Custom, Excise & Service Tax Tribunal
Neev Trading Co vs Patparganj on 22 March, 2022
1
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI.
PRINCIPAL BENCH - COURT NO. II
Customs Appeal No. 53589 of 2018
(Arising out of order-in-original No. 19/Commr/BBG/PPG/ 2018 dated 25.07.2018 passed by
the Commissioner of Customs, ICD, Patparganj, Delhi).
M/s Neev Trading Co. Appellant
90, Caval Cross Lane No. 2
Mumbai-400002.Maharashtra.
New Address:
603, Samarth Prasad Building
Samarth Nagar, Lokhandwala
Andheri (W)
Mumbai-400053, Maharashtra.
VERSUS
Commissioner of Customs Respondent
ICD, Patparganj, East Delhi, Delhi-110096.
AND Customs Appeal No. 53590 of 2018 (Arising out of order-in-original No. 19/Commr/BBG/PPG/ 2018 dated 25.07.2018 passed by the Commissioner of Customs, ICD, Patparganj, Delhi).
M/s Vids Overseas Appellant
603/604, Samarth Prasad Building
Samarth Nagar, Lokhandwala
Near Four Bunglows, Andheri (W)
Mumbai-400053, Maharashtra.
VERSUS
Commissioner of Customs Respondent
ICD, Patparganj, East Delhi, Delhi-110096.
APPEARANCE:
Shri G. K. Sarkar, Advocate for the appellant
ShriRakesh Kumar, Authorised Representative for the respondent CORAM:
HON'BLE MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. P. V. SUBBA RAO, MEMBER (TECHNICAL) FINAL ORDER Nos. 50271 - 50272/2022 DATE OF HEARING: 21.12.2021 DATE OF DECISION: 22.03.2022 ANIL CHOUDHARY:2
The issue in these appeals arising from the common order-in-
original is whether duty has been rightly demanded along with equal amount of penalty under Section 114A of the Customs Act.
2. The brief facts in both the appeals are common, that intelligence was developed by DRI that some unscrupulous persons based in West Bengal in association with some other exporters/brokers of other parts of the country were involved in preparing fake export documents and getting various duty credit licenses such as DEPB/FPS/DFIA/VKGUY from different offices of Directorate General of Foreign Trade, and on the basis of such documents, duty evasions were being made at the time of import by discharging duty liability using such fraudulently procured scrips. As per the Department, such fake export documents were being shown to be made from one of the non-EDI, Land Customs Stations, namely Ghojadanga Land Customs Stations (LCS) under the jurisdiction of Commissionerate of Customs (Preventive), West Bengal, wherein, two persons, namely Shri Paresh Daftry of Kolkata and Shri Jyoti Biswas of Maslandpur (a place near Ghojadanga LCS) have been found to be involved in the said fraudulent activities.
3. As per the Department, it was found that the person Shri Paresh Daftry, based at 46, Ezra Street, 1st Floor, Kolkata-700 001 and partner of Zenith Shoppe, 126/137, Radha Bazar Street, Kolkata, were the key persons along with their associates, used to prepare fake export documents on the basis of which licenses under DEPB/DFIA/FPS/VKUGY schemes were used to be obtained. Shri Paresh Daftry in connivance with so called exporters, used to sell the subject licenses through license brokers. As per the Department, the present case is in respect of alleged fake and fraudulent licences obtained by M/s. Aum Silk Mills (IEC 03100044381), M/s. Balaji International (IEC 0510088279), M/s. Royal International (IEC 0309076480), M/s. Yashraj International (IEC 0510058655) and M/s. Wardhman International (IEC 0310076218) as per details below:- 3
Name of the Firm Type of licensed obtained
DEPB FPS VKUGY DFIA Total
M/s. Aum Silk Mills NIL NIL NIL 06 06
M/s . Balaji International NIL NIL NIL 05 05
M/s. Royal International 10 NIL NIL 14 24
M/s Yashraj International NIL NIL NIL 20 20
M/s. Wardhman 02 NIL NIL NIL 02
International
12 NIL NIL 45 57
Total
The above mentionedcompanies /firms were under the active control of one Shri Sanjeev Kumar Arora being Director or Partner and three of the main accused Shri Paresh K. Daftry, Shri Jyoti Biswas and Shri Tushar Umarshi Kothari, were in connivance.
4. Searches were made at various premises by the departmental officers, details of which are as below:-
(i) Office of Shri Paresh Daftry, 46, Ezra Street, 1st Floor, Kolkata-
700 001 on 22.09.2011.
(ii) Residential premises of Shri Jyoti Biswas at 2nd Floor, Jyoti Cinema Building Complex, Maslandpur, 24 PGS (N), West Bengal on 22.09.2011.
(iii) Residential remises of Shri Sanjeev Kumar Arora at Flat No.801, 8th Floor, Wing-A, Mira Housing Cooperative Society, Opposite Mega Mall, Andheri (West), Mumbai-400 053 on 9.11.2011.
(iv) Office premises of Balaji International, C-354, Sector-10, Noida-
201 301 on 9.11.2011.
(v) Residential premises of VikramArora at D-20, Sector-20, Noida-
20130 on 9.11.2011.
5. Summons were also issued to the partner/Director of the exporting firms/companies and statements were recorded, details of which are given in para 5 of the show cause notice. During the course of investigation, genuineness of Bank Realization Certificates (BRCs) was verified from concerned banks and findings of the same are given below:- 4
(i) In case of M/s Aum Silk Mills, on verification, all 05(five) BRCs were found to be genuine.
