Gujarat High Court
Suresh Dhansiram Agarwal vs Union Of India (Uoi) on 30 July, 2002
Equivalent citations: 2002ECR788(GUJARAT), 2005(183)ELT424(GUJ)
Author: M.S. Shah
Bench: M.S. Shah, K.A. Puj
JUDGMENT M.S. Shah, J.
1. In this petition under Article 226 of the Constitution, the petitioner has challenged the interlocutory orders passed by the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), Mumbai requiring the petitioner to deposit a sum of Rs. 50 lacs as a pre-deposit for hearing the petitioner's appeal against the order dated 7-6-1999 passed by the Commissioner of Customs (Adjudication), Mumbai imposing penalty of Rs. 4 crores under Section 112 of the Customs Act, 1962.
2. The facts leading to this petition, briefly stated, are as under :-
2.1 The petitioner is a director of Asheema Fashions Pvt. Ltd. and the proprietor of M/s. Ishan Exports. The petitioner was looking after the affairs of the four firms/companies viz. Asheema Fashions Pvt. Ltd., Asheema Exports, Ishan International & Ishan Exports. These four firms claim to have made certain exports of textiles during the periods 1993-94 and 1994-95. On the strength of the said exports, the said firms obtained Advance Licences for the purpose of duty-free imports. The said firms transferred those advance licences for consideration to other parties. Those transferee parties made import on the basis of those advance licences and got import duty exemption.
2.2 Thereafter, it was found on investigation by Director General of Foreign Trade authorities that the exports which the aforesaid four firms claimed to have made were fraudulently made in the sense that the exports claimed were not actually made. The Commissioner of Customs (Preventive), Mumbai therefore issued a show cause notice dated 8-5-1997 (Annexure C) to the aforesaid four firms and also to the petitioner who was looking after the affairs of all the aforesaid four firms and also to other directors/partners of the above firms. By the said show cause notice, the parties were called upon to show cause -
(a) why goods viz. Polyester Filament Yarn, Disperse dyes, Silicon Compound imported against Advance Licences and Duty Exemption Entitlement Certificates totally valued at Rs. 2,41,15,086/-should not be confiscated under Section 111(o) of the Customs Act, 1962 read with Section 11 of Foreign Trade (Development and Regulation) Act, 1992.
(b) why Customs duty amounting to Rs. 4,22,29,818/- should not be recovered from them under the provisions of Section 28 of the Customs Act, 1962 read with Notification No. 204/92-Cus., dated 19-5-1992.
(c) why penalty should not be imposed upon each of the directors/partners for the acts in contravention of Sections 114A & 112(a) of Customs Act, 1962 as the case may be.
2.3 After hearing the learned Advocate appearing for the four firms and also for the petitioner, the Collector of Customs (Adjudication), Mumbai passed the order dated 7-6-1999 in the following terms :-
(i) The aggregate demand of Rs. 4.22 crores (apportioned amongst four firms) raised in the show cause notice was confirmed.
(ii) The penalty of Rs. 4 crores was imposed on the petitioner in his capacity as the proprietor of M/s. Ishan Exports and sole authorised person of other three firms.
(iii) The penalty of Rs. 2 crores was imposed on Shri Ashok B. Pokharkar proprietor of M/s. Amol Shipping Agency who was also found to have been involved in the fraud in question.
(iv) A penalty of Rs. 10 lacs was also imposed on Shri Bhalchandra Jadhav, employee of M/s. Amol Shipping Agency.
2.4 Aggrieved by the aforesaid order, the four firms filed separate appeals bearing Nos. C/1118 to C/1121 at Mumbai and the petitioner filed Appeal No. C/975 at Mumbai. The petitioner as well as the four firms also filed stay applications in the aforesaid appeals. By order dated 8-2-2000. CEGAT waived the condition of pre-deposit of the duty confirmed against the four firms and granted conditional stay in respect of the penalty of Rs. 4 crores imposed on the petitioner herein by requiring the petitioner to make pre-deposit of Rs. 50 lakhs.
