Government of IndiaMinistry of Commerce & Industry

Directorate General of Foreign TradeUdyog Bhawan, New Delhi -110011

*****F. No.11/68 12016-17/ECA.I/22\ & Date ofOrder:~y.05.2017

Date of Dispatch: 1"5.05.2017

Name of the Appellant: Mis amco Industries Pvt. Ltd.

Order appealed against: Order-in-Original No.03/02/0011000191AMI6/ECA.II dated 06.01.2017passed by Addl. DGFT, Mumbai

Order-in-Appeal passed by: Shri A.K. Bhalla, DGFTShri Jaikant Singh, Addl. DGFT

Order-in-Appeal

Mis Namco Industries Pvt. Ltd. (hereinafter referred to as 'the appellant') hasfiled an appeal dated 22.02.2017 under Section 15 of the Foreign Trade (Development &Regulation) Act, 1992 (as amended in 2010) against Order-in-Original No.03/02/001100019/AM16/ECA.II dated 06.01.2017 passed by Addl. DGFT, Mumbai. Theappellant has also filed an application for dispensing with pre-deposit of the penaltyamount required under Section 15 (l) (b) of the FTDR Act, 1992 (amended in 2010).

2. As per section 15 (l) of the FTDR Act, an appeal is required to be filed within aperiod of forty-five days from the date on which the decision or order is served on suchperson. It is further provided that the Appellate Authority may, if it is satisfied that theappellant was prevented by sufficient cause from preferring the appeal within theaforesaid period, allow such appeal to be preferred within a further period of thirty days.The appeiiam na not indicated when the adjudication order was served upon them; northe office of the Addl. DGFT, Mumbai has indicated the date of dispatch. In this case,since the adjudication order is dated 06.01.2017, if 05 days are added for Postal service,the period of 45 days stipulated for filing an appeal would expire on 26.02.2017. As theappeal has been received on 22.02.2017 in this Directorate, the appeal is filed well withinthe stipulated period 45 days.

3. Further, proviso to section 15 (1) of the FTDR Act provides that in the case of anappeal against a decision or order imposing a penalty or redemption charges, no suchappeal shall be entertained unless the amount of penalty or redemption charges has beendeposited by the appellant. It is also provided that, where the Appellate Authority is ofopinion that the deposit to be made will cause undue hardship to the appellant, it may, at

Page 1 of 10

its discretion dispense with such deposit either unconditionally or subject to suchconditions as it may impose. The appellant has made an application for dispensing withthe requirement of pre-deposit of the penalty amount on the grounds that they are facingundue hardships including financial hardships. We have acceded to the request of theapplicant to dispense with the pre-deposit of penalty amount.

4. We have observed the following facts stated in the adjudication order dated06.01.2017:

(i) The appellant had obtained the below mentioned Authorizations under Zero DutyEPCG (Export Promotion Capital Goods) Scheme of the Foreign Trade Policy (2009-14)from Zonal DGFT office, Mumbai:

s. Category of Authorization Authorisation File Number Duty savedNo. Licence Number Date Amount (in

Rupees)1. Zero Duty 0330028077 09.12.2010 03/97/02110 10241 Rs.24,00,83,641.80

EPCG AMIIAuthorization

2. Zero Duty 0330028416 18.01.2011 03/97/021/011951 Rs.80,18,454.00EPCG AMllAuthorization

(ii) As per Sl. No. 2 of the condition-sheets attached to the Authorizations andamendments issued subsequently, the appellant was under obligation to export 'MildSteel Plates and Stainless Steel Plates' worth US$ 3,12,13,474.58 and US$ 10,55,059.72respectively against both these Authorizations, within a period of 6 years from the dateof issue of these Authorizations. Also, in terms of Para 5.8 ofHBP, Vol. I (2009-14), theappellant was required to fulfill 50% of the export obligation during first block period i.e.within 4 years from the date of issue of the Authorizations and in this respect submitdocuments to RA, Mumbai. First block period in respect of both these Authorizationswas over but no such documents were furnished by the appellant.

