2019 (3) TMI 258 - HC - Customs

Court Rules in Favor of Diamond Manufacturers in Export Obligations Penalty Case

The court found in favor of the petitioners, manufacturers and exporters of diamonds, in a case challenging penalty imposition for alleged non-fulfillment ... Imposition of penalty - delay in fulfilling export obligation - extension of time sought - Held that:- It is evident that the petitioners have been regular in fulfilling their export obligations. For the subject export obligation there were difficulties which they highlighted, based on which they could not fulfil the export obligations in time. Yet when they sought a clarification about the consequences of not being able to fulfil these obligations in time, they have been informed that though the licence is issued under the Foreign Trade (Development and Regulation) Act, 1992, and without prejudice to the application of any other prohibition or regulation affecting the import of the goods which may be in force at the time of their arrival, still, when the petitioners brought to the notice of the authorities and prayed that there should be an extension granted to fulfil the export obligations, on 15­12­1997 and 8­1­1998 the petitioners were informed that they must first complete the export obligation under the June, 1997 sight, as also the export obligation under the August, 1997 sight respectively and then their request will be considered. A careful perusal of para 8.19 of the Hand Book of Procedures (Vol. I), 1997­2002, as amended by the public notice, demonstrates that the Licensing Authority may grant extension in fulfilling the export obligation by a period of four months against one or more consignment/sight on payment of penalty of 1% on the unfulfilled FOB value of export obligation. Any request for extension beyond the period of four months can be considered only by a Committee headed by the Director General of Foreign Trade. Hence, implicit in the scheme of the export obligation is a power in the authorities to extend the time. Once there were amendments brought into force and the amendments being effective from 24­8­1998, but the export obligations being fulfilled prior thereto, in the peculiar facts and circumstances, the petitioners should not have been called upon to pay the fine. Petition allowed. Issues:Challenge to orders/communications regarding export obligations and penalty imposition.Analysis:The petitioners, manufacturers and exporters of diamonds, sought an extension of time to fulfill their export obligations due to delays. The Competent Authorities allowed the extension, indicating that penalties would be considered later if obligations were met. A public notice was issued regarding penalties for non-fulfillment, but the petitioners believed it did not apply to their situation. Despite fulfilling obligations, the petitioners were asked to pay a penalty of Rs. 5,59,790. The main argument presented was that penalties should only be imposed after a notice, allowing parties to demonstrate bona fide actions. The respondent argued that penalties are automatic for non-fulfillment. The court found that penalties should not have been imposed in this case, considering the petitioners' regular compliance, difficulties faced, and the authorities' prior communications granting extensions. The court noted that the public notice was not invoked at the time of extension and that the power to impose penalties was introduced later. As the penalties were sought to be recovered despite obligations being fulfilled before the notice's effective date, the court quashed the penalty imposition orders. The petitioners' Bank Guarantee, if active, was to be canceled and returned within two weeks.This judgment highlights the importance of considering the specific circumstances of a case before imposing penalties, especially when extensions have been granted based on prior communications. It underscores the need for clarity in regulations and the proper application of penalty provisions only after due notice and opportunity for parties to demonstrate compliance efforts.