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Judgment
T.S. Sivagnanam, J.—By consent, the main writ petition itself is taken up for disposal.
Since, the issue involved in all the three writ petitions are identical and the petitioner in all the three writ petitioner is same proprietorship
concern, the writ petitions are taken up for disposal together.
The prayer in all the three writ petitions are for issuance of writ of Certiorarified Mandamus to quash the order passed by the second
respondent invoking the Bank Guarantee given by the petitioner as against the advance licenses issued to the petitioner.
The facts in writ petition No. 1647/2003 would suffice for disposal of all the three writ petitions. The petitioner is an exporter and was granted
three advance licenses for import of 2,14,268.350kgs of stainless steel without payment of duty with a corresponding obligation to manufacture
and export of 1,61,004.700 kgs of stainless steel utensils. According to the petitioner, they have completed 90% of the export obligation and also
applied for extension for time to complete the export obligation before the first respondent. According to the petitioner in terms of paragraph
4.27.1 of the Export Import Policy for the year 2002-07, the petitioner was directed to execute a Bank Guarantee, even at the time of making an
import. According to the petitioner, invoking the Bank Guarantee is improper, since the second respondent has no authority either under the
Foreign Trade (Development and Regulation) Act, 1982, or under the Export Import Policy framed by the Government of India. Even assuming
the second respondent is entitled to invoke the Bank Guarantee in the absence of any notice from the first respondent, the second respondent
cannot suo-moto take action. It is further contended that even without instruction from the first respondent, revocation of the Bank Guarantee
cannot be done without show cause notice to the petitioner.
The second respondent has filed a counter affidavit contending that the petitioner acquired three advance licenses for import of stainless steel
duty free and they are under obligation to export finished products to the tune of 2,08,548 kgs. It is further contended that the petitioner has not
produced export obligation, discharge certificate from the office of the first respondent and the Bank Guarantees executed by the petitioner, are
those in terms of Customs notification No. 30/1997, by which the petitioner enjoyed exemption from payment of customs duty and upon failure to
fulfill the export obligation, the petitioner himself is bound by the bond executed that the Bank Guarantee could be invoked. Therefore, the second
respondent would contend that the Bank Guarantee is being invoked in terms of the bond executed, which is a statutory bond, pursuant to customs
notification No. 30/1997. It is further submitted that in the case of the petitioner, the Directorate of Revenue Intelligence, on receipt of specific
intelligence that the stainless steel imported under the advance licenses were being misused and the duty free, imported raw material was diverted.
Further, it is the case of the second respondent that when the DRI visited the petitioner''s office premises, there is no such office functioning in the
said premises for the past four years. Based on the out come of the investigation conducted by the DRI, due intimation have been given to the first
respondent and the first respondent have issued show cause notice to the petitioner dated 16.01.2003 for cancellation of the three advance
licenses. The Commissioner of Customs (Exports) also issued show cause notice, calling upon the petitioner to explain as to why, it should not be
held that the export made against the three advance licenses should not be held inadmissible. In the show cause notice, a demand of Rs.
85,00,327/- for customs duty was also made apart from other things. No reply was submitted to the show cause notice and when a reminder was
sent, the petitioner through their counsel alleged that no show cause notice was received. Therefore, a copy of the show cause notice was sent to
the learned Counsel for the petitioner, however thereafter, no reply was received and after affording sufficient opportunity, the Commissioner of
Customs (Exports) passed an order in original dated 29.05.2004, demanding duty. According to the respondents, the order in original has become
final and no appeal has been filed against such order.
I have carefully considered the submissions on either side and perused the materials available on record.
Though elaborate submissions have been made on the facts, the short questions, which arises for consideration is as to whether, the second
respondent is justified in invoking the Bank Guarantee. Admittedly, the petitioner had imported the stainless steel under three advance licenses
without payment of duty with a corresponding obligation to export manufactured stainless steel utensils. It is the case of the petitioner that they have
completed 90% of the export obligation, but however, from the order in original passed by the Commissioner of Customs (Exports) dated
29.05.2004, it is seen that on the basis of the information furnished by the DRI, the first respondent has also issued show cause notice for
cancellation of the advance licenses. However, the second respondent being an authority, functioning under the provisions of the Customs Act is
bound by the notification and is entitled to enforce the statutory bond executed by the petitioner for while availing the benefit of Customs
notification No.30/97. As long as the export obligation, discharge certificate is not produced before the Customs authority, they are entitled to
invoke the provisions of the bond executed by the petitioner. However, in the instant case, the fact appears that there has been violation of
conditions of the notification itself as it is stated that the office premises of the petitioner does not exist in the place given in the licence, which would
obviously mean that there were no manufacturing factories. In fact the Hon''ble Division Bench of this Court in Commissioner of Customs (Sea)
Vs. Customs Excise and Service Tax Appellate Tribunal and Gaur Impex, considered the case, where advance licenses were obtained by
misrepresentation without even having manufacturing facilities and the Hon''ble Division Bench also took note of the independent powers of both
the first respondent Department as well as the Customs Department and held that the claim of the department was justified. The following
observations of the Hon''ble Division Bench would very relevant for the purpose of this case:
Now coming to the Judgment of the Division Bench of this Court in 2004 (177) ELT 57 (Mad) we find the Judgment would apply to the facts
of the present case in its entirety. In the said case the Writ Petitions were filed challenging the summons issued u/s 108 of the Customs Act. The
Learned Single Judge of this Court dismissed the Writ Petition as against which the appeals were filed before the Division Bench. The Appellants
placed reliance on the Judgment of the Hon�ble Supreme Court in the case of East India Commercial Company case, Sampat Raj Dugar and
Titan Medical Systems (as referred above) and stated that the Customs Authorities had no jurisdiction to issue to notice u/s 108 of the Customs
Act. The Division Bench of this Court after considering the law laid down by the Hon�ble Supreme Court in the case of Sheshank Sea Foods
case held as follows.