(iii) In the meantime, RA, Mumbai received a communication from the office of theDirectorate of Revenue Intelligence (DRI), Mumbai Zonal Unit informing that they wereinvestigating a case of over-valuation of capital goods imported against the above-mentioned Authorizations. DRI also forwarded copies of agreements entered intobetween the Authorization holder and foreign suppliers, copies of Bills of Entry etc.

(iv) Addl. DGFT, Mumbai i.e. the Adjudicating Authority has stated that examinationof the documents received from DRI, Mumbai, revealed that:

(a) Shri Namit Soni, Director, Mis Namco Industries Pvt. Ltd., in his capacity asDirector of Mis Namco Corpn. Ltd. (a sister concern of Mis Namco Industries

~age20flO

Pvt. Ltd.) entered into a purchase contract on 20.10.2009 for purchase of capitalgoods, as allowed to be imported against the above mentioned EPCGAuthorization, with M)s SSAB, Sweden for a consideration of Euro 3.20 million(equivalent to Rs. 20.14 crore).

(b) After entering into the above referred contract dated 20.10.2009, Shri Namit Sonibacked off from the said purchase contract and entered into a purchase contract

on 20.11.2009 for purchase of the very same used machinery, with Mis. EscorpCommodities LLC, Dubai for a consideration of Euro 16.35 million (equivalent toRs.I02.92 crore).

(c) On 12.02.2010, Mis. Escorp Commodities LLC, Dubai entered into a purchasecontract with Mis SSAB, Sweden for purchase of the same capital goods, for aconsideration ofEuro 2.53 Million (equivalent to Rs. 15.93 crare instead of Euro3.20 million (equivalent to Rs. 20.14 crore) as mentioned in the earlier contractdated 20.10.2009 between Mis. Namco Corpn Ltd. and Mis. SSAB, Sweden.

(v) Addl. DGFT, Mumbai has stated that scrutiny of the Bills of Entry revealed thatthe machinery was imported into India through Kandla Port directly from Sweden fromthe same foreign supplier i.e. Mis SSAB, Sweden, with whom the appellant had enteredinto an agreement on 20.11.2009 for supply of the same machinery for a much lowerprice ofEuro 3.20 million (Equivalent to 20.14 crore).

(vi) Addl. DGFT, Mumbai observed that it appeared, prima facie, that the appellanthas violated the provisions of Rule 11 and Rule 14 (1) of the Foreign Trade (Regulation)Rules, 1993 which attracts the provisions of Section 11(2) and Section 11 (3) of ForeignTrade (Development & Regulation) Act, 1992 (as amended) and Rule 10 of the ForeignTrade (Regulation) Rules, 1993. Accordingly, a Show Cause Notice dated 26.07.2016was issued to the appellant by Addl. DGFT, Mumbai, asking the appellant to show caseas to why:

(a) EPCG Authorizations issued to them should not to be cancelled ab-initio in termsof Rule 10 of the Foreign Trade (Regulation) Rules 1993; and

(b) Fiscal penalty should not be imposed upon them for mis-declaring the value ofimported goods, in terms of Section 11(2) and 11(3) of the Foreign Trade(Development & Regulation) Act, 1992 (as amended).

Vide the above said Show Cause Notice, the appellant was also given anopportunity of Personal Hearing before the Adjudicating Authority on 17.08.20] 6 toexplain their case.

Page 3 oflO

(vii) S/Shri Sujay N. Kantawala and Brijesh Pathak, Advocates appeared before theAdjudicating Authority on behalf of the appellant on 17.08.2016 and submitted a letterdated 17.08.2016 requesting for supply of documents referred to and/or relied on in theShow Cause Notice dated 26.07.2016 and adjournment of the personal hearing. Copiesof the documents received from DRI, which were relied upon for issue of show causenotice, were provided to the appellant vide letter dated 18.08.2016. The appellant wasasked to submit their written reply on or before 01.09.2016 and to appear for a personalhearing before the adjudicating authority on 01.09.2016. The appellant didnotattendpersonal hearing on 01.09.2016; instead the appellant's advocate vide letter dated22.08.2016 informed that the relied upon documents were under perusal and afterexamining the documents his clients would be in a position to give further instructions inthe matter. The appellant's advocate also submitted a copy of Criminal Writ Petition No.1679/2016. The Addl. DGFT, Mumbai found that the Criminal Writ Petition was notrelevant to the SCN dated 26.07.2016, nor the office of Addl. Director General ofForeign Trade was impleaded as a party to it. However, the appellant's advocaterequested not to proceed in the matter till the Hon'ble Court heard the matter. Again, inthe interest of natural justice, the Adjudicating Authority granted another opportunity ofpersonal hearing on 23 .11.20 16; but the appellant failed to attend the hearing. ShriBrijesh Phatak, advocate for the appellant vide letter dated 22.11.2016 informed that theWrit Petition was placed for admission on 05.12.2016 and requested to await theoutcome of the proceedings on 05.12.2016.

