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Krishna Trading Company Versus Additional Director General Of Foriegn Trade

Denial of issuing Advance Licence as per the FTP - allegation of violation of actual user condition in respect of earlier licenses - petitioners were informed that their request for advance licence could not be considered in view of the letter of the DRI and that the petitioners should take up the matter with the concerned DRI, Ahmedabad - Held that:- The respondent authorities are not justified in acting as per the dictates of the DRI, Ahmedabad instead of carrying out independent inquiry o .....

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impugned orders, which suffer from various legal infirmities as discussed hereinabove, therefore, cannot be sustained. - Having regard to the period which has elapsed since the issuance of the show-cause notices, the business of the petitioners has come to a standstill and hence, at this stage, the petitioners are not interested in obtaining advance licences and hence, the petitioners have not pressed the petitions qua considering their applications for licences. It is, however, clarified th .....

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PARITOSH GUPTA, ADVOCATE for the Petitioner(s) No.1 - 2 MR DEVANG VYAS, ADVOCATE for the Respondent(s) No.2 MS MAITHILI D MEHTA, STANDING COUNSEL for the Respondent(s) No.2 NOTICE SERVED BY DS for the Respondent(s) No.1 JUDGMENT (PER : HONOURABLE MS. JUSTICE HARSHA DEVANI) 1. Since more or less similar facts are involved in all these petitions, the same were taken up for hearing together and are disposed of by this common judgment. 2. For the purpose of convenience, reference is made to the fact .....

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the petitioners that the export obligations flowing from such licences have also been discharged by the petitioners in compliance with the provisions of the Exim Policy. It appears that the respondents herein received instructions from the Directorate of Revenue Intelligence (hereinafter referred to as the DRI ) not to issue any further licences to the petitioners herein and, therefore, when the petitioners applied for an advance licence in the prescribed form on 12th December, 2005, by a commu .....

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2005 came to be issued to the petitioners proposing to put the petitioners under the Denied Entities List under rule 7(1) of the Foreign Trade (Regulations) Rules, 1993. The petitioner firm filed a detailed reply dated 12th January, 2006 and also submitted various documents like certificate of an independent engineer, application for removal of goods from the petitioners factory in AR-3, documents showing receipt of the goods sent by the petitioners by various customers who had been Export Orie .....

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material into the domestic market thereby violating actual user condition mentioned in the advance licence. Accordingly, the petitioners were declared as defaulters and were also refused issuance of further licences under rule 7(1)(a)(c) of the Foreign Trade (Regulation) Rules. It appears that pursuant to the Defaulter Order, the petitioner firm/partners/Directors had filed separate replies to the respondent explaining how the Defaulter Order was unjustified and why no further action should be .....

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w within six months from the date of the said order. Thereafter, the petitioners approached the Commissioner of Central Excise, Surat-I for deciding the central excise cases, if any, pending against the petitioners but no development took place for a long time. The petitioners also requested the Joint DGFT, Surat in writing for closing their pending files in respect of licences allotted in past and also for issuing/granting new licences considering the petitioners application on merits; however, .....

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o be disposed of in the following terms:- 22. Under the circumstances, the petitions are disposed of with following directions:- (1) The orders impugned in Special Civil Applications No.10600/2012, 10602/2012, 10605/2012 and 10607/2012 are quashed. The proceedings are placed back before the respondent No.1 for fresh consideration and disposal in accordance with law. It is directed that if the respondent No.1 desires to place reliance on any material which is adverse to the petitioners, the same .....

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th law and as expeditiously as possible. 23. In group of petitions being Special Civil Applications No.10601/2012, 10604/2012, 10606/2012 and 10609/2012, respondent No.1 is directed to take a final decision on the applications of the petitioners for being granted EODC. In the facts of the case, it is provided that if respondent No.1 is prima facie not inclined to grant such certificate, he shall briefly indicate his tentative reasons thereof, communicate the same to the petitioners permitting th .....

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ly for convenience and it will be open for the respondent No.1 to re-schedule this date for any future hearings. It appears that despite the direction of the court to decide the matters within a period of three months from the date of receipt of a copy of the order, a further show-cause notice dated 26th June, 2013 came to be issued by the Joint DGFT, Surat heavily relying on the intensive and serious investigation carried out by the officers of the DRI and calling upon the petitioners to show-c .....

