Genuine transferable licence cannot be denied for original fraud, and section 108 statements need section 138B compliance.

A transferee of a genuinely issued replenishment licence cannot be saddled with customs duty merely because the original holder obtained the licence through forged supporting documents, unless the transferee was shown to be part of the fraud or the licence itself was forged; the licence remained valid during its currency and later cancellation did not retrospectively invalidate imports. Statements recorded under section 108 of the Customs Act could not be relied on in adjudication without compliance with section 138B, including examination of the maker and opportunity of cross-examination, so the adverse demand based on those statements was unsustainable.

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Issues: (i) Whether a purchaser of transferable replenishment licences could be fastened with customs duty liability where the licences were genuinely issued by the licensing authority but had been obtained by the transferors on the basis of forged documents. (ii) Whether statements recorded under section 108 of the Customs Act, 1962 could be relied upon in adjudication without complying with section 138B of the Customs Act, 1962.

Issue (i): Whether a purchaser of transferable replenishment licences could be fastened with customs duty liability where the licences were genuinely issued by the licensing authority but had been obtained by the transferors on the basis of forged documents.

Analysis: The governing distinction is between a forged licence, which was never validly issued, and a genuine licence issued by the competent authority but procured by the original holder through fraud or forged supporting documents. Where the licence was in fact issued and remained valid when used for import, the transferee cannot be denied the benefit merely because the original holder obtained it by misrepresentation. Such a licence is treated as voidable and not as non est. The later cancellation of the licence does not retrospectively render imports made during its currency unlawful. In the absence of material showing that the transferee was party to the fraud or that the licence itself was forged, duty liability cannot be imposed on the purchaser.

Conclusion: The issue is answered in favour of the assessee. Duty could not be recovered from the appellant on the basis that the licences were genuine but had been obtained by the transferors through fraud.

Issue (ii): Whether statements recorded under section 108 of the Customs Act, 1962 could be relied upon in adjudication without complying with section 138B of the Customs Act, 1962.

Analysis: Statements recorded during inquiry under section 108 acquire evidentiary relevance only when the mandatory procedure under section 138B is followed. The maker of the statement must be examined as a witness before the adjudicating authority, the authority must form the requisite opinion on admissibility, and an opportunity of cross-examination must then be afforded, unless the statutory exceptions apply. Failure to follow this procedure makes reliance on such statements impermissible. On that footing, untested statements recorded under section 108 could not be treated as admissible evidence to establish the appellant's participation in the alleged fraud.

Conclusion: The issue is answered in favour of the assessee. The statements under section 108 could not be relied upon without compliance with section 138B.

Final Conclusion: The customs demand and connected adverse findings against the appellant were unsustainable, and the impugned adjudication was set aside with consequential relief.

Ratio Decidendi: A transferee of a genuinely issued licence cannot be denied customs exemption or saddled with duty merely because the licence was procured by the original holder through fraud, and statements recorded during inquiry are not admissible unless the statutory procedure for examination and cross-examination is complied with.

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