(viii) The Writ Petition No. 13101 of 2016 filed before Hon'ble High Court by theappellant was considered by the Hon'ble Division Bench on 05.12.2016 and the samewas dismissed. The appellant was again given an opportunity of Personal Hearing on16.12.2016; but no one turned up for hearing. In spite of giving ample opportunities toattend personal hearings on 17.08.2016,01.09.2016 and 16.12.2016 to explain their caseand also for forwarding documents relied upon, the appellant did not submit anything intheir defence. In view of this, the Adjudicating Authority came to the conclusion that theappellant had nothing to say in the matter. Accordingly, the Adjudicating Authoritypassed order on 06.01.2017 with following directions: -

a) Cancel EPCG Authorization No. 0330028077 dated 09.12.2010 and 0330028416dated 18.01.2011 issued to the firm as stated above, ab-initio, under Section 9 (4)of the Foreign Trade (D&R) Act, 1992, as amended read with Rule 10 of theForeign Trade (Regulation) Rules, 1993. Consequently customs duty ofmachinery imported against the said EPCG Authorizations is recoverable withpenal interest by Customs Authorities.

b) A fiscal penalty of Rs. 25 crore (Rupees Twenty Five crore only) is imposed onthe firm under Sections 11(2) & 11(3) ofFT (D&R) Act 1992, as amended.

5. Aggrieved by the order dated 06.01.2017, the appellant has filed the presentappeal mainly on the following grounds: -

Page 4 of 10

(A) The Appellate Authority has passed the impugned order in the most illegalmanner and under pressure exerted by DRI, as no independent evidence was collected bythe Adjudicating Authority before alleging that the agreements entered into between theappellant and Mis Escorp Commodities LLC, Dubai were merely a paper transaction inorder to jack up the price of the capital goods intended to be imported with a motive ofsiphoning of excess amount out of India, since the machinery was imported into Indiadirectly from Sweden with whom the appellant had entered into a contract for purchasefrom the same shipper Mis SSAB for a much lower price. There is no application ofmind of the Adjudicating Authority while holding against the appellants, based on thematerial received from DR! at investigation stage, and there was no final conclusion oradjudication by any competent authority in DR! to adjudicate the allegations levelled.

(B) The appellant has contended that the Adjudicating Authority has not followed theinstructions contained in Para-2 of DGFT circular dated 31.12.2003. Para-2 of DGFTguidelines [for maintaining the denied entity list (DEL)] issued vide circular No.18/24/HQ199-2000/ECA II dated31.12.2003 says "Instances have come to notice whenexternal agencies such as DRL eBL ED etc. request for information in connection withsome investigations or sometimes recommend licensing authorities to withhold furtherlicensing facilities to the firms under investigation. In such cases if routine informationhas been called for, the same should be provided. If recommendations to suspend/cancellicenses are also contained in the communication then the information supplied shouldbe adequately examined from the point of view denial of benefits under the Rules/Act. Ifevidence is found to be insufficient, agencies may be informed that more evidence willbe needed before denial of the benefits can be pronounced under the Rules/Acts and willmention the reasons why the licensing authority thinks that the there is no sufficientevidence to invoke rules relating to the refusal of license. If external agencies havesupplied evidence to the satisfaction of the licensing authority, he shall place the firm inthe DEL after issuing a speaking order against the erring firm without disclosing thesource of information in the denial order. "

(C) Hon'ble Mumbai High Court, while disposing of the appellant's petition.expressed a view that the said application was pre mature and it believed that the pGFTwould act as an independent organization and not under pressure from the DRI., Theappellant has contended that the Adjudicating Authority has cancelled the EPCGauthorizations without causing inquiry or investigation which is against the viewexpressed by the Hon'ble Mumbai High Court.

