Misdeclared SEIS scrips can trigger customs recovery and confiscation, but personal penalty needs independent culpability.

Misdeclared SEIS duty credit scrips obtained by suppressing the true nature of services could be treated as wrongly procured and, once cancelled void ab initio by the competent FTDR authority, customs recovery of duty on their utilisation remained sustainable, along with confiscation and company penalties for deliberate misdeclaration. The customs framework under Section 28AAA was applied where the instrument had been obtained by misstatement and used despite ineligibility. However, separate personal penalty on the Chief Financial Officer was not sustained because his role was that of an employee acting under company directions, his statement acknowledged ineligibility, and no independent basis for personal culpability was shown.

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Issues: (i) Whether the recovery of customs duty, confiscation and penalties under Section 28AAA of the Customs Act, 1962 were valid where the SEIS scrips had been obtained on a mis-declaration of the nature of services and had already been cancelled by the DGFT; (ii) Whether the penalty imposed on the Chief Financial Officer under Sections 112(a) and 114AA of the Customs Act, 1962 was sustainable.

Issue (i): Whether the recovery of customs duty, confiscation and penalties under Section 28AAA of the Customs Act, 1962 were valid where the SEIS scrips had been obtained on a mis-declaration of the nature of services and had already been cancelled by the DGFT.

Analysis: Section 28AAA applies where an instrument is obtained by collusion, wilful misstatement or suppression of facts and is later utilised by a person other than the issuee. The SEIS framework under the Foreign Trade policy permitted duty credit scrips for notified services only, and the record showed that the services were wrongly declared as eligible consulting services though they were IT/ITES services not covered by the notified list. The DGFT had already cancelled the scrips void ab initio after investigation, which established that the instrument had been wrongly obtained. Once the cancellation stood unchallenged, customs authorities were competent to recover the duty relatable to utilisation of the scrips and to sustain confiscation and penalties for the deliberate mis-declaration.

Conclusion: The invocation of Section 28AAA, the duty demand, confiscation under Sections 111(m) and 111(o), and the penalties on the company were upheld.

Issue (ii): Whether the penalty imposed on the Chief Financial Officer under Sections 112(a) and 114AA of the Customs Act, 1962 was sustainable.

Analysis: The Chief Financial Officer's statement had admitted ineligibility for SEIS benefit and the duty had been voluntarily paid with interest. The role attributed to him was that of an employee acting under the company's directions, and the company itself had already been penalised. On these facts, separate penal liability on him was not justified.

Conclusion: The penalty imposed on the Chief Financial Officer was set aside.

Final Conclusion: The customs demand and consequential action were sustained against the company, while the personal penalty on the Chief Financial Officer was deleted, resulting in partial relief to the assessee side.

Ratio Decidendi: When a duty credit scrip is procured by wilful misstatement or suppression of facts and the competent FTDR authority has already cancelled it as void ab initio, customs recovery under Section 28AAA is maintainable; however, a separate penalty on an individual employee is unsustainable absent an independent basis for personal culpability.

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