2025 (7) TMI 493 - AT - Customs

Individual penalized for creating fictitious firms with fraudulent IEC codes to evade anti-dumping duties on electronic imports

CESTAT New Delhi upheld penalty on an individual who created fictitious firms using fraudulently obtained IEC codes to import electronic goods, evading ... Confiscation - penalty - evasion of anti-dumping duty - prohibited goods or restricted goods - goods imported by fictious firms using fraudulently obtained IEC in the past - competence of officers of Directorate of Revenue Intelligence to issue SCN - principles of res-judicata - HELD THAT:- The fact of obtaining IEC Code and opening of bank accounts has been admitted by him in his statutory statement recorded under Section 108 of the Customs Act, 1962 during the course of investigation by the officers of investigating agency, namely, DRI, Delhi. Secondly, when he approached the court for obtaining bail and he was granted conditional bail with an order to produce Shri Naveen Kumar who he claimed to be the owner of M/s. Neeru Trading Co. However, when Shri Naveen Kumar was produced before the officers, he denied knowledge of any such firm and further categorically stated that the application bearing his signature are forged one and he has not made any such application/signatures. This clearly establishes that Shri Vineet Gupta knowingly created the fictitious firms for import of electronic goods - Present SCN is the result of further investigation in the previous SCN revealing more fictitious firms than/ including M/s Neeru Trading of previous SCN. Hence there are no infirmity in the order when the penalty has been imposed upon Shri Vineet Gupta, the proprietor of the appellant. It is observed that Section 2(33) of the Customs Act, 1962 defines prohibited goods as any goods import or export of which is subject to any prohibition under this Act or any other law for the time being in force but does not include any such goods in respect of which the conditions subject to which the goods are permitted to be imported or exported has been complied with. The Hon’ble Supreme Court in the case of Om Prakash Bhatia Vs. Commissioner of Customs [2003 (7) TMI 74 - SUPREME COURT] defined the scope of prohibited goods under Section 2(33) of the Customs Act, 1962 and held that 'This would also be clear from Section 11 which empowers the Central Government to prohibit either 'absolutely' or 'subject to such conditions' to be fulfilled before or after clearance, as may be specified in the notification, the import or export of the goods of any specified description. The notification can be issued for the purposes specified in sub-section (2). Hence, prohibition of importation or exportation could be subject to certain prescribed conditions to be fulfilled before or after clearance of goods. If conditions are not fulfilled, it may amount to prohibited goods.' At any rate, once the goods were imported violating the provisions of FTDR Act, they become prohibited goods as held by Supreme Court in Om Prakash Bhatia. Hence the imported goods are prohibited goods, should have been held liable to confiscation even if they were not available for actual confiscation - It must also be pointed out that penalty under section 112 can be imposed for acts and omissions which render goods liable to confiscation under section 111. Thus, even if the goods are not actually confiscated (if they are not available), if they are liable to confiscation under section 111, penalty can be imposed under section 112. The Commissioner imposed penalty on Shri Vineet Gupta under section 112. The submission that the impugned order was passed ex parte is without force. Details of opportunities of personal hearing fixed have been described at length in paragraphs 10, 10.1, 10.2 and 10.3 of the impugned order. If the appellant does not avail of the opportunity of personal hearing, it does not mean that the Commissioner had violated principles of natural justice - if the appellant had obeyed the provisions of FTDR Act and imported goods using its own IEC, there would have been no case for the department nor any SCN. The SCN was issued only because the appellant had imported goods violating the provisions of sections 7&11 of the FTDR Act which fact is also admitted in the appeal saying ‘that the IEC holders had lent their IECs to the appellant.’ This argument is like someone driving on the wrong side of the road claiming that he should not be penalized because he had not gained anything by breaking the law and could have as well driven on the correct side. The penalty imposed on Shri Vineet Gupta in the impugned order upheld. However, the impugned order is modified holding that the imported goods were liable for confiscation in terms of Section 111 (d) of the Customs Act, 1962 even though they were not actually available for confiscation - appeal dismissed. The core legal questions considered in this judgment are:1. Whether goods imported in the name of fictitious firms using fraudulently obtained Importer Exporter Codes (IECs) violate the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), and consequently, whether such goods qualify as 'prohibited goods' under Section 2(33) of the Customs Act, 1962.2. Whether such goods are liable to confiscation under Section 111(d) of the Customs Act, 1962, despite not being physically available for seizure at the time of adjudication.3. Whether penalty under Section 112 of the Customs Act can be imposed on the importer for violations involving fictitious firms and fraudulent use of IECs.4. Whether the adjudicating authority had jurisdiction to impose confiscation and penalty under the Customs Act when the violations pertain to the FTDR Act.5. Whether the principle of res judicata applies to the second show cause notice issued in respect of similar facts.6. Whether the appellant's procedural and substantive challenges, including allegations of violation of natural justice and composite penalty imposition, have merit.Issue-wise Detailed Analysis:1. Status of Goods Imported Using Fictitious IECs and Applicability of Prohibited Goods DefinitionThe legal framework involves Section 2(33) of the Customs Act, which defines 'prohibited goods' as goods the import or export of which is subject to any prohibition under the Customs Act or any other law for the time being in force, except where conditions for import/export have been complied with. Sections 7 and 11 of the FTDR Act explicitly prohibit import or export without a valid IEC or contrary to the provisions of the FTDR Act.The Court relied on the Supreme Court precedent which interpreted Section 2(33) to include goods imported without fulfilling prescribed conditions, thereby rendering them prohibited. The Court observed that goods imported using IECs obtained by fraud through fictitious firms violate Sections 7 and 11 of the FTDR Act, thus qualifying as prohibited goods under Section 2(33) of the Customs Act.The Court rejected the adjudicating authority's finding that the goods were not prohibited or restricted, emphasizing that the violation of FTDR Act conditions suffices to render the goods prohibited. The Court noted that mere absence of physical detention of goods at the time of adjudication does not negate their prohibited status.2. Liability for Confiscation Under Section 111(d) of the Customs ActSection 111(d) of the Customs Act provides for confiscation of goods imported or attempted to be imported contrary to any prohibition imposed by or under the Act or any other law in force. The Court held that the goods imported in violation of FTDR Act provisions fall squarely within this provision, making them liable to confiscation.The Court clarified that the adjudicating authority erred in holding that only goods physically available for seizure or those explicitly prohibited or restricted could be confiscated. It emphasized that goods imported contrary to any law (here, FTDR Act) are liable to confiscation, even if not physically available at the time of adjudication.Thus, the Court modified the impugned order to hold that the goods were liable for confiscation under Section 111(d) of the Customs Act, despite their non-availability for actual confiscation.3. Imposition of Penalty Under Section 112 of the Customs ActSection 112 authorizes imposition of penalty for acts or omissions rendering goods liable to confiscation under Section 111. The Court upheld the imposition of a penalty of Rs. 25,00,000/- on Shri Vineet Gupta under Section 112 read with Section 114A of the Customs Act, noting that the appellant was the mastermind behind the creation of fictitious firms, fraudulent acquisition of IECs, and illegal imports.The Court observed that the appellant admitted to importing goods using IECs of other firms and had failed to produce any evidence in support of his case, further justifying the penalty.4. Jurisdiction of Adjudicating Authority Under Customs Act Versus FTDR ActThe appellant contended that the adjudicating authority lacked jurisdiction to impose confiscation or penalty under the Customs Act since the violations pertained to the FTDR Act, which has its own adjudicating authority under Section 13. The Court rejected this argument, holding that the confiscation was proposed under Section 111(d) of the Customs Act read with Sections 7 and 11 of the FTDR Act.The Court clarified that Section 111(d) contemplates confiscation of goods imported in violation of any law, including the FTDR Act, and therefore the Customs