* THE HON'BLE SRI ANIL R. DAVE, THE CHIEF JUSTICE AND * THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN + WRIT PETITION No.20446 OF 2008 AND + WRIT PETITION No.18256 OF 2008 % Dated 24.09.2009 # M/s.Sravani Impex Pvt Ltd Rep.by its Director,M Ranga Rao …… Petitioner Vs. $ 1 The Additional Director General Directorate of Revenue Intelligence,T.Nagar Chennai-600017 2 Deputy Director Directorate of Revenue Intelligence, Banjara Hills, Hyderabad ……Respondent ! Counsel for the Petitioner: Sri K.V. Satyanarayana ^ Counsel for the Respondents: Sri A. Rajasekhar Reddy, Assistant Solicitor General. <GIST: > HEAD NOTE: [1] (1996) 10 SCC 520 2 AIR 1987 SC 943 3 (2007) 9 SCC 286 4 (2004)3 SCC 440 5 (2006)12 SCC 28 6 (1996)1 SCC 327 7 (2001) 10 SCC 639 8 (2006) 12 SCC 33 9 (2007) 11 SCC 363 10 (2003) 5 SCC 194 11 AIR 1963 SC 569 12 (1998) 8 SCC 1 13 (1985) 2 SCC 412 14 (2005) 11 SCC 451 15 (2007) 13 SCC 270 16 (2006) 12 SCALE 105 17 (2007) Vol.209 ELT 331 18 2006 (TLS) 216292 19 2004 (173) ELT 3 20 2001 (133) ELT 280 21 2006(203) E.L.T. 353 22 (2003 (155) E.L.T. 423 (S.C.) 23 Judgment in Crl.A. No. 576 of 2008, dated 01.04.2008 24 2007 (10) SCC 396 25 2005 (192) E.L.T. 101 26 (2007) 10 SCC 396 27 2002(148) E.L.T. 3 28 1980 (Vol.6) ELT 38, (Calcutta High Court) IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE TWENTY FOURTH DAY OF SEPTEMBER TWO THOUSAND AND NINE PRESENT THE HON'BLE THE CHIEF JUSTICE and THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION NO : 20446 of 2008 Between: M/s.Sravani Impex Pvt Ltd Rep.by its Director,M Ranga Rao ..... PETITIONER AND 1 The Additional Director General Directorate of Revenue Intelligence,T.Nagar Chennai-600017 2 Deputy Director Directorate of Revenue Intelligence, Banjara Hills, Hyderabad .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to to issue a writ of Certeorified Mandamus or any other writ or order in the nature of writ of calling for the records of the respondent made in No.F.VIII/26/22/2005-HRU dt 07-02-2007 and quash the same because it without jurisdiction and further refund with interest of the sum of Rs 25,40,591/- and return all the documents seized by them illegally which are stated in panchanamas dt 27-10-2005 and 03-11-2005 and pass Counsel for the Petitioner:MR.K.V.SATYANARAYANA Counsel for the Respondent No.: MR.A.RAJASHEKAR REDDY (ASST SOLICITOR GEN) The Court made the following : Form-NIC-OGS/WP{BMR} IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE TWENTY FOURTH DAY OF SEPTEMBER TWO THOUSAND AND NINE PRESENT THE HON'BLE THE CHIEF JUSTICE and THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION NO : 18256 of 2008 Between: M/s.Venkat Pharma Limited,Rep.by its Director Ch.Ramesh Babu ..... PETITIONER AND 1 The Additional Director General Directorate of Revenue Intelligence, T.Nagar,Chennai-600017 2 The Deputy Director, Directorate of Revenue Intelligence Banjara Hills,Hyderabad .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to to issue a writ of certeorified mandamusor any other writ or order in the nature of writ calling for the records of the respondent made in No.F.VIII/26/19/2005-HRU dated 2.2.2007 and quash the same because it is without jurisdiction and further direct refund with interest of the sum of Rs.1,73,76,124/- and return all the documents seized by them illegally whcih are stated in panchanamas dated 27.10.2005 and 3.11.2005 and pass Counsel for the Petitioner:MR.K.V.SATYANARAYANA Counsel for the Respondent No.: MR.A.RAJASHEKAR REDDY (ASST SOLICITOR GEN) The Court made the following : Form-NIC-OGS/WP{TRK} THE HON'BLE SRI ANIL R. DAVE, THE CHIEF JUSTICE AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.20446 OF 2008 AND WRIT PETITION No.18256 OF 2008 COMMON ORDER: (Per The Hon'ble Sri Justice Ramesh Ranganathan) W.P. No.18256 of 2008 is filed seeking a direction to quash the show cause notice, issued by the respondent on 02.02.2007, as without jurisdiction. The petitioner seeks a further direction for refund, with interest, of Rs.1,73,76,124/- and return of all the documents seized by the respondent as stated in the panchanama. W.P. No.20446 of 2008 is filed seeking a direction to quash the show cause notice, issued by the respondent on 07.02.2007, as without jurisdiction. The petitioner seeks a further direction for refund, with interest, of Rs.25,40,591/- and return of all the documents seized by the respondent as referred to in the panchanama dated 27.10.2005. As the questions raised, in challenge to the impugned orders, are common in both the writ petitions they were heard together and are now being disposed of by this common order. 2. Both Sri K.V. Satyanarayana, learned Counsel for the petitioner and Sri A. Rajasekhar Reddy, learned Assistant Solicitor General would submit that the facts in W.P. No.18256 of 2008 are representative of both the writ petitions and it would suffice for their disposal to note, in brief, the facts stated therein. 