TaxTMI 
TaxTMI 
2016 (9) TMI 774
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....that all the DEPB licences purchased by the appellants were obtained by various persons fraudulently against submitting the fake/forged documents to the DGFT. Therefore the present proceeding was initiated against all the appellants, the demand was confirmed against the present appellants on the ground that the DEPB licences against which the goods were imported obtained fraudulently. Import against the invalid DEPB licences was not entitled for exemption provided under the DEPB licence, therefore, the duty forgone/debit in the DEPB licence is recoverable. Aggrieved by the Order-in-Original the appellants filed these appeals. 2. Learned Counsel for the appellants submits that the appellants have purchased the DEPB licence bonafidely from the market and paid the consideration for such purchase of DEPB licences. At the time of purchase DEPB licence was valid. It is the persons who fraudulently obtained the DEPB licence who have submitted the fake documents to the DGFT and the appellants are not parties to that act of fraud. The appellants had purchased DEPB licence which had been issued validly by the DGFT. The appellant-....
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.... that duty benefits under Notifications 40/2006 and 89/2005 are sought to be denied. It would be relevant to refer to Notification no. 40/2006-Cus dated 1/5/2006 which relates to material imported against DFIA licenses as well as Notification No. 89/2005-Cus dated 4/10/2005 which relates to the DEPB Scheme as reproduced below: Notification No. 40/2006-Cus., dated 1-5-2006 Duty free import authorisation Exemption to materials imported thereagainst In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts materials imported into India against a Duty Free Import Authorisation issued in terms of paragraph 4.4.1 and 4.4.2 of the Foreign Trade Policy (hereinafter referred to as the said authorisation) from the whole of the duty of Customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and from the whole of the additional duty, safeguard duty and anti-dumping duty leviable thereon, respectively, under sections 3, 8....
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...., Sikka, Tuticorin, Visakhapatnam, Dahej, Mundhra, Nagapattinam, Okha, Bedi (including Rozi-Jamnagar), Muldwarka, Porbander, Dharamatar and Vadinar or through any of the airports at Ahmedabad, Bangalore, Bhubaneswar, Mumbai, Kolkata, Coimbatore, Delhi, Hyderabad, Jaipur, Chennai, Srinagar, Trivandrum, Varanasi, Nagpur, Cochin, Rajasansi (Amritsar) and Lucknow (Amausi) or through any of the Inland Container Depots at Agra, Bangalore, Coimbatore, Delhi, Faridabad, Gauhati, Guntur, Hyderabad, Jaipur, Jallandhar, Kanpur, Ludhiana, Moradabad, Nagpur, Pimpri (Pune), Pitampur (Indore), Surat, Tirupur, Varanasi, Nasik, Rudrapur (Nainital), Dighi (Pune), Vadodara, Daulatabad (Wanjarwadi and Maliwada), Waluj (Aurangabad), Anaparthy (Andhra Pradesh), Salem, Malanpur, Singanalur, Jodhpur, Kota, Udaipur, Ahmedabad, Bhiwadi, Madurai, Bhilwara, Pondicherry, Garhi Harsaru, Bhatinda, Dappar (Dera Bassi), Chheharata (Amritsar), Karur, Miraj, Rewari, Bhusawal, Jamshedpur, Surajpur, Dadri, Tuticorin, Kundli, Bhadohi, Raipur, Mandideep, Durgapur and Babarpur or through the Land Customs Station at Ranaghat, Singhabad, Raxaul, Jogbani, Nautanva (Sonauli), Petrapole, Mahadipur, Nepalganj Road, Dawki, Agar....
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....g the central excise procedure relating to job work; (ix) that in relation to the said authorisation issued to a merchant-exporter, - (a) the name and address of the supporting manufacturer is specified in the said authorisation and the bond required to be executed by the importer in terms of condition (iii) shall be executed jointly by the merchant-exporter and the supporting manufacturer binding themselves jointly and severally to comply with the conditions specified in this notification; and (b) exempt materials are utilised in the factory of such supporting manufacturer for discharge of export obligation and the same shall not be transferred or sold or used for any other purpose by the said merchant-exporter until the export obligation specified in condition (v) has been discharged in full. After discharge of export obligation as specified in 2. condition (v) of paragraph 1, the Regional Authority shall permit transfer of the said authorisation and/or the goods imported under it subject to such conditions as may be specified. Where the materials are found defective o....
