Apar Industries Ltd. vs Joint Director General of Foreign Trade

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 17 June, 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 for 1992-1997 (''Exim Policy''). On 5 July, 1993, Apar Limited exported 11,500 Fluorescent Tube Lamps to Singapore under Shipping Bill No. 515202. On 13 August, 1993, a value based advance license 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 license, 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 13 November, 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 10 February, 2003 under Section 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 fulfil the prescribed export obligation in respect of the value based advance license in question. On 30 May, 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 noticee had not submitted any document in respect of the fulfilment 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 17 September, 2009. The Appellate Authority noted the submission of the Petitioner that the entire export obligation was fulfilled and foreign exchange was realized. 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 fact, 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 24 December, 1992, the lamps division of Apar Limited was spun off to a company by the name of Apar Lamps Private Limited. On 22 January, 1993, the name of Apar Lamps Private Limited was changed to GE Apar Lighting Private Limited;

(ii) An application for a license was made by Apar Limited. The value based license 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 fulfilment of the export obligation by Apar Limited;

(iii) Under the Exim Policy of 1992-1997, it was contemplated that exports could be made in anticipation of a grant of license. The advance license or the materials imported against it was freely transferable after the export obligation was fulfilled and the export proceeds were realized. In the present case, the exports were effected by Apar Limited on 5 July, 1993 against which a value based license was created on 13 August, 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 for 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 fulfilment of the export obligation;

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

(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 fulfil the export obligation as a manufacturer-exporter as a result of which the imposition of the penalty was fair and proper.

The Exim Policy for 1992-1997 stipulates in Paragraph 48 that an advance license was issued for the duty free import of inputs. Such a license was to be issued in accordance with the license and policy and procedure in force on the date of the license and was to be subject to the fulfilment of a time bound export obligation and value addition, as may be specified. An advance license could be either value based or quantity based. Paragraph 49 stipulated that under a value based advance license, any of the inputs noted in the license may be imported within the total CIF value for the inputs. Under a value based advance license, both the quantity and FOB value of the exports to be achieved shall be specified and it was obligatory on the part of the license 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 license code number, a specific export order/letter of credit and is in a position to realize 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 license or the materials imported against it were to be freely transferable after the export obligation has been fulfilled, export proceeds realized and the bank guarantee/letter of undertaking redeemed.

The value based advance license which was granted to the Petitioner was as a manufacturer-exporter. The license 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 fulfilment of the export obligation imposed under the license. 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 5 July, 1993 after the receipt of the application for a license on 16 June, 1993, but before the issuance of the actual license on 13 August, 1993. There was a breach on the part of the Petitioner of the conditions of the advance license 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.

Under Section 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 under Section 11(2).

In the present case, as the facts before the Court would indicate, there was a scheme of arrangement dated 17 December, 1992, under which a division of Apar Limited was spun off to Apar Lamps Private Limited, which came to be named on 22 January, 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 realized. 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. 1.00 lakh (Rs. 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.