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TMI Blog1998 (4) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... he Customs Act pending disposal of the writ petitions. 2. The facts in brief in W.P. No. 23103 of 1996 are that the petitioner is a proprietary concern engaged in the business of textiles. It is registered with the Deputy Director General of Foreign Trade, Government of India, Ministry of Commerce as an export house and was assigned Export Code No. 0991015823. Its principal office is at Hyderabad and branch office at Bombay. The Government of India formulated policy governing exports and imports from and to India respectively from 1-4-1992 to 31-3-1997 under the Act. Under Chapter VII of the Export and Import policy duty exemption scheme is provided and under the said scheme a person can import raw material duty free for the purpose of manufacture and exporting the same on value addition. An advance licence is granted which is a value based or quantity based licence. Under this scheme an advance licence is granted for the import of inputs/raw materials without payment of basic customs duty. Such import shall be subject to fulfilment of time bound export obligation and value addition as may be specified in the licence and in accordance with the policy and procedure. 3. The peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der in due course of the transferable licence of M/s. R.K. Exports. The quantity of the material that could be imported under the transferable licence holder by M/s. Abhinandan Exports 239.75 metric tonnes whereas the first petitioner had imported only 109 metric tonnes of valued at 3,86,406 US under its advance licence and the same was surrendered to M/s. Abhinandana Exports on 20-6-1995 with intimation to the Government. On account of the surrender there is no loss of foreign exchange as M/s. Abhinandana Exports could have imported 238.75 metric tonnes of POY and PFY valued at 4,88,345 US $ without any corresponding obligation to export value added finished product. The fact of surrender to M/s. Abhinandana Exports on 20-6-1993 was intimated to the respondents. 4. The respondents, however, started initiating coercive steps against the petitioners and are likely to initiate prosecution against the petitioners under the Customs Act and under the provisions of the Act. The action of the respondents both under the Act and Customs Act is arbitrary and discriminatory, hence this writ petition was filed by the petitioner. 4(a)W.P. No. 23103 of 1996 is filed by M/s. Sriram. Mills, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cember, 1995. The petitioner applied for extension of time to fulfil the export obligation. However, on 10-1-1996 the premises of the petitioner was raided, hence this writ petition. 4(f). W.P. No. 20306 of 1996 is filed by M/s. Rajaji Associates represented by its proprietor Mr. R.K. Sharma. The petitioner was doing business in garments and obtained an advance licence for goods under Duty Exemption Scheme (hereinafter referred to as Scheme). He applied for import of 501 tonnes of raw silk worth Rs. 9,58,800 US $. The licence ends on 1-3-1995 and he applied for extension of the licence on 29-2-1996. He imported 2,14,722 Kgs. Since the licence was not extended the petitioner is challenging the action of the respondents in taking action under the Customs Act and the Act. The facts are more or less similar to the facts mentioned in the connected W.P. No. 27304 of 1996. 4(g). In W.P. No. 25905 of 1996 the petitioner applied for advance licence for import of 100% mulberi raw silk yarn. The facts are more or less similar to the facts mentioned in W.P. No. 20306 of 1996. 4(h). Crl.P. No. 5700 of 1996 is filed by Suresh Kumar Agarwal, S/o. B.P. Agarwal for quashing the proceedings i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port duty on condition that on manufacture of finished goods they should export them. Failure to satisfy the export obligation entitles respondents 3 4 to take action in accordance with the Act, and any order passed under the Act is appealable and since no action is initiated, the writ petition is premature. 7. According to the counter of Assistant Director, Directorate of Revenue Intelligence, Department of Customs, the petitioner M/s. Sriram Mills in terms of the licence, imported 232.974 tonnes of Polyester Yarn and 4219.535 Kgs. Disperse Dyes. The goods were allowed clearance by the customs department at Mumbai without payment of customs duty in terms of the Notification No. 204 of 1992 dated 19-5-1992. In terms of the customs Notification, export/import Policy 1992-97 read with Note Book of Procedures 1992-97 the duty free raw material imported is required to be used in the manufacture of fabric for the purpose of export and cannot be sold or transferred or disposed of otherwise until and unless the export obligation stipulated in terms of the licence is fulfilled. The export obligation under the licence cannot be waived and unless and until the export obligation is fulfil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act are Sections 3, 4, 5, 9, 11, 14 and 15. Prior to the commencement of this Act, an Ordinance was issued known as Foreign Trade (Development and Regulation) Ordinance, 1992. Section 3 of the Act reads as follows : 9. Powers to make provisions relating to imports and exports : (1) The Central Government may, by order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. (2) The Central Government may also, by order published in the Official Gazette, make provision for prohibiting, restricting or otherwise regulating, in all cases or in specified classes of cases and subject to such exceptions, if any, as may be made by or under the order, the import or export of goods. (3) All goods to which any order under sub-section (2) applies shall be deemed to be goods the import or export of which has been prohibited under Section 11 of the Customs Act, 1962 (52 of 1962), and all the provisions of that Act shall have effect accordingly. 