(ii) In case of M/s Balaji International, on verification, all 05(five) BRCs were found to be genuine.
(iii) In case of M/sRoyal International 10(ten) BRCs against so called exports made under DEPB licences (10 in numbers), were found genuine. In case of DFIA licences obtained by said firm, available 09(nine) BRCs were also found to be genuine.
(iv) In case of M/s. Yashraj International available 17 BRCs were found to be genuine.
(v) In case of M/s Vardhman International two BRCs were found to be genuine. It is seen that 47 BRCs corresponding to exports under the 49 (fourty nine) fake bills of exports are genuine. BRCs particulars for export, under rest of Bills of Export (4 shipping Bills) pertaining to 4 DFIA licences could not be verified, due to non-availability of BRCs. Report regarding 4 BRCs is still pending. 49 cases, where BRCs are genuine and the remittances from overseas were received, indicates illegal transfer of money to India through banking channel, as no exports had actually taken place. Corresponding reference letters of concerned banks along with their enclosures as received are among one of the relied upon documents to the notice.
6. So far the appellant, M/s. Neev Trading is concerned, they have allegedly used licenses as follows:-
Sl.N Licence License Date CIF value Bill of Entry Import Duty CIF o. No. Allowed (in No.& Date Quantity Foregone Value Rs.) (in Rs.) utilised Rs.
1. 031060686 20.12.2010 4964211.7 2648779 63393.50 12811643 2168050 0 8 dated 25.1.2011 3617035 62857.10 12669399 1824142 dt.26.5.2011
2. 031060686 20.12.2010 4415637.5 4471748 10516.82 2217367 308481 2 dt.26.8.2011 Total 2,7698409
7. Further, investigation was done and various statements of various persons were recorded, inter alia, searching premises of the concerned persons. For the sake of brevity all the details of the investigation are not mentioned here. In furtherance of investigation, the departmental 5 officers requested the Additional Director General of Foreign Trade, Mumbai vide DRI F.No.103/KOL/APP/2011/536 dated16.02.2012 for ab intitio cancellation of the licences obtained on the basis of alleged fake/forged export documents. Summary of the whole investigation is given in para 23 onwards of the show cause notice.
8. As far as appellant is concerned, the allegation has been concluded in para 48.7 of the Order-in-Original, wherein it has been alleged that the appellant did not purchase the subject licenses from the licensee i.e. the exporter directly, but purchased from the market through brokers and payments were made to brokers only. It has been further alleged that the appellant neither tried to ascertain existence of the subject exporter nor verified about the genuineness of the licenses through any other source; they completely relied upon middlemen and license brokers and did not observed due diligence while purchasing and utilising the said fraudulently obtained licenses. It has been further alleged that M/s.Royal International procured the licenses by submitting false,forged and fabricated documents with the Directorate General of Foreign Trade. Accordingly, the goods so imported under those licenses which were found to be procured on the basis of forged and fabricated documents are liable to be treated as non-duty paid, and appropriate duty of customs is liable to be demanded under Section 28(4) of the Customs Act, 1962. It has been alleged that the appellant being ultimate beneficiary of such fraudulently obtained licenses cannot disassociate themselves from the fraud or suppression committed by their predecessor i.e. M/s.Royal International, while obtaining such fake and fraudulent licenses by way of fake export documents. The fraud or suppression of M/s. Royal International continues to flow to them as the documents for obtaining such licenses are not genuine. Thus, the extended period of time for 5 years for issuance of show cause notice under Section 28(4) of the Customs Act, 1962 could be invoked against the original holder of fraudulent or forged licenses, the same could be invoked against the successor or purchaser i.e. M/s. Neev Trading Company (appellant)utilising 6 the fraudulently obtained license has also made itself liable for penal action under Section 114 A of the Customs Act, 1962.
9. So far appellant, M/s Vids Overseas is concerned, they have utilised the licence for payment of import duty as follows:-
Sl.No. Licence No. License Date CIF value Bill of Entry Import Duty CIF Allowed (in No.& Date Quantity Foregone Value Rs.) (in Rs.) utilised Rs.
1. 0310603943 01.12.2010 2088786.8 2620266 81318 3564651 1483285 dated 20.1.2011 SQM 3404679 27787 3868752 458904 dt.04.05..2011 SQM
2. 0310619819 13.01.2011 2474145 3404679 604499.5 2514359 1159245 dt.04.05.2011 2679534 65750.5 2874195 1349198 dt.31.0d1.2011 Total 12821957
10. Further, the allegations of the Revenue against this appellant - M/s.Vids Overseas are also the same as in the case of M/s Neev Trading Company.
11. Pursuant to investigation a common show cause notice dated 26.11.2015 with further addendum dated 16.06.2017 was issued to these appellants and others including the parties, who obtained licence from the office of the DGFT as well as those who used the licences for payment of import duty, totalling 27 in nos. Vide impugned order-in-original, the allegation in the show cause notice were confirmed on contest. The proposed duty in the show cause notice was confirmed along with equal amount of penalty under Section 114A of the Act.
