Duty demand against bona fide license transferee set aside as time-barred under Section 28(1)

CESTAT Ahmedabad set aside duty demand and penalty against importer who was bona fide transferee of DGFT license. The appellant purchased license from broker after due verification including IEC verification, license details from DGFT website, and customs clearance checks. Original license holder committed fraudulent exports, but no evidence showed appellant's knowledge of fraud. Court held extended limitation period under Section 28(1) proviso inapplicable to bona fide transferee, making demand time-barred. Duty recovery should be from original license holder, not innocent transferee. Appeal allowed, impugned order set aside.

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Issues Involved:

1. Validity of duty demand under proviso to Section 28(1) of the Customs Act.
2. Applicability of extended period of limitation for duty demand.
3. Liability of the appellant as a bona fide transferee of a fraudulently obtained license.
4. Imposition of penalties under Section 114A of the Customs Act.

Issue-wise Detailed Analysis:

1. Validity of Duty Demand under Proviso to Section 28(1) of the Customs Act:

The core issue was whether the duty demand on the appellant, who purchased a Focus Market Scheme license from the open market, was valid. The license was initially issued by the DGFT and was valid at the time of importation. The customs authorities had verified the license before clearing the consignments. The appellant argued that they were a bona fide transferee of the license, having conducted due diligence before purchase. The tribunal observed that the license was valid and subsisting on the date of import and that the appellant had no knowledge of any fraud committed by the original license holder. Therefore, the duty demand on the appellant was deemed unsustainable.

2. Applicability of Extended Period of Limitation for Duty Demand:

The notice demanding duty was issued on 28.1.2015 for goods imported in April 2010, invoking the extended period of limitation under Section 28(1) of the Act. The appellant contended that the extended period was not applicable as there was no collusion, willful misstatement, or suppression of facts on their part. The tribunal agreed, citing the Gujarat High Court's decision in Commissioner of Customs, Kandla V Indian Acrylics Ltd, which held that the extended period could not be invoked when the importer was not party to the fraud. Thus, the demand was barred by limitation.

3. Liability of the Appellant as a Bona Fide Transferee of a Fraudulently Obtained License:

The appellant purchased the license in good faith from the open market, having verified its validity through various checks, including IEC verification from the DGFT website and customs registration. The tribunal noted that the fraud was committed by the exporter/original license holder, and there was no evidence implicating the appellant in the fraud. Consequently, the duty forgone should be recovered from the exporter/original license holder, not the appellant.

4. Imposition of Penalties under Section 114A of the Customs Act:

The Additional Commissioner of Customs had imposed a penalty under Section 114A of the Act on the appellant. However, since the duty demand was unsustainable due to the time bar and the appellant's bona fide status, the penalty was also deemed unjustified. The tribunal set aside the penalty, aligning with its decision to annul the duty demand.

Conclusion:

The tribunal concluded that the impugned order confirming the duty demand and penalty against the appellant was unsustainable due to the time bar and the appellant's bona fide status. The appeal was allowed, and the order was set aside, granting consequential relief to the appellant in accordance with the law. The judgment emphasized the importance of distinguishing between genuine and fraudulent transactions and the applicability of the extended period of limitation.

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