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2006 DIGILAW 114 (DEL)

INTERGLOBE ENTERPRISES LTD v. UNION OF INDIA

2006-01-17

B.N.CHATURVEDI, T.S.THAKUR

body2006
T. S. THAKUR, J. ( 1 ) ISSUE Rule. Mr. P. P. Malhotra, Additional Solicitor General appears for the respondents. With consent, this petition has been heard for final disposal. ( 2 ) DIRECTORATE of Revenue Intelligence has, in the course of an investigation initiated by it, seized three out of seven luxury cars imported by the petitioner under what is known as b Export Promotion Capital Goods schemeb ( epcg for short ). Aggrieved, the petitioner has rushed to this Court not only for release of the seized cars but also for quashing of the on going investigation. The controversy arises in the following backdrop. ( 3 ) THE petitioner-company is a service provider engaged in the business of arranging international tours and travels. Apart from being the general sale agent of 14 international airlines, the petitioner claims to be engaged in providing sales, reservation and other allied customer services to its clients. ( 4 ) IN terms of section 5 of the Foreign Trade (Development and regulation) Act, 1992, the Central Government formulates and announces the import export policy every five years. The said policies for the relevant years envisaged an EPCG Scheme, whereunder capital goods could be imported at a concessional customs duty of 5%, subject to an export obligation equivalent to five times of CIF value of such goods to be fulfilled by the importer over a period of 8 years reckoned from the date of the issue of the import license. It is common ground that the said Scheme permitted imports even by service providers like the petitioner company. ( 5 ) TAKING advantage of the Scheme, the petitioner company appears to have imported seven luxury cars of BMW make. The petitioner s case is that the import of these cars was like other capital goods, subject to the condition that the petitioner fulfills the export obligation envisaged under the Scheme. Its further case is that the export obligation qua two of the cars imported by it had been fulfilled in recognition whereof the Director General of Foreign trade (DGFT) had issued two discharge certificates dated 16th September, 2004 and 30th August, 2005, while the request for the issue of such a certificate in regard to the third car was pending consideration. ( 6 ) ON 24th November, 2005, the officers of the Department of revenue Intelligence seized the afore-mentioned three cars out of a total of seven imported by the petitioner from the corporate office of the petitioner company situate in DLF City, Phase-III, Gurgaon. The officers making the seizure justified the action on the ground that the export obligation qua the said cars had not been properly fulfilled. An investigation was on that premise initiated by the officers in the course whereof the statements of the Directors of the petitioner company and other employees were recorded. According to the petitioner, the officers seizing the cars had offered to release the same upon payment of differential customs duty and furnishing a bank guarantee and a bond for the requisite amount as though the export obligation under the Scheme had not been fulfilled. ( 7 ) THE seizure of the cars and the on going investigation have been assailed by the petitioner in the above backdrop primarily on the ground that the DGFT having issued the requisite certificates regarding fulfillment of the export obligation, the officers of the Directorate of Revenue Intelligence had no legal authority to initiate any investigation or to seize the cars in question and that the officers making the seizures had no reason to believe that the cars in question were liable for confiscation under section 111 of the customs Act, 1962. ( 8 ) APPEARING for the petitioner-company Mr. Arun Jaitley strenuously argued that the seizure of the cars and the investigation initiated by the respondents were incompetent and in excess of their jurisdiction. He urged that the DGFT was the final authority to determine whether or not the export obligation qua capital goods imported under the EPCG Scheme had been fulfilled. The issue of a certificate by the Director General was, according to Mr. Jaitley, sufficient to conclusively prove that the goods had been validly imported and the export obligation arising from such import satisfied. The Directorate of revenue Intelligence, could not according to learned counsel, sit in judgment over the correctness of such a certificate or the interpretation of the Scheme by the competent authority. The initiation and continuance of the investigation by the Directorate of Revenue Intelligence was in that view not only incompetent but also extremely harmful for the general reputation of the petitioner, who was planning, according to Mr. The initiation and continuance of the investigation by the Directorate of Revenue Intelligence was in that view not only incompetent but also extremely harmful for the general reputation of the petitioner, who was planning, according to Mr. Jaitley, to launch its own airlines by making investment of crores of rupees. Mr. Jaitley also attacked the demand for payment for differential duty, execution of bond and bank guarantees as a condition precedent for the release of the seized cars in favour of the petitioner and urged that the investigating officers could not ignore the certificate issued by the DGFT and act on an unfounded assumption that the goods had not been imported under the EPCG Scheme or that the condition subject to which such import was made had been violated. ( 9 ) ON behalf of the respondents, Mr. P. P. Malhotra, learned additional Solicitor General, argued that the import of capital goods under the scheme including those by a service provider was, subject to the conditions stipulated under the Scheme. He urged, by reference to the Scheme as prevalent during the relevant period, that the export obligation equivalent to five times the CIF value of the imported goods had to be fulfilled by the petitioner- importer by use of the capital goods so imported. He contended that the Scheme envisaged the existence of a definite nexus between the import of the goods and their use for the fulfillment of the export obligation. An importer could not, argued Mr. Malhotra, benefit from the Scheme if the goods imported were not actually used by him for generating the requisite