(D) The appellant has further stated that an application was made by the appellant tothe Hon'ble Supreme Court against the order of the Hon'ble Mumbai High Court and thiswas informed to the DGFT. However, the Addl. DGFT proceeded to cancel theauthorizations and erroneously did not mention that a letter has been received from theappellant informing that the matter is in the Supreme Court.

Page 5 of 10

(E) Observation of the Hon'ble High Court that the DGFT should not be a mg 0:-

surrendering to the authority and power, has not been observed with by the AdjudiAuthority while passing its order.

(F) The Adjudicating Authority has erred in not appreciating that the subsequencontract which was entered into by the appellant with M/s Escorp Commodities LLCDubai was for the following: -

Page 6 of 10

(1) A 4 Hi reversing Plate Mill complete in all respects(2) Sold with technical drawings and CE Markings

(3) The said mill (used) to be duly revamped, packed marked and deliveredon CNF India basis

(4) The mill to be sold packed in containers which also needed to be checkedand certified for shipment. Any pieces which were not possible to be packedm containers were to be shipped in break bulk(5) The mill to be capable of rolling mild steel/alloy steel plates in width of

up to 2500 mm with thickness between 4 mm to 150 mm(6) The mill to include electrical motor(s) of 9600 KV A(7) The mill was sold with two AGC (Automatic Gauge Controllers)(8) Escorp to also supply rolling mill rolls which can roll mild steel/alloy

steel and be 12 vertical rolls 22 work rolls and 6 back up rolls(9) The mill to carry a guarantee of being able to roll 5,00,000 tons a year of

plates(10) Escorp to also give complete support as far as technical aspects of the

mill are concerned and also help with the commissioning of the mill.In addition to this a second contract was entered with M/s Escrp Commodities by

the appellants which obligated upon Escorp to also supply the following to theappellants- (1) Verticals, (2) Work Rolls and (3) Back Up Rolls.

(G) These contracts were entered by the appellants after many discussions withsuppliers of mills around the world and also getting quotes from various vendors for themill. The cheapest quote received for the equipment was at a staggering price of roughly180 million Dollars compared to the company being able to source the equipment at aprice which was roughly about ten percent of the same.

(H) The contract included additional machines/components and also it carried aclause that if the buyer before one week of delivery of the plant from the site of the sellerdid not pay the full amount due to the seller, the said contract would have been deemedto be cancelled.

(I) The appellant had not backed off from the purchase contract of dated 20.11.2009,but had found a better solution in the form of machinery which could yield maximumproduction and had more residual life (of 10 years). Further, the appellant has submitted

that Namco Industries had never entered into any agreement or contract with ABSweden. The Adjudicating Authority has erred in observing that the appellant haimported from the same supplier of Sweden. The machinery has been imported fromSweden, but the supplier is M/s Escorp Commodities, Dubai who entered into contractwith Sweden supplier and after obtaining title over the machinery got the samerefurbished, revamped and after fulfilling all the requirements of contracts/agreements,machinery was dispatched from Sweden itself, instead of bringing it to Dubai and doingrepair and refurbishing of it.

(1) The appellant has submitted that even laymen could have understood that theappellants were not getting benefitted by making more payment for importing the samecapital goods and becoming liable to pay more customs duty and incurring additionalliability on their shoulders for fulfilling export obligation.

(K) The appellant has submitted that since the bills of entry were supported bycommercial invoices issued by the supplier of Dubai, the Customs cannot allege thatthere was any mis-declaration regarding value of goods in the bills of entry filed by theappellants. Further, it has been submitted that the value has been certified to be fair bythe Chartered Engineer appointed by the Customs for ascertaining true and correct valueof the goods. The department could not have discarded the genuineness of the CharteredEngineer's certificate without obtaining expert advice.