12. Assailing the impugned order, ld. Counsel, Mr. G.K. Sarkar, inter alia stated that the demand of duty has been made against the Appellants regarding DFIA Licenses, which are issued under Chapter 4 of the Foreign Trade Policy. The allegation, in nutshell, against the Appellant is that they purchased DFIA Licenses from the open market, but not from the exporter directly and relied upon the middleman/broker and did not observe due diligence while purchasing and utilizing the DFIA licenses, which have been alleged to have obtained fraudulently by some unscrupulous persons, in 7 collusion with exporters. As per the allegations of department, said licenses have been used by the Appellant in importing goods, therefore, goods so imported under said licenses are liable to be treated as non-duty paid and appropriate duty of customs is liable to be demanded under Section 28 (4) of the Customs Act, 1962 along with interest and penalties.
13. The case has been booked by the department regarding three kinds of licenses/scrips i.e., DEPB scrips, DFIA Licenses and FPS Licenses. As far as discussions and findings in the adjudication order is concerned, same have been made in two parts; one, with respect to DEPB Licenses obtained by some of the exporters with forged TRA (Telegraphic Release Advice) (which is not the case of the Appellant), and the other is with respect to DFIA Licenses regarding which no such allegation of forged TRA have been made/discussed. As submitted above, the Appellant's case is pertaining to DFIA Licenses.
14. The DFIA Licenses pertaining to Appellant's case, were purchased from open market. Said licenses were registered at Nhava Sheva Port (which is an EDI Port) and imports were made by the Appellant through Tuticorin Port, Chennai (which is also an EDI Port). At the time of Import by the Appellant, the Licenses were checked on DGFT Website and undisputedly, the same were valid and duly registered with Customs. It is thus, submitted that the Appellant is a bonafide importer who purchased the DFIA Licenses from open market; duly utilized the same for import of goods and at the time of import, the Licenses were valid and active and were also duly registered with Customs. Just because the licenses were obtained by the Exporter fraudulently, as alleged by the department, import made by the Appellant cannot be treated as non-duty paid, as the Licenses were duly issued by DGFT and were valid at the time of import. This Tribunal in case of Deep Exports vs. Commissioner of Customs, New Delhi reported in 2016 (338) ELT 742 (Tri-Del.), in similar situation and similar allegations made in respect of REP Licenses, set aside the demand. Reliance is also 8 placed upon the judgment of the Hon'ble Punjab & Haryana High Court in case of Pee Jay International VS. CC reported in 2016 (340) ELT 625 (P&H). In this case also, similar allegations were made, as made in the present case against the Appellant. The Hon'ble High Court, after discussing number of case laws relied upon by the department, set aside the demand by holding that there is nothing on record to prove in any way that the importers abetted or connived with the exporters to fraudulently obtain the DEPB scrips, which were purchased by the importers in bonafide manner and utilized the same for imports.
15. The department has made an averment during the course of arguments, that fraud vitiates everything and therefore, the Appellant, though is not party to the fraud is liable for duty as the said licenses were obtained by the original license holders fraudulently. They relied upon on the judgment of the Tribunal in case of Eastern Silk Indus Ltd. reported in 2016 (336) ELT 141 (Tri-Kolkata), but said reliance is misplaced. It is submitted that this Tribunal - Larger Bench Judgment delivered in case of Hico Enterprises Vs. Commissioner of Customs, Mumbai reported in 2005 (189) ELT 135 (Tri-LB), while dealing with similar issues as raised in the present case, observed as under :
"30. Assuming that-
a) the original licence-holder has committed fraud and obtained the transferability by mis-representation, even then the rights created by the licence in favour of the present importer is valid.
b) Generally there is a finality attached to every transaction - whether under a contract or otherwise. The general principle is 'fraud vitiates everything' affects the finality attached to a transaction. However, such a transaction is voidable and not void ab initio. In other words, the person on whom fraud is committed i.e. the person who is defrauded has the option of treating the transaction as binding or disown the same.
c) In East India Commercial Co. Ltd. v. CC - 1983 (13) E.L.T. 1342 (S.C.), the contention of the Revenue was that the licence has been obtained by the importer by mis-representation and hence, the licence issued to him was non est in the eyes of law. This contention of the Revenue was rejected by the Supreme Court. It was also held by the Supreme Court, erring in favour of the Revenue, that even if principles enunciated under the law of contract are applied and the licence is treated as a contract between the Government and the licence-holder, the licence is voidable at the instance of the licensing authority and the licence does not become void ab initio.
Therefore, the transferred licence and transferee has the option and they do not hold a licence which is void.
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31. The (a) general principle is that no one can give what he has not got. However there are exceptions to this principle. This general principle and the exceptions are provided in Section 29 of the Sale of Goods Act, 1930. Section 29 of the Sale of Goods Act reads as under :
"29. Sale by person in possession under voidable contract. - When the seller of goods has obtained possession thereof under a contract voidable under Section 19 or Section 19A of the Indian Contract Act, 1872 (9 of 1972), but the contract has not been rescinded at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller's defect in title."
Reference may also be made to the commentary on Sale of Goods by P.S. Atiyah, 8th Edition wherein it has been stated as under :
"The great practical importance of this rule is that, if a person buys goods by fraud and disposes of them before the other party avoids the contract, a buyer in good faith from the fraudulent party acquires a good title."
The (b) principle contained in Section 29 of the Sale of Goods Act will apply to the present case since 'licence' has been held to be 'goods' by Supreme Court in Vikas Sales Corporation v. CCT - 1996 (4) SCC 433. The Supreme Court held that transferable REP licence is 'goods', for the purposes of Section 2(7) of the Sale of Goods Act.