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....wenty four months from the date of issue or such extended period as may be granted by the Licensing Authority for import and export only at the port of registration which shall be one of the sea ports at Mumbai, Kolkata, Cochin, Magdalla, Kakinada, Kandla, Mangalore, Marmagoa, Chennai, Nhava Sheva, Paradeep, Pipavav, Sikka, Tuticorin, Visakhapatnam, Dahej, Mundhra, Nagapattinam, Okha, Bedi (including Rozi Jamnagar), Muldwarka and Porbander or through any of the airports at Ahmedabad, Bangalore, Bhubaneswar, Mumbai, Kolkata, Coimbatore, Delhi, Hyderabad, Jaipur, Chennai, Srinagar, Trivandrum, Varanasi, Nagpur, Cochin and Rajasansi (Amritsar) or through any of the Inland Container Depots at Agra, Bangalore, Coimbatore, Delhi, Faridabad, Gauhati, Guntur, Hyderabad, Jaipur, Jallandhar, Kanpur, Ludhiana, Moradabad, Nagpur, Pimpri (Pune), Pitampur (Indore), Surat, Tirpur, Varanasi, Nasik, Rudrapur (Nainital), Dighi (Pune), Vadodara, Dulatabad (Wanjarwadi and Maliwada), Waluj (Aurgangabad), Anaparthy (Andhra Pradesh), Salem, Malanpur, Singanalur, Jodhpur, Kota, Udaipur, Ahmedabad, Bhiwadi, Madurai, Bhilwara, Pondicherry, Garhi Harsaru, Bhatinda, Dappar (Dera Bassi), Chheharata (Amri....
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....nsferability by the Licensing Authority. Similarly in the second notification 89/2005-Cus relating to DEPB, the only condition relevant to the importer is condition No. (vii) which states that where benefit of exemption of duty is claimed by the person who is not Duty Entitlement Passbook Holder, such benefit shall be permissible only against specific amount of credit transferred by the DEPB holders. 8.2 Having noted that in terms of the notifications there is no failure on the part of transferees availing duty benefits under these schemes, we may see whether there was any failure in observing the procedure for transferability of the License/material imported against such scrips. The transferability is prescribed in para 127 of the Hand Book of Procedures. Sub para (iii) of para 127 states that : 127(i) After export obligation has been fulfilled, export proceeds realised and the BG/LUT redeemed and subject to fulfilment of other conditions as laid dow....
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....bsp; value and thereafter DGFT allowed transfer of the license on the basis of such documents. The plea of the appellants is that they cannot be held responsible when the procedure for transfer involves only the transferor, Customs and DGFT. We agree with this contention. This contention is supported by the Supreme Court decision in Goodluck Industries(supra) and Jindal Dye Intermediate Ltd(supra). It was held in the former case by the Tribunal that where the license is made transferable by the licensing authority, the only condition of the relevant notification which applies to the transferee is the one which requires that the license should have been made transferable by the licensing authority. The burden of proof that export obligation has been fulfilled is to be discharged by the original licensee. 8.3 The special Ld. Counsel for Revenue stressed that in respect of licenses obtained by fraud, misrepresentation etc., benefit cannot be taken by any one, whether the transferor or tr....
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....by the Customs Act or any other law for the time being in force. No such prohibition can be pleaded in this case since on the date of the import the said goods were covered by a valid import licence. The subsequent cancellation of licence is of no relevance nor does it retrospectively render the import illegal. [East India Commercial Co. Ltd. v. The Collector of Customs, Calcutta -1963 (3) S.C.R. 338 at 372.] Clause (o) contemplates confiscation of goods which are exempted from duty subject to a condition, which condition is not observed by the importer. Occasion for taking action under this clause arises only when the condition is not observed within the period prescribed, if any, or where the period is not so prescribed, within a reasonable period. It, therefore, cannot be said that the said goods were liable to be confiscated on the date of their import under Clause (o). Finally the Supreme Court held in the case of Sneha Sales Corporation, by referring to its own decision in East India Commercial Company(supra), as follows: In his order the Collector has taken note of the fact that by order dated December 18, 1986 passed by the D....
