Legal principle

Non-fulfilment of an export obligation under a licence does not amount to making or attempting an export or import in contravention of the FT Act, and since Section 11(2) is a penal provision that must be strictly construed, no penalty can be imposed under it for mere failure to fulfil an export obligation.

Court decision

The Supreme Court allowed the appeal with no order as to costs, set aside the judgments of the learned Single Judge and Division Bench, and set aside the Order-in-Original dated 16 July 2004 imposing the penalty of Rs. 23,38,882 under Section 11(2) of the FT Act, holding that the penalty demand could not be sustained against the appellant.

Facts

Karnataka Malladi Biotics Limited obtained an Export Promotion Capital Goods licence to import capital goods (capital equipment) at a concessional rate of customs duty (15%), conditional on exporting finished goods worth USD 2,59,948 and earning equivalent foreign exchange within five years. After BIFR declared the company a sick unit under Section 3(1)(o) of SICA, a rehabilitation scheme sanctioned under Section 18 of SICA waived customs duty of Rs. 33.30 lakhs and interest of Rs. 44.40 lakhs on account of non-fulfilment of the export obligation. On 16 July 2004, the third respondent passed an Order-in-Original imposing a penalty of Rs. 23,38,882 on the company under Section 11(2) of the FT Act for non-fulfilment of the export obligation. The appellant, the successor entity after amalgamation, challenged the penalty before the Karnataka High Court, but its writ petition and writ appeal were dismissed on the ground that an earlier writ petition had been withdrawn without liberty to file a fresh one.

Key provisions

• Section 11(2), The Foreign Trade (Development and Regulation) Act, 1992 — Contravention of provisions of this Act, rules, orders and foreign trade policy.