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TMI Blog2016 (9) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... stence. It is not in dispute that the petitioner achieved such positive NFE in the first block of five years after commencement of manufacturing. However, during the second block, according to the department, the petitioner fell short by a sum of Rs. 55.73 lacs. On account of such default, the adjudicating authority issued a show-cause notice dated 14/16.08.2013 calling upon the petitioner why penalty in terms of sub section (2) of Section 11 of the Foreign Trade Development and Regulation Act, 1992 ['the Act' for short] be not imposed. The petitioner filed multiple replies to such show cause notice and disputed any such liability of penalty. Insofar as the foreign exchange earning rate is concerned, there was no dispute between the petitioner and the department. The dispute was only with respect to the period for computing the block of five years for consideration of NFE. According to the petitioner, since the manufacturing activity had commenced on 28.02.2003, the first block of such five years would comprise of financial year 2002-03 to 2006-07. The second block of five years, therefore, would comprise, according to the petitioner, of the financial year 2007-08 to 2011-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erious error in imposing the penalty. 6. On the other hand, learned counsel Ms. Patel for the department opposed the petition contending that the adjudicating authority had given correct interpretation to the policy applicable. Since the appellate authority rejected the appeal through different grounds, in any case, the petition should be dismissed. 7. As noted, the following aspects are not in dispute: (i) If the block period for consideration of NFE are reckoned from the 1st day of April of the year following which the manufacturing activity commenced, in the second block of five years, the petitioner failed to achieve positive NFE. (ii) The petitioner has not argued that the penalty of Rs. 5.50 lacs was grossly disproportionate. (iii) Though the petitioner had discontinued the manufacturing activity for over one year, the adjudicating authority did not take any penal action in connection with such lapse. 8. In view of such facts, the short question that calls for consideration is, which would be the relevant block period of five years for computing NFE? The Government of India, in exercise of powers under Section 5 of the Act, had framed foreign trade policy 2004-09 by iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Development Commissioner would initiate penal action under the FT( D & R) Act, 1992; iii) For failure to achieve positive NFE during the course of 5 years after completion of one year from the date of commencement of commercial production, a cautionary letter may be issued". 4. METHOD OF MONITORING: i) In all cases of exit from the Scheme where the unit has imported inputs and failed to fulfill the conditions of LOP with regard to NFE, appropriate steps are to be taken for penal action after issuing show cause notice to the units. Steps may also be initiated for cancellation of LOP/LOA of units, which is not operating for more than a year; ii) NFE is to be calculated, as per para 6.10.1 to 6.10.1 of the Chapter 6 and Para 7.12.1 to 7.12.4 of the Chapter 7 of the Handbook of Procedures (Vol-I). For purpose of uniformity, guidelines for calculation of NFE is given in EOU/SEZ Scheme may be followed. 5. MONITORING PERIOD: Units which have not completed one year, from the date of commencement of commercial production, will not be monitored in case a unit has completed less than five years from the date of commencement of commercial production it will be monitored f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting NFE would commence immediately upon commencement of the production, a view which was favoured by the appellate authority. However, when we appreciate this provision in conjunction with the guidelines for monitoring the performance of such unit, it becomes clear that the period envisaged would be the financial year immediately starting the manufacturing activity. For example, as noted, under Clause (1) of the guidelines the Development Commissioner has to undertake the annual review of performance of each operational unit before the end of the first quarter of the following financial year. The examination of the performance therefore, is related to the financial year and quarterly performance is to be judged. Even in Clause (3) which refers to criteria for annual monitoring, there is a reference to keeping a watch if there is shortfall in achieving NFE by a unit at the end of first and second year which must be read in conjunction with clause (1) of the guidelines which has reference to the financial year. Clause (5), which prescribes monitoring period, would make commencement further clear. It provides that the unit which has not completed one year from the date of commenceme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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