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....not liable to be confiscated on that basis under Section 111(d) of the Act. The Special Counsel contended that these judgments of the Apex Court are distinguishable. In the case of East India Commercial Company (supra), he stated, it of about violation of post import condition. And in Sneha Sales Corporation (supra) the issue was of permitting import and not of authorising exemption from duty. He stressed that the Supreme Court judgments do not bar the issue of raising demand notices under Section 28 in such cases. He relied on the Apex Court judgement in the case of Tata Iron and Steel Co (supra). We do appreciate the manner in which judgments in the case of East India Commercial Co and Sneha Sales Corporation have been attempted to be distinguished by the Ld. Spl. Counsel. At the same time we cannot agree with Special Counsel for various reasons. In the case of Sneha Sales Corporation the license had been cancelled ab-initio, which according to the Special Counsel means that only importability of the goods was in question and Supreme Court held that even though the licenses w....
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....ation and not with the payment of duty. We may examine these contentions of Ld. Spl. Counsel. As regards the case of Dow Agro Sciences India Ltd., we find that the DEPB was obtained as a result of a racket involving forgery of export documents which is not so in the present case. Secondly, we also note that the Hon'ble Member who delivered the judgment in the case of Dow Agro Sciences India Ltd took an opposite view in the case of Binani Cement Ltd. Vs. Commissioner of Customs, Kandla 2010 (259) ELT 247 (Tri. Ahmedad) which was affirmed by the Hon'ble High Court of Gujarat. While affirming this judgment the Honble High Court categorically recorded that the Tribunal had followed the decision of the Supreme Court in the case of Sneha Sales Corporation. In this case of Binani Cement Ltd. we note that the circumstances were similar to the appeals at hand. In those cases also the Licenses were cancelled ab-initio after the transferee had utilized them for import. We also note that the observation of the Hon'ble Tribunal decision in the case of Dow Agro Sciences India Pvt. Ltd. (supra) at para 9.25 stating that "the ca....
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....tition is squarely covered by the judgment of this Court in the case of Taparia Overseas v. Union of India (supra) and the petitioner is liable to succeed on merits". Therefore we are not inclined to agree with the Special Counsel. 8.5 Here we would also mention about the discussion of the case of Taparia Overseas Pvt. Ltd. (Mumbai High Court) in the judgment in Dow Agro Sciences India Pvt. Ltd. The Tribunal held that the Taparia Overseas Ltd. was dealing with REP Licenses whose transfer was governed by common law because the licenses were freely transferable. But that in cases where the licenses required endorsement of transferability, the concept of fraud vitiating everything will be applicable to such transactions. And that in the case of Taparia Overseas Pvt. Ltd. and Sneha Sales Corporation, the Apex Court treated DEPB Scrips/ REP Licenses as goods for the purpose of Sales Tax Laws only. And the Court did not compare the two from the point of view that the concept of fraud vitiating everything will be applicable when the transfer of licenses is made under a statute. On the point of contention whether fraud vitiates....
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.............................. It is thus no doubt true that as a general rule, if a transaction has been originally founded on fraud, the original vice will continue to taint 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....................................... On the above canvas, having examined the well settled, established and well recognised concept of law that the effect of fraud is not to render the transaction voidable initio but renders it voidable at the instance of the party defrauded and transaction conti....
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....28) ELT 161 (S.C.). In the present case the appellants being bonafide purchases of Licenses for value without any notice of fraud, it has to be held that the concept of fraud vitiating everything is not applicable. It was argued that the endorsement of transferability under provisions of EXIM policy being a statutory requirement to make DEPB scrips transferable, the concept of fraud vitiating everything must then be applicable to such transaction. And that this concept was not applicable to transfer of REP Licenses in the case of Taparia Overseas. It was further argued that the DEPB scrips could not be equated with REP Licenses because in cases like Tapariya and Sneha Sales Corporation, the two were treated as goods for purpose of sales tax laws only and situation contemplated under Sales Tax Act could not in the absence of intendment, be given effect to while applying provisons of the Act or the FT(Development& Regulation) Act. We are u....
