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M/S. Embio Limited vs. Director General of Foreign Trade & Ors.

Not available · 2024 INSC 408Decided 13 May 2024
Not available
Justice Abhay S. Oka · Justice Ujjal Bhuyan

Background

The appellant's predecessor, Karnataka Malladi Biotics Limited, had imported capital equipment at a concessional customs duty under an Export Promotion Capital Goods Licence, on condition that it would later export finished goods worth a specified value in foreign exchange within five years. The company was later declared a "sick unit" and went through a BIFR rehabilitation scheme that waived certain customs duty. Despite this, the authorities imposed a separate penalty of about Rs. 23.38 lakh under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 for failing to meet the export obligation, and this penalty was upheld by the Karnataka High Court (both a Single Judge and a Division Bench), partly on the mistaken ground that an earlier writ petition had been withdrawn without any liberty to refile.

Decision Breakdown

The Supreme Court found that the High Court had overlooked a 2013 order that expressly granted liberty to file a fresh writ petition, so the case should not have been dismissed on that technical ground. On the merits, the Court held that Section 11(2) penalises only the act of making, abetting, or attempting an export or import in contravention of the law, not merely failing to fulfil a downstream export obligation attached to a concessional licence. Since there was no allegation that the appellant's predecessor actually made or attempted a contravening export/import, and since Section 11(2) being a penal provision must be strictly construed, the penalty could not be sustained. The Court set aside the High Court's judgments and the original penalty order, allowing the appeal with no costs.

Lesson Learnt

A penal provision must be applied strictly to the exact conduct it describes: merely failing to meet a licence condition (like an export target) is not automatically the same as the "contravention" that a specific penalty clause is meant to punish.

Official source (sci.gov.in)View Judgment (PDF)

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