2.5 The petitioner thereafter preferred a Modification application and pointed out that the authorities under the Foreign Trade Regulation Act had also initiated proceedings for cancellation of Advance Licences in question and although the Original Authority had passed the order for cancelling all the advance licenses in question, subsequently, the Additional Director General, Foreign Trade has passed orders in February/April, 2000. The Appellate Authority set aside the order of the lower authority and reinstated the licences and therefore, the entire basis of imposing levy on the firms as well as the imposition of penalty on the petitioner had fallen to the ground and therefore, the previous order requiring the petitioner to deposit Rs. 50 lacs for the purpose of hearing the petitioner's appeal was required to be revoked or modified. The petitioner also pleaded financial hardship. The Tribunal dismissed the said application by order dated 9-3-2001 [2001 (138) E.L.T. 692 (Tri. - bom.)].
2.6 The petitioner thereafter preferred second modification application. The said application also came to be dismissed by the Tribunal by its order dated 23-4-2002.
2.7 The petitioner has thereupon filed the present petition for challenging the aforesaid orders of CEGAT by which the petitioner is required to deposit an amount of Rs. 50 lacs as pre-deposit for hearing of the petitioner's appeal.
3. Mr. Paresh Dave, ld. Advocate for the petitioner has vehemently contended as under :-
3.1 Once the Tribunal found that this was a fit case for granting unconditional stay in favour of the four firms and accordingly, the entire duty amount was waived, the penalty imposed upon the petitioner was also required to be waived as a necessary corollary.
3.2 The entire basis of demand of duty and penalty was cancellation of Advance Licences which were granted to the four firms initially and which were subsequently transferred by those four firms to the other parties. However, such orders of cancellation passed by the lower authorities were subsequently cancelled in appeal by the Additional Director General of Foreign Trade in February/April, 2000 and therefore also, there was no basis for imposing penalty on the petitioner. The CEGAT ought to have, therefore, granted unconditional stay order in favour of the petitioner also.
3.3 Even on merits, the petitioner had a strong case as in a similar case i.e. in Jupiter Exports v. Commissioner of Customs (Genl.), Mumbai [2002 (145) E.L.T. 173 (Tri. - Mum.)] it is held that where the advance licence is said to have been obtained by fraud but the licence holder transfers such licence and on the strength of such licence if the transferee imports goods and claims exemption from import duty, even after detection of such fraud, the original holder of the Advance Licence is not an importer within the meaning of Section 2(2) of the Customs Act and therefore such person is not chargeable with duty and, therefore, the Customs Authorities cannot demand duty or impose penalty on such original licence holder. It is, therefore, submitted that the principle laid down in the said decision is squarely applicable to the facts of the present case.
3.4 When the appeals of the four firms are admitted, without granting any interim stay against recovery of the penalty from the petitioner, the CEGAT ought to have at least admitted the petitioner's appeal and ordered to hear the same with the appeals of the four firms/companies.
4. On the other hand, Mr. D.N. Patel, ld. Sr. Standing Counsel appearing for the respondent authorities on advance notice has opposed the petition and has submitted that when the Commissioner of Customs (Adjudication) has given a finding of fact that the exports as claimed while obtaining Advance Licence were not in fact made and that the petitioner was the king pin of the entire fraud, no interference of this Court is called for with the order passed by CEGAT in the stay application and that too, when two modification applications made by the petitioner have already been dismissed by CEGAT. The ld. Standing Counsel has also invited our attention to the order passed by the Commissioner of Customs (Adjudication) and to the orders passed by the Additional Director General of Foreign Trade.
5. Before dealing with the contentions raised by the petitioner, we may point out the findings given by the Commissioner of Customs (Adjudication) in his order dated 7-6-1999:-
"58. (a) So far as the defence arguments enumerated above are concerned, it is revealed that the learned advocate has very meticulously avoided the main issue while commenting on the several peripheral and ancillary matters. The main issue is that the licence holder had made a claim before the licensing authority through the use of forged documents showing customs endorsements etc. thereon that the corresponding export has actually been effected, whereas the fact is that, no such export had been made by the licence holder. Paragraph 126 of Handbook Procedures Vol. 1 and (not Rule 126 as recurred to by the learned advocate), requires furnishing of a self-declaration statement signed by the licence holder showing the details of imports and exports. In this case the declaration were signed by the authorised person of the licensee firms (i.e. the petitioner herein). While the CHA or Ashok Pokharkar is being blamed by the licence holder for fraudulent entries in the S/Bs, if the licence holder had honest intentions, then he (i.e. the petitioner) should not have used the said forged documents and approached the licensing authority to claim completion of exports against the licences in question and obtained transferability endorsement on the individual licences. The learned advocate is maintaining a golden silence on this point. The licensee has claimed the fulfilment of export obligation in terms of shipments manifested on the E.P. Copies of S/Bs in question, by furnishing a self-declared abatement of exports before the Jt. DGFT, as required under para 126 of H.B. Vol. I, whereas no such export has been made by the licence holder, as established by the investigation through their enquiries with (1) Ganges Lines (2) CVVC (3) Customs documentation records.
