2019 (10) TMI 68 - HC - Customs

Court quashes orders and recovery notice due to lack of evidence. Petitioner not linked to unauthorized import.

Milton's Ltd., Versus The Union of India, The Appellate Committee constituted by the Ministry of Commerce, Government of India, The Director General of Foreign Trade, The Foreign Trade Development Officer

Milton's Ltd., Versus The Union of India, The Appellate Committee constituted by the Ministry of Commerce, Government of India, The Director General of ... Issues Involved:1. Validity of the impugned orders dated 21.7.1998 and 13.12.1996.2. Legality of the recovery notice dated 6.8.1998.3. Allegations of unauthorized issuance and utilization of subsidiary licences.4. Whether petitioner No.1 issued a letter of authority to M/s. A.P. Trading Company.5. Responsibility for the import of canalized items.6. Applicability of penalty in the absence of mens rea.Detailed Analysis:1. Validity of the Impugned Orders:The petitioners sought quashment of the impugned orders dated 21.7.1998 and 13.12.1996, which imposed a penalty of Rs. 20 Lakhs on petitioner No.1. The orders were based on the allegation that petitioner No.1 had issued a letter of authority to M/s. A.P. Trading Company, which imported Amoxyciline Trihydrate, a canalized item, in violation of the Import and Export policy. The court found no material evidence to support that petitioner No.1 issued such a letter of authority and noted that the request for re-validation and issuance of subsidiary licences was made by the letter of authority holder, not petitioner No.1.2. Legality of the Recovery Notice:The recovery notice dated 6.8.1998 was issued following the dismissal of the appeal by respondent No.2. The court's decision to quash the impugned orders rendered the recovery notice invalid, as it was based on the now-invalidated penalty.3. Allegations of Unauthorized Issuance and Utilization of Subsidiary Licences:The show cause notice alleged that petitioner No.1 and M/s. A.P. Trading Company obtained and utilized subsidiary licences unauthorizedly. Petitioner No.1 denied any involvement with M/s. A.P. Trading Company and stated that it had handed over the main additional licence to M/s. Veena Commercial Corporation. The court found no evidence linking petitioner No.1 to the unauthorized issuance and utilization of the subsidiary licences.4. Whether Petitioner No.1 Issued a Letter of Authority to M/s. A.P. Trading Company:Petitioner No.1 categorically denied issuing any letter of authority to M/s. A.P. Trading Company. The court found no material evidence to contradict this claim, emphasizing that the request for re-validation and issuance of subsidiary licences was made by the letter of authority holder, not petitioner No.1.5. Responsibility for the Import of Canalized Items:The court noted that Amoxyciline Trihydrate was a canalized item and could only be imported through State Chemicals and Pharmaceuticals of India Limited. The import was made by the letter of authority holder, and there was no evidence that petitioner No.1 was involved in or responsible for the import. The court concluded that petitioner No.1 could not be held responsible for the actions of the letter of authority holder.6. Applicability of Penalty in the Absence of Mens Rea:Citing the Supreme Court's judgments in Hindustan Steel Ltd. v. State of Orissa and Akbar Badruddin Jiwani v. Collector of Customs, the court emphasized that the imposition of a penalty requires mens rea. The court found no evidence of deliberate defiance of law, contumacious or dishonest conduct, or conscious disregard of obligation by petitioner No.1. The absence of mens rea rendered the penalty unsustainable.Conclusion:The court allowed the petition, quashing the impugned orders dated 21.7.1998 and 13.12.1996, and the recovery notice dated 6.8.1998. The court held that in the absence of mens rea and any evidence linking petitioner No.1 to the unauthorized import, the penalty imposed was unsustainable.