Though Section 29 of the Sales of Goods Act refers to the buyer acquiring a title under a voidable contract, this principle has been applied by the Supreme Court in 1968 (2) SCR 797 in the case of Ningawwav. Byrappa Shiddappa Hireknrabar.
Therefore, it is reiterated that the transferee-importer has attained a good title to the licence and the endorsement of transferability cannot be held to be not valid in the hands of the importer, who is a bona fide purchaser of the licence.
32. The issue referred to the Larger Bench is covered by the decision of Bombay High Court in Taparia Overseas -
(a) The very same issue has been decided by the Bombay High Court in Taparia Overseas (P) Ltd. - 2003 (161) E.L.T. 47 (Bom). After referring to various decisions and the book titled 'Keer on Law of Fraud and Mistake', it is held as under :-
"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."
(b) This decision was followed by the Bombay High Court itself in Sanjay SanwarmalAgarwal 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 obligation and after audit of DEC books by Customs authorities. In such 10 circumstances, it is observed that the Customs authorities were wrong in not accepting the licence and goods were not liable to duty entitling the petitioner to claim refund of duty paid under protest.
33.Where transfer has been effected without notice to the transferee of alleged fraud, the concept of fraud vitiates everything, is not applicable as licence was transferred for value arising out of importable transaction governed by any law."
16. The abovementioned judgment of the Tribunal in Hico Enterprises has been affirmed by the Hon'ble Supreme Court as reported in 2008 (228) ELT 161 (S.C.). The judgment in Hico Enterprises, though has been referred in Eastern Silk case, but has not been discussed. Moreover, the judgment of the Tribunal in Hico Enterprises is a larger Bench Judgment and has been affirmed by Hon'ble Supreme Court as well, therefore, the same is binding.
17. Further, as far as case of Friends Trading Co. is concerned, same has been considered by the same High Court i.e., Hon'ble Punjab & Haryana High Court in case of Pee Jay International (supra) subsequently, and has been distinguished. Thereby, demand raised against the importers were set aside considering the fact that importers were not party to the fraud with the seller of DEPB, which was found to be genuine document at the time of import, though obtained by seller by producing some forged documents to which the importer was not a party. Same is the case of these Appellants. It is an admitted fact that Appellant was not a party to the alleged fraud. Moreover, Friends Trading Co., was decided by relying upon the judgment of Munjal Sohwa case of Punjab & Haryana High Court, wherein scrips itself were forged which is not the case of the Appellant. Further, in case of Friends Trading Co., BRCs which are bank issued documents, were forged. On the contrary, in the present case, all the BRCs pertaining to DFIA Licenses utilized by the Appellant, have been found genuine. In case of Eastern Silk Industries also, main reliance was placed upon case of ICI Ltd of Calcutta High Court. In said case also, licenses itself were forged.
18. The Hon'ble Supreme Court in case of Sneha Sales Corporation reported in 2000 (121) ELT 577 (S.C.), relying upon earlier 11 judgment of the Hon'ble Supreme Court in case of East India Commercial reported in 1983 (13) ELT 1342, held that in a case where the licence is obtained by misrepresentation or fraud, it is not rendered non est as a result of its cancellation, so as to result in the goods that were imported on the basis of the said licences and being treated as goods imported without a licence in contravention of the order passed under Section 3 of the Import and Export Act. It has been further held that fraud or misrepresentation only renders a licence voidable and it becomes inoperative once it is cancelled. This Tribunal recently in case of Khaas Textiles Pvt. Ltd. Vs. Additional Director General (Adj.), DRI, New Delhi (Delhi Bench) (wherein Sitting Member Judicial in the present case was presiding), followed the ratio laid down by the Hon'ble Punjab & Haryana High Court in Pee Jay International judgment (supra), set aside the demand raised against the importer on similar allegations as raised in the present case. In fact, demand in said case had arisen out of same investigation proceeding, pertaining to scrips issued on the basis of export documents filed at Khozadanga LCS. ROM Application filed by the department in Khaas Textiles case has also been dismissed vide order dated 09.01.2020.
