TaxTMI 
TaxTMI 
2008 (11) TMI 408
X X X X Extracts X X X X
X X X X Extracts X X X X
....try No. 4647 & 4648 dt. 12-1-2001 through Customs House, Kandla. They had purchased these two licenses in the local market and the licenses were originally obtained by M/s. Sri Vishnu Merchants. These licenses were transferred to Kandla by issue of Transfer Release Advice issued by Supdt. of Cutoms, ICD, Hyderabad, which facilitated utilization of licences by the appellants. 2. The Jt. Director General of Foreign Trade, Hyderabad, the licensing authority cancelled both the DEPB licenses ab initio vide order dt. 13-5-2002 and the IEC No. of M/s. Sri Vishnu Merchants was also suspended on 13-5-2002 by the JDGFT. 3. A show cause notice was issued and after due adjudication process, the Commissioner passed an order confirming the demand of duty Rs. 46,23,273/- with interest as applicable and penalties of Rs. 10 lakhs each on Sh. Sanjay Aggarwal, Sh. Bimal Kumar Jain, Sh. Naresh Jain and Sh. Rajesh Jain and Rs. 46,23,273/- on Shri Rajnish Agrawal, Proprietor of M/s. Sri Vishnu Merchants. Hence these appeals. 4. The grounds of appeal put forth by M/s. Binani Cement Ltd. are briefly detailed below :- (a) Mis-representation was made by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....#8195;Ld. Advocate on behalf of the appellants stated that there is no evidence nor is there any allegation in the show cause notice that the appellant had evaded the duty by any mis-representation or suppression and the allegation is that the exporter had obtained the DEPB licences by fraud/mis-representation and that cannot be made a ground to invoke the extended period against the appellants. The judgment of Collector of CE v. HMM Ltd. reported in 1995 (76) E.L.T. 497 (S.C.) was cited in support of this argument but it is noticed that first of all it related to a demand under proviso to Section 11A of Central Excise Act and Section 28 and Section 11A are not pari-materia. This is in view of the fact that while Section 11A speaks of mis-representation or fraud by such person or his agent. (Emphasis added). Section 28 reads "by the importer or the export or the agent or employee of the importer or exporter". On the other hand, we find that there are several decisions upholding application of extended period under Section 28 of Customs Act, 1962 where imports have been made on the basis of DEPB licences subsequently found to be forged/obtained by fraud etc., which will be discussed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere under. In such circumstances, one may defend his case that one may not be liable for collusion or fraud and exposed to other penalties therefor, but still then one would be liable to pay the duty and interest and for other statutory consequences which one cannot avoid." The petition for special leave to appeal against the said decision filed by the party was dismissed by Hon'ble Supreme Court. 7.4 In M/s. Friend Trading Company v. CC, Amritsar [2006 (202) E.L.T. 611 (Tri.-Del.)], the Tribunal held as under :- "6. In the present case admitted facts are that M/s. Parker Industries obtained DEPB Scrips by producing forged bank certificate of export and realization in respect of goods exported by them. Inquiry was conducted from the banks which shows that such certificate was not issued by the bank. DEPB Scrips were purchased by the appellants and was used for import without payment of duty. Subsequent to the import of goods DEPB Scrips were cancelled by the DGFT. The question before us is whether duty is demandable when DEPB Scrips were obtained by producing forged documents and subsequently the same cancelled by the competent authority. Reliance of the appell....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on it. Forgery is antithesis to legality and law cannot afford to validate a forgery." 7.5 In ICI India Ltd. v. Commissioner [2005 (184) E.L.T. 339 (Cal.) the Hon'ble High Court held that whether where there was collusion or fraud on the part of the appellants in the issue of DEPB licence/scrips is absolutely immaterial and irrelevant since no credit can be derived from forged licence/scrips. Credit is available only on the strength of valid DEPB licence and if the same is forged, it is non-est. One may not be liable for other penalties but duty and interest would still be payable and affirmed the decision of the CESTAT upholding application or extended period for demand under Section 28 of Customs Act, 1962. The petition for special leave filed against this judgment was dismissed by the Hon'ble Supreme Court as reported in 2005 (187) E.L.T. A31. 