- - - - the fact remains that:-
(a) Bills of Lading against which the export is stated to have been made, cannot be correlated with export shown on the E.P. Copies of S/Bs. which were presented to the Jt. DGFT as proof for completion of export.
(b) The cargo manifested on the S/Bs was not manifested in the docks for export.
(c) The cargo said to have been put on board of the vessel shown on E.P. Copies of the S/Bs has not been manifested in the relevant Export General Manifests.
In case, the declared exports were in fact made, then the licence holder ought to be in the position to come out with appropriate evidence to prove the fact of export. In the absence of such an evidence, it must be concluded that, the said declared export has not taken place and only documents to claim such exports were concocted. In the face of the conclusive evidence as mentioned above no other evidence is required to establish wilful mis-statement or suppression of facts.....
59. In this case, the allegations made against Shri Suresh Agarwal (i.e. present petition) and the concerned firms are based on the investigation report and the documents as listed in the Show Cause notice, which have been furnished to him. The learned Advocate has not made any effort to rebut the main allegation that, despite no exports having been made, fictitious evidence of exports has been created on paper, labelling such documents to be original E.P. Copies of Shipping Bills and presenting them before the Jt. D.G.F.T. to obtain the benefits of the duty free import of imports mentioned against the respective licences. The learned Advocate is not bringing on record a single document which shows the extent of export that has been made against the said Shipping Bills."
6. The Commissioner of Customs also dealt with the legal contention raised by the four firms that they were original licence holders but they were not importers. That argument has been dealt with in Paras 61, 62 and 65 of the order-in-original in the following terms :-
"61. (a) So far as the defence that the Licence Holders, not being the importers, they are not liable to pay any customs duty as demanded in the Show Cause Notice, is concerned, I note that the imports have been made by the transferee and not by the licensee as correctly pointed out by the Advocate. Nevertheless, the violation of terms of condition of the notification has been committed by the licence holder, at the point of exportation. In terms of the provisions contained in the Notification No. 204/92-Cus. vide the contents of format of DEEC Book Part 1 and Part 2, prescribed thereunder, the licence holder (whether or not he makes the actual import) is deemed to be the "importer" of the goods covered by the said licence. The licence holder, while making the application for a endorsement, presents himself as an "importer" to the licensing authority as well as to the Customs authorities through the said provisions and documentation provided in the DEEC Scheme. For example, in the DEEC Book Part 1 (import) format it is provided that the importer shall make the exports in terms to the said notification. Similarly, in DEEC Part II (Export) format it has been provided that the "importer shall make the exports in terms of the said notification." This is a special deeming provision, that has been prescribed in the express terms and conditions of the notification No. 204/92-Cus. (which has been issued to give effect to the scheme), and, therefore, shall prevail over the general definition of "importer" prescribed under Section 2(26) of the Customs Act, 1962, in case a clash between the two were to occur.
61. (b) It is also noticed that the DEEC Book Parts I and II also refer to the requirement that "The importer shall make the exports in terms of the said notification." So even while making the exports in terms of the said notification. So even while making the exports, the licence holder is deemed to be the importer. The licence holder has always to carry this mantle of "importer" in terms of the DEEC Scheme of duty free importation and the fact that the licence holder is not an actual importer does not shake away the liability cast on him to comply with the terms and conditions of Notification No. 204/92-Cus. If the licence holder were to claim that this obligation is unreasonable, he should not opt for this scheme. Having opted for benefit of this scheme with his eyes and ears open the licence holder cannot now disown the responsibilities cast on him, under the scheme and customs notification.
62. It is also noticed that, in terms of provisions contained in Rule 6(3)(b) of Foreign Trade (Regulations) Rules, 1993, the imported goods shall be deemed to be the property of the licensee, from the point of their importation till their clearance from Customs. Hence by virtue of this deeming provision also, the licence holder would continue to be the "deemed owner" of the goods imported against the licence, and thereby would be the importer in terms of the definition of importer contained in Section 2(26) of the Customs Act, 1962.