19. It is pertinent to mention that the department, in their compilation, submitted the judgment of this Tribunal in case of Mercedes Benz India Pvt. Ltd. reported in 2020-TIOL-996-CESTAT-DEL wherein cases of some of the importers against whom demand was raised in same investigation, have been decided against the importers. But, during the course of argument, same was not argued by the learned departmental representative. Firstly, it is submitted that said judgment passed by this Tribunal in Division Bench matter in Mercedes Benz Case has been challenged before the Hon'ble Delhi High Court vide Customs Appeal CUSAA 49-52 of 2021, wherein, the Hon'ble High Court has been pleased to issue notice, granted time to Respondent Department to file reply as prayed by them. However, said judgment of the Tribunal is not applicable to the present case of the Appellant. It is submitted that case of the appellant 12 is pertaining to DFIA Licenses, whereas, nowhere in the said judgment, provisions related to DFIA Licenses or procedure followed in this respect have been discussed. It is evident from the judgment that provisions pertaining to only DEPB scrips, FPS Scrips and VKGUY have been discussed therein. Further, it is apparent from the judgment of the Tribunal in Mercedes Benz case, that the Judgments which were favourable to the Importers, have been distinguished only on the ground that in said judgments issue of forged TRA was not discussed. On the contrary, it is evident from the discussion and finding portion of the Adjudication Order in the present case that in case of DFIA, there is no allegation with respect to forged TRA. Allegation of forged TRA has been discussed only in context of DEPB Scrips. Further, it is apparent from the judgment of the Tribunal in Mercedes Benz Case, that heavy reliance has been placed on provisions related to port of registration, and it has been held that as per Trade Notice No. 8/AM-12 dated 27.03.2012 read with para 3.11.3, in case of export through Non-EDI Ports, port of registration shall be the port of export only, and it cannot be changed and therefore, change of Port of Registration (i.e, Export - Port) is thus contrary to the Exim Policy and HB of procedure by DGFT Office. It is submitted that aforesaid Trade Notice as well as para 3.11.3 of Handbook of Procedure is applicable to scrips issued under Chapter 3 of FTP only (i.e, FPS in the subject matter), but not to the DFIA Licenses which have been issued under Chapter 4 of FTP. The provisions of Port of Registration for scrips issued under Chapter 3 of FTP, have been provided under Para 3.11.3 of HB, however, provisions for Port of Registration with respect to DFIA Licenses have been given under 'Para 4.19 of Hand Book of Procedure' which provides to register the DFIA License at any of the Port(s) specified in the said para. In appellant's case, the DFIA Licenses were registered at NhavaSheva which is a specified Port as per said para. Further, para 4.19.2 provides that requirement of TRA shall not be there if Port of Registration and Port of Import are EDI enabled and authorization holder has registered its authorization. In the present case Port of Import was Tuticorin 13 which is also an EDI Port. Thus, Port of Registration as well as Port of Import, both were EDI Ports in case of Appellant and therefore, question of forged TRA in case of Appellant does not arise. In view of aforesaid, there is no applicability of Merecese Benz judgment of the Tribunal to the Appellant's case. Further, DFIA is completely different from DEPB scrips. Para 4.40.1 provides that DEPB shall be issued with single Port of Registration which will be the port from where the exports have been effected, whereas, there is no such condition regarding DFIA Licenses. Apart from aforesaid, it is also pertinent to mention that though judgment of Friends Trading Co. has been heavily relied upon to give findings, but the judgment of same High Court in Pee Jay International (supra) which has distinguished judgment of Friends Trading, has not been discussed in Mercedes Benz Judgment. In view of aforesaid, it is submitted that said judgment passed by the Tribunal in Mercedes Benz case is not applicable to the Appellant's case.
(emp. supplied)
20. Learned Counsel for the appellant further urges that show cause notice demanding customs duty from the Appellant under Section 28 (4) of the Customs Act, 1962 has been issued by the Principal Director General, DRI. The appellant, relying upon the Judgment of the Hon'ble Supreme Court in Canon India Case reported in 2021 (376) ELT 3 (S.C.), and followed by various other High Courts and the Tribunal submitted that the demand raised against the Appellant under Section 28 (4) by the instant show cause notice, issued by the DRI, is without jurisdiction.
21. It is pertinent to mention here that provisions to demand duty has been provided under Section 28 which further provides two situations to demand duty; one by invoking normal period under Section 28(1) (which was one year during the relevant period when demand against the Appellant was raised) under normal circumstances and the other by invoking extended period under Section 28 (4) (which has been five years) under the circumstances where duty has not been levied or paid or has been short levied or short paid by reasons of collusion, or any wilfulmis-statement or 14 suppression of facts. The demand in the present case has been raised under Section 28 (4). Canon India Judgment is squarely applicable as in the said case, the Hon'ble Supreme Court was dealing with demand made under Section 28(4) only.
22. The Hon'ble Supreme Court in case of Canon India (supra), while interpreting use of word "the" before proper officer in Section 28 (4) of the Customs Act, has held, "there are only two articles 'a (or an)' and 'the'. `A (or an)' is known as the Indefinite Article because it does not specifically refer to a particular person or thing. On the other hand, 'the' is called the Definite Article because it points out and refers to a particular person or thing. There is no doubt that, if Parliament intended that any proper officer could have exercised power under Section 28 (4), it could have used the word 'any'." The Hon'ble Supreme Court further observed, "Parliament has employed the article "the" not accidently, but with the intention to designate the proper officer who had assessed the goods at the time of clearance. It must be clarified that the proper officer need not be the very officer who cleared the goods but may be his successor in office or any other officer authorised to exercise the powers within the same office. In this case, anyone authorised from the Appraisal Group. Assessment is a term which includes determination of the dutiability of any goods and the amount of duty payable with reference to, inter alia, exemption or concession of customs duty vide Section 2 (2) (c) of the Customs Act, 1962." It has been further observed by the Apex Court, "the nature of the power to recover the duty, not paid or short paid after the goods have been assessed and cleared for import, is broadly a power to review the earlier decision of assessment. Such a power is not inherent in any authority. Indeed, it has been conferred by Section 28 and other related provisions. The power has been so conferred specifically on "the proper officer" which must necessarily mean the proper officer who, in the first instance, assessed and cleared the goods i.e. the Deputy Commissioner Appraisal Group." The Hon'ble Supreme Court also observed, "it is well known that when a statute directs that the things be 15 done in a certain way, it must be done in that way alone. As in this case, when the statute directs that "the proper officer" can determine duty not levied/not paid, it does not mean any proper officer but that proper officer alone. We find it completely impermissible to allow an officer, who has not passed the original order of assessment, to re-open the assessment on the grounds that the duty was not paid/not levied, by the original officer who had decided to clear the goods and who was competent and authorised to make the assessment".