3. The petitioner in W.P. No.18256 of 2008 is engaged in the manufacture of pharmaceutical products. They claim to have exported the medicines manufactured by them to various countries, more particularly to African nations, under the incentive scheme, i.e., Duty Entitlement Pass Book (DEPB scheme), extended by the Director General of Foreign Trade (DGFT) exercising powers under the Foreign Trade (Development & Regulation) Act, 1992 (Act 22 of 1992). 4. On the warrants issued by the second respondent, the office premises of the petitioner company, its Managing Director and others were searched on 27.10.2005 and certain documents were seized. On completion of investigation and, on the basis of the statements recorded, the impugned show cause notice dated 02.02.2007 was issued by the 1st respondent. It is stated therein that specific intelligence, gathered by the officers of Directorate of Revenue Intelligence, Regional Unit, Hyderabad, indicated that the FOB value, of the goods exported by the petitioner, were highly inflated to avail DEPB (Duty Entitlement Pass Book) benefits in a fraudulent manner and that they were bringing overseas remittances, through illicit channels, into their bank accounts in the guise of export proceeds. By the impugned proceedings the petitioner company, its Managing Director and others were, jointly and severally, called upon to show cause as to why:- 1. T h e consignments exported through Chennai Port, with a FOB value of Rs.111,88,77,595, should not be held liable for confiscation under Section 113(i) of the Customs Act, 1962; 2. The FOB value of Rs.111,88,77,595/- declared in the shipping bills should not be rejected and the DEPB credit availed by them for Rs.11,27,74,483/- should not be denied; 3. DEPB credit amounting to Rs.11,27,74,483/-, already availed by M/s VPL, should not be recovered under Section 28(1) of the Customs Act, 1962 along with interest under Section 28 AB; 4. Penalty under Section 114-A of the Customs Act, 1962 should not be imposed on M/s VPL; 5. Penalty under Section 114(iii) of the Customs Act, 1962 should not be imposed on the Managing Director of M/s VPL and others; and 6. The amount of Rs.1,00,00,000/- paid by M/s VPL voluntarily should not be appropriated towards the DEPB credit availed by them fraudulently. They were also asked to show cause why :- (1) The foreign currency equivalent of Rs.97,89,61,683/- remitted into the account of M/s VPL, and already withdrawn, should not be held liable for confiscation under Section 111 (d) read with Section 120 of Customs Act, 1962; and (2) Penalty under Section 112(a) of the Customs Act, 1962 should not be imposed on each of them. 5. In respect of exports made through Air Cargo Complex, Hyderabad, the petitioner company, its Managing Directors and others were called upon to show cause why :- (1) The consignments exported through Air Cargo Complex, Hyderabad with a FOB value of Rs.6,18,87,146/- should not be held liable for confiscation under Section 113(i) of the Customs Act, 1962; (2) The FOB value of Rs.6,18,87,146/-, declared in the shipping bills, should not be rejected and the DEPB credit availed by them for Rs.69,46,807/- should not be denied; (3) The DEPB credit for Rs.69,46,807/-, already availed by M/s VPL, should not be recovered under Section 28(1) of the Customs Act, 1962 along with interest under Section 28 AB; (4) Penalty under Section 114-A of the Customs Act, 1962 should not be imposed on M/s VPL; and (5) Penalty under Section 114(iii) of the Customs Act, 1962 should not be imposed on the Managing Director of M/s VPL and others. The Petitioner, its Managing Director and others were also called upon to show cause why:- (1) Foreign currency equivalent to Rs.5,53,87,268/-, remitted into the account of M/s VPL and already withdrawn, should not be held liable for confiscation under Section 111(d) read with Section 120 of the Customs Act, 1962; and (2) Penalty under Section 112(a) of the Customs Act, 1962 should not be imposed on each of them. 6. They were called upon to produce evidence which they intended to rely, in support of their defence, in their written statement. They were also called upon to indicate in writing whether they wished to be heard in person before the case was adjudicated. They were informed that the show cause notice was being issued without prejudice to any other action that may be initiated under the Customs Act, 1962 or any other law for the time being in force. Along with the show cause notice the documents relied upon were annexed. It is this, and a similar, show cause notice which are subjected to challenge in these writ petitions. 