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2015, the Additional DGFT, Bombay upheld the order passed by the Joint DGFT, Surat and further imposed fiscal penalty of ₹ 25 crores on the petitioner firm under section 11(2) of the Foreign Trade (Development and Regulation) Act, which has given rise to the present petitions. 4. Mr. Paresh Dave, learned advocate for the petitioners vehemently assailed the impugned order by submitting that the same is wholly illegal and without jurisdiction, inasmuch as, penalty thereunder is imposed on t .....

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n violated with impunity by the respondents and that the specific direction to supply to the petitioners any material on which the respondents desire to place reliance has also not been obeyed by the second respondent and an adverse order has been passed against the petitioners in violation of both the directions issued by this court. It was pointed out that though the Joint DGFT, Surat had been directed to decide the case as expeditiously as possible, the authority decided the case much later o .....

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details and reports about the investigation; however, no such material was provided to the petitioners. It was submitted that, therefore, there is a complete violation of the principles of natural justice. Referring to the impugned order, it was pointed out that the appellate authority has also placed reliance upon various materials which have not been provided to the petitioners, and therefore, the impugned order also suffers from the vice of breach of principles of natural justice apart from .....

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natural justice, inasmuch as, the material relied upon is not furnished to the petitioners. It was submitted that in view of the fact that the Export Obligation Discharge Certificates (EODCs) have not been issued, the bank guarantees furnished by the petitioners are lying with the respondents and the petitioners are facing undue prejudice on account of the same. It was argued that in the petitioners appeal, no such penalty could have been passed without following the due procedure in law. It was .....

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t the business of the petitioners have been closed down, the question of issuing fresh licences may not arise; however, the EODCs applications made by the petitioners are to be decided independently and expeditiously. 5. Opposing the petitions, Ms. Maithili Mehta, learned standing counsel for the respondents placed reliance upon the contents of the affidavit-in-reply filed on behalf of the respondents wherein their stand is that the petitioner herein by not joining the Directorate of Revenue Int .....

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thereafter and that the said unit has misused the EOU/DEEC/DFRC scheme. It was further pointed out that the Development Commissioner, Vishakhapatnam SEZ had also reported that M/s. Raja Textiles was granted LOP dated 20th October, 2000 for manufacture and export of processed fabric of polyester/cotton spun etc. The unit had started production on 1st October, 2003 and had not effected any export as per their records and was defunct since 2004 and has not submitted any periodical reports. It was .....

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clear that the petitioners do not have any facilities for manufacturing the goods and in fact, the very existence of the factory of the petitioners and other firms is doubtful. Referring to the impugned order, it was pointed out that the concerned authority has found various irregularities and that the firms to which the petitioners are reported to have made supplies are defunct and not in existence. It was submitted that the petitioners were duly furnished with the show-cause notice issued by t .....

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stified in refusing to grant the advance licences to the petitioners. It was submitted that considering the nature of the illegalities committed by the petitioners, the penalty imposed under section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 is wholly justified. It was, accordingly, urged that the respondents have duly complied with the directions issued by this court while passing the impugned order and hence, there is no warrant for interference by this court. 6. From th .....

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ndent after a considerable delay and much beyond the time stipulated by this court, by an order dated 14th August, 2013 decided not to issue any licences/authorizations and EODCs to the petitioner firm. According to the said respondent, the investigation conducted by DRI, Ahmedabad had been communicated in the showcause notice dated 5th February, 2007 citing therein the gross and glaring misuse of the goods imported by the firm under various advance authorizations issued by that office and that .....

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licences/authorizations and EODCs to the firm. 7. From the above order, it is evident that in effect and substance, the second respondent has placed reliance upon the contents of the show-cause notice issued by the DRI and accepting the same to be gospel truth, has based its conclusions thereon. On a reading of the order in its entirety, it is clear that the same does not discuss the nature of the irregularities committed by the petitioner, nor does it spell out as to what was the nature of the .....

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After referring to the submissions made on behalf of the petitioners, the first respondent has recorded her findings from paragraph 18 onwards. In paragraph 20 of the order, the first respondent has found that the Joint DGFT had carried out independent investigation and had specifically investigated the case of purported supply of material to M/s. Khan Garments and M/s. Raja Textiles to whom the petitioners claim to have supplied the goods and the reports received from the concerned authorities .....