23. It is important to mention the observation of the Hon'ble Supreme Court, in Canon India Judgment given in connection with question posed in the judgment as to whether the Additional Director General of the DRI who issued the recovery notice under Section 28(4), was even a proper officer. The Apex Court held, "the Additional Director General can be considered to be a proper officer only if it is shown that he was a Customs officer under the Customs Act. In addition, that he was entrusted with the functions of the proper officer under Section 6 of the Customs Act. The Additional Director General of the DRI can be considered to be a Customs officer only if he is shown to have been appointed as Customs officer under the Customs Act." The Hon'ble Supreme Court specifically dealt with this aspect in para 18 to 20, relevant portion of which reads as under:
"18. The next step is to see whether an Additional Director General of the DRI who has been appointed as an officer of Customs, under the notification dated 7.3.2002, has been entrusted with the functions under Section 28 as a proper officer under the Customs Act. In support of the contention that he has been so entrusted with the functions of a proper officer under Section 28 of the Customs Act, Shri Sanjay Jain, learned Additional Solicitor General relied on a Notification No.40/2012 dated 2.5.2012 issued by the Central Board of Excise and Customs. The notification confers various functions referred to in Column (3) of the notification under the Customs Act on officers referred to in Column (2).The relevant part of the notification reads as follows..........................................."
19. It appears that a Deputy Commissioner or Assistant Commissioner of Customs has been entrusted with the functions under Section 28, vide Sl. No.3 above. By reason of the fact that the functions are assigned to officers referred to in Column (3) and those officers above the rank of officers mentioned in Column (2), the Commissioner of Customs would be included as an officer entitled to perform the function under Section 28 of the Act conferred on a Deputy Commissioner or Assistant Commissioner but the notification appears to be ill-founded. The notification is purported to have been issued in exercise of powers under sub-Section (34) of Section 2 of the Customs Act. This section does not confer any powers on any authority to entrust any functions to officers. The sub- 16 Section is part of the definitions clause of the Act, it merely defines a proper officer. ..........................
21. If it was intended that officers of the Directorate of Revenue Intelligence who are officers of Central Government should be entrusted with functions of the Customs officers, it was imperative that the Central Government should have done so in exercise of its power under Section 6 of the Act. The reason why such a power is conferred on the Central Government is obvious and that is because the Central Government is the authority which appoints both the officers of the Directorate of Revenue Intelligence which is set up under the Notification dated 04.12.1957 issued by the Ministry of Finance and Customs officers who, till 11.5.2002, were appointed by the Central Government. The notification which purports to entrust functions as proper officer under the Customs Act has been issued by the Central Board of Excise and Customs in exercise of non-existing power under Section 2 (34) of the Customs Act. The notification is obviously invalid having been issued by an authority which had no power to do so in purported exercise of powers under a section which does not confer any such power.
24. Moreover, there is no allegation of collusion or wilfulmis- statement or suppression of facts on part of Appellant,which is evident from show cause notice as well as adjudication order. In any case, no artificial distinction can be made regarding applicability of Canon India judgment as has been attempted by the department in the present case, as there is no separate provision for demanding duty under the Customs Act except Section 28 (1) and 28 (4) in case of so called fraud which has been alleged, that too, not against the Appellant. It is submitted that the judgment of the Hon'ble Supreme Court is binding over all courts in terms of Article 141 of the Constitution of India. In view of the judgment in Canon India Case which has been followed by the Hon'ble Supreme Court itself, further in case of Commissioner of Customs, Kandla Vs. M/s Agarwal Metals and Alloys - Civil Appeal No 3411 of 2020 and Commissioner of Customs, Kandla Vs. M/s Sunland Metal Recycling Industries - Civil Appeal No. 5053 of 2021, and by various High Courts in several cases namely -Kitchen Essentials & Ors. Vs Union of India & Ors. Reported in 2021 (10) TMI 1267- Bombay High Court, Quantum Coal Energy (P) Ltd. Vs. Commissioner, Tuticorin reported in 2021 (3) TMI 1034 - Madras High Court, Shri Mohan C. Suvarna, Director, (Finance & Admin) M/s Givaudan India Pvt. Ltd. Vs. The Principal Commissioner of Customs, Additional Director General, Directorate of Revenue Intelligence reported in 2021 (8) TMI 178 - Karnataka High Court, M/s Steelman Industries Vs. Union of India 17 &Ors. Reported in 2021 (8) TMI 1236 - Punjab & Haryana High Court, the demand raised against the Appellant in the present case is without jurisdiction. It is pertinent to mention that the said ratio laid down by the Hon'ble Supreme Court, of DRI not having jurisdiction to raise demand under Section 28 (4) of the Customs Act, has been further followed by the Tribunal as well in number of cases. Few of such cases are as below -
(i) Principal Commissioner, Customs, ACC Import Commissionerate New Customs House vs. Dish TV India Limited, Rajeev Dalmia and Virender Targa (Vice-Versa) reported in 2021 (10) TMI 771 - CESTAT Delhi.
(ii) C. Magudapathy vs. Commissioner of Customs (Seaport-Export) reported in 2021 (9) TMI 636 - CESTAT Chennai
(iii) M/s. Modern Insecticides Limited vs. Commissioner of Customs, Ludhiana reported in 2021 (10) TMI 598 - CESTAT Chandigarh.