foreign exchange needed for discharge of the export obligation. He also referred to the provisions of the scheme which enjoined upon the importer the duty to maintain true and proper account of the service rendered by use of the capital goods. He urged that all these conditions had, in the instant case, been violated by the petitioner- importer in as much as the imported cars had not been used for the business of the petitioner nor was any foreign exchange revenue generated out of such user. The cars were not, according to Mr. Malhotra, even registered under the Motor vehicles Act as tourist vehicles nor were they plied to carry the passengers. The cars were not, according to Mr. Malhotra, even registered under the Motor vehicles Act as tourist vehicles nor were they plied to carry the passengers. The export obligation attached to the import of the said cars could not, therefore, be deemed to have been fulfilled by the importer which was sufficient, according to the learned counsel, to justify confiscation of the cars under section 111 of the Customs Act. He referred to the clarification issued by the DGFT as regards the fulfilment of the export obligation under EPCG scheme from out of foreign exchange earned by selling airlines tickets, and submitted that the same did not permit an importer to claim discharge of the export obligation without using the goods for the purposes for which they had been so imported. He urged that the seized cars could be released in favour of the petitioner-company, subject to the petitioner paying the differential duty amount and securing the amount representing penalty and redemption fine by way of a bank guarantee b an offer which was made to the petitioner, but declined by it. ( 10 ) WE have given our anxious consideration to the submissions made at the bar and perused the record. Two distinct issues fall for our consideration. The first relates to the validity of the investigation launched by the DRI, while the second concerns the release of the seized cars in favour of the importer. According to the petitioner, the initiation of the investigation itself is incompetent in view of the certificate issued by the dgft certifying that the export obligation qua two of the seized cars has been fulfilled. The argument appears to be that if a competent authority under the scheme has interpreted or understood the Scheme in a particular fashion and certified due compliance with the conditions subject to which the imports were made, it is no longer open to any other agency of the Government to sit in judgment over the same, by either placing a different interpretation of the scheme or otherwise. The interpretation sought to be placed upon the terms of the Scheme by the officers of the Directorate of Revenue Intelligence is according to the petitioner even otherwise irrational. It was argued that the scheme did not envisage fulfillment of the export obligation only by reference to the foreign exchange earnings by use of the capital goods. Mr. The interpretation sought to be placed upon the terms of the Scheme by the officers of the Directorate of Revenue Intelligence is according to the petitioner even otherwise irrational. It was argued that the scheme did not envisage fulfillment of the export obligation only by reference to the foreign exchange earnings by use of the capital goods. Mr. Jaitley gave the instance of a lift imported by a hotelier for installation in the hotel. He urged that it was impossible to determine the foreign exchange earnings out of the use of the lift once the same was installed for it would then be a part of the larger establishment which alone could generate foreign exchange receipts. Foreign exchange obligation could, therefore, be satisfied even if the capital goods were not themselves generating or capable of generating any foreign exchange. ( 11 ) THE contrary view proceeds on the interpretation that goods can be allowed to be imported provided such imports help the importer generate convertible foreign exchange by export of finished goods or services. The least that is required is that the imported capital goods are pumped into and used in the establishment for whose benefit the same have been imported. An importer cannot import goods for a use wholly unconnected with the activity out of which he proposes to generate the foreign exchange. A travel agent cannot, for instance, import cars in the name of his business of running the travel agency, but use them for a purpose other than the said activity. ( 12 ) TWO interpretations are thus being offered by the parties to the terms of the policy. The one offered by the petitioner if accepted would mean that once the capital goods are harnessed into the establishment, it is not necessary that the export obligation should be fulfilled only from out of the earning of the said goods. Foreign exchange earned generally by the importer can be used for satisfying the export obligation as had been done in the instant case. The other view is that export obligation could in the case of the cars imported by the travel agent be satisfied only by use of the cars and not otherwise. The importer has, therefore, not only to utilize the goods but, satisfy the export obligation from out of foreign exchange earned by such use. The other view is that export obligation could in the case of the cars imported by the travel agent be satisfied only by use of the cars and not otherwise. The importer has, therefore, not only to utilize the goods but, satisfy the export obligation from out of foreign exchange earned by such use. The true position appears to us to be that while capital goods may or may not be capable of generating convertible foreign exchange by their independent use as is the position in the case of the lift in a hotel or the cars imported by the travel agent, the least that the importer must demonstrate is that the goods were put to use for the business activity for which the same were imported. The scheme does not in our view envisage imports where the goods are not meant for use in the business activity of the importer nor can the goods be diverted for some other use without violating the conditions of actual user which is fundamental to the Scheme. The on-going investigations would, therefore, unravel whether the imported capital goods i. e. the cars in question were ever inducted into the business of the importer. That assumes importance because, according