By TIOL News Service

AHMEDABAD, AUGUST 23, 2016: A penalty of Rs.2.97crores was imposed on the petitioner u/s 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 for customs duty involvement of Rs.1.91 lakhs.

As the appeal against the order in original came to be dismissed by the Government of India, the petitioner is before the Gujarat High Court challenging the constitutional validity of sub-sections (2) and (3) of section 11 of the said FTDR Act.

The petitioners also contend that in the show cause notice, there is not even a proposal for imposition of penalty under section 11(2) of the said Act.

Section 11(2) of the Act reads -

(2) Where any person makes or abets or attempts to make any export or import in contravention of any provision of this Act or any rules or orders made thereunder or the foreign trade policy, he shall be liable to a penalty of not less than ten thousand rupees or five times the value of the goods or services or technology in respect of which any contravention is made or attempted to be made, whichever is more.

The High Court narrated the provisions of various sections of the FTDR Act and after extracting the decisions in Union of India and others v. M/s. Bhanamal Gulzarimal Ltd., and others AIR 1960 (SC) 475, Vasanlal Maganbhai Sanjanwala and Anr. v. The State of Bombay, AIR 1961 (SC) 4, State of Jammu & Kashmir v. Triloki Nath Khosa and others AIR 1974 (SC) 1, inter alia observed thus -

+ The vires of an Act enacted by the Parliament can be struck down only on the ground of legislative incompetence or the law being violative of any of the fundamental rights or the other provisions of the Constitution. In this context, it is well settled that there is a strong presumption of constitutionality of a legislation and the duty lies on the one who contend that a certain law is ultravires being discriminatory to produce necessary material in this respect.

+ In view of the complex requirements of foreign trade and import export policy, the executive would have to have sufficient powers to control contraventions of essential conditions of import export restrictions. It is, in this respect, subsection (1) of section 11 provides that no import or export shall be made by any person except in accordance with the provisions of the Act, the Rules and the orders made thereunder and the foreign trade policy for the time being in force.

+ No restriction would be effective unless contravention thereof can be visited by penal consequences. It is in this respect, subsection (2) of section 11 provides that where any person makes or abates or attempts to make any export of import in contravention of any provision of the Act or the Rules or orders or the foreign trade policy, he would be liable to penalty. By very nature of things, such penalty has to be discretionary with a sufficiently wide range.

+ We have noticed that as per section 13 of the Act, such penalty can be imposed only by the Director General or subject to restrictions which may be provided, by any such officer as the Central Government by a notification in the official gazette authorize. However, the power of such authorized officer to impose penalty would be limited as may be specified.

+ Under section 14, such penalty can be imposed only after giving opportunity to the owner of the goods by informing him of all the grounds on which, it is proposed to impose the penalty, allowing him to make representation within reasonable time and granting hearing if he so desires.

+ The whole scheme of the Act viewed thus, in our opinion, lays down sufficient guidelines and safeguards to ensure on one hand that the executive is vested with sufficient discretionary powers to deal with different kinds of cases of contraventions and at the same time, providing internal safeguards to control the discretion. The penalty itself is to be imposed making export or import or abatement or attempt in contravention of any provision of the Act, Rules or orders or foreign trade policy.

+ By very nature of things, the contravention could be of various kinds and of range of provisions beginning with mere technical breaches of procedural provisions or could be wholly malafide, fraudulent and with intention to evade duty. All such cases cannot be put in the same bracket.

+ Thus, the legislature while in view of such situation has granted discretion to the executive, at the same time, provided for sufficient guidelines and safeguards so that such discretion does not convert into arbitrary or discretionary exercise of powers.

The petitioners' challenge to the validity of the statutory provisions must fail, the High Court held.

(See 2016-TIOL-1830-HC-AHM-CUS)