General Instruments Company vs Union Of India & Ors

3. Material facts leading to these proceedings are as follows:

In the year 1982, M/s Rashtriya Chemicals & Fertilizers

Limited (hereinafter referred to as `RCF'), a Government of

India Undertaking, floated a global tender for supply of various

types of capital goods required for its Thal project.

Responding to the said tender notice, the appellant, a

partnership firm, through its managing partner, Mr. Manohar

M. Kulkarni, an ex-army man, submitted its quotation for

supply of thermocouple compensating cables and extension

cables. The tender was accepted by RCF and by a purchase

order dated 13th October, 1982, they agreed to purchase

cables worth Rs. 17,49,000/- from the appellant.

4. In order to avail of customs duty exemption on the import of

certain raw materials required in the manufacture of capital

goods to be supplied to RCF, on 22nd November, 1982, the

appellant applied to the Joint Chief Controller of Imports &

Exports (for short `JCCI'), Bombay, for issuance of an

import licence with duty exemption entitlement certificate

etc. for import of raw materials free of duty or at a

concessional rate of duty in terms of Import Policy Book for

2 AM 83. According to the appellant, as they were not clear

about the form on which they had to make the application,

on the covering letter filed with the applications, with copies

to the Advance Licensing Committee as well as to the

Special Imprest Licensing Committee at New Delhi, a

request was made to forward the said applications to the

concerned cell so that an appropriate licence is issued for

the aforesaid purpose.

5. On processing of the application, the office of JCCI,

Bombay, vide their letter dated 30th November, 1982, called

upon the appellant to furnish the essentiality certificate

from RCF. Accordingly, the appellant obtained the

essentiality certificate from the project authority i.e. RCF, to

the effect that they have agreed to purchase goods valued at

Rs. 17,49,000/-, from the appellant for their Thal project

under the global tendering procedure and that the Thal

project is fully financed by the Government of India. In the

certificate issued by RCF, it was also stated that the

appellant was eligible for availing concessional rate of

import duty on the raw materials imported by them for

3 manufacture of cables in terms of para 14 of Import Policy

1981-82. The appellant forwarded the said certificate to

JCCI, Bombay. In spite of clear knowledge that the Thal

project of RCF was fully financed by the Government of

India, the Controller of Imports & Exports, Bombay issued a

Special Imprest Licence (SIL), to the appellant on 30th May,

1983, under AM 84 policy, permitting the appellant to

import listed raw materials, for approximate value of

Rs.5,78,300/-; without payment of customs duty. However,

the licence was subject to the following conditions:

"(a) The appellant shall supply to RCF export items as per list attached thereto for an f.o.b value of Rs.17,49,000/- within 6 months from the date of clearance of the first consignment against the said licence.

(b)To ensure fulfilment of the export obligation under the said licence, the appellant shall execute a bond with 100% bank guarantee as per the proforma given in Appendix-38 of the Handbook of Import Export Procedure 1981-82 for a sum of Rs.12,14,623.

(c) Goods imported against the said advance licence shall be utilised in accordance with the provisions of Customs Notification No.11/F-

No.602/14/8/DBK dated 09.06.78, as amended from time to time.

4

(d)Cash assistance, if any, will be as per the instructions issued by the Ministry of Commerce from time to time.

(e) In the event of failure to fulfil the export obligation within the time stipulated, the bond will be enforced and the licence holder shall pay customs duty on the proportionate quantity of the material corresponding to the products not exported."

6. The requisite Bond in terms of the aforementioned

condition (b) was accordingly, executed on 17th June, 1983.

The appellant imported raw materials from time to time,

aggregating to C.I.F. value of Rs.3,01,439/-, and cleared the

same without payment of duty in terms of the Bond. It is

not in dispute that the appellant has utilised entire quantity

of the imported raw materials in the manufacture of

resultant products, valued at Rs.17,59,382/-; supplied to

RCF in order to fulfil export obligation, as stipulated in the

licence, against the export obligation of Rs.17,49,000/-.

7. Having thus, fulfilled the export obligation, the appellant

approached the project authority, viz. RCF, for requisite

endorsement on Duty Exemption Entitlement Certificate (for

short `DEEC'). Initially RCF declined to make the

5 endorsement, on the ground that the Thal Project was

financed by the Government of India and not by

organisations like the World Bank, OECF, ADB, etc. as

contemplated under the Exemption Notification No.210/82

dated 10th September, 1982. However, later on, RCF made

the requisite endorsement on the DEEC book on 2nd

February, 1988 to the effect that the appellant had supplied

goods valued at Rs.17,59,382/- during the period from 27th

July, 1983 to 10th May, 1984.

