2014 (9) TMI 963 - HC - Customs

Court Invalidates Penalties on Petitioners for Export Obligations, Clarifies Ownership

SAM MARINE EXPORTS Versus UNION OF INDIA

The court held that the jurisdiction of the 2nd respondent to issue the show cause notice and impose penalties was challenged by the petitioners. The ... Duty demand - Duty against the EPCG authorisation for non-fulfilment of export obligation and violation of paragraph 6.2/6.8 of Exim Policy, 1997-2002 - Held that:- First of all, there is no statutory provision which indicates that the property of an exporter or importer who violates the provisions of the Act or Rules will be a charge for the amount of penalty to be recovered or for any amount due. When the Statute has clearly provided for a mechanism for recovery of the amounts by a process as envisaged under Section 11, and when the statutory provision does not indicate anywhere that any penalty imposed will be a charge on the property which belongs to the defaulter at the time when the licence was issued, such a charge cannot be inferred nor can be imposed on the property. Therefore, the very finding of the 2nd respondent that they have a charge on the property of 3rd respondent is without any basis. It is not a case where the 3rd respondent was the owner of the property. This aspect of the matter was conveniently omitted to be noticed or considered by the Adjudicating Authority. When an issue in relation to right to property is evaluated, the Adjudicating Authority was bound to consider such aspects before taking a cursory approach by forming an opinion that the property belonged to the 3rd respondent. It might be an instance where the 3rd respondent was carrying on the business of running the unit in the property belonging to M/s. Oceanic Products Exporting Company. But, that does not mean that the 3rd respondent has title to the property. - Very initiation of proceedings against the petitioners were without jurisdiction and the said proceedings are liable to be quashed. - Decided in favour of assessee. Issues Involved:1. Jurisdiction of the 2nd respondent to issue the show cause notice and impose penalty.2. Liability of the petitioners for the non-fulfillment of export obligations by the 3rd respondent.3. Validity of the penalty imposed on the petitioners under Section 11 of the Foreign Trade (Development and Regulation) Act, 1992.4. Ownership and title of the property in question.Detailed Analysis:1. Jurisdiction of the 2nd respondent:The main contention raised by the respondent was the maintainability of the writ petition, arguing that Ext. P10 is an appealable order under Section 15 of the Act. However, the petitioners challenged the jurisdiction of the 2nd respondent to issue the show cause notice and impose the penalty. Citing the Supreme Court judgments in *Whirlpool Corporation v. Registrar of Trade Marks* and *Popcorn Entertainment v. City Industrial Development Corporation*, the court held that the writ petition is maintainable if the authority acted without jurisdiction or in violation of principles of natural justice.2. Liability of the petitioners:The penalty was imposed on the petitioners based on their possession and occupation of the property previously owned by the 3rd respondent. The court found that the liability to comply with the export obligation was solely on the 3rd respondent. The petitioners, who had no direct involvement in the export activities, cannot be penalized for non-compliance by another entity. Therefore, fixing liability on a third party who acquired the property should be based on a statutory provision, which was absent in this case.3. Validity of the penalty under Section 11:Section 11 of the Act deals with contraventions and penalties. The court emphasized that Section 11(2) applies to persons who make or abet any export or import in contravention of the Act. The petitioners did not engage in any such activities. Thus, Section 11(2) was inapplicable to them. The adjudicating authority's power under Section 13 to form an opinion that the amount to be recovered is a charge on the property was also questioned. The court noted that there is no statutory provision indicating that the property of an exporter/importer becomes a charge for penalty recovery. Hence, the imposition of a penalty on the petitioners was without legal basis.4. Ownership and title of the property:The petitioners argued that they purchased the property from M/s. Oceanic Products Exporting Company, not from the 3rd respondent. The court observed that the adjudicating authority failed to consider this aspect and erroneously concluded that the property belonged to the 3rd respondent. The court clarified that the 3rd respondent might have operated a business on the property but did not hold the title. Therefore, the proceedings against the petitioners were initiated without proper jurisdiction.Conclusion:The court concluded that the initiation of proceedings against the petitioners was without jurisdiction. The writ petition was allowed, and Ext. P8 notice and Ext. P10 order were quashed to the extent they imposed liability on the petitioners. The department retains the right to recover the penalty from the 3rd respondent, its directors, and their assets in accordance with the law.