Bona fide transferee protection: duty, confiscation and penalty fail where knowledge of licence fraud is not proved.

A transferee of REP licences was not denied the benefit of those licences because the department failed to prove that he knew of the fraud by which the original holders obtained them. The record, including premium paid, payment in gold, debit notes, and the absence of further enquiry, was insufficient to establish guilty knowledge, while contemporaneous books and supporting evidence indicated bona fide purchase. A fraudulently procured licence remains operative until cancelled according to law, so imports made while it was valid cannot be treated as illegal merely because the licence was later cancelled. Duty demand, confiscation and penalty were therefore unsustainable.

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Issues: Whether the appellant, as transferee of REP licences obtained by the original holders through forged documents, had knowledge of the fraud so as to deny the benefit of the licences and sustain confiscation, duty demand and penalty.

Analysis: The dispute was confined to the appellant's bona fides after remand. The transferred licences were issued by the competent authority and were valid until cancellation. The decisive question was whether the appellant knew, or could be attributed with knowledge, that the licences had been procured fraudulently by the transferors. The evidence relied upon by the original authority, namely the premium allegedly paid, the mode of payment in gold, the form of debit notes, and the absence of enquiry, was found insufficient to establish such knowledge. The premium rates shown on record were within a commercial range and, by themselves, could not raise a presumption of fraud awareness. Payment in gold was not prohibited and did not indicate guilty knowledge. The contemporaneous records, invoices, books of account, agent's statements and certificate evidence supported the appellant's claim of bona fide purchase. The legal position applied was that a licence obtained by fraud is voidable and remains effective until avoided according to law, and imports made while the licence is operative cannot be treated as illegal merely because the licence is cancelled later.

Conclusion: The appellant was not shown to have knowledge of the fraud in procurement of the REP licences, and the demand of duty, confiscation and penalty could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: A transferee of a licence issued by the competent authority cannot be denied exemption or made liable for duty and penalty unless the department proves, on cogent material, that the transferee knew of the fraud by which the licence was procured; cancellation of such a licence does not retrospectively invalidate imports made while it remained operative.

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