Though there will be no question of the binding principle as laid down by the Supreme Court being watered down, in our opinion, the
observations have been made in an entirely different context. There was no question regarding the power of the Customs authorities to initiate
investigation or the enquiry, as the case may be. Again, this was not a case of manufacturing licence but pertained to the import of raw materials
under the exemption notifications issued under the EXIM policy. The basis issue in the proposed enquiry by the Customs Authorities appears to be
as to whether there at all was a manufacturing factory or manufacturing unit for utilizing the imported stainless steel sheets and if such manufacturing
unit was not there, how the imported stainless steel sheets were actually utilized. It is also true that the further question in that enquiry is going to be
as to whether it was the imported material alone which was used in the manufacturing activity. Now, if there was no manufacturing unit available or
any such manufacturing unit as would have the capacity to manufacture the goods worth crores of rupees, how was the imported stainless steel
utilized. The question would not only be misrepresentation while getting the Advance Licence but also about the utilization of the imported material,
which would squarely fall u/s 111(o) of the Customs Act. In our opinion, the decision in Titan case, cited supra, also does not help the Appellants.
We do not think that such an approach would be a right approach to the problem. We have already clarified that even if the redemption of the
licences is completed, still there would be a power in the Customs Authorities to effect the investigation, or, as the case may be, enquiries to see
that whether there was any evasion of the Customs duty. Therefore, in our opinion, the discharge of the export obligation per se cannot put an end
to the whole story.
Insofar, as the second notification, Notification No.30/97, is concerned, a similar provision regarding the export obligation also appears there.
However, there appears to be a specific clause added., i.e. Clause (vii), which is to the following effect:
(vii) exempt materials shall not be disposed of or utilized in any manner except for utilization in discharge of export obligation nor for replenishment
of such materials and the materials so replenished shall not be sold or transferred to any other person.
Learned Senior Counsel appearing on behalf of the Department very heavily relies on this clause and says that it is in this direction that the enquiry
has to be made. We agree with the Learned Senior Counsel that there can be a scope of enquire and the summons issued u/s 108 of the Customs
Act for effecting the enquiry such as these cannot be bad for the lack of jurisdiction.
It is to be noted that the Division Bench of this Court in a case of South India Exports as referred above held that even the discharge of the
export obligation per se cannot put an end to the whole matter. The facts in the present case is worse, in the sense that the importer made a false
statement for the purpose of securing an advance license with Actual User Condition. The fact that the time within which he had to discharge his
obligation has not come to an end, does not advance the case of the importer. The basis for his discharge of the export obligation is existence of a
factory. The basis does not exist, the address given is a false address, so the whole edifice falls. The fact that the importer could affect his export
obligation through job workers and the existence of a factory is not a sine quo non, does not advance his case either. The importer claimed he had
a factory when he had none. So, whether he could have completed the manufacture otherwise hardly matters. For the purpose of obtaining such
license with Actual User Condition, it is mandatory that the importer should be a Manufacturer - Exporter. The importer made a false declaration
of being one. Having made such a false declaration and obtained a license, the importer cannot be permitted to now say that the imported material
is freely importable under OGL and therefore should be allowed to be clear on merit rate. The Tribunal fell in error in permitting the clearance of
the goods on merit rate. By doing so the Tribunal has virtually set at naught the purpose behind issuance of an exemption notification. If the
Respondent is not an actual user he would not be entitled to utilize the license. The license having been secured by adopting fraudulent method
would not confer any right on the importer and as such he cannot be allowed to plead any equity. Therefore we find that the order passed by the
Tribunal is not sustainable and liable to be set aside.
The above decision of the Hon''ble Division Bench has also been confirmed by the Hon''ble Supreme Court in SLP No. 14690/2009, dated
07.10.2009. Thus, the questions raised in the writ petition have to be answered against the petitioner and it is to be held that when there is a
violation of a notification issued under the Customs Act, the second respondent would be justified in initiating action. Therefore, there is no error in
the action of the second respondent in invoking the Bank Guarantee.
In the result, the writ petition fails and its dismissed. However, it is made clear that it is always open to the petitioner to agitate the remedies
available in law against the order-in-original passed by the Commissioner of Customs (Exports), dated 29.05.2004, if there so advised.
Consequently, connected miscellaneous petitions are closed. However, there shall be no order as to costs.