2025 (7) TMI 736 - HC - Customs

Government denies informer status in export scheme fraud case, implements safeguards against future violations

Shoaib alias Richie Sequeira Versus Union of India & Ors.

The Bombay HC disposed of a petition alleging fraud in duty drawback, DEEC, and EPCG schemes implementation. The government denied petitioner's informer ... Seeking to highlight the alleged loopholes in implementation of duty drawback scheme/DEEC/EPCG - large scale fraud in the implementation of Duty Drawback Scheme, DEEC (Advance License,) EPCG - HELD THAT:- Perusal of the Affidavit in reply filed by the Under Secretary (Drawback), Ministry of Revenue would indicate that Petitioner’s status as informer in the case of M/s. Quality Export and M/s. Quality Apparel Pvt. Ltd. has been denied and it is pleaded that the information in the case was given by Consul (Economic), Consulate General of India, Dubai in respect of the alleged fraud committed by the respective firms. The Affidavit in reply sets out detailed action taken against the concerned firms in respect of the alleged Drawback fraud. Additionally, the Affidavit-in-reply sets out detailed steps take by the Customs Department for preventing such frauds in future. The purpose behind filing the present petition is served on account of various safeguards implemented by the Government of India during implementation of the DEEC Scheme, as well as EPCG Scheme. The purpose behind filing the petition is served. No further orders need to be passed. Needless to observe that if any enquiry concerning subject matter of the petition is pending against any entity, the same shall be taken to its logical end in an expeditious manner. The petition is accordingly disposed of. 1) The core legal questions considered by the Court are:- Whether the Respondents are obligated to file affidavits detailing the factual aspects of revenue loss to the Government in relation to alleged scams under the Duty Drawback Scheme, DEEC, and EPCG schemes;- Whether the Court should appoint an independent committee, preferably chaired by a retired judge, to investigate the alleged scams and recommend safeguards to prevent recurrence;- Whether the Government should be directed to formulate a policy for receiving information from informants, including protection and reward mechanisms;- Whether interim reliefs are warranted pending final disposal of the petition;- Whether the petitioner's allegations of large scale fraud in export promotion schemes merit judicial intervention and directions for plugging loopholes in import-export policies.2) Issue-wise detailed analysis:Issue 1: Obligation of Respondents to File Affidavits on Revenue Loss and Recovery StepsThe petition sought directions for the Respondents to file affidavits specifying the factual details of revenue loss caused by alleged scams and the steps taken to recover such losses and to plug policy loopholes. The relevant legal framework includes the procedural powers of the High Court under writ jurisdiction to issue directions in public interest and to enforce accountability of government agencies.The Court examined the affidavit filed by the Under Secretary (Drawback), Ministry of Revenue, which denied the petitioner's status as an informer and clarified that the information about the fraud was provided by the Consul (Economic), Consulate General of India, Dubai. The affidavit detailed the actions already taken against the implicated firms and enumerated the safeguards implemented to prevent such frauds in the future.Key findings included the comprehensive steps taken by the Government to safeguard the export promotion schemes, including imposition of duty drawback caps, non-transferability of licenses, mandatory bonds and bank guarantees, strict record-keeping requirements, and penal provisions under the Foreign Trade (Development & Regulation) Act, 1992.The Court applied the law to the facts by observing that the Government's affidavit sufficiently addressed the concerns raised by the petitioner, demonstrating ongoing efforts to recover revenue and prevent recurrence. The Court rejected the petitioner's claim for further affidavits, concluding that the purpose of the petition was served by the Government's disclosures.Competing arguments from the petitioner alleging large scale fraud were considered but found to be adequately met by the Government's detailed affidavit, which included specific safeguards and recovery actions. The Court concluded no further directions were necessary on this issue.Issue 2: Appointment of Independent Committee to Investigate Alleged ScamsThe petitioner requested appointment of an independent committee chaired by a retired judge to investigate the factual aspects of the alleged scams and suggest safeguards. The legal framework for such appointment lies in the Court's inherent powers to order inquiries in matters of public interest and to ensure transparency and accountability.The Court noted that the Government had already taken various safeguarding measures and initiated recovery actions. The affidavit detailed the steps taken