(iv) Dhiren Enterprise vs. Commissioner of Customs (Adjudication)
- Customs Appeal No. 893 of 2012.
(v) M/s Schweitzer Engineering Laboratories Pvt. Ltd Vs. Commissioner of Customs (Import) - Customs Appeal No. 51570 of 2019.
The abovementioned cases have been relied upon by the Appellant in their written submissions as well, and none of them has been rebutted by the Respondent Department.
DEMAND IS TIME BARRED
25. It is submitted that the demand has been raised against the Appellant in the present case under Section 28 (4) by invoking extended period of limitation. The learned Adjudicating Authority, while dealing with the submissions made in this regard, in para 83, observed, "A plea has been taken that the demand is time barred as the same has been issued beyond a period of one year. From the foregoing discussion, it has already been concluded that fraud exists in whole exercise of fraudulent export/obtaining of DFIA/DEPB Scrip on forged documents and in the case of DEPB, further subsequent use of forged TRA as well as forged telegraphic confirmation based on forged letter purported to have been issued by Customs Port of Registration of scrips. The importers did not exercise due diligence in checking the correctness of exports for the DEPB/DFIA Licenses or the TRA's and merely relied upon a set of middlemen for obtaining such license on fake export documents and fake TRA's and therefore, extended period of limitation is correctly invokable under Section 28(4) to recover the Customs Duty along with interest under Section 28AA of the Customs Act, 1962 from the impugned importers who have used such licenses for debiting duty."
18
26. It is urged that Section 28 (4) provides to recover duty where the same has not been levied/short paid by the importer by reasons of collusion or willful mis-statement or suppression of facts. It is evident from the observation of the learned Adjudicating Authority, that there is no allegation against the Appellant (who is an importer) of any ingredients provided under Section 28 (4) to invoke extended period of limitation. The only observation is that the Appellant did not exercise due diligence in checking correctness of exports for DFIA Licenses. In this regard, it is submitted that the Appellant has no means to check the exports. The clearances are done by the Customs Officers. Licenses are issued or given by the DGFT Authorities after due diligence. It is undisputed fact that the DFIA Licenses used by the Appellant (which were purchased by the Appellant from open market) were duly issued by the DGFT. It is also an undisputed fact that the DFIA Licenses used by the Appellants were valid and duly registered by the Customs at the Port. It is also an undisputed fact that the Appellant had no role or involvement in alleged fraud (even if any) done by the exporters for obtaining Licenses. Therefore, extended period of limitation cannon be invoked against the Appellants. The Hon'ble Supreme Court in the case of Uniworth Textiles Ltd. Vs. Commissioner of Central Excise, Raipur reported in 2013 (288) ELT 161(SC) has dealt with the scope of extended period of limitation on the grounds, "suppression of facts, willful mis-representation of facts etc." and thereby held in clear terms that extended period cannot be invoked unless it is shown that the Appellant deliberately colluded with the exporter who fraudulently obtained licenses, willfully mis-stated or suppressed any material facts known to them, which led to evasion of duty. Hence, extended period cannot be invoked against the Appellants. The Hon'ble High Court of Allahabad in the case of Commissioner of Customs, Central Excise & Service Tax VS. Monsanto Manufacturer Pvt. Ltd. reported in 2014 (35) STR 177, held that once any case is barred by imitation, then there is no need to proceed for looking into the merit, of the case.
19
27. Ld. Authorised Representative, Shri Sunil Kumar relies on the impugned order. He further urges that the appellant have taken benefit based on the licences, which have been obtained by the third persons by fraud and forgery from the DGFT. Further, the appellant have not done due diligence before buying the licence/scrips /using the same. He further relies on the following rulings:-
i) Friends Trading Co. -2012 (281) ELT A106 (SC)
ii) Friends Trading Co.-2011 (267) ELT 57 (Tri. Del.)
iii) Tata Iron & Steel Co. Ltd., -2015 (316) ELT 546 (SC)
iv) Friends Trading Co. -2010(258) ELT A-2 (SC)
v) Review Petition in Friends Trading Co. -2012(281)ELT A-106
(SC)
v) Friends Trading Co.[2011 (267) ELT 57 (Tri.-Delhi)
vi) Friends Trading Co. above affirmed by Hon'ble Punjab & Haryana
High Court - 2010 (267) ELT 33 (P&H).
v) Essar Oil India - 2004 (172) ELT 433 (SC)
vi) Review Petition in Essar Oil India above rejected [2007 (217)
ELT A-34 (SC)
vii) Candid Enterprises [2001 (130) ELT 404(SC)]
viii) Tata Iron & Steel Co. Ltd. [2015 (319) ELT 546 (SC) Accordingly, he prays for dismissing the appeals.
28. Having considered the rival contentions, we find that the issue involved in the present case is regarding the utilisation of DFIA license Nos. 0310606860 dated 20.12.2010 and 0310606862 dated 20.12.2010 in the case of Neev Trading Co., and Licences Nos.0310603943 dated 01.12.2010 and No.0310610819 dated 13.01.2011 in the case of Vids Overseas, which were issued by the Director General Foreign Trade (DGFT) for an amount (as specified in paras 6 and 9 above), which was later on transferred to the appellant for consideration at premium of 97% approx. The amount of consideration for purchasing of the said licenses from the transferor was paid through Cheque or banking channel. The said license(s) was utilised by 20 the appellants towards the import duty vide Bills of Entry filed during January, 2011 to August, 2011. It is not in dispute that these license(s) has been obtained by the exporters on the basis of fake export documents. The Department has taken up the matter for cancellation of theDFIA license(s) with DGFT by the DRI on 16.02.2012. In other words, the above license(s)are genuine licence in the record of DGFT.
