CESTAT Mumbai allows appeals on VABAL license benefits for transferees under Section 28

CESTAT Mumbai allowed appeals challenging denial of VABAL license benefits to transferees. Revenue sought to recover foregone customs duty under Section 28 and imposed penalties under Section 114A for alleged overvaluation. The Tribunal found no legal basis for recovery as DGFT authorities had not cancelled the three licenses in question, and amendments were properly issued by jurisdictional authorities. Following precedents in Ajay Kumar Co. and Hico Enterprises, the Tribunal held that valid licenses at import time protect transferees from subsequent actions, and notification benefits cannot be denied to transferees for original licensee's condition breaches. The demand confirmation and penalty imposition were set aside.

---

---

Issues Involved:

1. Denial of benefit of Value Based Advance Licenses (VABAL) to the appellants-transferees.
2. Recovery of customs duty under Section 28 of the Customs Act, 1962.
3. Imposition of penalty under Section 114A of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Denial of Benefit of VABAL to Appellants-Transferees:

The appellants argued that even if a license is obtained by fraud or misrepresentation, it remains valid until canceled by the licensing authority. They cited precedents indicating that the benefit of a notification applies to the transferee if the license is transferable. The learned Authorized Representative for Revenue contended that the original license holder obtained the licenses through misrepresentation and fraud. The Tribunal noted that the CBEC Circular No. 23/96-Customs mandates that any overvaluation issues should be referred to the licensing authority for corrective action, rather than the Customs authorities denying the exemption themselves. The Tribunal concluded that the impugned order directing the recovery of demand lacked a legal basis and was contrary to the CBEC circular.

2. Recovery of Customs Duty under Section 28 of the Customs Act, 1962:

The Tribunal noted that the Commissioner of Customs confirmed the duty demand on the appellants, invoking the extended period under proviso to Section 28 of the Customs Act, 1962. The appellants contended that the demand was barred by limitation, citing the Larger Bench decision in Continental Foundation Jt. Venture Vs. Commissioner of Central Excise, Chandigarh-I. The Tribunal found that the CBEC Circular No. 23/96-Customs requires the Customs authorities to refer the matter to the licensing authority if there is a mismatch in declared unit value, rather than denying the exemption. The Tribunal held that the impugned order confirming the duty demand was not sustainable.

3. Imposition of Penalty under Section 114A of the Customs Act, 1962:

The Tribunal observed that the Commissioner of Customs imposed penalties on the appellants under Section 114A of the Customs Act, 1962. The appellants argued that penalties could not be imposed on them as transferees, citing various case laws. The Tribunal referred to the case of Ajay Kumar & Co., where it was held that if the licenses were valid at the time of import, subsequent cancellation would not affect the transferee. The Tribunal also cited the case of Hico Enterprises, where it was held that the benefit of notification could not be denied to the transferee on the ground of breach of conditions by the original licensee. The Tribunal concluded that the imposition of penalties on the appellants was not sustainable.

Conclusion:

The Tribunal set aside the impugned order dated 31.01.2014, holding that the confirmation of adjudged demands along with interest and the imposition of penalties were not sustainable. The appeals were allowed in favor of the appellants.

---