary licences unauthorizedly. Petitioner No.1 denied any involvement with M/s. A.P. Trading Company and stated that it had handed over the main additional licence to M/s. Veena Commercial Corporation. The court found no evidence linking petitioner No.1 to the unauthorized issuance and utilization of the subsidiary licences.

4. Whether Petitioner No.1 Issued a Letter of Authority to M/s. A.P. Trading Company:
Petitioner No.1 categorically denied issuing any letter of authority to M/s. A.P. Trading Company. The court found no material evidence to contradict this claim, emphasizing that the request for re-validation and issuance of subsidiary licences was made by the letter of authority holder, not petitioner No.1.

5. Responsibility for the Import of Canalized Items:
The court noted that Amoxyciline Trihydrate was a canalized item and could only be imported through State Chemicals and Pharmaceuticals of India Limited. The import was made by the letter of authority holder, and there was no evidence that petitioner No.1 was involved in or responsible for the import. The court concluded that petitioner No.1 could not be held responsible for the actions of the letter of authority holder.

6. Applicability of Penalty in the Absence of Mens Rea:
Citing the Supreme Court's judgments in Hindustan Steel Ltd. v. State of Orissa and Akbar Badruddin Jiwani v. Collector of Customs, the court emphasized that the imposition of a penalty requires mens rea. The court found no evidence of deliberate defiance of law, contumacious or dishonest conduct, or conscious disregard of obligation by petitioner No.1. The absence of mens rea rendered the penalty unsustainable.

Conclusion:
The court allowed the petition, quashing the impugned orders dated 21.7.1998 and 13.12.1996, and the recovery notice dated 6.8.1998. The court held that in the absence of mens rea and any evidence linking petitioner No.1 to the unauthorized import, the penalty imposed was unsustainable.

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