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TMI Blog2005 (5) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... te of issuance of the licence. The said machinery was imported on payment of concessional rate of duty at the rate of 10% amounting to Rs. 10,12,390/-. The appellant executed a bank guarantee on 15-9-1997 in favour of the revenue to secure the duty foregone i.e. Rs. 21,81,700/-. The machinery, after its import, came to be installed at the unit of the appellant No. 1 at Goa. 3. In view of unforeseen and unfortunate conditions such as global economic crisis and certain disputes and demands raised by the Customs and Excise Department, there was complete disruption of manufacturing activities at the appellant's unit. In view of these circumstances and the fact that the foreign collaborator, Mr. Eric Lee became bankrupt in the year 1999, the appellant was not in a position to export at all. The appellant was called upon by the Office of the Deputy Director General of Foreign Trade, Panjim vide letter dated 29-10-1999 to submit six monthly progress reports of exports made by the appellant company duly certified by a Chartered Accountant. A copy of the said letter is produced on record vide Annexure P-2. It was pointed out by the appellant vide letter dated 31-12-1999 that the unit had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at though the period for completion of export obligation in fact expired only in August, 2002, in March 2000, almost two years in advance, the authorities had started taking coercive action against the appellant for non-fulfilment of export obligation. 9. The Deputy Director General of Foreign Trade, Mumbai issued a show cause notice on or about 24-5-2002 informing the appellants about proposed imposition of penalty under Section 11 of the Foreign Trade (Development and Regulation) Act, 1992 for the alleged non-fulfilment of export obligation under EPCG licence, and for the alleged violation of Rules 10, 13 and 14 of the Foreign Trade (Regulation) Rules, 1994. 10. The appellants gave a reply in detail on or about 20-6-2002, inter alia, requesting to drop the proposed action to impose penalty and to withdraw the show cause notice. However, the Deputy Director General of Foreign Trade, Mumbai, without considering the background imposed the penalty of Rs. 9,00,000/- on the appellants vide his order dated 12-7-2002. A copy of which is produced at Annexure P-12. 11. It is against the aforesaid order dated 12-7-2002 an appeal was filed before the Additional Director General of Foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... block year, pay duties of customs plus 24% of an amount equal to that proportion of the duty leviable, on the goods which bears the same proportion as the unfulfilled portion of the export obligation bears to the total export obligation. The licence-holder shall, if he fails to discharge a minimum of 25% of the export obligation prescribed for any particular year for three consecutive years under 10% EPCG scheme or for any particular block of two years for two consecutive blocks under Zero duty EPCG scheme, be liable to pay forthwith, the whole of duties of customs plus 24% interest leviable on the goods imported." 15. It was submitted that in the instant case machinery was imported in September, 1997 and the trial production commenced in March, 1998. However, on 29-10-1999, vide Annexure P-2, Foreign Trade Development Officer, Goa, called upon the appellant to furnish a report about the export, as according to the respondents, no information was conveyed that the appellant exported material. It may be noted that Clause 6.15 of the Handbook of Procedures, Vol. I refers to extension of export obligation period. The said clause reads as under :- "6.15. Extension of export obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how cause notice dated 22-3-2000 in exercise of powers under Section 28 of the Customs Act alleging that the appellant failed to fulfil the export obligation and the conditions specified in Notification No. 28/97, dated 1-4-1997 and thereafter a show cause notice was issued as to why the goods should not be confiscated under Section 111(c) of the Act as also the customs duty of Rs. 21,81,700/- and interest thereon should not be recovered under Section 112 of the Act for non-fulfilment of export obligation. Ultimately the Commissioner, hearing the matter, gave an option to redeem the goods under Section 125 of the Act by paying a fine of Rs. 10,00,000/- and on payment of differential duty of Rs. 21,81,700/- with interest at the rate of 24%. Over and above a penalty of Rs. 2,00,000/- was imposed under Section 112 of the Act. The appellants did not opt for option to redeem the capital goods and, therefore, the bank guarantee furnished by the appellants was encashed and the amount of customs duty came to be recovered. Not only that, but on account of seizure of imported material, the Revenue got the machinery worth Rs. 84,36,581/-. Thus, under the Act the Customs duty has been recovere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny conveyances shall, subject to such requirements and conditions as may be prescribed, be liable to confiscation by the Adjudicating Authority. (6) The goods or the conveyance confiscated under sub-section (5) may be released by the Adjudicating Authority, in such manner and subject to such conditions as may be prescribed, on payment by the person concerned of the redemption charges equivalent to the market value of the goods or conveyance, as the case may be." 21. It is not the case of the respondents that the appellants imported the machinery in contravention of the provisions of the said Act. It is the case of the revenue that the appellants failed to export the goods in view of the obligations. Thus, there is no question of making any export in contravention of the provisions of this Act. The appellants imported the second-hand machinery in accordance with the existing policy at the relevant time. The appellant did not commit breach while importing the machinery. It is not even alleged by the revenue that the appellant committed breach of any of the provisions contained in the Foreign Trade (Development and Regulation) Act, 1992 at the time of import of the capital goods. