2017 (4) TMI 79 - HC - Customs

Validity of SCN - Vires of Section 11(2) and 11(3) of the FT(D&R) Act, 1992 - Article 14 of the Constitution - imposition of penalty on directors of company - the case of the directors of the company is that Against them there was no notice at all. The SCN in question was issued against the company. The directors of the company therefore had no opportunity to defend against any adverse consequences. The competent authority straight-way imposed penalty of ₹ 5.00 lacs on each of the directors without ever putting them to notice or granting them an opportunity to defend themselves against such proposal - Held that - it is not necessary to go into the last contention of the petitioners of the penalty being excessive. The impugned order as confirmed by the appellate authority is set aside. Since we have set aside the impugned order on the ground of lack of opportunity, this would not prevent the department from initiating fresh action against the petitioners, if otherwise, permissible in law - petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to order imposing penalties under SEZ Act and FT(D&R) Act, 1992; Validity of penalties imposed on company and directors; Allegations of diversion of goods without payment of customs duty; Lack of notice to directors for personal penalties.

Analysis:

1. Challenge to Penalties Imposed:
The petitioners challenged an order imposing penalties under the SEZ Act and FT(D&R) Act, 1992. The Development Commissioner had imposed a penalty on the company and personal penalties on the directors for alleged irregularities. The petitioners appealed against this order, which was subsequently dismissed, leading them to file this petition.

2. Allegations of Irregularities:
The show cause notice accused the company of diverting goods in the domestic tariff area without paying customs duty. The competent authority found the company guilty of this diversion and imposed penalties accordingly. The order included revocation of suspension, penalties under Section 11 of the FT(D&R) Act, 1992, and personal penalties on the directors.

3. Contentions Raised:
The petitioners contended that the penalties imposed were excessive and arbitrary. They argued that there was no proposal in the show cause notice for certain penalties, and the directors were not given a chance to defend themselves against personal penalties. The petitioners also challenged the validity of the penalties under Section 11 of the FT(D&R) Act, 1992.

4. Legal Analysis:
The High Court examined the show cause notice and the final order passed by the Development Commissioner. It noted discrepancies between the proposals in the notice and the penalties imposed in the order. The Court emphasized that penalties under Section 11 of the FT(D&R) Act, 1992, require a specific proposal and a reasonable opportunity for defense, which was lacking in this case.

5. Lack of Notice to Directors:
The Court highlighted the lack of notice to the directors for the personal penalties imposed on them. It deemed the imposition of personal penalties without prior notice or opportunity to defend as impermissible. The Court held that the directors were unfairly penalized without due process.

6. Judgment and Conclusion:
The High Court set aside the impugned order due to the lack of opportunity given to the petitioners to defend against the penalties. The Court clarified that this decision does not prevent the department from initiating fresh action if permissible under the law. The judgment focused on upholding principles of natural justice and fair procedure in penalty imposition cases.