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2013 (4) TMI 704
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....2-2011, 09/2012/CAC/CC/ BKS, dated 27-2-2012, 15/2012/CAC/CC/BKS, dated 22-3-2012 and 16/2012/CAC/ CC/BKS, dated 28-3-2012 passed by the Commissioner of Customs (Adjudication), New Custom House, Mumbai. Since the issues involved in all these appeals are common, they are taken up together for consideration. The appeals were heard on 28-1-2013 and 14-3-2013 and orders reserved. 2. As regards the COD application, considering that the reasons stated for the delay in filing the appeal are satisfactory, we allow the application for condonation of delay. 3. A case of overvaluation of export goods to avail undue export benefits in the form of DEPB scrips fraudulently and utilization of such fraudulently obtained DEPB scrips was investigated by the Directorate of Revenue Intelligence (DRI in short). The investigation pertained to fraudulent exports of textile fabrics made by M/s. Nidhi Textiles, M/s. Milan Exports, M/s. Madhuri Impex Pvt. Ltd., Madhuri Synthetics, M/s. Mahavir Synthetics, M/s. Laxminath Exports, all merchant exporters of Surat, by inflating the FOB value of exports several times their actual value and obtaining DEPB scrips against such exports. The investiga....
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....ty had approached the Settlement Commission by paying the duty liability and the case was settled. The demand is for interest from the transferees apart from imposition of penalties. In the present set of appeals, among the exporters, only Nidhi Textiles and their associates are before us. The others in appeal are transferees of the licences in all the above cases. The case was referred to the Licensing Authorities and the Jt. DGFT, Surat cancelled all the DEPB/DFIA licences ab initio. 4. On behalf of Nidhi Textiles and its proprietor Mr. Rajeev Kumar Tulsyan, the ld. Counsel made the following submissions :- (i) The entire allegation of overvaluation of goods exported is based on statements without any corroborative evidence. The statement made by Sri Tulsyan on 28-11-2008 was retracted on 29-11-2008 and except for the statement there is no evidence adduced by the Revenue. (ii) 26 consignments of readymade garments were exported under claim for drawback scheme to Dubai and the goods were physically examined by the Customs Officers and the CHA and after examination, the goods were permitted to be exported. As per Board's....
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....at the port of import, Dubai. Only 26 consignments under drawback scheme were exported to Dubai and the balance 74 consignments were exported to Sri Lanka, Jeddah and Morocco. No overvaluation has been alleged for the goods exported to these countries in the form of any letter from the Consulate General of India. As per the circular dated 23-1-2002, physical scale of examination to be conducted was 50%, the letter from the Consulate General cannot be considered as a valid piece of evidence when the said letter has not been referred to Dubai Government and the exporter in India has no control over overseas buyers for declaration of value of the goods abroad. Such declaration cannot be the base for the purpose of valuation in India. (vi) Cross-examination of the Customs Officer who assessed the shipping bills for export, DRI officers and CHAs were not granted and based on their statements, show cause notice is confirmed thereby violating principles of natural justice. He relies on the following judgments in support of this contention, - Yash Papers Ltd. - 1999 (110) E.L.T. 546 Cyrus Nazar Kolha - 1988 (37) E.L.T. 515 Balbir Steel (P) Ltd. - 1999 (114) E.L.T. 5....
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....ake up the same arguments as adopted by M/s. Nidhi Textiles. 5. On behalf of the transferees, the ld. Counsels for the appellants made the following submissions. (i) The appellants are transferees of Licenses issued under DEPB/DFIA/Focus Market Schemes under the Foreign Trade Policy. The Licenses are endorsed as transferable by the licensing authority. Further, the exports effected by the original licensees (against which the licenses were granted), were duly verified by the Customs and endorsement made to that effect on the Shipping Bills. That apart at the time of exports, the Shipping Bills had been duly assessed by the proper officer of customs. (ii) After the licenses were endorsed as transferable by the licensing authority, the appellants had acquired the same for valuable consideration and as such the appellants are bona fide transferees of the licenses. The licenses were valid and subsisting when the same were acquired by the appellants and at the time of import of goods by the appellants under the said licenses. (iii) Much after the clearance of the goods by the appellants, they received show caus....