7.6 In M/s. DIC India Ltd. v. CC (Port), Kolkata reported in 2008 (226) E.L.T. 545 (Tri.) = 2008 (86) RLT 71 also, it was held that extended time limit under Section 28 is invokable when goods were imported by a purchaser of DEPB scrips, which were found to be forged and fake. The Tribunal in CC v. Special Steels Limited ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hawat, J's order was made previous thereto, namely, on May 24, 1950. Therefore said Mr. T.P. Das that this application was not pending at the date when the amending Act came into force, having been disposed of by Bachawat J. long before, that date. But the appeal was preferred from Bachawat J's order on September 1, 1950 and once the appeal preferred from the order that order lost its finality. A decision liable to appeal may be 'final' until the appeal is preferred. But once the appeal is filed the decision loses its character of 'finality' and what was once res judicata again becomes res sub judice, that is, a matter under judicial inquiry. The appeal destroys the finality of the decision, the decree of the lower Court is superseded by the decree of the appellate Court. In other words, once an appeal is filed from a decree or order in a matter, it becomes a pending matter. In this case when the appeal was preferred against the order of Bachawat J., the appelication became a pending application. So we are unable to accept the contention of Mr. Das that by reason of the order of Bachawat J. the application ceased to be pending. Once it is held that the application was pending at th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r exporter or the employee of the importer or exporter or their agents. It has to be noted that the Section 28 does not specifically provide that in the case of import, fraud/mis-representation should have been committed by the importer and in the case of export it should have been committed by the exporter etc. It provides in general that in case of fraud/mis-representation by importer or exporter or employee or agent, extended period of 5 yeas is applicable. This only shows that the law recognizes the fact that quite often the imports and exports are closely linked. Especially in view of the fact that the Government issues several licenses for importing goods based on the export performance and often it has been noticed that fraud/mis-representation perpetrated by the exporters gets detected only after a considerable amount of time and by the time fraud or mis-representation is detected and action is initiated to cancel the DEECE/DEPB licences issued, the importation by utilizing the same would have already taken place. There are other situations where a fraud committed by the importer can be relevant in the case of export and fraud committed by the exporter can be relevant to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the DGFT ab initio and there is no dispute that licences were obtained by fraud/mis-representation. 8.3 Further the benefit of legal maxim LEX NON COGIT AD IMPOSSIBILIA is of no use to the appellants in this case, whereas it was useful to M/s. Hico Enterprises because the allegation in that case was that condition of exemption Notification was not fulfilled by them, whereas the same was not required to be fulfilled by them and they could not have fulfilled the condition at all. In this case, the Department's case is that the licence was not valid and therefore they are required to pay duty and interest. Either in the show causes notice or in the order, the Revenue has not required the appellant to do something which is not impossible. It is not the case of the appellant that duty and payment of interest demanded is a legal impossibility. 8.4 Further, the appellants also have relied upon the LB decision in M/s. Hico Enterprises case to support the argument that the benefit of exemption notification has to be extended to the transferee. The relevant observations of the Larger Bench, contained in paras 31, 32 & 33, are reproduced below :- "31. The gener....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it, and not only is the person who has committed fraud is precluded from deriving any benefit under it, but an innocent person is so likewise, unless there has been some consideration moving from himself. In the cases at hand, it is not in dispute that all the petitioners had obtained licences for valuable consideration without any notice of the fraud alleged to have been committed by the original licence holders while obtaining licences. If that be so, the concept that fraud vitiates everything would not be applicable to the cases where the transaction of transfer of licence is for value without notice arising out of mercantile transactions, governed by common law and not by provisions of any statute." (b) This decision was followed by the Bombay High Court itself in Sanjay Sanwarmal Agarwal v. UOI - 2004 (169) E.L.T. 261 (Bom.). In this case, it has been held in respect of advance licence under EXIM Policy. The licence of the transferee was suspended by the Licensing Authority on the ground of initiation of enquiry by Customs authorities against the transferor and imported goods of the transferee were seized. The licence was transferred on completion of export obligatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bate of excise duty paid on goods exported etc. The DEPB licence represents this reimbursement or benefit by whatever name it is called. Further it is the Government which decides whether a particular