65........the licence holder also comes within the ambit of the word importer as defined under Section 2(26) of the Customs Act and by being "any person holding himself to be the importer" as provided thereunder. In terms of the format of applications to be made for the Advance Licence and the corresponding DEEC Book, the applicant not only approaches the licensing authority as an "importer" but in terms of the format of the DEEC Books (Parts I & II), which are a part of the statutory notification, the status of the licence holder in terms of the said statutory provisions, is legally deemed to be an "importer". A note must be taken of the fact that the DEEC proforma, is a part and parcel of the statutory notification and hence the contents thereof become a part of the statute. Therefore, the licence holder continues to be the "importer" in terms of the notification No. 204/92-Cus. and cannot escape from the liability as an importer in respect of imports made against the advance licence in question. Hence he cannot escape the liability of payment of duty on the corresponding imports made against the licence in question, especially on account of the fact that it is the licence holder whose acts of commissions and omissions had resulted in violation of conditions of the Notification No. 204/ 92-Cus."
7. When the original licence holders i.e. the four firms and the petitioner herein went in appeal before CEGAT, CEGAT found an arguable case in favour of the four firms in so far as the definition of "importer" was concerned and therefore, CEGAT granted unconditional stay in favour of those four firms. We are not in a position to agree with CEGAT as regards the said finding that the four firms cannot be said to be the importer. In our view, the reasoning given by the Commissioner of Customs (Adjudication) prima facie appears to be correct. However, we are not required to deal with this issue in greater depth as the Revenue has so far not filed petitions against the orders of CEGAT in the stay applications of those four firms.
8. As regards the contention that when CEGAT has waived duty in case of the four firms, waiver of penalty should have followed as a matter of course, prima facie the argument, does not deserve to be prima facie accepted. The petitioner before us is a person who was looking after the affairs of all the four firms. The Commissioner has discussed in detail the evidence of the parties involved in the fraud and has after referring to the evidence of the Shipping Agency and their employees which supported the department's case about the forgery of the documents and actual export being much less than the export shown on paper has held that it was the petitioner who had played the role for this purpose.
9. As regards the petitioner's contention that the orders the Commissioner of Customs (Adjudication) were based on the cancellation of advance licences in question and in view of the orders of the Additional Director General of Foreign Trade, the licences are restored and therefore, the basis of imposition of duty and penalty have fallen to the ground, we are not in a position to accept the said contention either.
10. As per the investigation made by the Customs Authorities, the ex-ports as claimed to have been made for the purpose of obtaining Advance Licences were not actually made. There were forgeries and concoction of documents and fictitious evidence of exports was created on paper. Infact, the Commissioner of Customs has recorded in Paras 58 and 59 of his order that the learned Advocate appearing for the four firms and the petitioner herein was not in a position to rebut the main allegation that despite no exports having been made fictitious evidence of exports was created on paper.
As against such categorical finding, all that the Additional Director General of Foreign Trade has stated in his appellate orders passed in February/April, 2000 is that the Customs Authorities had not proved the case against the four firms beyond reasonable doubt.
However, without going into the correctness or otherwise of the finding given by the Additional Director General, it is important to note that all that the Additional Director General has done is to pass the following operative order :-
"the Order-in-Original dated 30-12-96 passed by the Dy. DGFT, Ahmedabad maintaining his earlier Order dated 17-11-1995 cancelling ab initio the two Advance Licences [(1) No. 2145367, dated 12-7-94; and (2) No. 2145368 dated 12-7-94] issued in favour of the appellants shall stand revised and withdrawn so that the bona fide imports already effected against these advance licences are not hit by such ab initio cancellation. However, these Advance Licences will be held as inoperative for further imports, that is, no further imports against these licences would be allowed prospectively until these cases are finally cleared by the Customs. At the same time, there shall be no bar to allowing pending exports against these licences, provided these are in accordance with the EXIM Policy/Procedure, and as per the terms and conditions of these licences. This Order is without prejudice to any action that may be taken under any other law and regulation in force."