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....p; Since a license obtained by fraud/misrepresentation is only voidable and not void it follows that if before it is avoided a third party acquires such license bona fide for value and without notice of the fraud, the rights of such third party are protected. (v) It is a settled law that if the seller of the goods had acquired the same under a voidable transaction (as distinguished from void) and such seller sells such goods to an innocent buyer who pays for the same and acquires the same without notice of any fraud by which the seller had obtained such goods, the rights of such innocent purchaser stand protected. Reliance is placed in this behalf on the following judgments : (a) Taparia Overseas P. Ltd. v. UOI - 2003 (161) E.L.T. 47 (b) Ajay Kumar & Co. v. CC - 2006 (205) E.L.T. 747 upheld in 2009 (238) E.L.T. 387. (c) CC v. Patiala Castings P. Ltd. - 2012 (283) E.L.T. 269. (vi) Only condition of the relevant notification which applies to the transferee is that the license should have been made ....
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....chasers for value without notice of the alleged fraud on the part of the original licensees-exporters. The fraud, if any, has admittedly been committed by the original licensees-exporters and not by the appellants. In such circumstances, not demanding duty from the original licensees-exporters and demanding the same from the bona fide transferees would amount to placing premium on fraud and enabling the fraudsters to escape the consequences of their fraud. As laid down in Sravani Impex P. Ltd. v. Addl. Dir. General, DRI, Chennai - 2010 (252) E.L.T. 19 (AP), when the DEPB scrips have been sold to third parties, the only course open to the Customs is to demand repayment of DEPB Credit from the original licensee-exporter under Section 28 of the Customs Act, 1962. As a matter of fact in the present cases, the department has during investigations recovered part of the duty amounts from the original licensee-exporters. It is submitted that the department having powers under the law to effect recovery is in a better position to recover the duty from the original licensee-exporters instead of the transferees being driven to adopt legal proceedings against the original licensee-exporters wh....
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....d by getting cheques drawn in the name of the non-existing/fictitious suppliers through and discounting the cheques issued by using the services of cheque-discounting financial brokers. (iii) The fraud is further proven by evidences collected during investigation both locally and at Dubai (through diplomatic sources) which shows that the value declared by the Dubai based importers of the said goods (i.e. M/s. AGS General Trading, Dubai M/s. Ditty Trading (LLC), Dubai and others is just a fraction (average 6.7 %) of the value declared by M/s. Nidhi Textiles at the time of export (in the Shipping Bill and related export documents) before the Indian Customs. The commission of fraud has been admitted to by Shri Rajeev Kumar Tulsyan, proprietor of the said M/s. Nidhi Textiles in his statements recorded under Section 108 of the Customs Act, 1962. Shri Tulsyan has also admitted that while remittances of the full amount for the exports made were received from overseas buyers through the banking channel, the differential amount (difference between the actual and the declared value) was paid back to the local representatives of the overseas buyers in cash. The said statements ....
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....e liable to confiscation since conditions of Notification 34/97-Cus. have not been fulfilled by the importers. 6.2 Madhuri Impex and others (i) This is case of obtaining DEPB scrips fraudulently by gross misdeclaration and overvaluation and the usage of the said scrips by the Transferees for imports without payment of duty. This includes Appeal No. C/474/12 and 25 other appeals by transferees. The four export firms involved were M/s. Madhuri Impex Pvt. Ltd., M/s. Madhuri Synthetics, M/s. Mahavir Synthetics and M/s. Laxminath Exports who were engaged in export of dyed/printed man made fabrics. Shri Rajesh D. Mundra was the Director of first firm, Proprietor of second firm and looked after the affairs of remaining two firms whose proprietors were his relatives. (ii) M/s. Madhuri Impex Pvt. Ltd. had filed two shipping bills on 29-6-2009 declaring the value as Rs. 1,07,92,660 (FOB). These were detained by DRI and valuation of goods was done by an Expert Committee consisting of the members from textile trade. The Committee arrived at the value of Rs. 16,35,374 (FOB). (iii) The matter was investigated further fo....
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....n in this case. 6.3 Milan Exports (i) This is the case of obtaining DEPB scrips fraudulently by gross misdeclaration and overvaluation and the usage of the said scrips by 29 Transferees for imports without payment of duty. Exporter procured low quality fabrics and prepared overvalued invoices in the name of bogus/fictitious/non-existent firms and against these purchases, the cheques in the name of such non-existent firms were also issued by M/s. Milan Exports. These cheques were not deposited but were discounted through various discounters who returned the money in cash to Shri Mohd. Aslam Mohd. Zakaria Naviwala, Authorised Signatory of M/s. Milan Exports who has admitted the same in his various statements. The total actual value for exported 98 consignments redetermined comes to Rs. 5,92,72,580/- (FOB) as against the total declared value of Rs. 21,79,28,101/- (FOB). Total 33 DEPB scrips involving DEPB credit of Rs. 1,29,05,949/- were issued to M/s. Milan Exports. Shri Mohd. Aslam Mohd. Zakaria Naviwala has admitted that they had arranged remittances in India at higher prices from foreign buyers as per the inflated values shown in the export....