8. It appears that in the meanwhile, a show-cause notice

dated 5/6th September, 1985, had been issued by the JCCI,

Bombay, calling upon the appellant to show cause as to

why Bond, in the sum of Rs.12,14,623/-, furnished by

them, should not be enforced as the appellant had violated

clause 1 of the Licence and Clause 5 of the Bond. The

appellant was required to appear before Mr. G.R. Nair,

Deputy Chief Controller of Imports & Exports on 20th

September, 1985, at 3:15 p.m. for a personal hearing,

which, in fact, was granted on 29th September, 1985. Not

being satisfied with the cause shown, a cyclostyled order

6 dated 4th December, 1985, was passed by Smt. R. Johny,

Controller of Imports and Exports, holding that the

appellant had failed to fulfil the export obligation in time

and had failed to furnish prescribed documents within the

prescribed period, and thus, violating condition No.5 of the

Bond. Accordingly, the appellant was directed to remit the

Bond amount of Rs.12,14,623/-; to surrender the valid

R.E.P. licence remaining unutilised and to pay forthwith the

customs duty with interest @ 18% on proportionate

quantity of the exempt materials. In other words, the

supplies made by the appellant to RCF were not treated as

discharge of export obligation in terms of condition (a) of the

Licence. The appellant was declared to be a defaulter

thereby debarring it from getting any licence under the duty

exemption scheme or under any other provisions of the

Import Export Policy announced from time to time.

9. Consequent upon the forfeiture order dated 4th December,

1985, the Controller of Imports & Exports, vide letter dated

20th December, 1985, denied cash assistance to the

appellant. The appeal preferred by the appellant against

7 the forfeiture order dated 4th December, 1985 was rejected

vide order dated 21st May, 1986 issued by Smt. R. Johny,

Controller of Imports & Exports on the grounds that: (i) part

`F' of DEEC book duly certified by the project authority had

not been submitted and (ii) certificate of exports in original

nor the original export documents were furnished by the

appellant. Incidentally, the forfeiture order as well as the

appellate order was passed by the same officer, namely,

Smt. R. Johny, though the appellate order is purported to

have been issued with the approval of JCCI.

10.Aggrieved thereby, the appellant preferred second appeal

before a Committee of Joint Director General of Foreign

Trade, New Delhi.

11.During the pendency of the second appeal, the customs

authorities sought to recover customs duty amounting to

Rs.3,71,614.82 from the appellant in respect of the raw

materials imported and cleared without payment of duty

under the Special Imprest Licence (SIL) dated 30th May,

1983. The proposed action was challenged by the

appellant by preferring Writ Petition No.2038 of 1988.

8 However, when the petition was taken up for final hearing

on 21st October, 2002, counsel for the appellant volunteered

to deposit the customs duty as demanded. Thereupon,

counsel for the revenue made a statement that within two

weeks of the deposit of the said amount, a proper show-

cause notice shall be issued and the same would be

adjudicated in accordance with law. The Writ Petition was,

thus, disposed of on the same day. However, while

disposing of the Writ Petition, it was ordered that appeal

filed by the appellant against the order dated 21st May,

1986 shall be disposed of within a period of six months.

12.The Appellate Committee, comprising of two Joint Director

Generals of Foreign Trade, New Delhi, while observing that

the second appeal filed by the appellant was not

maintainable as in the current Hand Book of Procedure of

Export-Import Policy, there was no provision for second

appeal against the forfeiture order, in deference to the

directions given by the High Court, heard the appeal on

merits. Vide order dated 21st February, 2003, the

Committee held that although the forfeiture order and the

9 order passed in the first appeal were in accordance with the

policy yet in view of the fact that the forfeiture order had not

been actually implemented at the Bank's level and

practically no amount had been transferred out of the

appellant's account to the Government's account, the

forfeiture order, did not have any financial effect on the

appellant and hence no relief was required to be given in

the second appeal. Accordingly, the second appeal was also

dismissed.

