2021 (5) TMI 595 - HC - Customs

Extension of two years of Export Obligation period with a further request to prospectively grant it for two years - whether the extension as sought for of the authorisation needs to be given to the petitioner in wake of the pendency of the show cause notice dated 05.03.2019 and in total set of facts and circumstances? HELD THAT - Challenge in this petition is to this suspension of amendment sheet No.3, which had extended two years of Export Obligation period with a further request to prospectively grant it for two years. We could notice that the suspension on the part of the respondent authority is in wake of non-fulfillment of the directions on the part of the petitioner to the communication dated 24.12.2018. After nearly a month from the non-compliance on 22.01.2019, there had been a suspension of the amendment sheet No.3 dated 27.11.2018. It is to be noted that this communication clearly speaks of the suspension if not the cancellation or rejection of grant of the extension of the Export Obligation. This had come in wake of the inputs received from the DRI. The show cause notice pursuant to the said search operation and subsequent to the suspension of this is already given on 05.03.2019. Any indulgence on the part of the Court at this stage, would amount to entertaining the matter and indulging into the merit at the stage of show cause notice, which is impermissible. Once having extended the period on 27.11.2018, without availing the opportunity, the grant of extension of Export Obligation period, cannot be cancelled. However, if there are certain suspicious documents noticed by the DRI, the authority concerned, if has chosen to suspend the same and has sought the detail from the petitioner, no interference is desirable. If the petitioner is given a clean chit in the proceedings of the show cause notice, it may request the concerned authority to consider the case of extending the Export Obligation period which has been suspended presently and it would be for the authority to consider such a request at an appropriate time, if the factual circumstances based on the substantive material eventually tilt in favour of the petitioner. This petition deserves no merit and consideration, and stands dismissed.

Summary

Issues Involved:
1. Validity of unilateral suspension of Export Obligation Period (EOP) extension.
2. Alleged fraudulent activities related to fulfillment of Export Obligation.
3. Legality of show cause notice issued for non-fulfillment of Export Obligation.
4. Petitioner's request for further extension of EOP.

Detailed Analysis:

1. Validity of Unilateral Suspension of Export Obligation Period (EOP) Extension:
The petitioner, engaged in the printing business, was granted an EPCG Authorisation on 09.09.2008 for importing printing machines under the EPCG Scheme, with an obligation to export goods worth US$ 9,29,268.71. Due to global economic slowdown, the petitioner could not fulfill the Export Obligation within the stipulated period and sought extensions. The first extension was granted until 09.09.2018, and subsequently, a second extension was granted until 09.09.2020. However, respondent No.3 unilaterally suspended this extension on 22.01.2019 without providing any reasons or opportunity for a hearing, which the petitioner contended was arbitrary and contrary to law. The court noted that the suspension was based on inputs from the Directorate of Revenue Intelligence (DRI) regarding alleged misuse of the EPCG Scheme by the petitioner.

2. Alleged Fraudulent Activities Related to Fulfillment of Export Obligation:
The DRI initiated investigations into the petitioner's duty-free imports and alleged that the petitioner, in connivance with M/s. Quarterfold Printabilities, fabricated export documents to falsely show fulfillment of Export Obligation. The show cause notice issued on 05.03.2019 detailed these allegations, including the use of fabricated shipping bills and other documents to masquerade as having exported goods manufactured using the imported capital goods. The court found that the allegations were serious and the suspension of the EOP extension was justified pending the outcome of the investigation.

3. Legality of Show Cause Notice Issued for Non-Fulfillment of Export Obligation:
The petitioner argued that the show cause notice should be stayed until the extension of the EOP was granted. However, the court referred to established legal principles that courts should not interfere at the stage of show cause notice unless it is shown to have been issued without any authority of law. The court emphasized that the purpose of a show cause notice is to afford an opportunity for the petitioner to present their case and that interference at this stage would be premature.

4. Petitioner's Request for Further Extension of EOP:
The petitioner requested the court to direct the respondents to extend the EOP prospectively for two years to enable fulfillment of the Export Obligation. The court noted that once an extension is granted, it cannot be revoked without valid reasons. However, given the serious allegations of fraudulent activities and the ongoing investigation, the court found no merit in granting further extension at this stage. The court held that if the petitioner is exonerated in the show cause proceedings, they may request the concerned authority to consider extending the EOP, which the authority should consider based on the substantive material available at that time.

Conclusion:
The court dismissed the petition, holding that the suspension of the EOP extension was justified in light of the ongoing investigation into alleged fraudulent activities. The court emphasized that the show cause notice should be adjudicated on its own merits and that any further request for extension of the EOP should be considered by the authority if the petitioner is cleared of the allegations.