By TIOL News Service

NEW DELHI, MAR 01, 2019: THE principal controversy involved relates to the discharge of the export obligations by the petitioner. Whereas, the petitioner claims that it has discharged its export obligations by making supplies to a Special Economic Zone (SEZ) unit, the respondents have rejected the same on the ground that it has failed to file the necessary documents to evidence fulfillment of its export obligations.

The first SCN u/r 7 of the Foreign Trade (Regulation) Rules, 1993, was issued on 26.04.2013 whereby the petitioner was called upon to show cause why action should not be taken against it and its directors under the FTDR Act. This was followed by another notice dated 22.01.2014 calling upon the petitioner to show cause why a fiscal penalty should not be imposed under Section 11(2) of the FTDR Act.

The petitioner responded by claiming that it had fulfilled its export obligations and enclosed several documents in support of its contention. The Additional DGFT responded by a letter dated 26.02.2014 observing that the supplies referred appeared to be to an SEZ Unit and the same required submission of Bill of Exports and realisation from SEZ accounts of the unit.

Failing to receive any clarification from the petitioner, the Joint DGFT issued a Circular directing further license and renewal of expired license to be refused in terms of Section 9(2) of the FTDR Act. The Joint DGFT did not accept the documents submitted as sufficient to establish the fulfillment of export obligations and, therefore, passed an order dated 21.11.2014 imposing a fiscal penalty of a sum of Rs. 2,00,000/-.

Aggrieved, the petitioner preferred an appeal before the Additional DGFT under Section 15(1) of the FTDR Act, inter alia, submitting that supply of goods to a recognized courier agency ought to be treated as transhipment of goods and, therefore, no further Bill of Export was required. It also submitted that Nokia had issued 'I' Form covering the invoices raised by it and the same ought to be accepted as the requisite documents to substantiate performance of export obligation.

The appeal was rejected and so was the review petition, therefore, the petitioner is before the Delhi High Court.

It is submitted that non-submission of the Bill of Exports was only a procedural matter and the same could not be considered as mandatory; that they had submitted copies of five invoices out of which only two pertained to supplies made to Nokia in the SEZ unit and the remaining were physical exports but the same had been ignored. Reliance is also placed on the Bombay High Court decision in  Larsen and Toubro Ltd. -   2017-TIOL-2291-HC-MUM-CUS  in support of their contention that Bill of Exports was only a procedural matter and non-submission of the same could be excused.

The High Court considered the submissions and after examining the relevant conditions as set out in the condition sheet annexed to the EPCG license distinguished the case law cited and inter alia observed –

++ The relevant conditions as set out in the condition sheet annexed to the EPCG license required Holoflex (the petitioner) to submit the statement of export within three months of the expiry of the block year duly certified by a Chartered Accountant and Bank concerned. Holoflex was also required to submit yearly performance of export in electronic format. Admittedly, Holoflex had failed to do so.

++ It was also necessary that Holoflex's name and the EPCG license be indicated on the shipping bills/Bills of Export.

++ Petitioner was also required to follow the Handbook of Procedures which expressly required the petitioner to submit Bill of Exports as issued under Rule 30 of the Special Economic Zone Rules, 2006 (which the petitioner had not provided).

++ It is also relevant to note that in terms of Rule 30 of the Special Economic Zone Rules, 2006, the goods supplied to an SEZ Unit are required to be inspected prior to the issue of Bill of Exports. Filing of Bill of Exports is not a mere formality but serves as a valuable check for ensuring that the goods deemed to have been exported are in fact received by the SEZ Unit and are accounted as Deemed Exports. In the present case, the petitioner had merely filed only Form-I which was issued for the purposes of Central Sales Tax Act.

++ The contention that the respondents have ignored the shipping bills for physical exports was not one of the grounds urged by the petitioner in the appeal or the review filed by Holoflex. The present petition also lacks the necessary pleadings in this regard.

Concluding that the impugned decision cannot be faulted and no relief could be granted to the petitioner, the petition was dismissed.

(See 2019-TIOL-500-HC-DEL-CUS)