7. The proceedings, impugned in these writ petitions, are notices to show cause and not orders passed after hearing parties. Issuance of a show-cause notice contemplates that the response shall be considered and only thereafter will the matter be decided. The person asked to show cause has, therefore, full opportunity to satisfy the authorities that no action should be taken against him. (Union of India v. Jain Shudh Vanaspati Ltd.,[1]) . The purpose of issuing a show-cause notice is to afford an opportunity of hearing and, once cause is shown, it is open to the authority to consider the matter in the light of the facts and submissions placed and only thereafter can a final decision be taken in the matter. Interference by the court before that stage would be premature. (State of U.P. v. Brahm Datt Sharma[2]; Divisional Forest Officer v. M. Ramalinga Reddy[3]). 8. Ordinarily, a writ court would not exercise its discretionary jurisdiction to entertain a writ petition questioning a notice to show cause unless the same, inter alia, appears to have been issued without jurisdiction, (Brahm Datt Sharma2, Special Director v. Mohd. Ghulam Ghouse[4], Union of India v. Kunisetty Satyanarayana[5], Executive Engineer, Bihar State Housing Board v. Ramesh Kumar Singh[6], Ulagappa v. Divisional Commr., Mysore[7] and Siemens Ltd. v. State of Maharashtra[8]), particularly when the petitioner has an effective remedy under the Act itself. (State of Punjab v. Bhatinda District Coop. Milk Producers Union Ltd.,[9]). But these are limitations imposed by the Courts on themselves in exercise of their jurisdiction and are not matters of jurisdictional factors. (Union of India v. Hindalco Industries[10]). It would, ordinarily, not be proper or appropriate that the initial jurisdiction of the authority/Tribunal to deal with jurisdictional facts should be circumvented and the decision, on such a preliminary issue, sought before a High Court in its writ jurisdiction. (Express Newspapers (P) Ltd. v . Workers[11], M. Ramalinga Reddy3). However, the self-imposed restrictions on the High Court not to entertain a writ petition, if another effective and efficacious remedy is available, will not operate as a bar where the order or proceedings are wholly without jurisdiction. (Whirlpool Corpn. v. Registrar of Trade Marks[12]). 9. In very rare and exceptional cases, the High Court can quash a show-cause notice if it is found to be wholly without jurisdiction. A show- cause notice does not give rise to any cause of action as it does not amount to an adverse order which affects the rights of any party. It is quite possible that, after considering the reply to the show-cause notice, the authority concerned may drop the proceedings and/or hold that the allegations are not established. A show-cause notice does not infringe the rights of anyone. It is only when a final order imposing some punishment, or otherwise adversely affecting a party, is passed that the said party can be said to have any grievance. (Kunisetty Satyanarayana5). 10. On the other hand, where the threat of a prejudicial action is wholly without jurisdiction, a person cannot be asked to wait for the injury to be caused to him before seeking the court’s protection. If, however, the authority had the power in law to issue the show cause notice it would not be open to the person, asked to show cause, to approach the Court under Article 226 of the Constitution at the stage of notice. (Chief of Army Staff v. Major Dharam Pal Kukrety[13]). 11. The jurisdiction of the High Court, under Article 226 of the Constitution, should not be permitted to be invoked in order to challenge a show-cause notice unless, accepting the facts in the show-cause notice to be correct, the show-cause notice is, ex facie, without jurisdiction, (State of U.P. v. Anil Kumar Ramesh Chandra Glass Works[14]) , i.e., the notice is ex facie a ‘nullity’ or non est in the eye of the law for absolute want of jurisdiction of the authority to even investigate into the facts or totally “without jurisdiction” in the traditional sense of that expression — i.e., even the commencement or initiation of the proceedings, on the face of it, and without anything more, is totally unauthorised. In all other cases, it is only appropriate that the party shows cause before the authority concerned and takes up the objection regarding jurisdiction therein. (Ramesh Kumar Singh6, Mohd. Ghulam Ghouse4, M. Ramalinga Reddy3). 12. Mere assertion by the petitioner that a notice is without jurisdiction would not suffice. It should, prima facie, be established to be so. Where factual adjudication is necessary interference is, ordinarily, ruled out. (Union of India v. VICCO Laboratories[15]). Whether the show-cause notice is founded on any legal premise is a jurisdictional issue which can be urged by the recipient of the notice and such issues can also be, initially, adjudicated by the authority issuing the very notice before the aggrieved can approach the court. (Mohd. Ghulam Ghouse4; M. Ramalinga Reddy3). 