13.At this juncture, it may also be noted that in the light of

the forfeiture order dated 4th December, 1985, the licensing

authority had initiated departmental proceedings against

the appellant and vide an order dated 4th May, 1987, the

Deputy Chief Controller of Imports & Exports, Bombay

debarred the appellant and its partners from receiving any

import licences, customs clearance permits, allotment of

imported goods from any canalising agency, and from

importing any goods from AM 88 to AM 90. The first

appeal preferred by the appellant against the departmental

order was dismissed by the Joint Chief Controller of

10 Imports & Exports on 28th July, 1987. However, the second

appeal filed by the appellant was partly allowed by the

Additional Chief Controller of Imports & Exports on 18th

June, 1992 by reducing the period of debarment upto 31st

March, 1989. While allowing the appeal partly, the

appellate authority, inter alia, observed that there was no

mis-utilisation of imported goods, and at no point of time

the appellant had concealed any information. But they had

not been able to identify and choose a correct scheme of

import licence to execute the order. The appellate authority

finally concluded thus:

"The appellants may have mis-comprehended the policy in force. But, they did not object when the special imprest licence under reference was granted to them under the deemed export category with specific export obligation with reference to 100% duty free imports. Since they accepted the conditions of the licence and also executed a bond to abide by the conditions of the licence which carried an export obligation, it was incumbent on them to complete formalities in support of their contention of having discharged export obligation notwithstanding that the imported goods were utilised for the execution of the project. The project they executed or supplied they made towards the execution of the RCF, Thal Project was not a project falling under the category of deemed exports. This project was not aided by IDA/IBRD. Their request for conversion of their supplies to RCF, Thal Project in the deemed category of exports was duly 11 considered by the competent authority in the Import Trade Control Organization. Under letter dated 30.10.1985, their request was not considered as the supplies made by them to RCF, Thal Project were not covered under the category of deemed exports. They were advised to convert the special import licence into project import licence by paying the customs duty with penal interest thereon with the consent of Ministry of Finance. But they did not do so considering the fact that the appellants mis-understood the provisions of the policy in force and that there was no malafides on their part, I am inclined to take a lenient view."

14.Being dissatisfied with order dated 22nd February, 2003,

the appellant preferred a fresh Writ Petition in the Bombay

High Court. During the pendency of the Writ Petition, the

appellant sought leave of the Court to make a fresh

representation to the concerned Ministry, seeking

conversion of Special Imprest Licence (SIL) dated 30th May,

1983 into a Project Import Licence. However, the said

representation was rejected on 22nd August, 2003 on the

ground that there was nothing like "Project Import Licence"

and as the imports were made in the year 1983 when the

Project Import Regulations of 1965 were in force, it was not

possible to verify the conditions after twenty years.

12 15.In the judgment under appeal, after elaborate discussion

and particularly having regard to the afore-extracted

observations of second appellate authority in its order dated

18th June, 1992, the High Court came to the conclusion

that : (i) forfeiture order against the appellant was uncalled

for; (ii) even though the second appellate authority has held

that there is no financial implication on account of the

forfeiture order, yet on account of the said order, the

appellant was made liable to pay entire customs duty with

interest and penalty; (iii) the lapse on the part of licensing

authorities in issuing a licence with Bond conditions which

were impossible to perform had serious financial

implications on the appellant; (iv) once it is accepted that it

was a mistake to issue Special Imprest licence to the

appellant and the conditions attached to the Bond and the

licence were wholly impossible to perform, the licensing

authorities ought to have taken remedial steps immediately,

particularly when Rule 8 of the Foreign Trade (Regulation)

Rules, 1963, empowered JCCI to rectify the error by

amending the licence. Finally, the High Court disposed of

the Writ Petition with the directions that : (a) in the light of 13 order dated 21st February, 2003, the Bond/bank guarantee

executed by the appellant on 17th June, 1983 shall not be

enforced; and (b) within six weeks from the date of its order,

JCCI, Bombay shall amend the Special Imprest Licence

(SIL) into a licence which may entitle the appellant to seek

regularisation of the imports already made under the said

licence at concessional rate of duty, if permissible under the

Customs Act. However, the High Court declined to grant

appellant's prayer for Cash Compensatory Support,

hereinafter referred to as CCS, permissible under the

Special Imprest Licence (SIL). It is this part of the order

which is impugned in the present appeal.

