1. This judgment shall dispose of W.A. Nos. 7973 and 7974 of 1999 filed by the writ petitioner-appellant and W.A. Nos. 1914 and 1915 of 2000 filed by the Additional Chief Controller of Imports and Exports-respondent in the original writ petition, along with I.A. No. 1 to dispense with the filing of the certified copy of the judgment and LA. 2 to condone-the delay in filing the appeals. As all these appeals are directed against the impugned order passed in W.P. Nos. 29189 and 29190 of 1999, dated 3rd of November, 1999 the writ appeals have been clubbed together and disposed'of by passing a common order. Reference to the appellants and respondents in the writ appeals would be referred to by their original status in the writ petition as the writ petitioner and respondents respectively for the sake of convenience.
2. The facts giving raise to the appeals briefly stated are as follows:
Petitioner is a private limited company incorporated under the provisions of Companies Act, having its registered office at Udupi, South Kanara District. It is engaged in the business of manufacture of 'nylon fish nets'. It is 100% export oriented unit.
3. Central Government in order to bridge the increasing deficit in the balance of trade and running down of exchange reserves, has thought it fit to step up growth of foreign exports. To achieve this object, the Union Government has decided to frame and implement the scheme to facilitate the setting up 100% export oriented units. A 100% export oriented unit would mean an industrial unit offering for exports its entire production excluding permitted level of rejects. Units were exempted from payment of import duty on the import of capital goods, components, raw materials, etc., including construction materials. Units which were approved for special facilities under the scheme are obliged to execute bond/legal undertaking with Chief Controller of Imports and Exports that in'case of failure to fulfill their obligations, they would be liable to penalty in terms of such bond/legal undertaking besides the penalty, if any, under the provisions of the Import Trade Control Regulations. The resolutions of the Government of India containing this policy in respect of export oriented units as applicable for the financial year 1984-85 are contained in Resolution No. 8(15)/78-E.P., dated 31-12-1980 as amended from time to time.
4. Pursuant to this scheme petitioner-company made an application dated 22nd June, 1984 for grant of industrial licence under the provisions of the Industries (Development and Regulation) Act, 1951 to the Secretary for Industrial Approvals, Ministry of Industry, New Delhi, in the prescribed form. Application filed by the petitioner was considered by the Board headed by the Commerce Secretary and a letter of intent which is also known as licence was issued on [28-7-1994] for the establishment of a new undertaking at Tahsil, Udupi, South Kanara District, for the manufacture of 'nylon fish nets' up to annual capacity of 223 tonnes on the basis of maximum utilisation of plant and machinery. In the licence so granted, apart from others, the following terms and conditions were imposed:
'(a) The entire (100%) production shall be exported.
(b) The company should undertake to export the entire production (100%) excluding rejects not exceeding 5 (five) per cent for a period of 10 (ten) years. For that purpose to furnish the requisite legal agreement/bank guarantee.
(c) The value addition shall be minimum of 26% (Twenty-six per cent).
(d) The gestation period for achieving export target by the undertaking shall be one year and the period of export obligation shall commence immediately thereafter'.
5. There were several other conditions in the licence which are not being noticed as it is not necessary to refer to them for the purpose of the present case.
6. By virtue of letter of intent granted, the petitioner established a 100% export oriented new industrial undertaking in Udupi. It imported raw materials and goods under the scheme for its manufacturing activity. Petitioner failed to discharge its export obligations imposed upon them to the extent of Rs. 1.43 crores and did not achieve the prescribed VAC of 26%. Noticing that the petitioner had failed to discharge its export obligations under the scheme and that it had not achieved the prescribed VAC of 26%, the Additional Chief Controller of Imports and Exports had issued a show-cause notice dated 31-3-1992 in exercise of its powers under Section 4-L for taking action under Section 4-I of the Imports and Exports (Control) Act, 1947 read with Clauses 10 and 8 of Imports (Control) Order, 1955. Petitioner as well as its two Directors replied to the show-cause notice by their letter dated 29th of April, 1992. Allegations made in the show-cause notice were denied. It was stated that the petitioner had failed to discharge its export obligations imposed upon them due to the reason beyond its control. Request was made to drop the penalty proceedings. The Additional Director General of Foreign Trade was not satisfied with the explanation offered by the petitioner. He passed an order dated 24th of May, 1993 and imposed a penalty of Rs. 50 lakhs for failure to discharge export obligation to the tune of Rs. 1.43 crores and for not achieving the prescribed VAC of 26% thereby violating the conditions of imports and letter of approval issued to them and the relevant import policy.
7. Aggrieved by the order passed by the Additional Director General of Foreign Trade, the petitioner filed an appeal before the Appellate Committee, the second respondent herein. The Appellate Authority rejected the appeal. However, taking a lenient view in the background of recommendation made by the Development Commissioner, Cochin, it reduced the fiscal liability to Rs. 25 lakhs. Aggrieved by the order passed by the Additional Director General of Foreign Trade, the petitioner filed the writ petition which has been disposed of by the impugned order.