under multiple schemes such as Duty Drawback, Advance Licence, DEPB, EPCG, and Export Oriented Units, including legal undertakings and penalties for defaults.The Court reasoned that since the Government had already implemented comprehensive safeguards and was actively pursuing recovery and enforcement actions, the appointment of an independent committee was unnecessary. The Court emphasized that any pending enquiries should be expedited to logical conclusion.The petitioner's submission for a committee was thus declined, with the Court relying on the Government's affidavit and ongoing administrative mechanisms as sufficient to address the concerns.Issue 3: Direction to Formulate Policy for Informants' Protection and RewardsThe petitioner sought a writ directing the Government to formulate a policy for receiving information from informants, protecting their interests and families, and providing rewards. The legal context involves the protection of whistleblowers and incentivizing disclosure of information about frauds under statutory or policy frameworks.The Court noted that the petition did not demonstrate any existing deficiency in informant protection policies that warranted judicial intervention. The affidavit did not specifically address this prayer, but the Court implicitly found no compelling reason to direct formulation of such a policy at this stage.The Court's reasoning suggested that policy formulation is primarily within the executive domain unless clear statutory or constitutional lapses exist. Since the petition's main objective was to highlight alleged frauds and seek remedial steps, and the Government had already taken significant measures, the Court declined to issue directions on this issue.Issue 4: Interim Reliefs and CostsThe petitioner sought interim reliefs in terms of affidavits, committee appointment, and policy formulation, as well as costs. The Court observed no appearance by any party and, after perusing the pleadings and documents, found the Government's affidavit comprehensive and sufficient to meet the petition's concerns.Consequently, the Court declined interim reliefs and costs, holding that the petition's purpose was served by the Government's disclosures and safeguards. The Court emphasized expeditious conclusion of any pending enquiries rather than judicially mandated interim measures.Issue 5: Allegations of Large Scale Fraud in Export Promotion SchemesThe petitioner alleged large scale fraud in the implementation of Duty Drawback Scheme, DEEC (Advance License), and EPCG schemes, specifically citing cases of certain firms. The legal framework involves customs and foreign trade laws, including provisions under the Customs Act, 1962, and the Foreign Trade (Development & Regulation) Act, 1992, which regulate export promotion schemes and prescribe penalties for defaults and frauds.The Government's affidavit detailed the safeguards implemented, including:Ad valorem rates and caps under Duty Drawback Scheme to prevent over-invoicing;Non-transferability and actual user conditions under Advance Licence Scheme, with bonds and bank guarantees securing export obligations;Value caps and verification mechanisms under DEPB Scheme;Bonding, installation certification, and export obligation discharge under EPCG Scheme;Legal undertakings and penalties for Export Oriented Units and related schemes.The affidavit also annexed data on duty foregone under various schemes and recovery actions initiated under section 142 of the Customs Act, 1962.The Court found that the Government's detailed affidavit and ongoing enforcement actions sufficiently addressed the petitioner's allegations. The Court concluded that no further judicial intervention was warranted, but underscored the need for expeditious completion of any pending enquiries.3) Significant holdings:'The purpose behind filing the petition is served on account of various safeguards implemented by the Government of India during implementation of the DEEC Scheme, as well as EPCG Scheme.''The Government has taken various safeguarding measures to prevent misuse of various export promotion schemes, the details of which are given below...' (followed by a detailed enumeration of measures under Duty Drawback, Advance Licence, DEPB, EPCG, and EOUs).'No further orders need to be passed. Needless to observe that if any enquiry concerning subject matter of the petition is pending against any entity, the same shall be taken to its logical end in an expeditious manner.'The Court established core principles that comprehensive administrative safeguards, coupled with statutory penalties and enforcement mechanisms, suffice to address allegations of fraud in export promotion schemes absent compelling evidence necessitating judicial inquiry.Final determinations included refusal to direct further affidavits, denial of appointment of an independent committee, rejection of directions for informant protection policy formulation, and dismissal of interim reliefs and costs. The petition was disposed of on the basis that the Government's affidavit and actions adequately met the concerns raised.