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2017 (3) TMI 218 - HC - CustomsSEZ unit - Imposition of penalty u/s 11 (2) of the Foreign Trade (Development & Regulation) Act, 1992 - Proceedings initiated 3 years after the assessee was wounded up - violation of the conditions of the Letter of Approval (LoA) - petitioner was given LoA on 10.02.2008 for manufacture of gold bangles and pendants within MEPZ-SEZ, Chennai. On the basis of such approval, the petitioner firm continued to manufacture gold medallions and exported the same. Subsequently, since the Government withdrawn the income tax concessions hitherto conferred to the persons like the petitioner who carry out the manufacturing activities inside MEPZ-SEZ, on and from 31.03.2012, the export activities carried on by the petitioner have come to a close - whether the petitioner has violated the terms and conditions of the LoA and whether the commodity medallion and pendant are one and the same? Held that - the Dictionary meaning of the word Pendant and Medallion can be considered. While pendant is termed as a piece of jewellery that hangs from a necklace chain, medallion is also termed as a piece of jewellery in the shape of a medal worn as pendant. Therefore, it is clear that there is no distinction or difference between the meaning given to the commodities pendant and medallion . The handbook of procedure only prescribes norms for value addition. As per clause 4A 2 and 2.1 of the Handbook of Procedure relied on by the respondent, the wastage norms and value addition norms relates to plain jewellery to have a maximum wastage of 3.5% while in the case of medallions it is permitted upto 0.25%. When the petitioner has admittedly achieved 7% of value addition, even the invocation of the guidelines contained in the handbook of procedure will not confer any jurisdiction to the respondent to impose the penalty on the petitioner. These aspects have not been taken note of by the respondent while passing the impugned order imposing penalty on the petitioner and therefore the impugned order cannot be sustained. Alternative remedy - Held that - there was an appellate remedy but without availing it, the petitioner has approached this Court. Merely because the petitioner failed to avail the alternative remedy available, this Court cannot refuse to entertain this writ petition as alternative remedy is always not a bar and this Court, in exercise of it s power under Article 226 of The Constitution can always entertain a writ petition depending upon the facts and circumstance of each case - merely because the petitioner failed to avail the alternative remedy, it will not be a ground to dismiss the writ petition at the threshold. Penalty - Held that - In the absence of any ill-intention or mens rea on the part of the petitioner to gain unlawfully by exporting goods which are not permitted to be exported by them as per the LoA, the respondent is not justified in imposing penalty. Petition allowed - decided in favor of petitioner.
Issues Involved:
1. Legality and correctness of the penalty imposed under Section 11(2) of the Foreign Trade (Development & Regulation) Act, 1992. 2. Whether the petitioner violated the conditions of the Letter of Approval (LoA) by exporting 'Gold Medallions' instead of 'Gold Bangles and Pendants'. 3. Consideration of whether 'Gold Medallions' and 'Gold Pendants' are the same or different. 4. Adherence to principles of natural justice by the respondent. 5. Applicability of Rule 54(2) of the Special Economic Zone Rules, 2006. 6. Jurisdiction and authority of the respondent to impose penalties. 7. Availability and necessity of exhausting alternative remedies before invoking Article 226 of the Constitution of India. Detailed Analysis: 1. Legality and Correctness of Penalty: The petitioner challenged the penalty of ?61.76 Crores imposed by the respondent under Section 11(2) of the Foreign Trade (Development & Regulation) Act, 1992, for allegedly violating the conditions of the LoA. The petitioner argued that no specific finding or conclusion of such violation was made by the respondent, which is a prerequisite for imposing a penalty under the Act. 2. Violation of LoA Conditions: The petitioner firm, engaged in the import and export of gold jewelry, obtained an LoA for manufacturing "gold bangles and pendants." The petitioner contended that 'gold medallions' are technically 'pendants' and thus fall within the scope of the LoA. The respondent, however, argued that the petitioner exported 'gold medallions' instead of the approved 'gold bangles and pendants,' constituting a violation of the LoA. 3. Medallions vs. Pendants: The petitioner produced affidavits from goldsmiths, jewelry dealers, and the Madras Jewellers & Diamond Merchants Association to substantiate that 'medallions' and 'pendants' are essentially the same. The Income Tax Appellate Tribunal, in a related case, also concluded that 'medallions' and 'pendants' have the same meaning and usage in common parlance. The Customs Department's letter dated 12.03.2014 supported this view, stating that medallions are also pendants. 4. Principles of Natural Justice: The petitioner argued that the respondent violated principles of natural justice by not providing an adequate opportunity to respond to the corrigendum issued on 14.08.2014 before passing the final order. This was previously addressed by the High Court, which set aside the initial penalty order and remanded the matter for fresh consideration. 5. Applicability of Rule 54(2) of SEZ Rules, 2006: The petitioner contended that they met all obligations under the foreign trade policy, including achieving a value addition of 7%, far exceeding the prescribed 1.5%. The respondent's argument that 'pendants' and 'medallions' have different wastage norms (3.5% for pendants and 0.25% for medallions) was countered by the petitioner, emphasizing that the SEZ Rules or the Act do not differentiate between the two items. 6. Jurisdiction and Authority to Impose Penalties: The respondent claimed authority under Section 11(2) of the Act and Rule 54 of the SEZ Rules, supported by the Unit Approval Committee's decision to investigate the petitioner's alleged violations. The petitioner argued that the respondent exceeded its jurisdiction by imposing the penalty without proper justification. 7. Exhausting Alternative Remedies: The respondent argued that the petitioner should have pursued the available appellate remedy before approaching the High Court. The petitioner, however, invoked Article 226, asserting that alternative remedies are not an absolute bar, especially when substantial justice is at stake. The High Court acknowledged this, citing precedents where the existence of an alternative remedy did not preclude judicial review under Article 226. Conclusion: The High Court found that the terms 'medallion' and 'pendant' are used interchangeably in common parlance and that the petitioner did not violate the LoA. The court also noted procedural lapses and the lack of specific findings of violation by the respondent. Consequently, the impugned order imposing the penalty was set aside, and the writ petition was allowed. The court emphasized that alternative remedies do not always bar judicial review, especially in cases involving principles of natural justice and substantial justice.
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