8. Points argued before the Single Judge on behalf of the petitioner were that since the company had not used or utilised the imported goods otherwise than in accordance with the conditions of licence and had not sold or otherwise parted with the goods in contravention of the conditions of licence, the respondent-authority could not have assumed that the petitioner-company has contravened the provisions of Section 4-I(lXa) and 4-I(1)(d) of the Act. Per contra, the plea raised by the respondent was, contravention of the conditions of licence is contravention of Section 4-I(1)(a) and (d) of the Act. It was contended that the respondent-authority was justified in observing in its order that the contravention noticed by him in the notice and the order would attract the aforesaid provisions.
9. Learned Single Judge after noticing the points urged on behalf of the respective parties came to the conclusion that the assumption of the respondents that there is contravention of Section 4-I(1)(a) and (d) of the Act was not well-founded. It was held that the respondent-authority could not have come to the conclusion that the petitioner-company had failed to achieve the minimum prescribed value added content in the export obligation imposed. Another finding recorded by the Single Judge is that the authorities failed to exercise the discretion vested in them in a judicious manner. It was held that the Appellate Committee having accepted the bona fides and reasons offered by the petitioner-company and its Directors, for its failure to fulfill the export obligations and in not achieving the VAC of 26% could not have proceeded to reduce the penalty only by a part. Single Judge allowed the writ petitions and remanded the matter to the Appellate Authority for fresh disposal in accordance with law. It was observed that the Appellate Authority should redo the matter in accordance with law without being influenced by any of the observations made in the impugned order.
10. Petitioner being aggrieved by the order of remand made by the Single Judge have come up in appeal. It is contended on their behalf that after having held that the petitioner had not contravened the provisions of Section 4-I(1)(a) to (d) of the Act and that there was no failure on their part to fulfill the conditions of not achieving the prescribed VAC, the Single Judge should not have remanded the case. It was further contended but without admitting that the order of remand is justified, that the learned Single Judge was in error in directing that while disposing of the appeal the Appellate Authority should not take into consideration the facts laid down by the Single Judge in his order.
11. The respondents have filed the appeals challenging the finding recorded by the Single Judge that, the petitioner has not contravened the provisions of Section 4-I(1)(a) and (d) of the Act and that there was no failure on the part of the petitioners in not achieving the prescribed VAC and not fulfilling the export obligations.
12. Counsel for the parties have been heard at length.
13. Section 4-1 provides for liability to penalty. Section 4-I(1)(a) and (d) (which have already been extracted in the earlier part of the judgment) provides liability to penalty on a person who, in relation to any goods or materials which have been imported under any licence or letter of authority, uses or utilises such goods or materials otherwise than in accordance with the conditions of such licence or letter of authority. The words 'uses or utilise' suggests something done positively. It indicates the consumption of the material which has been imported under any licence or letter of authority. The material imported under any licence or letter of authority, if used or utilised otherwise than in accordance with the conditions of such licence or letter of authority, it would attract levy of penalty. Mere non-use or non- utilisation of the goods would not attract the levy of penalty. In the present case, the raw materials imported was expected to be used for production of nylon fish nets. It is not the case of the respondents-authorities that the imported raw material was used for purposes other than the manufacture of nylon fish nets. Mere non-utilization of the maximum capacity would not attract levy of penalty under Section 4-I(1)(a). Similarly, under clause (d), penalty is leviable where a person acquires, sells or otherwise parts with or agrees to acquire, sell or otherwise parts with, any imported goods or materials in contravention of the conditions of any licence or letter of authority in pursuance of which such goods or materials had been imported. Section speaks of acquisition or selling of any goods or materials in contravention of the conditions of any licence or letter of authority. It is not the case of the respondents-authorities that the petitioner had acquired or sold the imported goods or materials in contravention of the conditions of any licence or letter of authority. It is not alleged that the writ petitioner had acquired or sold the imported goods or materials in contravention of any of the conditions of import licence. Therefore, we do not agree with the contentions raised by the Counsel for the respondents that the Single Judge had erred in holding that the petitioner had contravened the provisions of Section 4-I(1)(a) or (d) of the Act. In our view, the petitioner was not guilty of the contravention of these provisions and it did not become liable under these provisions to pay the penalty. The finding recorded by the Single Judge is confirmed.
14. One of the grounds taken into consideration by the respondents for imposing penalty is that the petitioner failed to fulfill the conditions of OGL under which the import was allowed by not achieving the prescribed VAC and not fulfilling the export obligation. A look at the export oriented scheme and conditions of licence or letter of intent should show that the scheme provides that the 100% export oriented unit must achieve a minimum value addition of 20% and, under the scheme even the domestically procured raw materials are also treated as imports for the purpose of computation of such value addition. Because of the variation in the letter of intent issued to the petitioner dated 28-7-1984, petitioner was required to achieve the minimum value of addition of 26%. In the application form, it is indicated that the value addition is not to be reckoned from year to year but should be reckoned by taking into consideration the first five years of production. The period of export stipulated in the letter of intent issued to the petitioner was 10 years and later, the Union Government, in its letter of May 1996 extended the period by another five years, thus making it a total period of 15 years, for fulfilling the conditions of OGL. On these facts the Single Judge recorded the finding that the petitioner had not failed to fulfill the conditions of OGL under which the import was allowed by not achieving the prescribed VAC and not fulfilling the export obligation. This finding has not been challenged before us. Single Judge found that the overall period for achieving the VAC and fulfilling the export obligations was up to 30th November, 2000, whereas a notice has been issued to the petitioner for not achieving the VAC and not fulfilling the export obligation earlier to the expiry of 15 years and therefore, the authorities were wrong in holding that the petitioner had failed to fulfill the conditions of OGL under which the import was allowed.