instrument can be made freely transferable or not and once a particular benefit represented by a licence is allowed to be transferred freely, it is for exporter who obtains such a licence to decide whether he should sell it in the market if there are customers or he should use it himself. If the exporter decides that he himself shall use the DEPB licence for importing the goods by availing exemption under Notification No. 34/97, the licence does not enter the market at all. Therefore, there is no sale of such licence in the market. In case the exporter decides to transfer the licence, the licence comes in to the market and becomes available for sale and this is the stage when it acquires the character of the goods and the Sale of Goods Act becomes applicable. When a person buys this DEPB licence from the exporter it is the first sale and when it is sold to someone or some other intermediary who sell it further in which case it will become a second sale/third sale etc. Ultimately when ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....privilege can be validly transferred through such invalid licence. The plea of bona fide purchaser for value without notice of fraud, which may be available in contracts inter vivos, if allowed against the State, will create a situation conducive to misappropriation of State properties and put public resources to a great jeopardy. Fraud on individuals in a contract inter vivos and fraud on State cannot be treated on the same footing, in the context of the plea of the bona fide purchaser without notice of fraud on the State, because, public interest as distinguished from private interest warrants a different approach and fraudulently obtained statutory licence ought not in public interest and on grounds of public policy, be recognized to create any transferable rights or interest, or, the State and public interests will be at stake." 8.10 Therefore it cannot be said that the DEPB licence/scrip had been obtained by the exporter under a contract. In view of this, observations of the Tribunal in M/s. Hico Enterprises case that the buyer of DEPB licence without notice of fraud/mis-representation gets a good title in view of the provisions of Section 29 of the Sale of Goods Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....b initio no benefit/incentive/claim for exemption can be based on such licence. 8.12 Further the Apex Court in Commissioner of Customs, Calcutta v. Grand Prime Ltd. reported in 2003 (155) E.L.T. 417 (S.C.) held that Considerations which are relevant under the Sale of Goods Act cannot be applied in context of facts which were Failure to re-export finished or semi-finished goods, qua, the imports already made under the same licence; No licence was produced and no bill of entry was filed to complete the process of importation; Importer did not even come forward to clear the goods and thus import was contrary to law being without a valid licence and in violation of condition/restrictions imposed under the licence. This decision of the Supreme Court clearly shows that Sale of Goods Act cannot be applied to the present case. 9. The next argument advanced by the ld. Advocate on behalf of the appellant is that the appellant company is a bona fide purchaser of the licence and they cannot be penalized by way of demand of duty and interest for the fraud committed by the exporter. 9.1 The discussion above already shows that appellants legally have no case. But, it is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are of the fraud and they had no notice of the fraud, it cannot be said that they should be allowed to deprive the Govt. of the customs duty due. In this case just to prevent loss to the shareholders and the company, for a risk taken knowingly that there could be fraud, question arises as to whether all the citizens of the country contribute to the exchequer to make up the loss caused by activities of the exporters and the importers. It is felt that this is where public policy comes into picture and there cannot be any protection for people who take risks knowing the consequences when the Govt. can not protect citizens even, where are they are helpless as in the case of fake currency. Viewed from this angle also, the appellants' contention fails. 9.2 Further the fact that there was no notice of fraud to the transferee at the time of import also need not be taken into consideration because if there was a notice of such fraud, Department would not have allowed exemption under Notification No. 34/97 at the time of importation. If there was a notice of fraud, the transferee would not have bought the licences in the first place. Further, the decision of Tribunal in the case of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould be 10,98,000 sq. mtr. decorative veneers per annum. In the said application form, it was also stated that no industrial licence for installation or substantial expansion was required by the appellant, since it is a Small Scale Unit. There is nothing on the record to show that the appellant had informed the customs