IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED :01.07.2010 CORAM: THE HON'BLE MR. JUSTICE T.S.SIVAGNANAM W.P.Nos.1647 to 1649 of 2003 M/s.Shri Shakambari Exports Rep. by its Proprietor Mahendra Singh No.86, Rasappa Chetty Street Wall Tax Road, Park Town Chennai – 600 003. ... Petitioner in all W.Ps. Vs. 1.The Joint Director of Foreign Trade Office of the Joint Director of Foreign Trade 38-39, Whites Road, Royapettah Chennai 600 014. 2.The Assistant Commissioner of Customs Office of the Commissioner of Customs Customs House, 60, Rajaji Salai, Chennai – 600 001. 3.The Oriental Bank of Commerce, Rep. its Chief Manager, Overseas Branch, 467, Mount Road, Chennai 600 035. ... Respondents in all W.Ps. Common Prayer : This writ petition is filed under Article 226 of the Constitution of India to issue a writ of Certiorarified Mandamus to call for the records of the second respondent dated 01.01.2003, 06.01.2003 & 21.10.2002 in F.No.S45/EU/ME/62, 67, 93/2001/Gr/7, F.No.S45/EU/ME/353, 354/2001/Gr7 & F.No.S45/EU/ME/4209, 4262/2000/Gr7 revoking the bank guarantee given by the petitioner as against advance licence No.0410005762, 0410005762 & 0410005677 respectively quash the same For Petitioner : Mr.N.Muralikumaran For Respondents : Mr.S.Arunkumar for R2 No appearance for RR1 & 3 https://hcservices.ecourts.gov.in/hcservices/ COMMON ORDER By consent, the main writ petition itself is taken up for disposal. 2. Since, the issue involved in all the three writ petitions are identical and the petitioner in all the three writ petitioner is same proprietorship concern, the writ petitions are taken up for disposal together. 3. The prayer in all the three writ petitions are for issuance of writ of Certiorarified Mandamus to quash the order passed by the second respondent invoking the Bank Guarantee given by the petitioner as against the advance licenses issued to the petitioner. 4. The facts in writ petition No.1647/2003 would suffice for disposal of all the three writ petitions. The petitioner is an exporter and was granted three advance licenses for import of 2,14,268.350kgs of stainless steel without payment of duty with a corresponding obligation to manufacture and export of 1,61,004.700 kgs of stainless steel utensils. According to the petitioner, they have completed 90% of the export obligation and also applied for extension for time to complete the export obligation before the first respondent. According to the petitioner in terms of paragraph 4.27.1 of the Export Import Policy for the year 2002-07, the petitioner was directed to execute a Bank Guarantee, even at the time of making an import . According to the petitioner, invoking the Bank Guarantee is improper, since the second respondent has no authority either under the Foreign Trade (Development and Regulation) Act, 1982, or under the Export Import Policy framed by the Government of India. Even assuming the second respondent is entitled to invoke the Bank Guarantee in the absence of any notice from the first respondent, the second respondent cannot suo-moto take action. It is further contended that even without instruction from the first respondent, revocation of the Bank Guarantee cannot be done without show cause notice to the petitioner. 5. The second respondent has filed a counter affidavit contending that the petitioner acquired three advance licenses for import of stainless steel duty free and they are under obligation to export finished products to the tune of 2,08,548 kgs. It is further contended that the petitioner has not produced export obligation, discharge certificate from the office of the first respondent and the Bank Guarantees executed by the petitioner, are those in terms of Customs notification No.30/1997, by which the petitioner enjoyed exemption from payment of customs duty and upon failure to fulfill the export obligation, the petitioner himself is bound by the bond https://hcservices.ecourts.gov.in/hcservices/ executed that the Bank Guarantee could be invoked. Therefore, the second respondent would contend that the Bank Guarantee is being invoked in terms of the bond executed, which is a statutory bond, pursuant to customs notification No.30/1997. It is further submitted that in the case of the petitioner, the Directorate of Revenue Intelligence, on receipt of specific intelligence that the stainless steel imported under the advance licenses were being misused and the duty free, imported raw material was diverted. Further, it is the case of the second respondent that when the DRI visited the petitioner's office premises, there is no such office functioning in the said premises for the past four years. Based on the out come of the investigation conducted by the DRI, due intimation have been given to the first respondent and the first respondent have issued show cause notice to the petitioner dated 16.01.2003 for cancellation of the three advance licenses. The Commissioner of Customs (Exports) also issued show cause notice, calling upon the petitioner to explain as to why, it should not be held that the export made against the three advance licenses should not be held inadmissible. In the show cause notice, a demand of Rs.85,00,327/- for customs duty was also made apart from other things. No reply was submitted to the show cause notice and when a reminder was sent, the petitioner through their counsel alleged that no show cause notice was received. Therefore, a copy of the show cause notice was sent to the learned counsel for the petitioner, however thereafter, no reply was received and after affording sufficient opportunity, the Commissioner of Customs (Exports) passed an order in original dated 29.05.2004, demanding duty. According to the respondents, the order in original has become final and no appeal has been filed against such order. 