Recovery of import duty with interest and penalty upheld where forged TRAs used and importer failed due diligence

CESTAT affirmed recovery of import duty with interest and imposition of penalty where forged Telegraphic Release Advices (TRAs) were used. Tribunal found appellants failed to obtain TRAs from the port of registration or verify their authenticity, so claimed ignorance of manipulation was rejected for lack of due diligence. Appeals were dismissed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether import consignments admitted duty-free on the basis of DEPB/VKGUY scrips accompanied by forged Telegraphic Release Advices (TRAs) can be treated as bona fide imports shielding the importer from duty demand, interest and penalty.

2. Whether an importer who procures DEPB/VKGUY scrips through brokers and receives TRAs from brokers, but does not obtain TRAs from or verify them with the port of registration, has exercised due diligence such as to negate liability for duty, interest under section 28AA of the Customs Act and penalty under section 114A of the Customs Act.

3. Whether penalty under section 114A of the Customs Act is exigible where duty is held to be unpaid because imports were effected on scrips that were rendered invalid by fraudulent export/TRA transactions.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of duty-free importation where DEPB/VKGUY scrips were used together with forged TRAs

Legal framework: Imports under export promotion schemes (DEPB/VKGUY) require valid scrips and appropriate TRAs issued/confirmed as per port of registration; Customs can demand duty where the license/scrips are void ab initio due to fraud.

Precedent treatment: The Tribunal has previously considered virtually identical facts and held that possession and use of forged TRAs defeats a claim of bona fides where importers did not obtain or verify TRAs from the port of registration; that decision is followed.

Interpretation and reasoning: The Court reasons that use of DEPB/VKGUY scrips in conjunction with TRAs forms a two-instrument scheme for effecting duty-free import. Even if the scrips appeared on DGFT records, the manipulation of TRAs-particularly where TRAs were furnished by brokers and not obtained or verified by importers at the port of registration-renders the importations non-bona fide. The Court emphasizes the importer's responsibility to obtain or validate TRA from the port of registration if the scrip is to be used at a port different from the POR; failure to do so demonstrates lack of due diligence and indicates complicity or tacit support for the fraudulent scheme.

Ratio vs. Obiter: Ratio - where TRAs are forged and importers fail to obtain or verify TRAs from the port of registration, imports cannot be treated as bona fide and duty demand is sustainable. Obiter - observations about brokers' conduct and indemnity arrangements are explanatory of facts but not necessary beyond the due-diligence rule.

Conclusions: The Court concludes that imports effected using forged TRAs, when the importer did not secure or verify the TRA from the port of registration, are not bona fide; the duty demand is justified.

Issue 2: Standard of due diligence expected from an importer purchasing scrips through brokers and receiving TRAs by broker-facilitated channels

Legal framework: An importer using transferable export promotion scrips must exercise due diligence in ensuring the legitimacy of both the scrip and any required TRA; mere purchase and banked payment to a broker and online verification of scrip existence do not discharge this duty where TRA authenticity is material to duty exemption.

Precedent treatment: The Tribunal's prior decision is followed, holding that verification exclusively of the scrip on DGFT records and payment through banking channels is insufficient when TRAs are not independently verified with the port of registration.

Interpretation and reasoning: The Court highlights that the TRA, as the instrument authorising release at the port of import, must be obtained or its veracity ascertained by the importer (or its agent) from the POR. Reliance solely on brokers to provide TRAs, without independent verification, means the importer did not exercise the diligence required by law. The Court treats the absence of registration/verification at the POR and silence about how TRAs came into the importer's possession as indicia of culpability or, at minimum, negligence sufficient to attract adverse consequences.

Ratio vs. Obiter: Ratio - importers procuring scrips via brokers must secure or verify TRAs with the port of registration to demonstrate due diligence; failure to do so supports imposition of duty and ancillary liabilities. Obiter - specifics about individual brokers' past misconduct are factual support and not a general rule beyond supporting due-diligence analysis.

Conclusions: The Court concludes that the importer's conduct-accepting broker-provided TRAs without PORT verification and not obtaining TRAs from the POR-fails the due-diligence standard and justifies duty, interest and penalty assessments.

Issue 3: Liability for interest under section 28AA and penalty under section 114A where duty is found unpaid due to fraudulent scrip/TRA scheme

Legal framework: Section 28AA provides for recovery of interest on delayed/non-levy/short levy of customs duty; section 114A penalises short levy or non-levy of duties in specified circumstances where liability is established.

Precedent treatment: Followed - where duty is confirmed due to invalidity of the concessionary instrument (scrip/TRA) caused by fraud or manipulation, interest under section 28AA and penalty under section 114A are legally chargeable.

Interpretation and reasoning: The Court notes it is undisputed that duty was not paid because the imports were cleared on the basis of scrips/TRAs that were invalid due to manipulation. Given the confirmed duty liability, the statutory charge of interest under section 28AA follows. Similarly, section 114A applies where there is short levy/non-levy; the Court holds that imposition of penalty under section 114A was correctly made in the circumstances.

Ratio vs. Obiter: Ratio - when duty is held to be unpaid because the concessionary instrument was invalidated by fraud and the importer failed to exercise required due diligence, interest under section 28AA and penalty under section 114A are properly levied. Obiter - none material beyond statutory application explained above.

Conclusions: The Court concludes that both interest under section 28AA and penalty under section 114A were appropriately imposed once duty non-payment on account of forged TRAs/scrips was established and due diligence was lacking.

Cross-references and Final Legal Determination

Where an earlier division bench decision addressing identical questions held that importers who did not obtain or verify TRAs from the port of registration and accepted broker-provided TRAs failed to exercise due diligence and were liable for duty, interest and penalty, that decision governs the present appeals and is followed. Applying that reasoning to the facts at hand, the Court affirms the duty demand, the levy of interest under section 28AA and penalty under section 114A.

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