13. It is, therefore, necessary to briefly note the allegations in the show cause notice. The case of the respondents, in short, is that M/s. Venkat Pharma Limited and M/s. Sravani Implex Pvt. Ltd, both sister concerns, exported goods, under the export promotion scheme viz., DEPB, during the years 2000-2005 mostly to African countries, that, at the relevant time, the scheme provided incentives in the form of credit certificates, between 12% to 15% on the value of exports, which was required to be utilized for payment of customs duty, that, in order to gain undue advantage of the scheme, the petitioner had inflated the value of exports several times, that the over invoiced amounts were remitted into the petitioner’s account by hawala operations, that one such hawala operator Sri Gollapudi Venu was engaged in the call diversion racket in U.S.A. & U.K. i.e., illegal diversion of telephone calls through VOIP (Voice Over Internet Protocol), that the amounts so earned had to be sent to India despite absence of a legal channel, that the petitioner required foreign remittances into their bank accounts to project the same as sale proceeds in order to gain DEPB benefits on the overvalued export goods, that, in order to circumvent the legal channel of sending money to India, certain individuals had paid M/s. Essvi Associates and M/s. PVS Corporation with a request that the amounts paid by them be transferred to their kith and kin in India, that the amounts so collected were remitted by these companies into the account of VPL in the guise of sale proceeds, that these remittances exceeded Rs. 100 crores, that the petitioner had floated companies in Nairobi, South Africa and USA, that they had fabricated/prepared purchase orders in their office at Hyderabad, had shown these firms as purchasers of the supplies made by the petitioner to African countries,that M/s. Essvi Associates and M/s. PVS Corporation had transferred funds through these floated firms also, that foreign exchange, equivalent to Rs.32 crores, was remitted into the petitioner’s account by Sri G. Venu, KRK International and M/s. PVS. Corporation, that these remittances were not the sale proceeds of the goods exported and, as such, the petitioner was not eligible to claim DEPB, that the petitioner, on receipt of such foreign currency in their account, had obtained Bank Realisation Certificates (BRC) from the respective banks and had produced them, as proof of realization of sale proceeds, along with the shipping bill endorsed by the Customs authorities as proof of export, that, by submitting such documents to the DGFT, they had obtained credit certificates, ranging from 12% to 15% of the inflated value of exports, that the petitioner had opened 22 bank accounts in fictitious names affixing photographs of their junior level employees, that the foreign remittances were transferred from the petitioner’s account into these accounts from which cash was withdrawn and paid to G. Venu, that introduction, for all these fictitious bank accounts, was given by the Managing Director of the petitioner company and the signatures of all these account holders were impersonated by the General Manager of the petitioner company, (a first cousin of the Managing Director and Directors of VPL), that the total value of the transactions in these fictitious accounts was around Rs.120 crores, that the petitioner had also exported narcotic drugs, prohibited under NDPS Act viz., Ephedrine, in the guise of regular medicines to African countries during the years 2000 to 2002, that the ephedrine tablets so exported to African countries were sold at 1000 US$ per carton for a total value of Rs.10 crores, that the amounts so collected were also transferred in the guise of sale proceeds of regular medicines through M/s. Relian e Pharma Limited, a company floated by the petitioner at Nairobi, Kenya, that they had also availed DEPB credit on such illegal supplies of narcotic drugs exported in the guise of regular medicines, that a complaint had been lodged before the Metropolitan Sessions Judge, Hyderabad and that the trial was nearing conclusion. 14. While elaborate oral and written submissions are made both by Sri K.V. Satyanarayana, learned Counsel for the petitioner and Sri A. Rajasekhara Reddy, Learned Assistant Solicitor General, appearing for the respondents, only those contentions relating to the jurisdiction of the respondent to issue the show cause notice are being noted and dealt with, for, if this contention were not to find acceptance, the petitioners must be relegated to their remedy of submitting their reply/objections to the said show cause notices. 