2016 (9) TMI 774 - AT - Customs

Tribunal rules in favor of appellants, sets aside duty demands and penalties.

M/s Alpha Chemie Sapthagiri, M/s Nilkamal Ltd., M/s Nilkamal Crates & Bins, M/s Kamtee Imaging Pvt. Ltd. and M/s Kamtee India Photographic Co. Pvt. Ltd. Versus Commissioner of Customs, Mumbai

The Tribunal set aside the confiscation, duty demands, and penalties imposed on the appellants, ruling in their favor. It held that the appellants, who ... Recovery of duty foregone in DEPB licence - Cancellation of DEPB licence - DEPB licence obtained fraudulently against submitting fake/forged documents - denial of exemption provided by DEPB licence - goods cleared after verification of the DEPB licence - much after import of the goods the DRI started the investigation and found that all the DEPB licences purchased by the appellants were obtained by various persons fraudulently against submitting the fake/forged documents to the DGFT - is the demand of duty justified in the view that the licence was valid at the time of import and clearance of the goods? - Held that: - the appellants-importers cannot be made responsible for any fraud committed by some other person for obtaining the DEPB licence from DGFT. On this issue much water has flown. The Division Bench of this Tribunal consistently held that the duty cannot be demanded from the importer who is the bonafide buyer of the DEPB licence even though the licence obtained fraudulently by some other persons. Similar issue has been decided in any cases. The case of Sumit Wool Processors & Others Vs. Commissioner of Customs, Nhavasheva - [2015 (10) TMI 329 - CESTAT MUMBAI] can be referred. The goods imported and cleared under DEPB licence much before the issue of show-cause notices, therefore at the time of import of the goods and clearance thereof, the DEPB licences were valid in the hands of the appellants-importers - the duty demand against the appellant not sustainable - appeal allowed - decided in favor of appellant. Issues Involved:1. Validity of DEPB licences obtained fraudulently.2. Responsibility of the appellants for the fraud committed by others.3. Applicability of duty exemptions under DEPB schemes.4. Legal precedents and their applicability.5. Validity of duty demands and penalties imposed on appellants.Detailed Analysis:1. Validity of DEPB licences obtained fraudulently:The core issue revolves around the DEPB licences obtained fraudulently by third parties and subsequently purchased by the appellants from the open market. The Customs department initially verified and allowed the clearance of goods against these DEPB licences. However, investigations by the Directorate of Revenue Intelligence (DRI) later revealed that these licences were obtained using fake documents.2. Responsibility of the appellants for the fraud committed by others:The appellants argued that they purchased the DEPB licences bona fide, without knowledge of the fraud. They maintained that the licences were valid at the time of purchase and import clearance. The Tribunal agreed with the appellants, stating that they could not be held responsible for the fraud committed by others. The Tribunal referenced multiple cases, including Sumit Wool Processors & Others and Ineos ABS India Ltd. & Others, where it was consistently held that bona fide buyers of DEPB licences cannot be held liable for duties arising from fraud committed by the original licence holders.3. Applicability of duty exemptions under DEPB schemes:The Tribunal examined the conditions under Notifications 40/2006-Cus and 89/2005-Cus, which provide duty exemptions for imports against DEPB licences. It was noted that the only relevant condition for transferees was that the licences should bear the endorsement of transferability by the Licensing Authority. The Tribunal found that the appellants met all the conditions for duty exemption, and there was no failure on their part in observing the procedures for transferability of the licences.4. Legal precedents and their applicability:The Tribunal referenced several legal precedents, including the Supreme Court decisions in East India Commercial Co. Ltd., Sampat Raj Dugar, and Sneha Sales Corporation. These cases established that licences obtained by fraud are voidable, not void ab initio, and remain valid until cancelled. The Tribunal emphasized that the burden of proving export obligation fulfillment lies with the original licence holder, not the transferee. The Tribunal also discussed the concept that fraud vitiates everything but concluded that this principle does not apply to bona fide purchasers who have no notice of the fraud.5. Validity of duty demands and penalties imposed on appellants:The Tribunal found that the duty demands and penalties imposed on the appellants were not sustainable. It noted that the DEPB licences were valid at the time of import and clearance, and the appellants were bona fide purchasers without knowledge of the fraud. The Tribunal also highlighted that the introduction of Section 28AAA in the Customs Act, effective from 28/5/2012, indicates that duty recovery should be from the original licence holders, not the transferees.Conclusion:The Tribunal set aside the confiscation, duty demands, and penalties imposed on the appellants. It upheld the appellants' contention that they were bona fide purchasers of DEPB licences and could not be held responsible for the fraud committed by the original licence holders. The appeals were allowed in favor of the appellants.(Pronounced in Court on 25/08/2016)