13 May 2024 Trade Laws >> Business & Commercial Law  

A company, formerly known as Emmellen Biotech Pharmaceuticals Limited and later M/s Embio Limited, has successfully challenged a penalty imposed for failing to meet an export obligation. The case highlights the importance of strict interpretation of penal provisions and the consideration of relevant waivers.

The company obtained a license under the Foreign Trade (Development and Regulation) Act (FT Act) that allowed them to import capital goods at a concessional duty rate. However, the license came with a condition: the company had to export finished goods and earn a specific amount of foreign currency within five years.

Unfortunately, the company faced financial difficulties and was declared a "sick unit" by the Board for Industrial and Financial Reconstruction (BIFR). This status prevented them from fulfilling the export obligation. The BIFR, however, intervened by sanctioning a rehabilitation scheme for the company. This scheme included a crucial benefit - a waiver of customs duty on the amount associated with the unfulfilled export obligation.

Despite the duty waiver, the company was still hit with a penalty for not meeting the export target. They challenged this penalty in court.

The court sided with the company, ruling that the penalty was improperly imposed. The court's decision rested on two key points. Firstly, the waiver granted under the BIFR scheme demonstrably covered the customs duty arising from the unfulfilled obligation. Secondly, the court held that the relevant penalty provision in the FT Act (Section 11(2)) applies only in cases where there's a contravention of export/import regulations, not simply a failure to meet an export target.

In conclusion, the court's decision protected the company from the penalty and underlines the importance of considering relevant waivers and providing strict interpretations of penal provisions.

  Foreign Trade (Development and Regulation) Act, 1992