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.... Company as demand of duty of Rs. 33,28,612/- has already been settled by the Hon'ble Settlement Commission. (b) Interest is payable by M/s. C.J. Shah & Company on duty amount under Section 28AB of Customs Act, 1962. (c) Penalty equal to the sum total of duty amount of Rs. 33,28,612/- and applicable interest is imposed on M/s. C.J. Shah and Company under Section 114A of Customs Act, 1962. 6.5 The ld. Addl. Commissioner (AR) relied on the following decisions in support of his contentions :- (a) Friends Trading Co. v. CC - 2011 (267) E.L.T. 57 (Tri.-Del.) affirmed by Punjab & Haryana High Court - 2011 (267) E.L.T. 33 (P&H) In this case, the DEPB scrips were obtained on the basis of forged/substituted shipping bills and the DEPB scrips were cancelled ab initio by the DGFT. The Tribunal observed that DEPB scheme essentially provides for an alternative mechanism to compensate for duty paid on goods used in export production. When DEPB scrips have been obtained without undertaking exports, the question of granting duty benefit by t....
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....this case, the DEPB scrips were obtained on the basis of forged shipping bills and bank realization certificate. Subsequently, the appellant had purchased the DEPB scrips through a broker and imported the goods. The Tribunal held that importer is not entitled for any benefit on the basis of DEPB scrips which were obtained by submitting forged documents and also held the goods liable for confiscation. The Tribunal observed that the taint attaching to the document on the basis of which benefit is taken is not washed of. Fraud or suppression continues if document is not genuine. As the appellant M/s. Apar Ltd. attempted to import goods under tainted documents, adjudication order imposing penalty on M/s. Apar Ltd. was upheld. (d) Dow Agrosciences India Pvt. Ltd. v. CC - 2012 (283) E.L.T. 524 (Tri.-Mumbai) In this case, the DEPB scrips were obtained on the basis of forged shipping bills and bank realization certificate. The DEPB scrips were cancelled ab initio by the DGFT. Hon'ble Tribunal held that the DEPBs were not transferable without the licensing authority's endorsement of transferability under the rele....
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.... non est and therefore, there is no valid DEPB. As such no credit can be derived thereunder." The Special leave to Appeal against this judgment was dismissed by Hon'ble Supreme Court as reported in 2005 (187) E.L.T. A31 (S.C.). (f) K.I. International Ltd. v. CC - 2012 (282) E.L.T. 67 (Tri.-Chennai) In this case imports were undertaken by the importer on the basis of forged TRAs and the Hon'ble Tribunal observed that it is an established principle of law that fraud and justice do not dwell together. An assessee acting in defiance of law has no right to claim innocence when he fails to exercise due care and diligence. Failing to cause enquiry with the issuing authority of DEPB scrips/TRAs crippled the importer appellants to claim bona fide. Regarding the importers having settled their dispute before Settlement Commission and immunity from penalty and prosecution having been granted to them, the trader, broker and sub-broker appellants covered by those adjudications cannot be called upon to pay penalty out of same adjudication, Tribunal d....
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....hrough the tax has not been paid actually would be to defeat the legitimate interests of the Revenue. 7. In his rejoinder to the submissions made by the ld. Additional Commissioner (AR), the ld. Counsel for the appellants submitted that the decisions relied upon by the Revenue are distinguishable. The decisions relied upon by the Revenue dealt with situations where forgery of documents were involved. Forgery of Bank Realization Scrips [Friends Trading Company v. CC - 2006 (202) E.L.T. 611] affirmed in Friends Trading Co. v. UOI - 2010 (254) E.L.T. 652 (P&H), forged/substituted shipping bills [Friends Trading Co. v. CC - 2011 (267) E.L.T. 57 affirmed in Friends Trading Co. v. UOI - 2011 (267) E.L.T. 33 (P & H)], forged BRCs and Shipping Bills [Apar Ltd. v. CC - 2012 (276) E.L.T. 534 & Dow Agrosciences India P Ltd. v. CC - 2012 (283) E.L.T. 524], DEPB itself forged [ICI India Ltd. v. CC - 2005 (184) E.L.T. 339 & Munjal Showa Ltd. v. CC - 2009 (246) E.L.T. 18 (P&H)], forged Shipping Bills and BRCs [Sharman Woollen Mills Ltd. v. CC - 2011 (263) E.L.T. 136], fake/false/forged and fabricated TRAs [K.I International Ltd. v. CC - 2012 (282) E.L.T. 67]. Further appeals have been adm....