(L) The appellant has submitted that the Customs department had already passedadjudication order in respect of the same capital goods vide order dated 10.03.2011(appeal against this order is stated to be pending before CESTAT). The Customsdepartment had also initiated another action against appellant for non submission ofinstallation certificate within six months from the date of submission of completion ofimport vide Order-in-Original dated 10.03.2011. The appellant has, therefore,contended that the Customs department cannot allege mis-declaration on the basis of thesame documents which were produced by the appellant at the time of assessment. Theappellant has placed reliance on the decision the Bombay High Court in the case of OudhSugar Mills Ltd. 1980 (006) ELT 0327 (Born.) that the Government is not competent toreview its own order. As per the doctrine of promissory estoppels the Governmentcannot resile from its order which was made to act upon.

(M) The appellant has submitted that the Adjudicating Authority has erred inconsidering the contract dated 20.11.2009 as dummy contract as the said contract wasentered between the appellant and MIs Escorp Commodities and has been executed infull.

(N) The appellant has submitted that the reason of siphoning of money out of India bythe appellant, given by the Adjudicating Authority for cancellation of the authorizationsrequired to be recorded under section 9 (4) of the FTDR Act, is not a good and sufficient

~page70flO

reason for cancellation of the authorizations as the same is not supported by anydocumentary evidence or any independent inquiry caused by the DGFT.

(0) As regards invoking of Rule 10 (b) by the Adjudicating Authority for breach ofconditions of the authorizations for not fulfilling 50% of export obligation within the firstblock of 4 years, the appellant has submitted that although the authorizations wereobtained in the year 2010 and 2011, the production could be started only in 2013 andcertain documents were submitted evidencing export amounting to Rs. 10 crore. Further,the appellant has submitted that they had got orders for supplying goods and there wouldbe chances to fulfill export obligation in the given or extended period of time. Theappellant had already applied to the competent authority for extension of time. Theappellant has relied upon the judgment of the Hon'ble Calcutta High Court in the case ofStone India Limited reported in 2001 (133) ELT 0316 (Cal.) wherein the decision tocancel the authorizations for non-fulfillment of export obligation before the expiry periodof 3 years was considered as premature.

(P) The appellant has placed reliance on the judgment of the Hon'ble Punjab &Haryana High Court in the case of Supreme Casings Limited vs. Jt. Director General ofForeign Trade reported in 2016 (342) ELT 0176 (P&H) wherein the Hon'ble court hasheld that licence cannot be cancelled with retrospective effect.

(Q) The appellant has placed reliance on the judgment of the Madras High Court inthe case of Ashok Enterprises reported in 2014 (302) ELT 191 (Mad.) to buttress thefinding that DGFT and DRI are independent authorities and action taken by one is notbinding on the other. The appellant has contended that Addl. DGFT, Mumbai was notrequired to get influenced by the directions given by DRI.

Page 8 of 10

(R) The appellant has disputed that the Adjudicating Authority is not empowered todecide the case of valuation. Further, it has been submitted by the appellant that none ofthe documents provided by DRI prove that there has been incidence of increase in thevaluation of the machineries. Also, the Adjudicating Authority has failed to understandthat on failure to fulfill the Export Obligation, the FTP stipulates that authorizationholder has to pay customs duty together with interest as applicable. The appellant hascontended that the Adjudicating Authority has decided the issue by excessive use ofpower vested in it.

6. The appellant was afforded an opportunity of personal hearing before us on21.03.2017, which was postponed to 19.04.2017 on the appellant's request. Mr. NamitSoni, Director of the appellant company along with a counsel from Mis Amar LegalAdvocates appeared. The case was explained in detail by them. They reiterated thesubmissions made by them in their appeal. They submitted a brief and some case laws insupport of their appeal. They contended that the DRI has not produced any evidenceregarding valuation of capital goods. They also contended that since the CharteredEngineer's certificate has been submitted so there has been no mis-declaration.

l

7. We have examined the adjudication order dated 06.01.2017 passed by the Addl.DGFT, Mumbai. The Ld. Adjudicating Authority has passed order on two counts- (i)Overvaluation of the Capital Goods as informed by the DRI; and (ii) In terms of Para 5.8of HBP, Vol. I (2009-14), the appellant was required to fulfill 50% of the exportobligation during first block period i.e. within 4 years from the date of issue of theAuthorizations and submit documents to RA, Mumbai. First block period in respect ofboth these Authorizations was over but no such documents were furnished by theappellant.