10.Section 4 provides for continuance of orders made under the Imports and Exports (Control) Act, 1947 insofar as they are not inconsistent w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the condition of manufacture and export. An application for grant of duty free licence is to be made in the format given in the Appendix-XVII. There are two types of licences. One is value based advance licence and the other is quantity based advance licence. 17.Para 118 of the Scheme provides that, at the time of the issue of the licence the acceptance of the legal undertaking given by the applicant to the licencing authority concerned in the form given in Appendix 17 will be endorsed on the reverse of the advance licence. In addition, before clearance of goods through the customs, the importer shall execute a bond supported by a Bank guarantee with the customs authorities in the manner as may be prescribed by the Department of Revenue, Ministry of Finance from time to time. Para 122(a) of the scheme provides that the imports and exports shall be restricted in relation to the individual duty free licence issued under this scheme. The export obligation may be fulfilled by export by the same party which has placed the order or by any other party. Para 124 provides for the period during which the export obligation is to be fulfilled and for extension of the said period, Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of Section 4 of the Act all orders issued under the Imports and Exports Control Act, 1947 shall be deemed to be orders issued under Section 3(2) of the Act. A licence is to be obtained for the purpose of import and export of the goods and the said licence shall be granted subject to the conditions under the Rules. If there is a contravention of the provisions of the Act, the goods are liable to be confiscated and the person is liable to pay a penalty. The confiscation of the goods for violation of the provisions of the Act and the penalty imposed is in addition to the punishment which a person is liable for violation of any other provisions of any other law for the time being in force. Against the order of the confiscation, cancellation of licence or suspension of licence an appeal lies to the Central Government, in case the order is that of the Director General and to the Director General if the order is made by an officer subordinate to him. The licence granted shall be subject to the condition that the goods shall not be disposed of except in accordance with the provisions of the policy or in the manner specified by the licensing authority in the licence. If this cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee/Legal Undertaking as in the proforma given in Appx. XXXIV-A/XXXIV-B of the Hand Book of Procedures, 1992-97 for fulfilling export obligation within this licence. The Bond backed by Bank Guarantee/Legal Undertaking shall be valid for a period of three years until all export obligation under aforesaid licence are not fulfilled. (3) The goods imported against this advance/Special Imprest licence shall be utilised in accordance with the provisions of the customs Notification No. 204 and 203 Customs dated 19-5-1992 as amended from time to time. (4) In the event of the firm's failure to fulfil the export obligation within the prescribed time limit as stipulated above the Bond backed by Bank guarantee/Legal undertaking will be endorsed and the shortfall in the export obligation shall be adjusted against the firm's future/REP entitlements. The licence holder shall also pay to Customs Authorities the duty on the proportionate quantity of the material corresponding to the products not exported. The above action will be without prejudice to any other action that may be taken against the licence holder under the provision of Import Trade Control Regulations. 20.A reading of the licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . One of such goods are covered by Section 111 (o) i.e. any goods imported subject to a condition are liable to be confiscated if there is a violation of the condition subject to which they are imported. Section 112 provides for the penalty for improper importation of goods which says any person who in relation to any goods, does or omits to do any act which act or omission would render such goods to confiscation under Section 111 or abets to doing or omission of such an act or, shall be liable for the penalties mentioned therein. Section 143A provides for deferment of duty and the relevant part of this section is Section 143(a)(s)(b). It says that the permission for clearance without payment of duty under sub-section (1) shall be subject to condition. (It is not necessary to refer to the other part of this section). 25. A comparative reading of the Act and the Customs Act, 1962 indicates that the Act provides for restricting, prohibiting and regulating by publishing orders and issue of licences for import and export of goods and consequent penalties for violation of the orders and the licence, while the Customs Act provides for levy of duties on import and export of goods into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a legal undertaking before the Licensing Authority concerned, for complying with the conditions of this notification; and (b) makes a declaration before the Assistant Collector of Customs binding himself to pay on demand an amount equal to the duty leviable but for the exemption, on the imported materials in respect of which the conditions specified in this notification have not been complied with: Provided that a bond or a legal undertaking and the declaration shall not be necessary in respect of imports made after discharge of export obligation in full, as evidenced by endorsement of Licensing Authority in the said Certificate; (iii) that the export obligation is discharged, within the period specified in the said Certificate or within such extended period as may be granted by the Licensing Authority or the Chief Controller of Imports Exports, by exporting goods manufactured in India in respect of (iv) exempt materials shall not be disposed of or utilised in any manner, except for utilisation in discharge of export obligation, before the export obligation under the said licence has been discharged in full and export proceeds realised; provided that the materials importe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipulated in the terms of the licence is fulfilled. In contravention of the above provisions, the petitioners have disposed of the imported raw materials as soon as they were imported direct from the port of importation at Mumbai, therefore, there is an evasion of customs duty to an extent of Rs. 2.54 crores. 