Apar Industries Ltd. vs Joint Director General of Foreign Trade and Others

Rule. Counsel for the respondents waives service. By consent, the rule is made returnable forthwith. The writ petition is taken up for hearing and final disposal, by consent and on the request of learned counsel. At the material time, the petitioner was known as Apar Limited and was engaged in the manufacture and sale of fluorescent tubes. On June 17, 1993, the first respondent allotted in the name of Apar Limited a file number for the issuance of a value based advance license with DEEC books for the import of glass tubes and other material with a condition of export obligation as provided under the Export and Import Policy 1992-1997 ("Exim Policy"). On July 5, 1993, Apar Limited exported 11,500 fluorescent tube lamps to Singapore under shipping bill No. 515202. On August 13, 1993, a value based advance licence was issued by the first respondent (bearing No. 000316317 for a CIF value of Rs. 1,12,591.63) together with a DEEC book for the import of glass tube shells and other material. Under the terms of the licence, Apar Limited was obliged to export 11,500 fluorescent tube lamps of the aggregate value of Rs. 2,25,184. Under the advance license, Apar Limited imported 10,75,000 kgs. of duty free inputs under a bill of entry dated November 13, 1993 with a CIF value of Rs. 1,12,583. An endorsement was thereupon made in the DEEC book.

A notice to show cause was issued to Apar Limited on February 10, 2003 u/s 14 of the Foreign Trade (Development and Regulation) Act, 1992, to show cause as to why a penalty should not be imposed for failure to fulfill the prescribed export obligation in respect of the value based advance licence in question. On May 30, 2008, the Joint Director General of Foreign Trade passed an order imposing a fiscal penalty of Rs. 5.60 lakhs on Apar Limited. This was on the basis that the notice had not submitted any document in respect of the fulfillment of its export obligation. The order of adjudication was passed on a computation of customs duty together with interest payable in the amount of Rs. 3,65,849. In appeal this order has been confirmed by the Additional Director General of Foreign Trade on September 17, 2009. The appellate authority noted the submission of the petitioner that the entire export obligation was fulfilled and foreign exchange was realised. However, the appellate authority noted that Apar Limited was a manufacturer-exporter. While the shipping bill showed that the export was made by Apar Limited, form AR-4 showed that the goods which were exported were, in tact, manufactured by GE Apar Lighting Private Limited. The appellate authority took note of the submission that GE Apar Lighting Private Limited was a spun off company controlled by Apar Limited, but since no documentary evidence was produced in that regard, the defense was not accepted and the imposition of the penalty was confirmed.

Learned senior counsel appearing on behalf of the petitioner submits that:

(i) Under a scheme of arrangement dated December 24, 1992, the lamps division of Apar Limited was spun off to a company by the name of Apar Lamps Private Limited. On January 22, 1993, the name of Apar Lamps Private Limited was changed to GE Apar Lighting Private Limited;

(ii) An application for a licence was made by Apar Limited. The value based licence was issued in the name of Apar Limited. The shipping bill was in the name of Apar Limited together with a bill of entry. In the circumstances, it was urged that the export obligation was duly fulfilled. The fact that the goods were manufactured by GE Apar Lighting Private Limited, would make no difference to the fulfillment of the export obligation by Apar Limited;

(iii) Under the Exim Policy 1992-1997, it was contemplated that exports could be made in anticipation of a grant of licence. The advance licence or the materials imported against it was freely transferable after the export obligation was fulfilled and the export proceeds were realised. In the present case, the exports were effected by Apar Limited on July 5, 1993 against which a value based licence was created on August 13, 1993. Once the export obligation was fulfilled, the license as well as the material imported became freely transferable. In the circumstances, it was submitted that no case for imposition of penalty was made out.

On the other hand, it was urged on behalf of the respondents that:

(i) Under the terms of the Exim Policy 1992-1997, the petitioner was registered as a manufacturer-exporter. The obligation of export was of the petitioner in that capacity and hence, it was obligatory on the part of the petitioner to manufacture the goods which were required to be exported in fulfillment of the export obligation;

(ii) The advance licence would indicate that there was no supporting manufacturer;

(iii) Admittedly, though the goods were exported by the petitioner, the petitioner had not manufactured the goods. Consequently, there was a breach on the part of the petitioner to fulfill the export obligation as a manufacturer-exporter as a result of which the imposition of the penalty was fair and proper.

