2024 (5) TMI 1198 - AT - Customs

Customs duty demand upheld against importer using fraudulent duty-free scrips without proper verification

CESTAT New Delhi upheld customs duty demand and penalty against appellant who used fraudulent duty-free scrips. The appellant failed to verify genuineness ... Fraudulent Registration and Utilization of Duty-Free Scrips - Bonafide Purchase and Verification of Scrips - Exemption Notifications and Foreign Trade Policy - Penalty - Extended Period of Limitation - DRI received an intelligence that some people gained access to Electronic Data Interchange (EDI) System of Indian Customs (ICES) and fraudulently tempered with details of duty free scrips - HELD THAT:- Since admittedly the appellant has failed to comply with the notification, the benefit of duty exemption even on the genuine scrip is not permissible to the appellant. Present is the case of forged and fraudulent scrip though the appellant has denied the fraudulent nature thereof, but there is no denial to the fact that the date and value of the scrip which was originally issued in the name of M/s Ranbaxy Laboratories had got changed while purchasing the said scrip. The liability of appellant was to verify the same. Central Board of Excise and Customs issued a Circular No. 05/2010 dated 16.03.2010 regarding verification of genuineness of duty credit scrip issued under Chapter 3 of Foreign Trade Policy, before registration. Thus, the Foreign Trade Policy and the Handbook of procedures under which the duty free scrips were issued required the physical copies of the licences to be verified before allowing clearances. The corresponding exemption notifications issued under the Customs Act also required such verification. Various circulars issued by the Board from time to time and the Standing Orders issued by the Commissionerate from time to time also required not only verification of the scrips but also the shipping bills and bills of export under which the goods have been exported against the licence/scrip. Resultantly, there was never any room for the importer to presume that the goods could be cleared without paying duty without possessing and presenting a valid scrip, not only did the appellant not have a scrip in its possession, but it was also not aware as to which scrip it was buying. All the appellant did was ask that its customs broker to clear its goods without paying duty. Thus, there is nothing in the entire documents to show good faith or genuine belief on the part of the appellant. Thus, I hold that there was a mandatory responsibility with the appellant due to the exemption notifications and the Foreign Trade Policy provision, to produce the physical scrip before the proper officer at the time of clearance. The said responsibility has neither been diluted nor extinguish the system of registration of scrips/ licences under the Customs EDI System. The conditions of exemption notification are to be construed strictly as it has been held by Hon’ble Supreme court in the case of Commissioner of Customs (Import), Mumbai versus Dilip Kumar [2018 (7) TMI 1826 - SUPREME COURT]. It has been clarified that incase of any doubt, the benefit of doubt must go in the favour of revenue and against the assessee. Bonafide purchaser - Though the appellant has talked about the invoice No. 280 dated 18.09.2013 regarding sale of the impugned scrip from Shri Ashish Jain of M/s Connect India to whom the payment of Rs. 52,55,224/- was made through RTGS, but as already observed that DGFT issued the impugned licence/scrip in favour of M/s Ranbaxy Laboratories at ICD, Dhar the contents of invoice are, therefore, contrary to the contents of licence mentioned to have been purchased vide the said invoice. In the light of above discussion of verification about the scrip to be received by transfer and about producing the same to the proper customs officer at the time of clearance it becomes absolutely clear that the appellant has failed to verify the same as well as to produce the same at the time of clearance. Had the scrip being produced before the proper officer at the time of clearance, the manipulating/tempering/forgery of the scrip, by whomsoever, would have been unearthed. Hence, mere placing on record the invoice about purchase of impugned scrip or licence do not come to the rescue of the appellant. Thus, I do not find any infirmity in the order under challenge, whereby the impugned demand has been confirmed. Penalty - No evidence of appellants‟ knowledge of fraud or forgery of the scrips/licences in this case. However, as far as the question of responsibility to take precautions and if such precautions were taken are concerned, I agree with the learned AR that caveat emptor (Buyer Beware) is a well established principle and it requires the buyer of any goods to take reasonable precautions with respect to what he is buying. When one is buying an instrument for lakhs of rupees and claiming benefit of exemption from customs duty from it and such an instrument is numbered and is issued by any authority, it would be reasonable to expect that the buyer would know what instrument it is buying; from whom and in whose name it was issued originally. The invoices show that the appellant bought the benefit of exemption which is not transferable and it had not bought the licences/scrips which were transferable due to which the appellant never received physical licences/scrips. Hence scrips could not be produced at the time of claiming the benefit of the exemption. In my considered view, this does not meet the requirement of caveat emptor even remotely. Thus even if the appellant was a genuine buyer of licences/scrips but he has failed to make the bonafide enquiries and has failed to produce the scrips to proper officer while seeking exemption of customs duty based on these scrips. The act of appellant is, therefore, in violation of the respective notifications as mentioned above. Since I have upheld the confirmation of the demand invoking extended period of limitation, I also uphold the imposition of penalty u/s 114A. Hence no infirmity is found in the order under challenge w.r.t. penalties imposed under different sections. With these findings, the order under challenge is hereby upheld. Consequent thereto both the appeals are hereby dismissed. Issues Involved:1. Fraudulent Registration and Utilization of Duty-Free Scrips.2. Bonafide Purchase and Verification of Scrips.3. Compliance with Exemption Notifications and Foreign Trade Policy.4. Imposition of Penalties and Extended Period of Limitation.Summary:1. Fraudulent Registration and Utilization of Duty-Free Scrips:The Directorate Revenue Intelligence (DRI) discovered that certain individuals had gained unauthorized access to the Electronic Data Interchange (EDI) System of Indian Customs and tampered with the details of duty-free scrips. Specifically, licence No. 0510364596 dated 05.09.2013, originally issued to M/s Ranbaxy Laboratories Ltd., was fraudulently registered at ICD, Tughlakabad, New Delhi, and utilized by the appellant for payment of customs duty of Rs. 4,90,883/- against bill of entry No. 3296301 dated 17.09.2013.2. Bonafide Purchase and Verification of Scrips:The appellant claimed to have purchased the licence from M/s Connect India and used it in good faith. However, the appellant admitted to not having the original physical copy of the scrip and failing to verify its genuineness from the DGFT website. The appellant's argument of being a bonafide purchaser was rejected due to the lack of due diligence and verification.3. Compliance with Exemption Notifications and Foreign Trade Policy:The relevant exemption notifications (92/2009 and 93/2009) and Foreign Trade Policy required the physical scrip to be produced before the proper officer at the time of clearance. The appellant failed to comply with these conditions, which are mandatory for claiming duty exemption. The court emphasized that the conditions of exemption notifications must be strictly construed, citing the Supreme Court's decision in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar.4. Imposition of Penalties and Extended Period of Limitation:The department invoked the extended period of limitation and imposed penalties under sections 112, 114A, and 114AA of the Customs Act, 1962. The court upheld the imposition of penalties, stating that fraud vitiates everything and that the appellant failed to take reasonable precautions (caveat emptor). The penalties were deemed appropriate given the appellant's failure to verify and produce the scrips properly.Conclusion:The court upheld the order under challenge, confirming the demand of customs duty and the imposition of penalties. Both appeals were dismissed.(Order pronounced in open court on 22/05/2024.)