29. Nowhere it is the case of the Department that these appellants colluded with any of the persons concerned, for alleged fraud/ forgery/ manipulation of the documents on the basis of which, licenses were obtained. Nor it is the case of the Department that these appellants wilfully mis-stated any of the material facts with regard to their import consignments. Neither it is the case that these appellants suppressed any facts with intent to evade payment of duty. The only observation in the show cause notice and the impugned order is that these appellants did not exercise due diligence in checking the correctness of exports on the basis of which documents DEPB/DFIA licences were issued.
30. Once the DGFT makes the licences transferrable and negotiable on fulfilment of the export obligation, the licences are transferable by delivery and/or endorsement to the transferee. Once the licence is made transferable, the same are traded by the parties through brokers, which is permitted under the DGFT Policy and Foreign Trade Policy. There was no reasons to disbelief the licences issued by the Competent Authority/DGFT. Thus, the same were duly reflected on the website of the DGFT. It is not the case of the Department that the licences itself were forged/fabricated. It is an admitted fact that the licences were genuinely issued by the DGFT after due diligence and were valid at the time of imports made by the appellants. In the circumstances, we find that the appellant is correct in relying on the Ruling of the Hon'ble Punjab & Haryana High Court in the case of P.J. International Vs. Commissioner of Customs (Supra). 21
31. We further observe that the Adjudicating Authority have erred in not appreciating that these appellants were bonafide purchaser of DIFA licences, which were validly issued and made transferable by DGFT, as well as registered by the Customs Department on their website, on the date of purchase and utilisation by these appellants. Further, admittedly, the licenses in question have been cancelled much thereafter in the month of May, 2012 by the DGFT.
32. We also find in case of Commissioner of Customs vs. Leader Valves Limited reported in 2007 (218) ELT 349 ( P & H), the similar issue came for consideration in respect of DEPB license purchased from open market under the bonafide belief of being genuine. The para 9 of the judgment, which is relevant, is as under;
"9. After hearing learned Counsel for the parties, we are of the considered view that this appeal is devoid of any merit. The assessee-respondent admittedly is not a party to the fraud. There are categorical finding that they had purchased DEPB from the open market in the bona fide belief of its being genuine. They had paid full price and accordingly have availed the benefit. Merely because at a later stage, the DEPB has been found to be fabricated and fake on the basis of BCER the assessee respondent could not be deprived of the benefits which were legitimately available to them. It is also worth noticing that the assessee-respondent was never issued any show cause notice before cancelling the DEPB which was obtained by M/s. Parker Industries and obviously the notice was also to be issued to them alone. We are further of the view that notice under Section 28 of the Customs Act could not be issued to the assessee- respondent because a period of six months stipulated by Section 28 of the Customs Act stood already expired and the rights of the parties had been crystallized. The revenue cannot avail the extended period because the assessee-respondent could not be accused of mis-representation, collusion or suppression of facts within the meaning of proviso postulated by Section 28 of the Customs Act. Therefore, there is no merit in this appeal.
10. This judgment was further affirmed by Hon'ble Supreme Court reported in 2007 (218) ELT (349) (P&H). In case of M/s Deep Export vs Commissioner of Customs reported in 2016 (338) ELT 724 (Tri-Del)] it has been held at para 9, 10, 11 that REP license obtained fraudulently by transferee on the forged documents the appellant were not in the knowledge of such fraud cannot be held to be ineligible for benefit under license.
11. We have also considered the submissions of Ld. AR and has as reliance in case of Friends Trading company vs. Union of India 2010 (254) ELT 654 (P & H). However, the case is distinguishable from the present case on account of the fact that in that case DEPB scrips were cancelled by the competent authority which is not the case here and hence this judgment has no application in the present case. Even as of now the Department has not been able to produce any evidence about the present licence having been cancelled by the DGFT. We also find that the Show Cause Notice has invoked extended period for recovery of the Customs Duty, for import which has been affected by utilisation the FPS licence in question. It is evident that the appellant has not suppressed any fact from the Department to the extent that the license which was submitted for clearance of import consignment is issued by the DGFT, although the claimed to have been obtained fraudulently by the transferee and utilised on 06/12/11 on ICD Patpargang. The Show Cause Notice has been issued in this case on 02/12/2016, that is after the lapse of normal period of raising demand under the provisions of Section 28 of the Customs Act 1962. Therefore the demand is also time barred."22
33. Accordingly, we set aside the demand of duty and penalty on these appellants. We also hold that in the facts and circumstances, the extended period of limitation is not invokable, as admittedly, there is no case of fraud, mis-statement or contumacious conduct on the part of these appellants.
34. Thus, as these appeals are allowed on merits, it is not necessary for us to consider the question of jurisdiction.
35. These appeals are allowed.
(Pronounced on 22.03.2022).
(ANIL CHOUDHARY) MEMBER (JUDICIAL) (P. V. SUBBA RAO) MEMBER (TECHNICAL) Ckp