The Exim Policy 1992-1997 stipulates in paragraph 48 that an advance licence was issued for the duty free import of inputs. Such a licence was to be issued in accordance with the licence and policy and procedure in force on the date of the licence and was to be subject to the fulfillment of a time bound export obligation and value addition, as may be specified. An advance licence could be either value based or quantity based. Paragraph 49 stipulated that under a value based advance licence, any of the inputs noted in the license may be imported within the total CIF value for the inputs. Under a value based advance licence, both the quantity and FOB value of the exports to be achieved shall be specified and it was obligatory on the part of the licence holder to achieve both the quantity and FOB value of the exports specified in the license. Paragraph 59 stipulated conditions of eligibility and provided that any merchant-exporter or manufacturer-exporter who holds an import-export licence code number, a specific export order/letter of credit and is in a position to realise the export proceeds in his own name, may apply for a duty free license. Under paragraph 66, exports made from the date of receipt of an application under the scheme by the licensing authority, were to be accepted towards the discharge of the duty obligation. Paragraph 67 provided that the value of the quantity based advance licence or the materials imported against it were to be freely transferable after the export obligation has been fulfilled, export proceeds realised and the bank guarantee/letter of undertaking redeemed.

The value based advance licence which was granted to the petitioner was as a manufacturer-exporter. The licence conditions stipulated a requirement that within thirty days of the date of expiry of the export obligation period, the licensee was to submit documents to prove the fulfillment of the export obligation imposed under the licence. As a manufacturer-exporter, the petitioner was obliged to manufacture and export goods of the description and FOB value as stipulated in the advance license. The export, as paragraph 66 of the Exim Policy permitted, could be effected upon the receipt of an application under the scheme by the licensing authority towards the discharge of the export obligation. That is how the export was effected on July 5, 1993 after the receipt of the application for a licence on June 16, 1993, but before the issuance of the actual licence on August 13, 1993. There was a breach on the part of the petitioner of the conditions of the advance licence because the goods which were exported were admittedly not manufactured by the petitioner, but were obtained from GE Apar Lighting Private Limited. The AR-4 form was in the name of that company. This is impermissible since, as a manufacturer-exporter, it was for the petitioner to manufacture and export goods of the specified description and value. The finding of the appellate authority in that regard, therefore, cannot be questioned as incorrect.

u/s 11 of the Foreign Trade (Development and Regulation) Act, 1992, a penalty of not more than five times the value of the goods in respect of which the contravention is made or attempted to be made, is stipulated. The adjudicating authority having regard to the CIF value of Rs. 1.12 lakhs imposed a penalty of Rs. 5.60 lakhs which appears to be the maximum permissible u/s 11(2). In the present case, as the facts before the court would indicate, there was a scheme of arrangement dated December 17, 1992, under which a division of Apar Limited was spun off to Apar Lamps Private Limited, which came to be named on January 22, 1993 as GE Apar Lighting Private Limited. The sequence of events in the present case took place shortly thereafter; the export having taken place within six months thereafter. Under the terms of the Exim Policy 1992-1997, both a merchant-exporter or manufacturer-exporter would otherwise be eligible for duty free licenses on certain conditions. There is no dispute about the fact that exports have been made and that foreign exchange has been realised. In this view of the matter, we are of the view that the imposition of a penalty in the amount of Rs. 5.60 lakhs is disproportionate. In the circumstances, we are of the view that the ends of justice would be met if the penalty which has been imposed by the adjudicating authority is reduced to an amount of Rs. 1 lakh (rupees one lakh only) instead and in place of Rs. 5.60 lakhs. The order of the adjudicating authority as confirmed in appeal, shall stand modified accordingly. Rule is made absolute to the aforesaid extent. There shall be no order as to costs.