Case Note & Summary
The appellant, formerly Emmellen Biotech Pharmaceuticals Limited, amalgamated with Karnataka Malladi Biotics Limited (Karnataka Biotics) in 2009. Karnataka Biotics had obtained an Export Promotion Capital Goods (EPCG) licence allowing import of capital goods at concessional customs duty, subject to an export obligation of US$ 2,59,948 within five years. Karnataka Biotics imported the goods but failed to fulfil the export obligation. The company was declared sick under SICA, and a rehabilitation scheme was sanctioned by BIFR in 2003, which included a waiver of customs duty of Rs. 33.30 lakhs. In 2004, the third respondent passed an Order-in-Original imposing a penalty of Rs. 23,38,882 under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 (FT Act) for non-fulfilment of export obligation. Karnataka Biotics challenged the penalty by filing a writ petition, which was later withdrawn with liberty to file a fresh petition. The appellant filed a fresh writ petition, which was dismissed by a Single Judge and subsequently by a Division Bench of the Karnataka High Court on the ground that the earlier writ petition was withdrawn without liberty. The Supreme Court considered two main issues: whether the High Court erred in dismissing the writ petition on procedural grounds, and whether the penalty under Section 11(2) of the FT Act was valid. The Court found that the Division Bench's order dated 13th December 2013 expressly granted liberty to file a fresh petition, and thus the High Court's finding was erroneous. On the merits, the Court examined Section 11(2) of the FT Act, which imposes a penalty only when a person makes or abets or attempts to make any export or import in contravention of the Act, rules, orders, or foreign trade policy. The Court held that non-fulfilment of export obligation under an EPCG licence does not involve making or abetting any export or import, and therefore does not attract penalty under Section 11(2). The waiver of customs duty under the BIFR scheme did not affect the penalty under the FT Act. Consequently, the Supreme Court allowed the appeal, set aside the impugned judgment and the penalty order, and directed that any amount deposited by the appellant be refunded.
Headnote
A) Foreign Trade Law - Penalty under Section 11(2) of FT Act - Scope of Contravention - Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 - The issue was whether non-fulfilment of export obligation under an EPCG licence constitutes a contravention under Section 11(2). The Court held that Section 11(2) applies only when a person makes or abets or attempts to make any export or import in contravention of the Act, rules, orders, or foreign trade policy. Non-fulfilment of export obligation does not involve making or abetting any export or import, and therefore, penalty under Section 11(2) cannot be imposed for such failure. The impugned penalty was set aside. (Paras 12-14) B) Procedural Law - Withdrawal of Writ Petition with Liberty - Effect on Subsequent Petition - Order of Division Bench granting liberty to file fresh petition - The High Court erred in dismissing the subsequent writ petition on the ground that the earlier writ petition was withdrawn without liberty. The Division Bench's order dated 13th December 2013 expressly granted liberty to file a fresh petition on the same cause of action. Therefore, the subsequent petition was maintainable. (Paras 9-10) C) Sick Industrial Companies - Rehabilitation Scheme - Waiver of Customs Duty - Effect on Penalty under FT Act - Clause (ii) of rehabilitation scheme waiving customs duty of Rs. 33.30 lakhs - The waiver under the BIFR scheme was only of customs duty, not of any penalty under the FT Act. Hence, the waiver did not preclude imposition of penalty under Section 11(2) of the FT Act. (Paras 10-11)
Issue of Consideration
Whether non-fulfilment of export obligation under an Export Promotion Capital Goods (EPCG) licence amounts to a contravention under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992, warranting imposition of penalty.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned judgment of the Division Bench and the penalty order dated 16th July 2004, and directed refund of any amount deposited by the appellant within eight weeks.
Law Points
- Section 11(2) of the Foreign Trade (Development and Regulation) Act
- 1992 applies only when a person makes or abets or attempts to make any export or import in contravention of the Act
- rules
- orders
- or foreign trade policy
- non-fulfilment of export obligation under an EPCG licence does not constitute such contravention
- penalty under Section 11(2) cannot be imposed for failure to fulfil export obligation
- waiver of customs duty under a BIFR rehabilitation scheme does not waive penalty under FT Act
- withdrawal of a writ petition with liberty to file a fresh petition does not bar a subsequent petition on the same cause of action.