8. We have observed that the DRI vide their letter No.DRI/MZU/CIIINT-70/2015dated June, 2016 informed the Addl. DGFT, Mumbai about mis-declaration andovervaluation of the Capital Goods by the appellant and requested the Addl. DGFT,Mumbai to examine all the declarations/ correspondences made by the appellantcompany for getting the EPCG authorizations along with evidences shared by that office(DRI). It was also stated by the DRI that the appellant company was established in theprevious year and it had no history of exports prior to the said authorizations issued in2010 and 2011. DRI had requested the Addl.DGFT, Mumbai to cancel the authorizationsab-initio. It was specifically mentioned by the DRI that they would not be in a positionto issue show cause cum demand notice for recovery of Customs Duty and imposition ofpenalty on the appellant company until an order for cancellation of aforesaid EPCGauthorizations was issued from the office of the Addl. DGFT, Mumbai. Theauthorizations had been issued correctly by the RA based on the contract with M/sESCORP Commodities LLC, Dubai, hence the question of ab-initio cancelation ofauthorizations did not arise. Essentially, valuation is in the domain of customs under theCustoms Act, 1962 and DGFT has no jurisdiction in the matter. Therefore, for any mis-declaration in respect of valuation of import consignment, Customs should take action orthe action should have been taken under FEMA.

Page 9 of 10

9. As regards the second ground for cancellation of EPCG authorizations, Para 5.8.3of the Handbook of Procedures Vol. I (2009-14) provides that where export obligation ofany particular block of years is not fulfilled in terms of the above proportions, except insuch cases where the export obligation prescribed for a particular block of years isextended by the Regional Authority subject to payment of composition fee of 2% on dutysaved amount equal to unfulfilled portion of EO, such Authorization holder shall, within3 months from the expiry of the block of years, pay duties of customs (along withapplicable interest as notified by DoR) of an amount equal to that proportion of the dutyleviable on the goods which bears the same proportion as the unfulfilled portion of theexport obligation bears to the total export obligation. RA should have examined therequest of the Appellant in case it had been received for (i) block-wise EO extension and(ii) EOP extension. The EPCG Committee normally recommends to DG for relaxationin cases of late receipt of application for block-wise EO extension and EOP extension.

--~(Jaikant Singh)

Addl. Director General of Foreign Trade

~----------(A.K. BhaUa)

Director General of Foreign Trade

10. In view of the above, the decision of the RA seems to be based on therecommendation of the DR!. In fact, the matter should have been examinedindependently as per FTDR Act and in pursuance to FTP read with HBP. Therefore, we,in exercise of the powers vested in us under Section 15 of the FTDR Act read withNotification No.10l(RE-2013)/2009-2014, dated the 5th December, 2014, pass thefollowing order:-

ORDERF. No.11/68/2016-17/ECA.I/22.IQ-W Dated:~/2017

Order-in-Original No.03/02/001/00019/AM16/ECA-II dated 06.01.2017 passedby Addl. DGFT, Mumbai is set aside. However, on receipt of the final outcome of theadjudication process in the Customs, Addl. DGFT, Mumbai will examine the case de-novo under the provisions of FTDR Act for violation of FTP and conditions of EPCGauthorizations, if need be.

Copy to:-(1) Mis Namco Industries Pvt. Ltd., Village Horle, Post Office Waoshi, Tal.

Khalapur, Dist. ~garh, Magarashtra-41 0203.

(2) Addl. Director General of Foreign Trade, New eGO Building, New MarineLines, Churgh ate Mu bai-400020.

(3) Directorate General of Revenue Intelligence, Mumbai Zonal Unit, 13, SirVithaldas Thakersey Marg. ODD. Patkar Hall. New Marine Lines, M1..~!!!1::-?i-400020. () ~JJ

~~(Rajbir Singh)

Dy. Director General of foreign Trade

Page 10 of 10