to the respondents, the cars were not even registered for the commercial activity for which the same were imported as was mandatory under section 39 of the Motor Vehicles Act. There was, according to them an unauthorised diversion of goods contrary to the spirit of the Scheme, which could be investigated and made a basis for further action against the importer. The investigation instituted by the Directorate of Revenue Intelligence officers may in that above backdrop lead to the discovery of the true facts which would eventually lead to the issue of a show cause notice to which the petitioner can respond appropriately. Expression of any opinion by this Court at this stage would in that view be premature and would amount to pre-judging the issue which may arise at the appropriate stage in the context of the facts established in the course of the investigation. ( 13 ) THAT apart the power of this Court to interfere in the pending investigation is limited to cases where the investigation itself is incompetent or mala fide. ( 13 ) THAT apart the power of this Court to interfere in the pending investigation is limited to cases where the investigation itself is incompetent or mala fide. Such incompetence may arise out of any statutory bar to the institution of the proceedings or their continuance generally or by any particular authority. No such statutory bar has, however, been pointed out to us that could render the on-going investigation incompetent for want of jurisdiction. The issue of a certificate by the DGFT may also not be conclusive in such circumstances for any such certificate cannot circumscribe the power of the authority to reopen even a concluded matter if it is shown that such conclusion was vitiated by fraud, concealment of facts, misrepresentation or mis-declaration. We are supported in that view by the decision of the Supreme court in Sheshank Sea Foods Pvt. Ltd. Vs. Union of India and Ors. , (1996) 11 SCC 755 . In that case the petitioner had challenged the action of the Customs authorities whereunder certain seizure operations to investigate the utilisation of the raw material imported by the dealer under the duty exemption scheme was started. The allegation being investigated was that the terms and conditions subject to which such import was permitted was being violated by the importer. The High Court had dismissed the petition and allowed the investigation to go on. In appeal before the Supreme Court, their Lordships held that under section 111 (o) when goods are exempted from customs duty subject to a condition and the condition is not observed, the goods are liable to confiscation. The Court noticed that the respondents had alleged the violation of the condition subject to which the goods had been imported which matter the customs authorities were competent to investigate under section 111 (o ). The Court held that the provisions of the Import and Export Policy and the Handbook of Procedure, issued by the Ministry of Commerce did not even remotely suggest that the powers of the customs authorities to investigate compliance with a condition, subject to which the import was made had been taken away. The Court held that the provisions of the Import and Export Policy and the Handbook of Procedure, issued by the Ministry of Commerce did not even remotely suggest that the powers of the customs authorities to investigate compliance with a condition, subject to which the import was made had been taken away. The following passage is in this regard apposite:"we do not find in the provisions of the Import and Export Policy or the handbook of Procedures issued by the Ministry of Commerce, Government of India, anything that even remotely suggests that the aforesaid power of the Customs authorities had been taken away or abridged or that an investigation into such alleged breach could be conducted only by the licensing authority. That the licensing authority is empowered to conduct such an investigation does not by itself preclude the Customs authorities from doing so. " ( 14 ) EVEN here the respondents are investigating the alleged non- fulfilment of the condition subject to which the goods had been imported. The on-going investigation cannot, therefore, be faulted on the ground of jurisdiction. ( 15 ) THERE is no suggestion that the investigation is mala fide or actuated by a collateral purpose. If that be so, there is no reason why such an investigation should be scuttled by interference in exercise of our extraordinary writ jurisdiction. The argument that the petitioner has a lofty plan for starting an airline which may get adversely affected by the pendency of theinvestigation can hardly be a reason for this Court to quash the proceedings. There is no gain saying that pendency of the investigation can never be seen as a verdict of guilt against the petitioner. It is, after all, an investigation which should be allowed to reach its logical conclusion. We have in that view no hesitation in rejecting the first limb of the petitioner s case. ( 16 ) COMING then to the question whether the seized cars should be released to the petitioner, we must in all fairness to Mr. Malhotra record that he did not seriously oppose the said prayer. All that Mr. Malhotra argued was that the interest of the revenue ought to be protected by stipulating appropriate conditions for release. ( 16 ) COMING then to the question whether the seized cars should be released to the petitioner, we must in all fairness to Mr. Malhotra record that he did not seriously oppose the said prayer. All that Mr. Malhotra argued was that the interest of the revenue ought to be protected by stipulating appropriate conditions for release. We see no reason why that cannot be done to protect the interests of both the sides especially when the cars would progressively depreciate by continued disuse and want of adequate maintenance, care and protection. ( 17 ) IN the circumstance, therefore, we allow this writ petition but only in part and to the extent that the seized cars shall be released in favour of the petitioner-company upon the petitioner providing a bank guarantee to the extent of the differential duty amount payable on the cars and a bond for the penalty and redemption fine that may be levied by the competent authority. The prayer for quashing of the investigation is, however, rejected and the writ petition to that extent dismissed, leaving the parties to bear their own costs. .