authorities that the machinery to be imported would be transferred by the appellant to the Company and the Company would install the same. On the other hand, the endorsement on the import licence submitted with the Bill of Entry which contained a declaration by a partner of the appellant and the statements contained in the application form for registration dated November 21, 1979, indicated that the appellant would be using the imported machinery for substantial expansion of its existing unit and on that basis the appellant was assessed for duty at a concessional rate under Heading No. 84.66 of the Customs Tariff. Since the appellant did not install the said machinery for the expansion of its existing unit, but transferred it to the Company after it had been cleared from the customs, the appellant cannot claim the benefit of the concessional rate of duty under Headin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e-assessment in pursuance of the aforesaid direction given by the Collector, does not, therefore, suffer from any legal infirmity." The observations of the Apex Court show that not only in terms of public policy but also in terms of law the appellants have no case. 10. Before proceeding further, it has to be stated that other cases cited by the ld. Advocate for the appellant have been considered and found to be either different on facts or it has been found that there are subsequent judgments on the same subject, which were delivered later and therefore, the earlier judgments cited by the appellant have not been considered. 11. As regards confiscation in view of the discussion above holding that the licence was void ab initio and the importer is responsible for payment of duty and interest invoking extended period, the goods become liable to confiscation since the condition of the Notification that DEPB licence equivalent to the duty payable has to be produced to avail exemption has not been fulfilled and therefore confiscation under Section 111(o) of Customs Act has to be upheld and the order of the Commissioner that the goods are liable to confiscation but he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d rejected by Hon'ble Supreme Court, as reported in CCE (Imports), Bombay v. M/s. Hico Enterprises - 2008 (228) E.L.T. 161 (S.C), thus putting seal of approval on the law declared by Larger Bench. As such, the appeal is required to be allowed on merit, by following Larger Bench decision. 17. At this stage, I also take note of majority order in case of M/s. Gadecha v. CCE, Ahmedabad - Order No. A/1274-1276/WZB/AHD/08 dt. 1-9-2008, wherein there was originally difference of opinion between two Members and was resolved by the third Member, in favour of the assessee. A detailed order stands passed by the third member who has discussed the issue at length. The terms forged/fraud and the effect of the same also stands discussed. By adopting the reasoning of the third member in the above referred judgment, I would like to add that admittedly a fake or duplicate Rs. 500 Note, will not carry any legality or value, as the same does not exist in the eyes of law, whereas a 500 rupee Note procured by fraud, or mis-representation would carry value in the hands of the holder. In the present case, it is not the Revenue's case that licences were never issued by DGFT and were fake or duplic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... he may not be connected at all. The views already expressed by me in my earlier order and as taken note of by my learned brother in Para 7.8 are again being reiterated by me. 19. In view of the above, I set aside the impugned order on merit and also on limitation and allow the appeals with consequential relief. Sd/- (Archana Wadhwa) Member (Judicial) DIFFERENCE OF OPINION Whether the appeals are required to be disposed off in a manner as held by Member (Technical) or the same are to be allowed as held by Member (Judicial)? Sd/- Sd/- (B.S.V. Murthy) (Archana Wadhwa) Member (Technical) &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ported by them. It was further alleged that they were liable to be penalized under Section 114A/112(a) of the Customs Act. The show-cause notice also proposed penalties on the other noticees (other appellants before the Tribunal) under Section 112(a) of the Act. These facts are not in dispute. 21. The allegations in the show-cause notice were denied and the proposals made therein were contested. In adjudication of the dispute, the learned Commissioner of Customs (a) demanded duty of over Rs. 46 lakhs from M/s. Binani Cement Ltd. under Section 28 of the Customs Act with interest under Section 28AB of the Act, (b) held the imported goods liable for confiscation under Section 111(o) of the Act, (c) imposed penalty equal to duty on Shri Rajnish Aggarwal, Proprietor of M/s. Sri Vishnu Merchants, under Section 112 (a) of the Act and (d) imposed penalties under the same provision on the other appellants. 