2021 (9) TMI 86 - HC - Customs

Cancellation of redemption certificate - Validity of SCN - power of review under 16 alone is exercisable and show cause notice under Section 14 would not lie - Whether an action initiated for cancellation of certificate based on the Intelligence report is to be construed as an order, which is to be reviewed under Section 16 or to be taken as a fresh cause of action for the purpose of initiation of further proceedings by issuing a show cause notice under Section 14 of the Act? HELD THAT - The scheme of the Act provides Power relating to Search and Seizure under Section 10 of the Act. The Central Government shall authorize any person to enter into the premises, where the goods are kept, stored or processed, manufactured, traded or supplied or received for the purpose of import or export and searching, inspecting and seizing of such goods, documents, things and conveyances connected with such import and export of goods - Sub Section 3 to Section 11 would be coming into operation only if any person submits a document, statement to the Director General or any officer authorized by him and such documents are subsequently found forged or tampered with or false in any material particular. Therefore, the circumstances of invoking the provisions for issuance of show cause notice would arise only if any person submits a document or statement etc., as contemplated under sub-section (3) to Section 11 and such documents are found to be false, forged or fraudulent. Close reading of the scheme of the Act would reveal that the Power of review is exercisable if an order of suspension or cancellation of license is passed by following the procedures as contemplated under the other sections - In the present case, the redemption certificate issued by the third respondent states that based on the statement of exports made by the petitioner, the certificate was issued. The competent authority issued a certificate, stating that export obligation has been fulfilled and such a certificate issued cannot be considered as an order passed after adjudication of issues. Redemption certificate is issued and subsequently, the Director of Revenue intelligence gathered information, stating that the petitioner had submitted false and forged document for the purpose of getting the redemption certificate. The impugned show cause notice issued by the respondent on 20.07.2016 categorically states that Show Cause Notice under Section 14 for action under Section 10 11(2) of FT (D R) Act, 1992 and Section 14D of Foreign Trade (Development and Regulation) Amendment Act, 2010 for cancellation of EODCs . Thus, the intention as well as the purpose for which such show cause notice was issued have been categorically stated in the show cause notice itself - When the respondent could able to establish that there is a fresh cause of action after issuing the redemption certificate arose due to the report of the Director of Revenue Intelligence, and such report is the cause for issuing a show cause notice under Section 14 for the purpose of initiating action under Section10 11 (2) of FT (D R) Act, 1992, thereafter, if necessary, an order under Section 14-D is to be passed, then Section 16 Review would apply only if any such final orders are passed under Section 14-D of the Act and not otherwise. The contentions raised that the redemption certificate is final order, which can be reviewed under Section 16 of the Act is untenable and the redemption certificates issued based on the informations furnished by the petitioner, can never be construed as an order issued after adjudication for the purpose of exercise of power of review and therefore, the impugned show cause notice is issued, based on the report submitted by the Director of Revenue Intelligence, which is a fresh cause of action and more so, in respect of the documents furnished by the petitioner for the purpose of getting a redemption certificate and thus, such illegality or irregularity if any noticed, is to be proceeded with by following the procedures as contemplated under law. In view of the fact that the petitioner has not established the jurisdictional point as raised, the petitioner is at liberty to defend their case by submitting objections / defense statements by availing the opportunities to be provided. The time granted in the impugned show cause notice is extended and accordingly, the petitioner is at liberty to submit their explanation / defense statements and the documents and evidences, if any - Petition dismissed.

Summary

Issues Involved:
1. Validity of the show cause notice issued beyond the period of limitation.
2. Jurisdiction of the authority issuing the show cause notice.
3. Applicability of Section 14 vs. Section 16 of the Foreign Trade (Development and Regulation) Act, 1992.
4. Impact of the Directorate of Revenue Intelligence (DRI) report on the issuance of the show cause notice.
5. The procedural requirements for cancellation of Export Obligation Discharge Certificates (EODCs).

Detailed Analysis:

1. Validity of the Show Cause Notice Issued Beyond the Period of Limitation:
The petitioner contended that the show cause notice dated 20.07.2016 was issued beyond the two-year limitation period prescribed under Section 16 of the Foreign Trade (Development and Regulation) Act, 1992 (the 'Act'). The petitioner argued that any further initiation should be under Section 16 by way of review and within the stipulated period. The court acknowledged the petitioner's reliance on judgments from the High Court of Gujarat and the High Court of Madras, which established that orders issued beyond the two-year period under Section 16 are without jurisdiction.

2. Jurisdiction of the Authority Issuing the Show Cause Notice:
The petitioner argued that the subordinate authority issuing the show cause notice lacked jurisdiction, as the redemption certificate was issued by a higher authority. The court examined the provisions of the Act and concluded that the show cause notice was issued based on a new cause of action identified by the DRI report, which necessitated compliance with the principles of natural justice through a notice under Section 14.

3. Applicability of Section 14 vs. Section 16 of the Act:
The petitioner contended that the show cause notice should have been issued under Section 16, not Section 14, as the redemption certificate was a final order. The court clarified that the redemption certificate, issued based on the petitioner’s information, did not constitute an adjudicated order. The court emphasized that Section 14 applies when a fresh cause of action arises, such as the discovery of fraudulent activities, and that Section 16 review is applicable only after an order under Section 14-D is passed.

4. Impact of the DRI Report on the Issuance of the Show Cause Notice:
The DRI report indicated fraudulent activities by the petitioner, including the submission of false documents to obtain the redemption certificate. The court noted that the DRI report provided a new cause of action, justifying the issuance of the show cause notice under Section 14. The court highlighted that the purpose of the Act is to address such fraudulent activities and ensure compliance with legislative intent.

5. Procedural Requirements for Cancellation of EODCs:
The court examined the procedural requirements under the Act, including Sections 10, 11, 14, and 14-D. It concluded that the show cause notice under Section 14 was necessary to provide the petitioner an opportunity to defend against the allegations before any action under Section 14-D could be taken. The court emphasized that the redemption certificate issued based on the petitioner’s information could not be considered final for initiating action under Section 16 without following the due process under Section 14.

Conclusion:
The court dismissed the writ petition, allowing the petitioner to respond to the show cause notice within four weeks. The court emphasized that the petitioner must defend their case by submitting objections and evidence, and the respondents must proceed according to the procedures outlined in the Act. The court’s decision underscored the importance of adhering to procedural requirements and ensuring that actions are taken based on fresh causes of action identified through reports like that of the DRI.