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the report received from the Development Commissioner, SEZ, Vishakhapatnam vide letter dated 19th October, 2006. Having regard to the dates of the reports referred to in these paragraphs, it is evident that all this material relates to a period much before Special Civil Application No.10600/2012 and allied matters came up for hearing before the High Court. In paragraph 25 of the impugned order, reference is made to the above reports and the statement of Nirmal Tarachand Sharma as recorded by th .....

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The first respondent has thereafter referred to and relied upon the findings recorded by the Commissioner of Customs, JNCH and the order issued on 12th May, 2014 and inter alia referred to independent investigations carried out by the Commissioner of Customs, JNCH. In paragraph 28, the first respondent has noted that during the course of appellate proceedings, the petitioners had not been able to satisfy the authority that they had not misused the imported duty free goods nor had they had been a .....

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ndently by Jt. DGFT, Surat on whether the Resultant product which was to be manufactured out of imported material was actually supplied to the 100% EOU unit of M/s. Khan Garments, Andhra Pradesh and M/s. Raja Textiles, Hyderabad. I find that after due investigation carried out by JDG, Surat, by way of calling detailed report from the concerned authorities it is seen that the resultant product has not been supplied to 100% Export Oriented Units contrary to what was claimed by the appellant. The a .....

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e caused considerable damage to the public exchequer. 30. Further, also I find that due investigations have meticulously been carried out by the Customs Authorities, JNCH and the Commissioner of Customs has conclusively concluded after carrying out detailed investigation that the appellant have not supplied the Resultant Products to 100% EOUs nor have they fulfilled the AU condition. Further, the Commissioner of Customs during his investigation has found that the imported material on which duty .....

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d the order-in-original passed by the second respondent and considering the gravity of the offence and the fraud committed by the first petitioner, in exercise of powers vested in her under section 15(2) of the Foreign Trade (Development and Regulation) Act, 1992, imposed a fiscal penalty of ₹ 25 crores on the company under section 11(2) of the said Act. 9. On a plain reading of the impugned order and more particularly, considering the findings recorded by the first respondent, it is evide .....

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any material which is adverse to the petitioners, the same shall be supplied to the petitioners permitting the petitioners to make their representation thereon. Nonetheless, the aforesaid directions appear to have been totally ignored by the respondents herein while passing the impugned orders, inasmuch as, both the respondents have placed reliance upon the investigation carried out by the DGFT through its own sources, which has not been furnished to the petitioners. Evidently therefore, the imp .....

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which has been imposed without issuing any notice to the petitioners in respect thereof, clearly suffers from the vice of breach of the principles of natural justice. 11. Another aspect of the matter is that the respondents in the impugned orders have placed reliance upon the investigation carried out by the DRI and the investigation carried out independently by the DGFT, Surat. However, in neither of the orders have either of the said respondents referred to or discussed any of the material whi .....

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13 to the DGFT, Surat confirming that all ARE-3 are verified and found correct. DGFT, Surat wrote a letter on 22nd April, 2013 to the central excise office for further verification of ARE-3 and it was found that in reply to a DGFT letter dated 28th August, 2006, a reply dated 8th September, 2006 was received from the office of the Superintendent of Customs and Central Excise, Patancheru, which revealed that M/s. Khan Garments with whom the petitioner was carrying business only on paper is defunc .....

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thorities at Patancheru is found to be more reliable. Thus, it appears that all material in favour of the petitioners has been discarded and only that material which points against the petitioners has been considered by the authorities. Therefore, the impugned order also suffers from the lack of fair play on the part of the authorities. 12. On a perusal of the affidavit-in-reply, the stand of the respondents appears to be that the DRI has instructed them that the petitioners EODC applications sh .....

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ng out independent inquiry on its own and acting in terms thereof. When the respondents decide the applications of the petitioners, they are expected to consider the same independently without in any manner being swayed by any instructions issued by the DRI. It is evident, therefore, that the impugned orders have not been passed independently but appear to have been passed under the dictates of the DRI whereby the DRI authorities have directed the authorities not to grant the EODC applications m .....

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