15. Before examining the rival contentions it is necessary to note that medicines were notified as eligible for export incentives under the DEPB Scheme. The scheme required exporters to file a shipping bill in the prescribed form. GR forms, prescribed by the Reserve Bank of India, were also required to be filed along with the export documents to show the value of the goods exported and the extent of realization of export proceeds. On receipt of export proceeds, in convertible foreign currencies, the BRC issued by the receiving bank was to be produced before the Customs Officer who was required to verify whether it tallied with the export value declared in the Shipping Bill. On completion of verification, the Customs officer was required to make an endorsement, on the DEPB, under his signature and seal, certifying the fulfillment of export obligations under the relevant bill. He was also required to endorse the export quantity, and the amount of DEPB credit available to the exporter, in the DEPB. The DEPB, along with the customs endorsement, was then required to be forwarded to the DGFT who was empowered to sanction and grant advance DEPB licenses/scrips specifying the extent of credit available under the scrip. These DEPB scrips enabled import of duty free goods for the amounts mentioned therein. The license was issued by the DGFT only after the goods were exported and export proceeds were fully realized. These DEPB licenses/scrips were also freely sold in the market. 16. Sri K.V. Satyanarayana, Learned Counsel for the petitioner, would submit that Customs officers had no jurisdiction to deal either with grant of DEPB credit or its withdrawal even when it was established that such DEPB credit was granted without justification, that the DEPB licence had been granted, by the DGFT, under Act 22 of 1992, that, under Circular No15/97 dated 3.6.1997 issued by the Central Government, it was only the licencing authority ie., DGFT who had the power to grant credit at the rates notified, that, in case of violation, the DGFT alone had the power to withdraw or claim back the credit and that the impugned notices were, therefore, without jurisdiction. Placing reliance on Union of India v. Asian Foods[16] and Commissioner of Customs, Mumbai v. Vishal Exports Overseas Ltd[17], learned counsel would contend that the provisions of the Customs Act are not applicable to withdrawal of DEPB credit in the absence of a notification of prohibition issued under Sections 3(2) and (3) of Act 22 of 1992 and that the Customs authorities lacked jurisdiction to initiate proceedings to impose penalties outside the Customs Act and under Act 22 of 1992. Learned Counsel would also rely on Economic Traders (Gujarat) Limited v. Union of India[18], Pradip Polyfils Pvt Ltd. v. Union of India[19], Kanhaiya Exports v. Commissioner of Customs[20], and Vishal Exports Overseas Ltd17 ). 17. Sri A. Rajasekhar Reddy, Learned Assistant Solicitor General, would submit that the DEPB Scheme was covered by Customs Notifications dated 07.04.1997 and 22.04.2002 which were in the nature of customs duty notifications/ exemption notifications, that an authority which granted exemption had the power to cause an enquiry for the purpose of satisfying itself that the exporter had complied with the conditions of the exemption notification and the licence under which he had availed the benefit, that such an enquiry was conducted on post exports and it was found that the petitioner had obtained DEPB scrips in a fraudulent manner, that, as DEPB credit scrips were in the nature of Customs duty, they fell under the ambit of Section 28 of the Customs Act, 1962 in case of fraud or mis-declaration and that the only course open to the Government was to demand the credit (customs duty). 18. Relying on Commissioner of Central Excise & Customs, A.P., Vs. Suresh Jhunjhunwala[21], Om Prakash Bhatia v. Commissioner of Customs, Delhi[22], Gurucharan Singh v. DRI[23], Commissioner of Customs v. Brown[24] and R.A. International v. Union of India[25], Learned Assistant Solicitor General would submit that the petitioner's liability for confiscation of the export goods, and consequential penalties as envisaged under Section 113(i) and 114 of the Customs Act, 1962, was not wiped out merely because they had already exported the prohibited goods. He would submit that both Act 22 of 1992 and the Customs Act contained similar/parallel powers for the purpose of administering the particular Act/Scheme, that the primary responsibility of the Customs authorities was to investigate any irregularity committed by the licence holder which resulted in illegal availment of DEPB credit and that the overlapping provisions in both the enactments had to be interpreted harmoniously keeping in view that these provisions were meant to regulate import/export of goods. 19. I n Asian Foods16, the Central Government, in exercise of its powers under Section 5 of Act 22 of 1992 read with para 1.3 and para 2.1 of the Foreign Trade Policy, issued notification dated 4.7.2006 to the effect that the transititional arrangement, notified earlier