2022 (9) TMI 1076 - SC - Customs

Supreme Court Upholds Duty Liability on Imported Goods with Forged DEPB Scrips

The Supreme Court dismissed two appeals challenging the confirmation of duty liability with interest by the High Court, based on imported goods using ... Fraud vitiates everything - forged DEPB scrips void ab initio - extended period of limitation - liability for customs duty when exemption availed on forged documents - knowledge of buyer relevant only for penalty - remand of penalty proceedings for fresh adjudicationForged DEPB scrips void ab initio - extended period of limitation - liability for customs duty when exemption availed on forged documents - Whether Customs duty could be demanded and the extended period of limitation invoked where exemption was availed on DEPB scrips later found to be forged. - HELD THAT: - The Tribunal and the Department found that the DEPB licences/scrips on which exemption was claimed were forged and were not issued by the competent authority. Applying the principle that fraud vitiates everything, the Court held that forged or fake DEPB scrips are void ab initio and, consequently, the exemption availed thereon is inadmissible. In those circumstances the Department was justified in invoking the extended period of limitation and in confirming the demand of Customs duty against the buyers who availed the benefit. The Court observed that payment of duty by the appellants on being informed of the fakery (even if under protest) did not negate the duty liability arising from the use of forged documents. The correctness of the duty liability was affirmed by reference to the findings of fraud recorded by the Tribunal and the authorities. [Paras 8, 9, 10]Demand of Customs duty was rightly confirmed; extended limitation was correctly invoked because the DEPB scrips were forged and void ab initio.Knowledge of buyer relevant only for penalty - remand of penalty proceedings for fresh adjudication - Whether the question of the buyer's knowledge of fraud affects duty liability or only penalty, and the status of penalty proceedings. - HELD THAT: - The Court noted that the enquiry whether the buyer had knowledge of the fraud or ought to have exercised precaution (relying on Aafloat Textiles) bears on the imposition of penalty but does not affect the duty liability. The Tribunal had remanded the penalty issue to the adjudicating authority for fresh consideration; that remand remains in effect and the penalty question has not been finally adjudicated. The Supreme Court directed that the adjudicating authority complete the penalty proceedings on remand at the earliest, preferably within six months from the date of the order. [Paras 2, 11, 12]Penalty proceedings were remanded for fresh adjudication; the buyer's knowledge is relevant to penalty but does not absolve duty liability.Final Conclusion: Both appeals dismissed: Customs duty demand confirmed as the DEPB scrips were forged and void ab initio permitting invocation of the extended limitation; penalty proceedings remanded for fresh adjudication and directed to be completed preferably within six months. Issues involved:1. Appeal against the High Court's order confirming demand of Customs Duty with interest.2. Challenge of invoking extended period of limitation by the Department.3. Validity of availing exemption benefit against forged DEPB Scripps.4. Confirmation of duty liability by the Tribunal and High Court.5. Pending penalty proceedings and remand order by the Tribunal.Issue 1: Appeal against the High Court's order confirming demand of Customs Duty with interest:In Civil Appeal No. 2576 of 2010, the appellant, M/s. Munjal Showa Ltd., challenged the order passed by the High Court of Punjab and Haryana confirming the demand of Customs Duty with interest. The appellant imported consignments through TRAs issued by the Bombay Custom House, which were later found to be based on forged DEPB Licenses. The Commissioner of Customs held the exemption availed was inadmissible, leading to duty liability, interest, and penalty. The Tribunal confirmed the duty liability, and the High Court upheld the decision citing that fraud vitiates everything, justifying invoking the extended period of limitation.Issue 2: Challenge of invoking extended period of limitation by the Department:The appellant contended that the Department was not justified in invoking the extended period of limitation. The appellant argued that even in cases of fraud, it must be established whether the buyers had knowledge of the forged documents. However, the Department, represented by the ASG, maintained that since the DEPB licenses were found to be forged and fake, the duty liability stands. The High Court and Tribunal affirmed this position, emphasizing that fraud vitiates everything, and hence, the extended period of limitation was rightly invoked.Issue 3: Validity of availing exemption benefit against forged DEPB Scripps:In Civil Appeal No. 5608 of 2011, the appellant imported goods and availed exemption from Customs Duty against a DEPB Scrip procured fraudulently by the predecessor. The Tribunal and High Court confirmed the duty liability, relying on the earlier decision in a similar case. The appellant's argument that the Department was not justified in invoking the extended period of limitation was rejected, emphasizing that the forged/fake DEPB Scrips were void ab initio, justifying the duty payment.Issue 4: Confirmation of duty liability by the Tribunal and High Court:Both Civil Appeals failed as the Tribunal and High Court confirmed the duty liability based on the forged/fake DEPB Scrips. The authorities found that the exemption was availed on forged documents, leading to duty payment obligations. The principle that fraud vitiates everything was crucial in upholding the duty liability, dismissing the appeals.Issue 5: Pending penalty proceedings and remand order by the Tribunal:The Tribunal remanded the penalty proceedings to the adjudicating authority, which is pending. The imposition of penalty hinges on whether the buyers had knowledge of the fraud or took precautions while purchasing the forged/fake documents. The Tribunal directed the completion of penalty proceedings within six months, separate from the duty liability confirmation.In conclusion, the Supreme Court dismissed both appeals, upholding the duty liability due to availing benefits against forged/fake DEPB Scrips. The principle that fraud vitiates everything justified invoking the extended period of limitation by the Department. The penalty proceedings, separate from duty liability, were remanded for completion within six months.