16.Mr. M.M. Kulkarni, a partner of the appellant-firm, sought

permission to argue the case on behalf of the appellant on

the ground that on account of several rounds of litigation,

spanning over two decades, because of erroneous licence

issued by the licensing authorities, the firm had closed

down and, therefore, did not have the financial capacity to

engage the services of a lawyer. We granted the permission

and heard him at some length.

14

17.At this juncture, it will be relevant to note that during the

course of hearing on 23rd January, 2008, learned senior

counsel appearing on behalf of the Director General of

Foreign Trade fairly stated that in view of the aforenoted

observations of the High Court, he would discuss the case

with the officers of the concerned department and possibly

the appellant might get some relief, particularly in the

matters relating to 13 independent orders/import licences,

confiscated/forfeited by the licensing authority by virtue of

order of forfeiture dated 4th December, 1985. Further

hearing in the matter was, thus, deferred.

18.Pursuant to and in furtherance of the said offer, the office

of the Zonal Joint Director General of Foreign Trade

examined the representation made by the appellant on 14th

March, 2008. A personal hearing was also granted to the

representative of the firm. Vide order dated 8th April, 2008,

the Foreign Trade Development Officer informed the

appellant that out of CCS claim of Rs.5,52,032.92, they

have been found to be eligible for claim of Rs.4,19,916/-,

and the department was ready to pay the said amount.

15 However, as regards the balance CCS claim etc., and

interest thereon, the letter reads thus:

"Since balance claim of Rs.1,31,953/- was not supported by the required documents, vide this office letter dated 26.3.2008 you were advised to furnish documentary evidence showing that the project was funded by bilateral or multilateral external assistance. Against this letter, you had replied vide your letter dated 31.3.2008 stating that the project was funded by OECF Fund. In support of your contention you have quoted certain information from web site of OECF and claimed that project was funded by OECF, but no documentary evidence from the project authority i.e. RCF Ltd. (Rashtriya Chemicals & Fertilisers Ltd.) was furnished by you in support of your claim. In fact, you have furnished a project authority certificate dated 18.3.1983 issued by the RCF Ltd. in support of W.P. No.1174/03 filed before the Hon'ble Bombay High Court, which was annexed as Exhibit - D to the petition at page No.31 showing project was funded by Govt. of India Fund.

You had also appeared for personal hearing on 7.4.2008 and contended that Part `F' of DEEC Part II was certified by the project authority i.e. RCF Ltd., therefore, it is construed that supplies were funded by the OECF Fund and requested to give benefit for this amount also. Your this contention cannot be hold good since Part `F' of DEEC Part II merely bears the information of invoice no. & date, description of supplied items, quantity and FOR value thereof. But it has nothing to do with the source of finance of the project. In fact, the supplies were financed by Govt. of India Fund; therefore, this supply does not fall under para 131 of Hand Book of Procedure, as such, not eligible for CCS benefit to the extent of Rs. 1,31,953/-.

16 Regarding additional claim of Rs.14,478/- raised by you vide your letter dated 31.3.08, it is to inform you that this claim was not originally included in the writ petition No.1174/03 field before the Hon'ble High Court of Bombay, which is a subject matter of SLP No.16917/2003 filed before the Hon'ble Supreme Court of India. Even this claim is not supported by the required documents, therefore, your additional claim of CCS cannot be considered.

Regarding payment of interest, it is hereby informed that the debarring order was in force and maintained by the Appellate Authority vide their Order dated 18.6.1992. It was in force upto 27.2.2008 i.e. till the date of Order of the Hon'ble Supreme Court of India in respect of SLP No. 16917/2003. There was no delay at the part of the deptt. As such, no interest can be paid against the above claim."

19.It is clear from the afore-extracted communication that a

substantial claim for CCS stands allowed and the balance

claim of Rs.1,31,953/- has been disallowed for want of

documentary evidence to show that the project was funded

by bilateral or multilateral external assistance. It is

pertinent to note that in the said letter there is no

indication as to why in the first instance CCS claim for

Rs.4,19,916/- had been denied to the appellant.