6. I have carefully considered the submissions on either side and perused the materials available on record. 7. Though elaborate submissions have been made on the facts, the short questions, which arises for consideration is as to whether, the second respondent is justified in invoking the Bank Guarantee. Admittedly, the petitioner had imported the stainless steel under three advance licenses without payment of duty with a corresponding obligation to export manufactured stainless steel utensils. It is the case of the petitioner that they have completed 90% of the export obligation, but however, from the order in original passed by the Commissioner of Customs (Exports) dated 29.05.2004, it is seen that on the basis of the information furnished by the DRI, the first respondent has also issued show cause notice for cancellation of the advance licenses. However, the second respondent being an authority, functioning under the provisions of the Customs Act is bound by the notification and is entitled to enforce the statutory bond executed by the petitioner for while availing the benefit of Customs notification No.30/97. As https://hcservices.ecourts.gov.in/hcservices/ long as the export obligation, discharge certificate is not produced before the Customs authority, they are entitled to invoke the provisions of the bond executed by the petitioner. However, in the instant case, the fact appears that there has been violation of conditions of the notification itself as it is stated that the office premises of the petitioner does not exist in the place given in the licence, which would obviously mean that there were no manufacturing factories. In fact the Hon'ble Division Bench of this Court in COMMISSIONER OF CUSTOMS (SEA), CHENNAI-1 Vs. CESTAT, CHENNAI 2009 (240) ELT 166 considered the case, where advance licenses were obtained by misrepresentation without even having manufacturing facilities and the Hon'ble Division Bench also took note of the independent powers of both the first respondent Department as well as the Customs Department and held that the claim of the department was justified. The following observations of the Hon'ble Division Bench would very relevant for the purpose of this case:- 30. Now coming to the Judgment of the Division Bench of this Court in 2004 (177) ELT 57 (Mad.) we find the Judgment would apply to the facts of the present case in its entirety. In the said case the Writ Petitions were filed challenging the summons issued under Section 108 of the Customs Act. The Learned Single Judge of this Court dismissed the Writ Petition as against which the appeals were filed before the Division Bench. The Appellants placed reliance on the Judgment of the Hon’ble Supreme Court in the case of East India Commercial Company case, Sampat Raj Dugar and Titan Medical Systems (as referred above) and stated that the Customs Authorities had no jurisdiction to issue to notice under Section 108 of the Customs Act. The Division Bench of this Court after considering the law laid down by the Hon’ble Supreme Court in the case of Sheshank Sea Foods case held as follows. 23. Though there will be no question of the binding principle as laid down by the Supreme Court being watered down, in our opinion, the observations have been made in an entirely different context. There was no question regarding the power of the Customs authorities to initiate investigation or the enquiry, as the case may be. Again, this was not a case of manufacturing licence but pertained to the import of raw materials under the exemption notifications issued under the EXIM policy. The basis issue in the proposed enquiry by the Customs Authorities appears to be as to whether there at all was a manufacturing factory or manufacturing unit for utilizing the imported stainless steel sheets and if such manufacturing unit was not there, how the imported stainless steel sheets were actually https://hcservices.ecourts.gov.in/hcservices/ utilized. It is also true that the further question in that enquiry is going to be as to whether it was the imported material alone which was used in the manufacturing activity. Now, if there was no manufacturing unit available or any such manufacturing unit as would have the capacity to manufacture the goods worth crores of rupees, how was the imported stainless steel utilized. The question would not only be misrepresentation while getting the Advance Licence but also about the utilization of the imported material, which would squarely fall under Section 111(o) of the Customs Act. In our opinion, the decision in Titan case, cited supra, also does not help the Appellants. 