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....of Friends Trading is simpliciter dismissal of SLP and not on merits. It is settled law that a simpliciter dismissal of SLP is not an affirmation of the law and is not a precedent as laid down in Sun Export Corporation v. CC - 1997 (93) E.L.T. 641 (S.C.). As against the aforesaid conflicting views of the Punjab and Haryana High Court, the Bombay High Court has consistently taken the view in Wearon Exports Private Limited v. Union of India - 2004 (163) E.L.T. 149 and CC v. Jupiter Exports - 2007 (213) E.L.T. 641 that even where the licenses are obtained by submiting forged documents, the rights of a bona fide transferee for value are protected. Since the present cases arise within the jurisdiction of the Bombay High Court, the said decisions of Bombay High Court should be preferred and applied. 7.3 In any event stay should be granted where there are conflicting views. As submitted herein above, in the present case, the licenses were not obtained by submitting forged documents. Hence the decisions cited by the department do not apply. Assuming while denying that the said decisions apply in the present cases, in view of the conflicting decisions mentioned above, stay should be....
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.... By resorting to these methods, overvaluation of export transactions have been done and on the basis of such overvaluation, DEPB scrips have been obtained for much higher values than actually eligible. All these manipulations have been corroborated by documentary evidences as also by statements recorded under Section 108 of the Customs Act from the exporters or their authorized signatories, the transporters of the goods, raw material suppliers, cheque discounters, CHAs who dealt with the transactions and so on. On the strength of such evidences, the licensing authority has cancelled all the DEPB scrips ab initio. It is in this scenario, the claims and counterclaims of the appellants and the Revenue have to be considered. 8.2 As regards the exporters, only one exporter has filed the appeal before us, i.e., M/s. Nidhi Textiles. From the records of the case, it is seen that there are strong and convincing evidences against M/s. Nidhi Textiles by way of evidences collected both locally and at Dubai through diplomatic sources which shows that the value declared by the Dubai based importers of the goods exported by Nidhi Textiles, i.e. M/s. AGS General Trading, Dubai, M/s. Ditty ....
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....ers dated 16-9-2011 and 11-11-2011 for violation of Section 50 of the Customs Act, 1962 read with Section 11 of the FTDR Act, 1992 and Rules 11 and 14 of the Foreign Trade (Regulation) Rules, 1993. Therefore, we are of the considered view that M/s. Nidhi Textiles has not made out any case in their favour for grant of stay against the impugned order. Penalties amounting to Rs. 5,62,52,564/- have been imposed on M/s. Nidhi Textiles under Section 114(iii) of the Customs Act, 1962, for overvaluing exports at Rs. 29,40,21,788/- against actual value of Rs. 1,44,69,118/- resulting in duty evasion to the extent of Rs. 2,94,59,002/- and fraudulent claim of drawback amount of Rs. 27,59,220/-. Though the appellant has pleaded financial difficulties, no reliable evidence has been placed before us in support of this submission. Considering the huge amount of revenue evaded in the matter and the deep involvement of the appellant in such duty evasion, we direct the appellant M/s. Nidhi Textiles to make a pre-deposit of Rs. 1,00,00,000/- (Rs. one crore only) within a period of 8 weeks. 8.3 We do not accept the plea of Mr. Sanjay Kumar Agarwal and Mr. Parmanand Joshi that they were not hear....
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.... 9. The next issue relates to the transferees of the DEPB/DFIA scrips issued to M/s. Nidhi Textiles, M/s. Milan Exports, M/s. Madhuri Impex Pvt. Ltd., M/s. Madhuri Synthetics, M/s. Mahavir Synthetics, M/s. Laxminath Exports and Rajat Pharmachem. These scrips/licences issued to the above exporters (except the last one) have been cancelled ab initio by the licensing authorities vide Order Nos. 9/96/AM10/ECA, dated 28-9-2011 (Madhuri Synthetics-28 DEPB scrips), 9/96/ AM10/ECA, dated nil (Laxminath Exports-25 DEPB scrips), 9/96/AM10/ECA, dated 28-9-2011 (Mahavir Synthetics - 26 DEPB scrips), 9/82/AM10/ECA, dated 28-9-2011 (Madhuri Impex Ltd. - 7 DEPB scrips), 9/82/AM09/ECA, dated 16-9-2011 (Nidhi Textiles - 30 DEPB scrips), 9/82/AM09/ECA, dated 11-11-2011 (Nidhi Textiles - 4 DFIA scrips) and 9/96/AM10/ECA, dated 28-3-2011 (Milan Exports). These licences/scrips were endorsed transferable by DGFT and they were bought by the transferees on payment of valuable consideration. The contention of the transferees is these licences are not void but voidable and they were valid at the time of import of the goods by the transferees. Revenue's contention is that they have been cancelled ab i....
