Genuine Duty Scrips Protect Importers; No Demand on Exporters Before Section 28AAA, Confiscation Order Partly Overturned

CESTAT held that where duty exemption scrips are validly issued by the licensing authority and presented at import, exemption cannot be denied or goods confiscated merely because the scrips were obtained on the basis of false documents, unless the scrips themselves are forged. Consequently, the department's plea to shift the duty demand to subsequent purchasers of the scrips was rejected, as it was not alleged that the scrips were forged. The Tribunal further held that, in the absence of section 28AAA (inserted only in 2012), demand could not be fastened on the original exporter. The Commissioner's order was set aside and the appeal allowed in part.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a demand for customs duty (with penalty) arising from DEPB scrips obtained by the original exporter can be confirmed against subsequent purchasers/transferees of those scrips where the department alleges the scrips were procured by submission of false documents (but not forged).

1.2 Whether a demand for customs duty (with penalty) could properly be confirmed against the original exporter who obtained DEPB scrips that the licensing authority had issued and that were valid at the time of import, notwithstanding later cancellation of the scrips by the licensing authority.

1.3 Whether section 28AAA of the Customs Act (as inserted later) authorises confirmation of demand against the exporter in respect of scrips purchased earlier, i.e., whether that provision applies to scrips/transactions predating its insertion.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Confirmation of demand against subsequent purchasers/transferees of DEPB scrips (where scrips alleged obtained by false documents, not forged)

Legal framework: Customs duty exemption depends upon a valid licence/scrip issued by the licensing authority and presentation of that licence/scrip at import and at filing of the Bill of Entry; distinction drawn between licences/scrips that are forged and those obtained by fraud or mis-representation.

Precedent Treatment: Followed the Tribunal's earlier decision in Apar Industries, which categorises three situations (validly issued but obtained by mis-representation; forged scrips; issued but later cancelled) and holds that a licence/scrip obtained by fraud is voidable, not void ab initio; where the scrip was validly issued and valid at time of import, exemption cannot be denied to transferees without notice of fraud.

Interpretation and reasoning: Where the licensing authority actually issued the DEPB scrip and the scrip was valid on the date of import, the transferee who imports on its strength enjoys the exemption if the transferee had no notice of fraud by the original holder. The crucial facts are issuance by the authority and presentation of the scrip at import; mere contention that the original holder secured the scrip by false documents does not convert a validly issued scrip into a forged instrument for purposes of denying exemption to subsequent transferees.

Ratio vs. Obiter: Ratio - A DEPB scrip validly issued by the licensing authority confers exemption during its validity on both the original holder and transferees absent forgery or notice of fraud; forged scrips fall outside this protection. Obiter - ancillary remarks on the consequences of later cancellation are explanatory to the ratio.

Conclusion: Demand could not be sustained against subsequent purchasers/transferees where the scrips were not forged; the department's relief seeking confirmation against transferees is impermissible in the absence of a finding of forgery and, procedurally, without impleading those transferees.

Issue 2 - Confirmation of demand against the original exporter who obtained DEPB scrips (scrips valid at time of import though obtained by false documents)

Legal framework: Same as above - validity of exemption turns on whether the DEPB scrip was issued by the licensing authority and valid when used at import; legal distinction between void and voidable instruments in fraud context governs whether customs can deny exemption or confiscate goods.

Precedent Treatment: Followed Apar Industries which held that licences/scrips obtained by fraud are not void ab initio and that, if valid at time of import and presented, the exemption cannot be denied or goods confiscated even if the licence is subsequently cancelled.

Interpretation and reasoning: The Tribunal reasoned that where the licensing authority issued the scrip, the exporter's possession and use of the scrip at the time of import establishes entitlement to the exemption, and later discovery that the scrip was procured by mis-representation does not retrospectively invalidate the exemption unless the scrip is shown to be forged. Consequently, a demand based on mis-representation cannot be confirmed against the exporter who used a validly issued scrip at import.

Ratio vs. Obiter: Ratio - Demand cannot be confirmed against the original exporter in respect of a scrip that was validly issued and presented at import even if the scrip was obtained by mis-representation; Obiter - comments on policy considerations underlying protection of transferees and timing of cancellation.

Conclusion: The demand confirmed against the exporter was not justified where the scrip was not forged and was valid at the time of import; such confirmation must be set aside as contrary to the legal position established by precedent.

Issue 3 - Applicability of section 28AAA to sustain demand against an exporter for earlier purchases of scrips

Legal framework: Section 28AAA (as referenced) provides a statutory basis to confirm demands against certain persons but its effect depends on the date of insertion and whether it has retrospective operation to cover earlier transactions.

Precedent Treatment: The Tribunal applied temporal statutory analysis - a provision inserted after the events in question cannot be used to validate earlier actions unless expressly made retrospective.

Interpretation and reasoning: Section 28AAA was inserted on a date subsequent to the purchase and use of the scrips by the exporter; there is no basis in the record to apply that provision retrospectively to validate a demand that could not otherwise be sustained at the time of the transaction. Therefore, reliance on section 28AAA to confirm demand against the exporter is impermissible.

Ratio vs. Obiter: Ratio - A statutory provision inserted after the events cannot be applied retrospectively to sustain a demand for periods before its insertion absent clear retrospective intent; Obiter - procedural observations on the appropriate impleading of transferees when relief is sought against them.

Conclusion: Section 28AAA did not authorise confirmation of the demand against the exporter for the transactions in question because it was inserted after the relevant events; accordingly the demand could not be upheld on that statutory basis.

Cross-references and Overall Conclusion

Where a DEPB scrip is issued by the licensing authority and valid at the time of import, that validity protects both the original holder and transferees who import on the strength of the scrip absent forgery or notice of fraud (cross-refs Issue 1 and Issue 2). The department's attempt to shift liability to transferees failed both substantively (no allegation or finding of forgery) and procedurally (transferees not impleaded). The Commissioner's confirmation of demand against the exporter was contrary to the legal position and to the temporal limits of section 28AAA; the order confirming demand against the exporter was therefore set aside.

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