29. We do not think that such an approach would be a right approach to the problem. We have already clarified that even if the redemption of the licences is completed, still there would be a power in the Customs Authorities to effect the investigation, or, as the case may be, enquiries to see that whether there was any evasion of the Customs duty. Therefore, in our opinion, the discharge of the export obligation per se cannot put an end to the whole story. 30. Insofar, as the second notification, Notification No.30/97, is concerned, a similar provision regarding the export obligation also appears there. However, there appears to be a specific clause added., i.e. clause (vii), which is to the following effect: “(vii) exempt materials shall not be disposed of or utilized in any manner except for utilization in discharge of export obligation nor for replenishment of such materials and the materials so replenished shall not be sold or transferred to any other person”. Learned Senior Counsel appearing on behalf of the Department very heavily relies on this clause and says that it is in this direction that the enquiry has to be made. We agree with the Learned Senior Counsel that there can be a scope of enquire and the summons issued under Section 108 of the Customs Act for effecting the enquiry such as these cannot be bad for the lack of jurisdiction. 33. It is to be noted that the Division Bench of this Court in a case of South India Exports as referred above held that even the discharge of the export obligation per https://hcservices.ecourts.gov.in/hcservices/ se cannot put an end to the whole matter. The facts in the present case is worse, in the sense that the importer made a false statement for the purpose of securing an advance license with Actual User Condition. The fact that the time within which he had to discharge his obligation has not come to an end, does not advance the case of the importer. The basis for his discharge of the export obligation is existence of a factory. The basis does not exist, the address given is a false address, so the whole edifice falls. The fact that the importer could affect his export obligation through job workers and the existence of a factory is not a sine quo non, does not advance his case either. The importer claimed he had a factory when he had none. So, whether he could have completed the manufacture otherwise hardly matters. For the purpose of obtaining such license with Actual User Condition, it is mandatory that the importer should be a Manufacturer - Exporter. The importer made a false declaration of being one. Having made such a false declaration and obtained a license, the importer cannot be permitted to now say that the imported material is freely importable under OGL and therefore should be allowed to be clear on merit rate. The Tribunal fell in error in permitting the clearance of the goods on merit rate. By doing so the Tribunal has virtually set at naught the purpose behind issuance of an exemption notification. If the Respondent is not an actual user he would not be entitled to utilize the license. The license having been secured by adopting fraudulent method would not confer any right on the importer and as such he cannot be allowed to plead any equity. Therefore we find that the order passed by the Tribunal is not sustainable and liable to be set aside. 8. The above decision of the Hon'ble Division Bench has also been confirmed by the Hon'ble Supreme Court in SLP No.14690/2009, dated 07.10.2009. Thus, the questions raised in the writ petition have to be answered against the petitioner and it is to be held that when there is a violation of a notification issued under the Customs Act, the second respondent would be justified in initiating action. Therefore, there is no error in the action of the second respondent in invoking the Bank Guarantee. 9. In the result, the writ petition fails and its dismissed. However, it is made clear that it is always open to the petitioner to agitate the remedies available in law against the order-in- original passed by the Commissioner of Customs (Exports), dated 29.05.2004, if there so advised. Consequently, connected https://hcservices.ecourts.gov.in/hcservices/ miscellaneous petitions are closed. However, there shall be no order as to costs. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar. pbn To 1.The Joint Director of Foreign Trade Office of the Joint Director of Foreign Trade 38-39, Whites Road, Royapettah Chennai 600 014. 2.The Assistant Commissioner of Customs Office of the Commissioner of Customs Customs House, 60, Rajaji Salai, Chennai – 600 001. 3.The Chief Manager The Oriental Bank of Commerce, Overseas Branch, 467, Mount Road, Chennai 600 035. 3 ccs to Mr.S.Arunkumar, Advocate, Sr. 46363, 46773 & 46774 1 cc to Mc.Gan Law firm, Advocate, Sr. 46855 W.P.Nos.1647 to 1649 of 2003 NG (CO) kk 9/7 https://hcservices.ecourts.gov.in/hcservices/