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....ly 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 or licence is for value without notice arising out of mercantile considerations, governed by common law and not by provisions of any statute. .................On the above canvas, having examined the well settled, established and well recognized concept of law that the effect of fraud is not to render the transaction void ab initio but renders it voidable at the instance of the party defrauded and transaction continues to be valid until the party defrauded has decided to avoid it." 9.1.5 This Tribunal in the case of Ajay Kumar & Co. dealt with a DEPB fraud case where the original allottee obtained the scrips by fraud and trans....
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....ct already expired and the rights of the parties had been crystallized. The Revenue cannot avail the extended period because the assessee-respondent could be accused of misrepresentation, collusion or suppression of facts within the meaning of the proviso postulated by Section 28 of the Customs Act. Therefore, there is no merit in this appeal." SLP filed by Revenue against the said decision was dismissed by the Apex Court both on the ground of delay as also on merit. 9.1.7 In a recent decision in the case of Patiala Castings, the Delhi Bench of this Tribunal dealt with a similar matter and held as follows - "7. There is difference between a forged DEPB scrip, which is ab initio void, even if the same has been transferred on sale and a DEPB scrip actually issued by the DGFT, though on the basis of forged documents provided or false declarations made by the exporter, which is like a voidable contract. The two categories of DEPB scrips cannot be equated. In the former case, where the DEPB scrip, being forged/fabricated, is ab initio void, the judgment of Apex Court in case of Aafloat Textile Industries reported in 2009 (235) E.L.T. 587 (S.C.) will apply and duty can....
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....s not bona fide. In any case, the proviso is not limited to action of an importer who comes forward to take advantage on the importer. Importer who steps into the shoes of seller of forged document does not stand on better footing and cannot be allowed to retain benefit illegally obtained. Taint attaching to the document on the basis of which benefit is taken is not washed of. Fraud or suppression continues if document is not genuine. Any other interpretation will defeat the intendment of the proviso to Section 28 and will enable fraud to be perpetuated without any remedy. Even if case of criminal liability or penalty may stand on different footing, purchaser or successor of fraudulently obtained DEPB stands in the same position as his predecessor...." 9.2.2 In the Friends Trading Co. decided the Hon'ble High Court of P&H [2010 (254) E.L.T. 652], affirmed by the Hon'ble Apex Court both in SLP and Review Petition, the facts were as follows. The assessee imported goods against DEPB scrips without payment of duty. It was later found that DEPB scrips were obtained by producing forged bank certificate of export realization. The DEPB scrips were cancelled by the competent authori....
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....ake the DEPB scrips/licences transferable, it could only be said that the transaction of transfer was governed by the provisions of the statute, viz., FT (D&R) Act and the EXIM Policy issued thereunder. The concept of fraud vitiating everything must, then, be applicable to such transaction............" The Tribunal further held that - "in our view, the distinction drawn by the learned counsel between a forged DEPB and a DEPB issued on the basis of forged documents is of no significance where the DEPB of the latter category is cancelled with retrospective effect by the authority which issued it. Both are incapable of vesting any credit of duty in the DEPB holder so as to be used for the purposes of Notification No. 34/97-Cus." The Tribunal also held that - "The contention of the appellant is that, as they had purchased the DEPBs bona fide for valuable consideration without notice of the transferors' fraud, they cannot be denied DEPB credit. Per contra, the Revenue has invoked the caveat emptor principle by pointing out it was for the appellant to make sure that the original allottees (transferors) had actually earned transferable credits of duty by exporting goods and re....
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....r officer may serve notice on the person chargeable with the said duty requiring him to show cause why he should not pay the amount specified in the notice. Section 28(1A) relates to levy of interest under Section 28AB and levy of penalty equal to 25%. DEPB scrips are customs duty exemption benefits inasmuch as they are utilized for import of goods and, to the extent credit is available in DEPB scrips issued on the basis of fraudulent over-invoicing of export goods, the Customs Officer is entitled, under Section 28(1) of the Customs Act, to demand payment thereof. As the DEPB scrips, have, admittedly, been sold to third parties, the only course open to the Customs Officers is to demand repayment of DEPB credit from the petitioner. Exercise of power to make such a demand is referable to Section 28(1) of the Customs Act. The impugned show cause notices, which propose a demand for repayment of DEPB credit under Section 28(1) as it was availed by resort to fraudulent overvaluation of export consignments, cannot be said to have been issued without jurisdiction." The same ratio was followed by this Tribunal in the case of Saluja Exim Ltd. wherein it was held that when customs duty is ....