17

20.It was submitted by Mr. Kulkarni that having come to the

conclusion that on the facts of the case, order of forfeiture

dated 4th December, 1985 was not warranted, the High

Court erred in not granting the consequential relief viz. the

claim for CCS, as the same had been denied only on

account of the forfeiture order, declaring the appellant to be

a defaulter. It was also contended that, in any case, there

was no justification in respondents' withholding the CCS in

respect of other independent export orders, when all the

conditions specified therein had been fulfilled. We may also

note that in the written submissions filed after the

conclusion of the hearing, it is stated that RCF has now

issued a certificate, dated 27th May, 2008, showing that two

orders, namely, KC 263 and KT 995 were financed by

Overseas Economic Corporation Fund (for short `OECF')

and thus, CCS against both these orders are payable. It

was, thus, pleaded that the respondents should be directed

to forthwith release the CCS claim along with interest for

the delayed payment.

18

21.Mr. Gaurav Agrawal, learned counsel appearing on behalf

of the Director General of Foreign Trade, filed written

submissions, opposing the grant of CCS and the interest

thereon. It is pointed out that having got the licence

converted from Special Imprest Licence to Project Import

Licence, as per the directions of the High Court, the

appellant cannot, now, contend that RCF-Thal project being

a foreign funded project, they are entitled to the claim for

CCS. In support of the submission that CCS is permissible

only in a case of Special Imprest Licence, our attention was

drawn to condition No.4 in the Special Imprest Licence

dated 30th May, 1983. Insofar as the claim for interest is

concerned, it is urged that apart from the fact that such a

claim was made for the first time in April, 2003, when W.P.

No.1174/2003 was filed, the order of forfeiture cannot be

said to be malafide inasmuch as, way back on 30th October,

1985, i.e. prior to the forfeiture order, the appellant was

advised to get their import regularised by approaching the

Ministry of Finance by paying customs duty with penal

interest but the appellant did not heed to the advice of the

respondents.

19

22.It is trite that no man should suffer a wrong by technical

procedure of irregularities. The Rules or procedures are the

handmaids of justice and not the mistress of the justice. Ex

debito justitiae, we must do justice to him. (Vide A.R.

Antulay Vs. R.S. Nayak1). However, in the present case,

although we feel that the appellant has suffered on account

of confusion in the nature of the licence to be issued to it

but appellant's main prayer for conversion of Special

Imprest Licence into a Project Import Licence having been

granted by the High Court, the wrong caused stands

remedied to a large extent.

23.Having considered the matter in the light of the afore-noted

subsequent intervening events, in particular the conversion

of Special Imprest Licence into Project Import Licence, in

terms of direction (b) by the High Court, we are of the

opinion that insofar as CCS claim is concerned, no further

relief can be granted to the appellant. In that view of the

matter, the certificate, stated to have been now issued by

RCF to the appellant, and annexed with the written

submissions dated 3rd June, 2008, is of no avail to the 1 (1988) 2 SCC 602 20 appellant. Nevertheless, in our judgment, in view of the fact

that the second Appellate Authority had reduced the period

of debarment, pursuant to order dated 4th May, 1987

passed on account of the order of forfeiture dated 4th

December, 1985, only upto 31st March, 1989 and the fact

that the High Court vide its order dated 7th April, 2006 has

held that order of forfeiture against the appellant was

uncalled for, there was no justifiable reason for the Director

General of Foreign Trade for not releasing CCS amount at

least on the passing of the order by the High Court. It was

only during the course of hearing of this appeal that learned

counsel for the said respondents offered to get the claim re-

examined and as such now by order dated 8th April, 2008,

the appellant's claim to the extent of Rs.4,19,916/- has

been found to be in order. In the premises, it is manifest

that the respondents retained the amount due to the

appellant as CCS without the authority of law and are liable

to pay the same forthwith.

24.In view of the afore-going discussion, the appeal is partly

allowed; the respondents are directed to release the CCS

21 claim which has been determined to be due to the appellant

within four weeks from today alongwith interest at the rate

of 9% per annum from 7th April, 2006 till the date of actual

payment.

25.We may clarify that we have not expressed any opinion on

the merits of appellant's claim for CCS of Rs. 14,478/-

against export order KT-995 as also the rate of customs

duty payable by the appellant on the imports of raw

materials as appeals on both the issues are stated to be

pending before the concerned appellate forums. As and

when the appeals come up for hearing, these will be decided

strictly on their own merits without being influenced by any

observation hereinabove.

26.The appellant will be entitled to the costs of this appeal.

.......................................J. (C.K. THAKKER)

.......................................J. (D.K. JAIN) 22 NEW DELHI;

AUGUST 25, 2008.

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