2005 (5) TMI 82 - HC - Customs

Summary

Issues Involved:
1. Import of second-hand machinery under EPCG Licence.
2. Non-fulfilment of export obligation.
3. Confiscation and penalty under Customs Act, 1962.
4. Imposition of penalty under Foreign Trade (Development and Regulation) Act, 1992.
5. Judicial review of administrative actions and penalties.

Detailed Analysis:

1. Import of Second-Hand Machinery under EPCG Licence:
The appellants, a private limited company and its director, were issued an Export Promotion Capital Goods Licence (EPCG licence) on 6-9-1997 for importing second-hand machinery with a CIF value of Rs. 83,53,050/-. The concessional duty rate of 10% was applied, and a bank guarantee of Rs. 21,81,700/- was executed. The machinery was installed at the appellant's unit in Goa.

2. Non-fulfilment of Export Obligation:
Due to unforeseen circumstances, including a global economic crisis and disputes with the Customs and Excise Department, the appellants could not fulfil the export obligation of Rs. 4,17,65,259/- within the stipulated five years. The unit closed down in May 1999, and the appellants informed the Deputy Director General of Foreign Trade about their inability to meet the export obligation.

3. Confiscation and Penalty under Customs Act, 1962:
A show cause notice was issued on 22-3-2000 under Section 28 of the Customs Act, 1962, for non-fulfilment of export obligation. The machinery was confiscated under Section 111(c) with an option to redeem under Section 125, subject to a fine of Rs. 10,00,000/-, differential duty of Rs. 21,81,700/-, and interest at 24%. Additionally, a penalty of Rs. 2,00,000/- was imposed under Section 112. The bank guarantee was encashed, and the machinery was seized and shifted to the Customs Warehouse.

4. Imposition of Penalty under Foreign Trade (Development and Regulation) Act, 1992:
The Deputy Director General of Foreign Trade issued a show cause notice on 24-5-2002 and subsequently imposed a penalty of Rs. 9,00,000/- under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992, for non-fulfilment of export obligation. The appellants' appeal against this order was rejected by the Additional Director General of Foreign Trade.

5. Judicial Review of Administrative Actions and Penalties:
The appellants challenged the penalty in the High Court. The learned single Judge dismissed the writ petition, observing that the respondents had taken a lenient view. The appellants then appealed to the Division Bench. The court examined the provisions of the Export and Import Policy 1997-2002 and the Foreign Trade (Development and Regulation) Act, 1992. It noted that the appellants imported the machinery lawfully and the failure to export was due to circumstances beyond their control. The court emphasized that penalties should not be imposed unless there is deliberate defiance of law or contumacious conduct.

The court referenced previous judgments, including the case of Gokaldas Images Ltd., where it was held that Section 11 of the Foreign Trade (Development and Regulation) Act applies to post-export contraventions. The court also considered the principle that penalties should be imposed judicially and leniently in cases of bona fide breaches.

Conclusion:
The appeal was allowed, and the orders dated 12-7-2002 and 29-7-2003 imposing penalties were quashed. The impugned judgment of the learned single Judge was set aside, emphasizing that non-fulfilment of export obligation due to uncontrollable circumstances does not attract penalties under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992.