15. The prescribed authority had come to the conclusion that the petitioner had violated the provisions of Section 4-I(1)(a) and (d) and the petitioner had failed to achieve the prescribed VAC and did not satisfy the export obligation and, therefore, imposed maximum penalty, which was later on reduced by the Appellate Authority to Rs. 25 lakhs. Appellate Authority accepted the explanation given by the petitioner that due to initial problems, it could not achieve the goal and keeping in view the extenuating circumstances, reduced the penalty to Rs. 25 lakhs. The Appellate Authority found as under;
'The appellant has stated that there were initial problems as the buy back agreement did not work out. It has been pointed out that the request for debonding was disallowed by the department. Further, the appellant has provided date of import raw materials, indigenous inputs and value of imports to justify that there has been gradual improvement in their performance. In order to evaluate the overall performance of the firm, the data submitted by the company up to 1995-96 were also analysed. There is no doubt that the performance in terms of value addition was negative in the first five years but it has gradually improved and the. value addition based on the applicable formula i.e., during the period 1985-86, it comes to 15.5%. Thus, there is significant improvement and the trend is towards positive net foreign exchange earning. The appellant has also given in detail the circumstances that led to the poor performance. Taking a lenient view, in the background of recommendation made by Development Commissioner, Cochin, the fiscal penalty is reduced to Rs. 25.00 lakhs which has to be deposited in the Government Treasury immediately'.
16. Single Judge has concluded that imposition of penalty was not an automatic consequence of some default of some of the terms and conditions of the licence. The authority, in addition to the finding that there has been a default, should also consider the question whether there was good and sufficient cause for the default. Only if the authority finds that there was no good or sufficient cause, could it proceed to impose the penaky. As the Appellate Authority did not consider this aspect, the case was remitted back to it for its decision. While doing so, Single Judge observed:
'In the result, petitions deserve to be allowed. Accordingly, they are allowed'.
17. Having said so, the learned Single Judge proceeded to state that he is remanding the matter to the Appellate Authority for a fresh disposal in accordance with law. Single Judge set aside the order of the original authority as well. He further directed that the Appellate Authority should dispose of the matter afresh 'in accordance with law without being influenced by any one of the observations made in the course of this order'.
18. Sri K.R. Prasad, Counsel appearing for the petitioner, strenuously contended that in view of the finding recorded by the Single Judge regarding attraction of levy of penalty under Section 4-I(1)(a) and (d) and that there was no failure on the part of the petitioner-company to achieve the minimum prescribed VAC and the export obligation, the Single Judge should not have remanded the case to the Appellate Authority for redecision and in any case the learned Single Judge could not direct the Appellate Authority to decide the matter afresh without taking into consideration the interpretation of law put by the learned Single Judge on Section 4-I(1)(a) and (d).
19. We agree with the contention raised by the Counsel for the petitioner.
20. After having set aside the order of levying penalty and holding that the provisions of Section 4-I(1)(a) and (d) were not attracted in the present case and that there was no failure on the part of the petitioner to achieve the minimum prescribed VAC and the export obligation, the Single Judge should not have remanded the case to the Appellate Authority for a redecision. The Single Judge has set aside the order of the prescribed authority as well. Once the order of the prescribed authority is also set aside, question of remanding the matter to the Appellate Authority for redecision on the correctness or otherwise of the order of the prescribed authority, does not arise. Further, we agree with the contention raised by the Counsel for the petitioner that the Single Judge was in error in remanding the matter on the facts and in the circumstances of the case to the First Appellate Authority especially having regard to the finding given by him regarding the applicability of Section 4-I(1)(a) and (d) to the case on hand. Assuming, but without admitting that the order of remand is justified, the Single Judge was in error in directing that while disposing of the appeal afresh the Appellate Authority should not take into account the position in law and in fact as laid down by the Single Judge. The very purpose of explaining the position in law and on facts in the order passed by the Court is lost. The decision on law and the finding recorded on facts will have to be necessarily taken into account by the lower authorities while carrying out the direction issued by the Court for a fresh decision.
21. For the reasons stated above, we accept Writ Appeal Nos. 7973 and 7974 of 1999 filed by petitioner-company partly. It is held that the Single Judge should not have remanded the matter to the Appellate Authority for a fresh decision in view of the findings recorded by him on facts and the interpretation put by him on the statutory provisions. In all others respects, the findings recorded by the Single Judge are affirmed. Writ Appeal Nos. 1914 and 1915 of 2000 filed by the respondents authorities challenging the findings of the Single Judge on the interpretation of statutory provisions, are rejected. Writ petitions stand allowedand the order of the prescribed authority as well as the AppellateAuthority are quashed.