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2016 (7) TMI 860 - GUJARAT HIGH COURT

2016 (7) TMI 860 - GUJARAT HIGH COURT - 2016 (340) E.L.T. 277 (Guj.) - Levy of penalty on the directors when there is no charge in the show cause notice or imposing the penalty. - Violation of conditions of Export Promotion Capital Goods Scheme [EPCGS] - export obligation could not be fulfilled - Held that:- The show cause notice does not appear to have been addressed to the petitioners who are the directors nor does it lay down any proposal for imposing of the penalty. - Held that:- the sho .....

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ty either on the company or the Directors is proposed. Fourthly no role or act is specified in the show cause notice by which the directors could be said to have abetted or attempted to make any export or import in contravention of any provisions of the FTDR or rules and order made thereunder or the Foreign Trade Policy. - Fifthly so far as the petitioners are concerned no opportunity of hearing is given therefore there is clear violation of principle of natural justice. By merely providing .....

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Kureshi And A. Y. Kogje, JJ. For the Petitioner : Mr Devan Parikh, Advocate For the Respondent : Mr PS Champaneri, Advocate, Priyank P Lodha, Advocate JUDGMENT ( Per : Honourable Mr. Justice A. Y. Kogje ) 1. The present petition under Article 226 is for the relief of quashing the order-in-original dated 15.07.2009 passed by the Deputy Director, Foreign Trade and order-in-appeal dated 07.10.2010 passed by the Additional Director General of Foreign Trade on the ground that the penalty is sought t .....

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Goods Scheme ['EPCGS' for short] or for the reason, the company obtained EPGC license No. P/CG/2134942 for importation of high speed circular knitting machine of CIF. The license was issued with the condition that the company shall earn foreign exchange towards its export obligation within the period of five years. (b) Pursuant to such license, the company imported four machines at the concessional rate of duty. The company engaged itself in manufacturing of under processed fabrics by us .....

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lars. It appears that the company was wound up in the winding up proceedings before the High Court in the year 2006. (c) As the export obligation could not be fulfilled, the show cause notice dated 09.09.2003 came to be issued firstly, for the payment of an amount of ₹ 25,80,680/- being the amount of interest from the first day of import till 19.07.2002 and for future interest till payment. The show cause notice also called upon the noticee firm to show cause as to why action should not be .....

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lready been issued by the Office of the Director General of Foreign Trade, New Delhi demanding the noticee company and its Directors to pay an amount of ₹ 25,80,680/- on 23.7.2002. The noticee company and its Directors has not submitted documentary evidence about fulfilment of the export obligation in respect of the above mentioned FPCG license and also not availed the personal hearing offered to them by this office in continuation of this office Show Cause Notice dated 09/09/2003. Since t .....

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d the order-in-original by an order dated 07.10.2010. It is this action of the department which the petitioner seeks to challenge. 3. Learned senior advocate Mr. Parikh in support of the challenge contends that the authorities had travelled beyond the scope of the show cause notice as in the show cause notice, the only power sought to be invoked were under Section 8(1)(a) (b) of the Foreign Trade Development and Regulation Act, [FTDR Act for short] and the noticees were not even called upon to s .....

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he person. He also contended that no charge of any abatement or knowledge of any deliberate contravention has been made against any of the directors and therefore, in absence of such allegation the proposal of levy of penalty on the directors is unfounded. 4. As against this, learned advocate Mr. Lodha appearing for the department supports the action of the department in the show cause notice and submitted that the order in original and order in appeal are fully justified. In support of his cont .....

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ectors residence are not readily available with the adjudication authority in subject matter. 5. The gist of contentions taken up by the advocate for the respondent is as under: 19. ... ... ... ... The respondents have to say and submit that since these grounds are false, far from truth, misleading and based on an effort by them to misguide this Hon'ble Court by way of their wrong submissions and hence this Hon'ble Court is prayed not to consider these false submissions and misrepresenta .....

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The respondents have to say and submit that on the date of obtaining license as per the Memorandum of Understanding and also during the course of proceedings of adjudication with regard to the show cause notice dated 09.09.2003, the petitioners have never brought to this fact with documentary evidence before the adjudicating authority and hence the allegations made by them at this belated stage that too without any documentary evidence cannot be accepted and hence totally denied. In para 8 of t .....

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t that the petitioners have been given adequate opportunity for making submission, representation and hearing and, therefore, the allegation is totally baseless and hence denied. The contention of the petitioners that only charge in th show cause notice was with regard to the suspension of IFC number and nowhere it was mentioned to impose penalty is also incorrect as respondents have intended to take actions in terms of license conditions, Foreign Trade Policy and provisions of FT (D & R) Ac .....

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e and legal entity but it is also settled legal position that Directors are treated as Officers of Default, any failure at the end of company, the Directors cannot take shelter of the company being a separate entity. Section 11 of the Foreign Trade (Development and Regulations) Act, 1992 clearly provides imposition of fiscal penalty against any person who is found violating the provisions of Foreign Trade Policy and provisions of FT (D&R) Act, 1992. Therefore, the penalty imposed on the Dire .....

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e thereunder or the foreign trade policy, he shall be liable to a penalty of not less than ten thousand rupees and not more than five times the value of the goods or services or technology in respect of which any contravention is made or attempted to be made, whichever is more. 14. Giving of opportunity to the owner of the goods etc.:- No order imposing a penalty or of adjudication of confiscation shall be made unless the owner of the [goods (including the goods connected with services or techno .....

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e perusal of show cause notice which is the starting point of the proposed action, this Court would notice that the show cause notice reads as under: 6. And whereas the above action of the noticee firm contravene the provision of para 4.20 of chapter 4 the Export and Imports Police Book 1997-2002 and section 11(1) (2) and (3) of the Foreign Trade (D & R) Act, 1992. Now therefore, in exercise of the powers vested in me under Section 8(1) (a)(b) of the Foreign Trade (D&R) Act, 1992, I call .....

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f the penalty. So far as the service of notice to the petitioner directors learned advocate for the petitioner relied upon the judgement of Delhi High Court in case of L P Desai vs. Union of India and ors. reported in 108 [2003] DLT 334. He submitted that the view taken by the Delhi High Court is in the similar set of circumstances and relied upon particularly paras 15 and 18, which are reproduced as under: (15) ... ... Frankly, I do not see how this supports the provision advanced by Mr. Chawla .....

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the board of directors. This is certainly not the situation here. No notice was admittedly issued to the petitioner. Only in the notice issued to the company was it mentioned that the same be brought to the notice of the directors including the petitioner. Whether the company brought the aforesaid notice to the knowledge of the petitioner or not is not a relevant consideration and, therefore, the factum of the company not informing the petitioner cannot be construed as a parallel situation to t .....

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the assumption that no prejudice has been caused to the petitioner, in point of fact prejudice has actually been caused to the petitioner. This is so because the show cause notice was not issued to the petitioner. Even the show cause notice issued to the company did not contain specific allegations against the petitioner to which he could reply. No opportunity as such was given to the petitioner to represent against the proposed imposition of penalty. Obviously, the petitioner was not heard bef .....

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that even if such offence was committed by the company, he had no hand in it. All these circumstances, if he were able to establish them, would have absolved him of the liability of penalty which he now bears like a garroter round his neck. So even if the question of prejudice were to be taken up, it would be clear that the order in original as well as the Appellate Order imposing a penalty on the petitioner could not be sustained. 9. In view of the aforementioned this Court come to the conclus .....

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