22. The learned Member (Technical) of the regular Bench, after hearing counsel for M/s. Binani Cement Ltd. and the learned JCDR for the respondent, rejected Appeal Nos. C/142 to 148/2007 for non-prosecution and the appeal of M/s. Binani Cement Ltd. on merits. On the othe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e competent authority. According to the learned counsel, such validity of the documents on the date of import was not in any way affected by the subsequent cancellation by the DGFT. It is further submitted that, in such circumstances, it cannot be held that the goods was imported in breach of EXIM policy or of conditions of Notification No. 34/97-Cus. In this connection, reliance is placed on the Supreme Court's judgment in Collector of Customs, Bombay v. Sneha Sales Corporation [2000 (121) E.L.T. 577 (S.C)]. The learned counsel has also referred to a recent judgment of the High Court of Gujarat in Tax Appeal No. 1592 of 2007 of M/s. Binani Cement Ltd. [2009 (238) E.L.T. 33 (Guj.)] It is submitted that the facts of the case considered by the Hon'ble High Court are similar to the facts of the instant case and, therefore, the High Court's ruling would be squarely applicable. Reliance has also been placed on the Tribunal's larger Bench decision in Hico Enterprises v. Commissioner of Customs, Mumbai [2005 (189) E.L.T. 135 (Tri.-LB)], wherein a case of duty-free import under DEEC scheme coupled with Notification No. 203/92-Cus. was considered by the Bench. The advance licence used by M/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roduce the full text of the High Court's judgment :- "1. Commissioner of Customs, Kandla, Gandhidham has preferred this appeal by proposing following two questions stated to be questions of law. [a] Whether in the facts and circumstances of the case, Tribunal is justified in confirming the decision of the Commissioner [Appeals], who set aside the demand of duty on the ground that the Revenue had not attributed misstatement or suppression of fact despite having asserted fraud committed by the exporter resulting in clearance of imported goods without payment of duty? [b] Whether in the facts and circumstances of the case, the Tribunal was justified in holding that though the case involved fraud committed by the exporter resulting in clearance of imported goods without payment of duty by the importer, Revenue is not entitled to recover the customs duty? 2. The appellant is aggrieved by the order dated 23-3-2007 made by the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal). The relevant facts as stated by the appellant in the memorandum of present appeal read as under: 3.1 One M/s. Be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred by the exporter in favour of respondent assessee. The said license came to be cancelled by the Director General of Foreign Trade vide order dated 24-10-2001. In light of these facts, both Commissioner (Appeals) and the Tribunal have concurrently found that there was no misrepresentation or suppression of facts as on the date of clearance of the imports in as much as the license was valid at the time of import. Accordingly, the demand based on an exercise within the larger period of limitation was not permissible as the same was barred by limitation. 6. In fact, in paragraph No. 4 of the order of Tribunal, it is recorded "Revenue in their memo of appeal have not attributed any mis-statement or suppression of fact to the respondent herein. They have simply asserted that the case involved fraud committed by the exporter resulting in clearance of imported goods without payment of duty by importer and as such, Revenue should be allowed to recover the customs duty." 7. In the aforesaid factual matrix after appreciation of evidence on record, the Tribunal has come to the conclusion that there is no collusion, willful misstatement or suppression of facts qua the impo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cancelled. In the present case the licences were cancelled by order dated December 18, 1986 after the goods had been imported and cleared. The Tribunal was, therefore, right in holding that the import of the goods was not in contravention of the provisions of Import and Export Order, 1955 and Import and Export (Control) Act, 1947 and the goods were not liable to be confiscated on that basis under Section 111 (d) of the Act." 27. Admittedly, in the present case, the DEPB licences were cancelled long after the importer used the documents for clearance of coal. On the date of import, the licences, lawfully issued by the competent authority, were valid and operative. In other words, the imports were made under valid licences. Hence the emphasis placed on "ab initio" by the JCDR is inconsequential. Yet another case law cited by the learned counsel is on the question whether the rights of a bona fide purchaser of DEPB licence could be affected by its subsequent cancellation. Here again, the answer is against the Revenue and in favour of the importer vide Hico Enterprises (supra). In this context, it needs mention that M/s. Binani Cement Ltd. acted upon the DEPB licences believin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; &n....