adjudicating authority was competent to adjudicate the matter. The FTDR Act provisions operate as the 'other law' under Section 111(d).5. Applicability of Res Judicata to the Second Show Cause NoticeThe appellant argued that the second show cause notice was barred by res judicata, as it was based on the same facts and evidence as an earlier SCN adjudicated in 2009. The Court distinguished the two notices, noting that the earlier SCN related to seized goods, whereas the present SCN concerned imports made subsequently and involving additional fictitious firms.Therefore, the Court held that the principle of res judicata did not apply, as the matters were distinct and the second SCN was based on further investigations revealing new violations.6. Procedural and Substantive Challenges Raised by the AppellantThe appellant raised multiple grounds including violation of natural justice due to ex parte order, improper composite penalty imposition under two statutes, and the contention that DVDs and CDRs were freely importable and not prohibited.The Court found no merit in these submissions. It held that the appellant was given multiple opportunities for personal hearing but failed to appear, thus no violation of natural justice occurred. The penalty was imposed solely under the Customs Act, with FTDR Act provisions referenced but no penalty imposed under that Act, negating the composite penalty argument.Regarding the nature of goods, the Court noted that while DVDs and CDRs are freely importable under the Foreign Trade Policy, their import without valid IECs or through fictitious IECs constituted a violation, rendering the goods prohibited and liable to confiscation.The appellant's argument that it gained no extra profit by using other firms' IECs was rejected as irrelevant to the illegality of the act.Key Evidence and FindingsThe investigation revealed that the appellant, Shri Vineet Gupta, was the de facto owner and mastermind behind multiple fictitious firms, including M/s Neeru Trading Co., M/s Nihal Trading Co., and M/s Ashoka Enterprises. Bank accounts and IECs were fraudulently obtained using forged documents and signatures of purported proprietors who denied any association with these firms.The appellant admitted in statutory statements to importing goods using IECs of other firms. The purported proprietors disclaimed ownership and knowledge, confirming the fraudulent nature of the operations.Earlier adjudications and High Court orders confirmed the appellant's role and imposed penalties and redemption fines, which were enhanced on appeal.Application of Law to Facts and Treatment of Competing ArgumentsThe Court applied the statutory provisions of the Customs Act and FTDR Act, along with Supreme Court precedents, to conclude that import without valid IECs or through fictitious firms violates the FTDR Act and constitutes import of prohibited goods under the Customs Act.The Court rejected the appellant's contention that the goods were not prohibited or restricted, emphasizing that compliance with statutory conditions is essential for lawful import.The Court also dismissed procedural objections, holding that the adjudicating authority acted within its jurisdiction and followed due process.Significant Holdings'If conditions prescribed for import or export of goods are not complied with, it would be considered to be prohibited goods.''Goods imported in violation of Sections 7 and 11 of the FTDR Act are 'prohibited goods' as per Section 2(33) of the Customs Act and are liable for confiscation under Section 111(d).''Section 111(d) does not require that goods be physically available for confiscation; goods imported contrary to any law are liable to confiscation even if not available at the time of adjudication.''The adjudicating authority under the Customs Act is competent to impose confiscation and penalty for goods imported in violation of the FTDR Act, as Section 111(d) contemplates confiscation for breach of any law.''The principle of res judicata does not apply where the subsequent SCN is based on further investigations revealing additional violations.''Failure of the appellant to avail personal hearing opportunities does not amount to violation of natural justice.''Penalty under Section 112 of the Customs Act can be imposed even if goods are not physically confiscated but are liable for confiscation.'The Court upheld the penalty of Rs. 25,00,000/- imposed on the appellant and modified the impugned order to hold that the goods imported using fictitious IECs were liable for confiscation under Section 111(d) of the Customs Act, despite their non-availability for physical confiscation. The appeal filed by the importer was dismissed, and the appeal filed by the department was allowed accordingly.