29. The question is what is the effect of failure to fulfil export obligation under the Act and under the Customs Act, 1962 as pointed out in the earlier paragraphs under the Act there are two types of violations. (1) violation of conditions of licence granted under the Act r/w policy and the other violation of control orders issued under Section 3(2) of the Act. On the facts of the case it is not the case of the respondents that the petitioners have violated the Control Orders published under Section 3(2) of the Act. Therefore, there is no violation of any of the Control Orders published under Section 3(2) prohibiting, restraining or regulating the import and export of goods. If there is no violation of the Control Orders published under Section 3(2) of the Act, Section 3(3) of the Act has no application. The learned Counsel for the petitioner is right in his contention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nswer to the above question is in the negative. It is not necessary for the customs authorities to await for the decision of the Licensing Authorities on the question whether non-fulfilment of export obligation is bona fide or otherwise. When there is violation of exemption notification, the customs authorities are competent to take action under the Customs Act, 1962. The reason being as we have already stated that Section 12 of the Act provides that no penalty imposed, or confiscation made under the Act shall prevent the imposition of any other punishment to which the person affected thereby is liable under any other law for the time being in force. Therefore, the action for violation of conditions of licence namely failure to fulfil the condition imposed under exemption Notification No. 204 of 1992 can be taken under the Customs Act, 1962 in addition to the action under the Act. Therefore, the contention of the learned Counsel that without deciding the default in fulfilling the export obligation is bona fide or not under the policy of the Act, no action can be initiated under the Customs Act, 1962 cannot be sustained. The power to take action for violation of the conditions of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct inasmuch as the goods were not to be used for substantial expansion of the unit of the appellant but were to be used for setting up a new unit by the Company. The appellant, after getting goods cleared from the customs transferred the same to the company and thereby the appellant failed to observe the condition on the basis of which the benefit of concessional rate duty under Heading 84.66 of the Customs Tariff was obtained. The goods were, therefore, liable to confiscation under Clause (o) of Section 111 of the Act and penalty could be imposed under Section 112 of the Act. 36. In Sheshank Sea Foods Pvt. Ltd. v. Union of India - 1996 (88) E.L.T. 626 (S.C.), the Supreme Court held as follows : "We do not find in the provisions of the Import and Export policy or the Handbook of procedure issued by the Ministry of Commerce, Government of India, anything that even remotely suggests that the aforesaid power of the Customs authorities had been taken away or abridged or that an investigation into such alleged breach could be conducted only by the Licensing Authority. That the Licensing Authority is empowered (to) conduct such an investigation does not by itself preclude the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stage the petitioners have approached this Court and obtained stay. According to the respondents the petitioners themselves have voluntarily paid certain amounts of customs duty while the petitioners contend that they were coerced to pay the said customs duty and it was not a voluntary payment. Be that as it may, since the exemption notification itself says that the importer is liable to pay the customs duty leviable, but for the exemption of imported material on demand, it is open to the Customs Authorities to initiate the proceedings in accordance with law for the recovery of the duty as the petitioners have admitted that they have not fulfilled the export obligation. Therefore, they are liable to pay the duty. The notification says "on demand an amount equal to the duty leviable." In other words the petitioner is liable to pay duty "on demand" by the Assistant Collector of Customs only. 40. The argument of the learned Counsel for the petitioners relying on East India Commercial Co. Ltd., Calcutta v. Collector of Customs -AIR 1962 SC 1893, that in the absence of an action taken by the Licensing Authority under that Act, the Customs Authorities do not have any jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mentioned in the licence the goods were imported. Under Section 5 if there is a violation of condition of licence, penalty can be imposed and confiscation of goods is permissible under Section 167(8) of the Sea Customs Act for improper importation of the goods into India. Since it is not a case of importation in violation of Section 167(8) of Sea Customs Act, no proceeding for confiscation can be made. 42. It is also a case of violation of a condition of the licence, therefore, confiscation of the goods under Section 167(8) of the Customs Act could not have been made. The principle laid down in the case is not applicable to the facts of the case on hand. 43. In Union of India v. Sampath Raj Dugar, 1992 (58) E.L.T. 163 (S.C.) respondent No. 3 has obtained an advance import licence for importing raw silk valid for a period of 18 months from the date of its issue. The licence was granted subject to the condition that the raw silk imported should be utilised for manufacturing garments which are to be exported by respondent No. 2. Respondent No.1 is an Indian national resident abroad doing business at Hongkong in the name of UNISILK. Respondent No. 2 did not fulfil the obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of the Act empowers the concerned