Agent cannot be penalized for fraudulent advance licences without knowledge of fraud by EOUs

CESTAT Ahmedabad held that appellant who acted as agent for purchase and sale of advance licences/AROs fraudulently obtained by 100% EOUs could not be penalized without knowledge of the fraud. EOUs had falsified records showing paper clearances against licences to fulfill export obligations without actual manufacture or removal of goods. Following precedent in T.S Makkar case where penalty was held not imposable on similar facts, tribunal set aside penalties under Rule 209A of Central Excise Rules 1944 and Section 112(b) of Customs Act 1962, exonerating appellant from liability.

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Issues Involved:

1. Whether the appellant was aware that the licenses were fake, forged, or fictitious.
2. Whether the Directorate of Revenue Intelligence (DRI) conducted a thorough investigation regarding the involvement of R.K. Gupta.
3. Whether the appellant was aware of the misuse of licenses by the 100% EOU for fictitious exports and whether he aided and abetted such activities.
4. Whether the appellant dealt with the goods and is liable to penalty under the relevant provisions.

Detailed Analysis:

1. Awareness of Fake Licenses:

The tribunal examined whether the appellant was aware that the licenses were fake, forged, or fictitious. It was found that there was no direct evidence, either oral or documentary, proving the appellant's awareness of the fraudulent nature of the licenses. The Member (Judicial) noted that the expressions "fake, forged, or fictitious" did not appear in the statements of any persons involved, including the appellant. The tribunal concluded that, in the absence of cogent evidence, the appellant could not be held liable for being aware of the fraudulent nature of the licenses.

2. Investigation by DRI:

The tribunal assessed whether the DRI made serious efforts to trace R.K. Gupta, who was allegedly involved in procuring the fake licenses. The Member (Judicial) observed that the efforts to locate R.K. Gupta did not yield any fruitful results, and there was no evidence of further sincere investigations by the DRI. The tribunal concluded that the DRI did not make serious efforts to trace R.K. Gupta, and this lack of investigation could not be held against the appellant.

3. Awareness and Aiding of Misuse by 100% EOU:

The tribunal evaluated whether the appellant was aware of the misuse of the licenses by the 100% EOU for fictitious exports and whether he aided and abetted such activities. It was found that none of the oral statements from individuals associated with the 100% EOU implicated the appellant in the misuse of licenses or fictitious exports. The tribunal concluded that there was no evidence to establish that the appellant was aware of or involved in aiding and abetting the misuse of licenses by the 100% EOU.

4. Liability for Penalty:

The tribunal considered whether the appellant dealt with the goods and was liable for penalties under Rule 209A of the Central Excise Rules, 1944, and Section 112(b) of the Customs Act, 1962. It was determined that the appellant did not deal with any goods in any manner, nor was there any allegation of such dealings. The tribunal referred to the precedent set in the case of M/s. Steel Tubes of India Ltd., which held that penalty is imposable only if excisable goods are dealt with by the person concerned with knowledge of liability of confiscation. Since the appellant did not deal with the goods, the tribunal concluded that the penalty was not sustainable.

Conclusion:

In light of the above findings, the tribunal held that the appellant was not liable for penalties. The appeals were allowed, and the penalties imposed on the appellant were set aside. The tribunal followed a consistent view based on previous judgments involving similar facts and modus operandi, concluding that the appellant was not liable for penalties under the given circumstances.

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