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....ntry in the D.E.P.B. cannot be described as an "actionable claim"................................................... 27. ................... In the submission of the learned Counsel for the petitioners, reliance on the judgment of the Vikas Sales Corporation (supra) by the Delhi High Court was erroneous. In his submission, R.E.P. licence cannot be equated with the transfer of credit in the D.E.P.B. R.E.P. licence is merely a licence which grants a right to import goods, which right is transferable. Whereas, credit in the D.E.P.B. is not a licence, which merely gives right to import goods. It is an amount available to the credit of the holder to be liquidated against the payment of import duty for future imports. Therefore, in his submission, reliance placed on the judgment in the case of Vikas Sales Corporation (supra) while deciding that the credit in the D.E.P.B. is goods is not correct in law. He further submitted that the Delhi High Court while deciding the case in Philco Exports (supra) and the Apex Court in the case of Vikas Sales Corporation (supra), in turn, relied upon its earlier judgment in the case of [N. Anraj v. Government of Tamil Nadu], A.I.R. 1986 S.C. 63,....
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.... consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the court may seem just. Therefore transfer of DEPB scrips in the present cases will governed by the provisions of the statute, that is the Sale of Goods Act. In such a situation the Mumbai High Court decision in the case of Taparia Overseas will prevail. Resultantly, applying the ratio of Taparia, we are convinced that effect of misrepresentation in the present cases has not rendered the transaction between the original license holders and the transferees void ab-inito but rendered it voidable at the instance of the party( in this case importer)defrauded and transaction continues to be valid until the party defrauded has decided to avoid it. In the present case the licences/scrips were transferred ....
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.... "We are therefore of opinion that the provision that license may be cancelled, if it is found, after giving a reasonable opportunity to the licensee to be heard, to have been obtained by fraud or misrepresentation is a reasonable restriction in the interest of the general public on the exercise of the fundamental right of citizen guaranteed under Article 19(1)(f) and (g) of the Constitution. The cancellation being under a valid law there can be no question of any right under Article 31 of the Constitution having been infringed". Secondly the issue was whether the cancellation could have been done without allowing inspection of records. The court held that the order of cancellation was made in utter disregard of principles of natural justice, without expressing opinion on merits. This judgment has no bearing on the facts of the present case before us. In that case there was no situation of transfer of licenses. The Apex Court never considered whether d....
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....nferring express power on the Municipal Corporation to direct removal of encroachments from any public place like pavement or public streets, and without any citation of authority. Accordingly, we do not propose to uphold the decision of the High Court because, it seems to us that it is wrong in principle and cannot be justified by the terms of the relevant provisions. A decision should be treated as given per incuriam when it is given in ignorance of the terms of a statute or of a rule having the force of a statute. So far as the order shows, no argument was addressed to the Court on the question or not whether any direction could properly be made compelling the Municipal Corporation to construct a stall at the pitching site of a PG NO 939 pavement squatter. Professor P.J. Fitzgerald, editor of the Salmond on Jurisprudence, 12th edn. explains the concept of sub silentio at p. 153 in these words: "A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind. The Court may consciously decide in favour of one party because of p....
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....bsp; by the exporters. 9. In view of the above the confiscation of goods imported by the appellants who are transferees of the licenses/scrips does not arise. The demands of duty against them and penalties are set aside. 10. Appeals allowed in above terms." 6. In all the present cases, the fact that the licence obtained fraudulently came into notice of the DRI only after the goods imported and cleared under the said DEPB licence. A chart showing date of Bills of Entry and date of show-cause notice is given below:- Sl. No. Appeal No. Appellant/Importer Bills of Entry No. & Date Show-cause notice No. & Date 1. C/1122/04 M/s Alpha Chemie Sapthagiri 98/01.09.98 S/16-Misc.-1243/98 Gr. 7 dated 29.01.1999 130/03.10.1998 S/26-Misc-38/99 Gr.-IV dated 08.02.1999 1433/06.10.98 DRI/BZU/E/20/98/425 dated 08.07.2002 3648/09.10.98 6452/15.10.98 &nbs....