authority to grant or renew a licence and the said licence is subject to the conditions imposed under Rule 6(2) of the Rules framed under the Act. We have also pointed out that under Section 5 of the Act the Central Government has to formulate the export and import policy and under the export and import policy the Duty Exemption Scheme has been formulated. Under para 128 of the scheme the cases of bona fide default in fulfilment of export obligation can be regularised by the licensing authority in the manner indicated in the said para. The case of the petitioners is that on account of the fact that the international party went back on its commitment and since the raw material imported by the petitioners being a petroleum product loses its strength with the passage of time, unless the said raw material is texturised and weaved, it becomes disfunctional and hence there was an urgency to transfer the commodity to an authorised agent and therefore, they have surrendered the raw material to M/s. Abhinandana Exports which was the holder in due course of the transfer of licence of M.S.R.K. Exports as having not received any reply to their letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of the petitioners were recorded and they were detained for three days i.e. from 7-10-1996 to 9-10-1996. An arrest memo was prepared on 8-10-1996 and the petitioner was produced before the Special Judge for Economic Offences on 9-10-1996, therefore, the petitioner filed a Criminal Petition No. 4366 of 1966 on the file of the High Court for quashing on the ground that the said proceedings are without jurisdiction. 48. The detention of the petitioners pending investigation is, in our view, a high-handed action. As pointed in the earlier paragraphs on failure to fulfil the export obligation, the liability to pay an amount equivalent to the duty leviable, but for the exemption on the imported material arises and the said duty is payable only on demand by the petitioners. The question of prosecution and confiscation of goods for non-payment of the customs duty arises provided there is no reasonable cause for violating the conditions of licence and the exemption notification. Before initiating proceedings and detaining the petitioners they could have issued a demand notice for payment of duty payable by the petitioners. In our view, the action of the Revenue Intelligence appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate orders in accordance with law. It is open to the Customs authorities as well as the licensing authority to take action pursuant to the decision taken by them on the representations filed by the petitioners seeking regularisation of the default committed by them. Till a decision is taken in the representation filed by the petitioners, the prosecution is stayed. The Director of Revenue Intelligence is also directed not to take any steps without specific authorisation from Customs/ Licensing Authority. 54. With the above directions, the writ petitions and the Criminal Petition are disposed of. 55. [Assent per : T.N.C. Rangarajan, J.]. - While agreeing with the directions proposed to be given by Justice Ms. Maruthi, I wish to highlight certain aspects of the case which call for urgent attention of the Government. The Imports and Exports Control Act, 1947 was intended to control the trade. Customs exemption given under the Customs Act was independent of that Imports and Exports Control Act with the result that any violation of the Customs regulations were taken care of under the Customs Act independent of the Imports and Exports Control Act. Consequently, the Supreme Court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is rejected as irrelevant for such a drastic action. The picture that emerges is that an investigating agency takes advantage of the situation to harass the petitioners because there is nothing on record to show that any information other than whatever is already on record has been obtained by such an investigation. 58. The case of the petitioners is that in case of default, it is the Licensing Authority that has to take steps, recover the Duty payable and remit the same to the Customs as envisaged by the Finance Ministry's letter F. No. 605/17/92-DBK, dated 18-1-1994 and Ministry of Finance Circular No. 21/95-Cus., F. No. 307/91-FTT, dated 10-3-1995. The collection of cheques without any demand and without disposing of the application for regularisation was highhanded. 59. It appears to me that there is much force in these contentions because any agency given the power to investigate irregularities derives its power and must report back to the Licensing Authority. Even if it can initiate proceedings for investigation, the Revenue Intelligence cannot act independent of the two Departments so as to collect the money when the Department concerned itself has not raised a demand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es under two separate enactments arising from the same facts, it would be appropriate if they co-ordinate with each other and work in tandem. Otherwise, complaints of harassment are sure to arise as the situation itself will be a fertile ground for corruption. It is, therefore, imperative that the Government takes a serious look at this situation and gives proper instructions particularly by evaluating the role of the Directorate of Revenue Intelligence. 62. In a case such as this where there is an admitted contravention and all the facts are already on record, the question of arresting anybody may even involve violation of Human Rights as it would appear as if the agency is looking for a confession as the easy way out. Moreover, the conferment of powers under Customs Act does not make the Investigating Agency of the Customs Department for taking such decisions. Added to this, if parallel proceedings are allowed in respect of the same irregularity, it would be arbitrary and unreasonable. It is also a moot question whether and in what circumstances criminal prosecution should be launched on the same facts indicating a default which could be either regularised or visited with a civ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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