Technical breach in EPCG export obligation cases may not justify penalty where import was lawful and revenue was safeguarded.

Penal action under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 was considered in the context of lawful import of capital goods under the EPCG scheme followed by failure to meet export obligation. The court reasoned that there was no contravention at the stage of import, no contumacious or dishonest conduct, and the revenue had already been safeguarded through recovery measures and confiscation. On that basis, mere non-fulfilment of the export target was treated as a technical or venial breach and was held insufficient to justify penalty.

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Issues: Whether penalty under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 could be sustained for failure to fulfil export obligation after lawful import of capital goods, and whether the facts disclosed only a technical or venial breach justifying interference with the penalty order.

Analysis: The import of machinery was made under the EPCG scheme in accordance with the policy then in force. The failure was not found to be a contravention at the stage of import, nor was there any positive act of export or import in breach of the Act, rules or orders. The customs duty element had already been recovered through encashment of the bank guarantee and the machinery had also been confiscated under the Customs Act, so the revenue was not left remediless. In these circumstances, the Court held that non-fulfilment of export obligation by itself did not attract Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992. The Court also applied the settled principle that penalty is not ordinarily imposed for a bona fide or technical breach and that penal provisions call for a lenient construction where the conduct is not contumacious, dishonest, or in conscious disregard of obligation.

Conclusion: Penalty under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 was not justified and was liable to be set aside.

Final Conclusion: The penalty orders were quashed and the writ appeal succeeded, with the impugned judgment of the learned single Judge also set aside.

Ratio Decidendi: Where capital goods are lawfully imported under an export obligation scheme and the breach consists only of failure to achieve the export target, without a contravention at the stage of import and without contumacious conduct, Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 does not warrant penalty, especially when the revenue has already been safeguarded through recovery of duty and related action.

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