2021 (7) TMI 781 - HC - Customs

Conditions of achieving of positive Net Foreign Exchange (NFE) as prescribed in the Special Economic Zone Rules, 2006 - failure to carry out operations as per the requirement of law as prescribed - non-fulfilment of obligation on the export turnover and of the NFE as promised - furnishing of APR s giving incorrect information - case of the petitioner necessarily is that the entire block period of 5 years ought to have lapsed and only then a show cause notice should have been issued for the entire period, for non-fulfilling the NFE conditionsof the petitioner necessarily is that the entire block period of 5 years ought to have lapsed and only then a show cause notice should have been issued for the entire period, for non-fulfilling the NFE conditions. HELD THAT - Annexure-I prescribes that a show cause notice can be issued if the unit continues to be Net Foreign Exchange negative by the end of 3rd year and if the negative performance continues in the 5th year, the Development Commissioner is entitled to initiate penal action as per the provisions of Rule 25. Thus, the petitioner s contention that the entire 5 years period be taken into consideration, is in the teeth of such statutory provisions as contained in Annexure I of the Special Economic Zone Rules, 2006. Although this submission is labeled as a legal submission, it appears to be an argument in desperation and in the present facts an unwarranted hairsplitting. It was for such reason that this argument was never advanced before the authorities below. In any event, it is not the petitioner s case that exclusion of the period beyond 4 years in any manner could have brought about a different situation namely of a position that the petitioner demonstrating that it had complied with the prescribed NFE obligations for the block period. The fact remains that for the total block period of 5 years, the mandatory NFE obligation of the petitioner had remained in the negative - It cannot be overlooked that the show cause notice was issued to the petitioner only after completion of 5 years block period which came to an end on March 31, 2015, as the show cause notice itself was issued on June 24, 2015. Also the original authority has recorded the findings of fact that the petitioner was wrongly carrying forward the cumulative NFE of the earlier block in the APR to the current block to show positive Cumulative NFE, which was to suppress the correct negative position. Such conduct of the petitioner as correctly observed by the authorities was objectionable. The petitioner has failed to show any perversity in the findings as recorded by the authorities - petition dismissed.

Summary

Issues Involved:
1. Non-compliance with approval conditions and SEZ Rules.
2. Issuance of show cause notice before the end of the block period.
3. Imposition of penalty and reasonableness of the penalty amount.

Issue-wise Detailed Analysis:

1. Non-compliance with approval conditions and SEZ Rules:
The petitioner, a limited liability partnership engaged in the business of import, manufacturing, and export of jewellery, received approval to operate under the SEZ Scheme for a period of five years (2010-2015) with the condition to achieve positive Net Foreign Exchange (NFE). The petitioner failed to comply with these conditions, leading to a show cause notice issued on June 24, 2015, for non-functioning of its unit. The notice highlighted that there were no exports for six months prior to its issuance, the unit was in a dilapidated condition, and the petitioner had not achieved even 1% of its projected export turnover. The petitioner was found to have breached multiple provisions of the SEZ Rules, including Rules 22(3), 25, 54(1), and 54(2), and provided incorrect information in the Annual Performance Reports (APRs).

2. Issuance of show cause notice before the end of the block period:
The petitioner argued that the authorities should have waited until the end of the entire block period (2010-2015) before issuing the show cause notice. However, the court rejected this contention, stating that as per Annexure-I under Rule 54 of the SEZ Rules, a show cause notice can be issued if the unit continues to be NFE negative by the end of the third year. The petitioner’s argument was deemed an unwarranted hairsplitting and was not raised before the lower authorities. The court noted that the show cause notice was issued after the completion of the five-year block period, making the petitioner’s argument baseless.

3. Imposition of penalty and reasonableness of the penalty amount:
The original authority imposed a penalty of ?5,00,000 on the petitioner under Section 11 of the Foreign Trade (Development and Regulation) Act, 1992, for failing to achieve the positive NFE and providing misleading information. The petitioner’s appeal to the Appellate Authority and the Review Committee was rejected, confirming the findings of non-compliance and incorrect information submission. The petitioner argued for a lesser penalty, citing market conditions and comparing the penalty to that imposed on another entity, Fine Star Diamonds. However, the court found that the petitioner had accepted the statutory obligations under the SEZ Rules and failed to meet them. The petitioner’s conduct of carrying forward cumulative NFE of the earlier block to show positive cumulative NFE was deemed objectionable. The court upheld the penalty, finding no perversity in the authorities’ decisions and rejected the petition without imposing any cost.

Conclusion:
The court dismissed the petition, affirming the authorities' findings of non-compliance with SEZ Rules, the correctness of issuing the show cause notice, and the appropriateness of the penalty imposed. The petitioner’s arguments were rejected, and the court found no merit in the claims presented.