2007 (8) TMI 712 - AT - Customs

Tribunal confirms liability for fraudulent DEPB credits, sets aside penalty pending investigations

The Tribunal upheld the duty demand and confirmed liability for confiscation of goods due to fraudulent use of DEPB credits. Imposition of interest on ... Fake and forged DEPB - clearance of 26 import consignments free of Customs Duty - evasion of duty - Held that: -the duty not paid/escaped using the forged/fraudulent DEPB claim itself dragged the Appellant to the adjudication. Their tainted deal, no way exonerates them from the process of adjudication. Legal Fraud vitiates everything even judgments and orders of the Court. If a transaction has been originally founded on fraud, the original vice will continue to taint it, and not only is the person who has committed fraud is precluded from deriving any benefit under it, but also who derive advantage of it. There is no scope at all to interfere to the order of adjudication confirming the duty demand which has been passed after thorough enquiry. Time Limitation - Held that: - the duty not paid/escaped using the forged/fraudulent DEPB claim itself dragged the Appellant to the adjudication. Their tainted deal, no way exonerates them from the process of adjudication. The appeal relating to the duty demand is rejected and appeal relating to imposition of penalty is allowed by Remand. Issues Involved:1. Duty demand on consignments imported using forged DEPB.2. Imposition of interest on the duty amount.3. Liability of goods for confiscation under Section 111(o) of the Customs Act, 1962.4. Imposition of penalty under Section 112(a) of the Customs Act, 1962.5. Consideration of undue hardship for dispensing with pre-deposit.6. Validity of the adjudication process and time-barred claims under Section 28 of the Customs Act, 1962.Issue-wise Detailed Analysis:1. Duty Demand on Consignments Imported Using Forged DEPB:The appellant imported 26 consignments valued at Rs. 1,16,04,027.35 using forged DEPB numbers. The DEPB credits availed amounted to Rs. 52,06,361/-. Investigation revealed that these DEPBs were not issued in favor of the claimed companies, and the transfer letters and bank details were forged. The appellant dealt with non-existent broker firms, leading to allegations of collusion and duty evasion. The judgment upheld the duty demand, citing that the appellant did not verify the authenticity of the DEPBs from the DGFT or the original holders, thus making them liable for duty.2. Imposition of Interest on the Duty Amount:The judgment did not specifically elaborate on the interest aspect but implied that the imposition of interest on the duty amount was a natural consequence of the duty evasion and use of forged documents.3. Liability of Goods for Confiscation Under Section 111(o) of the Customs Act, 1962:The goods were held liable for confiscation under Section 111(o) of the Customs Act, 1962. However, since the goods were not available for confiscation, no redemption fine was imposed. The judgment confirmed the liability for confiscation due to the fraudulent use of DEPB credits.4. Imposition of Penalty Under Section 112(a) of the Customs Act, 1962:A penalty of Rs. 15,00,000 was imposed under Section 112(a) of the Customs Act, 1962. The judgment noted that the adjudicating commissioner did not impose a penalty under Section 114(a) but under Section 112(a). Given that the investigation against the Jalan brothers was ongoing and the CBI investigation report was pending prosecution, the decision on the penalty was deemed premature. The penalty imposition was set aside and remanded for fresh decision post-investigation and prosecution.5. Consideration of Undue Hardship for Dispensing with Pre-deposit:The appellant's application for stay of realization of demand was initially dismissed due to non-compliance with pre-deposit requirements. Upon direction from the Hon'ble High Court, the Tribunal reconsidered the appellant's plea of undue hardship. The appellant cited severe financial difficulties, including inability to continue production due to withheld raw materials and pressure from creditors and banks. The Tribunal dispensed with the pre-deposit requirement and proceeded to hear the appeal.6. Validity of the Adjudication Process and Time-barred Claims Under Section 28 of the Customs Act, 1962:The appellant argued that the proceedings were time-barred under Section 28 of the Customs Act. The Tribunal found that the extended time limit under Section 28 was applicable due to collusion and wilful misstatement by the appellant. The judgment referenced the case of De-nocil Corpn. Protection Ltd. vs. CC, Mumbai, supporting the view that duty demands issued within the time limit were valid and there was no time limit for initiating penal action.Conclusion:The Tribunal upheld the duty demand and confirmed the liability for confiscation of goods. The imposition of interest on the duty amount was implied as a natural consequence. The penalty imposition was set aside and remanded for fresh decision post-investigation. The Tribunal dispensed with the pre-deposit requirement considering the appellant's financial hardship. The adjudication process was deemed valid, and the claims were not time-barred. The appeal relating to the duty demand was rejected, while the appeal relating to the imposition of penalty was allowed by remand. The application for interim relief under Section 142 of the Customs Act was dismissed.