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction commenced, it cannot be said that at the time of import, there was an intention not to export the goods. Sub-sections (1) and (2) of Section 11 of the said Act cannot be attracted in a case when there is a failure to export the goods when it is beyond the control of a person. If at all one would like to export the goods or import the goods, then he has to do the same in accordance with the provisions of the said Act. If it is found that there is a positive act on the part of a person concerned by exporting the goods in breach of said Act, then sub-section (2) of Section 11 can be attracted. But in the instant case in absence of any act of export, it cannot be said that there is a contravention of the provisions contained in Section 11 of the aforesaid Act. 25. Section 11(2) of the aforesaid Act refers to import of goods. If the contention of the respondents is accepted, then the fact that the policy itself indicates the manner in which the export obligation is to be discharged and any failure, for the reasons if found sufficient, the period can be extended. That itself is sufficient to indicate that non-fulfilment of obligation to export automatically does not amount to a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew to promote exports, and having failed to export the goods, there is a contravention of the policy and hence, the appellant is liable to a penalty as indicated in sub-section (2) of the Foreign Trade (Development and Regulation) Act, 1992. It was further submitted on behalf of the revenue that the Apex Court has held in the case of Director of Enforcement v. M/s. MCTM Corporation Pvt. Ltd. and Others (AIR 1996 SC 1100) that contravention of Foreign Exchange Regulation Act, 1947 would attract penalty under Section 23(1)(a) of the said Act. In that case the respondents failed to repatriate the foreign exchange lying in Malaysia which they had a right to receive in India and had thereby failed to take or refrain from taking action which had the effect of non-securing the receipt of the foreign exchange in this country. The Board in that case took the view that since it was not a case where foreign exchange had been surreptitiously held abroad with any mala fide motive, though it was retained in Kualalumpur deliberately and intentionally, the contravention of the provisions was of a technical nature and, therefore, reduced the penalty to Rs. 2,000/- on each of the directors and to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon it, failing which recovery proceedings were threatened. It is at this stage the petition was filed challenging the order-in-original and the order-in-appeal. However, it is required to be noted that only three grounds were raised which are as under :- (1) Without giving an opportunity of hearing, the order was made; (2) Section 11(2) cannot be invoked after invocation of the bank guarantees; and (3) The order-in-appeal is vitiated since it has not been passed by the appellate committee legally constituted. It is in this background the Court rejected the petition. The Court in para 9 observed that admittedly two bank guarantees covered only the cost of the gold which was supplied to the petitioner. On behalf of the respondent it was submitted that the learned single Judge pointed out that as far as penalty proceedings are concerned, they are of different nature and respondents were authorised to initiate the same by virtue of powers under Section 11(2) of the said Act for failure on the part of the petitioner to fulfil its expert obligations, it was submitted that in view of this, in the instant case, despite the bank guarantee being invoked, action can be taken under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of M/s. Hindustan Steel Ltd. v. State of Orissa [1978 (2) E.L.T. (J 159) (S.C.) = 1969 (2) SCC 627] wherein the Court was required to examine whether the imposition of penalty for the failure to register as a dealer was justified. The Apex Court pointed out in para 8 as under :- "8. Under the Act penalty may be imposed for failure to register as a dealer - Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether a penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of Customs, Bombay, (1984) 18 E.L.T. 533 (CEGAT) and Madhusudan Gordhandas and Co. v. Collector of Customs, Bombay, (1987) 29 E.L.T. 904 (CEGAT), wherein it has been held that in imposing penalty the requisite mens rea has to be established. It has also been observed in Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627 : (1970) 1 SCR 753 by this Court that (SCR HN, p. 753) : "The discretion to impose a penalty must be exercised judicially. A penalty will ordinarily be imposed in cases where the party acts deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation, but not, in cases where there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." 34. In view of what is stated hereinabove, we are of the opinion that this appeal is required to be allowed and the order dated 12-7-2002 made by the Deputy Director General of Foreign Trade, Mumbai, Annexure P-12 and that order dated 29-7-2003 made by the Additional Director General of Foreign Trade, New Delhi, Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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