11. The underlined words would show the fact which had weighed with the Additional Director General of Foreign Trade - that is - the four firms, whose affairs are managed by the petitioner, had transferred the Advance Licences to other parties and those transferees had effected bona fide imports. The anxiety of the Additional Director General was only to protect those bona fide transferees, otherwise the Additional Director General would not have held that the Advance Licences were inoperative for future imports until these cases are finally cleared. Hence, we are not in a position to agree with the learned Counsel for the petitioner that in view of the orders passed by the Additional Director General of Foreign Trade, the entire case against the four firms as well as the petitioner has fallen to the ground.
12. As regards reliance placed by the ld. Counsel for the petitioner on the decision of CEGAT, Mumbai in the case of Jupiter Exports which is annexed at Annexure 1 to the petition, apart from the fact that the decision of the Tribunal does not bind us, we are of the view that the said decision does not lay down the correct law.
13. In that case, Jupiter Exports had applied for and obtained 12 Advance Licences and DEEC books. These documents conferred upon it the right to import polyester filament yarn, dyes and bronze powder, subject to these being utilised in the manufacture of polyester filament, the specified quantity of which were to be exported, or as replenishment used to make the exported product. Jupiter Exports manipulated documents such as test reports and invoices to show that it had exported fabrics of weight and length considerably greater than what actually was exported. Jupiter Exports having transferred its licence and the transferees having made imports on the strength of such Advance Licences, the transferee licence holders claimed and were granted benefit of exemption in terms of Customs Notification No. 204 of 1992.
Investigation made by the Department subsequent to the import revealed the fact that much of what had been claimed to be exported was not at all exported. Pursuant to such investigation, notices were issued to Jupiter Export demanding duty on the goods from the purchaser of the transferred licence as well as from Jupiter Exports and penalties were imposed. The Commissioner of Customs (Adjudication) confirmed the orders passed against Jupiter Exports and discharged the notice issued to the actual importer holding them to be bona fide transferees. Jupiter Exports, therefore, went in appeal before CEGAT. The CEGAT dealt with the argument of the Department that demand of duty from Jupiter Exports was justified since it was Jupiter Export which reaped the benefit of the sale of import licence obtained by fraudulent means and therefore, Jupiter Exports must bear the consequences after the malpractice have been detected. The Tribunal dealt with the said contention in the following words :-
"7. Now this is a very fine concept in terms of equity. In those terms it is only fair that it is those persons who have borne the benefit who should bear the consequence. However, the Commissioner and we are concerned not with the equity but with the application of law. The recovery of duty must be in accordance with the provisions of the law. The provision for recovery of such duty is Section 28 of the Act. This section provides for recovery of duty non-levied, short-levied or erroneously refunded "from the person chargeable with duty". Such a person "chargeable with duty" would be the importer in the case of import duty and the exporter in the case of export duty. The definition of the term "importer" under Section 2(26) is wide enough to cover not only the person who causes the import of the goods but also any owner or the person holding himself out to be the importer at any time between their importation and their clearance for home consumption.
8. In the case before us we do not see how Jupiter Exports becomes a person chargeable to duty. It was not the importer of the goods. We are not able to see how it is otherwise chargeable with import duty. It did not have anything with the import of the goods or at any time with the imported goods. It had no connection whatsoever with these goods. The demand for duty has to be based on law and not on moral considerations. In any event, such a duty cannot be recovered from the original holder of the import licence only for his being such licensee."
14. The reasoning adopted by CEGAT in Jupiter Exports case (supra) does not commend to us. Right now, we are not required to decide the petitioners appeal against the order of the Commissioner of Customs (Adjudication) and therefore, we do not want to go into the merits any further since the appeals are pending before CEGAT, but the reasoning that appealed to the Commissioner of Customs (Adjudication) appears to us to be prima facie correct. In any case, the considerations which appeared to the Tribunal irrelevant are certainly relevant while exercising the prerogative discretionary writ jurisdiction of this Court under Article 226 of the Constitution.
15. As per the settled legal position the writ jurisdiction under Article 226 of the Constitution of India is prerogative and the Writ Court is not supposed to lend its assistance to a party who has not come with clean hands. Very recently, in the case of Roshan Deen v. Preetilal, 2002 (1) Supreme Court Cases 100, the Honourable Supreme Court has held that the jurisdiction of the High Court under Article 226 or 227 is to be exercised only for advancing justice and not for thwarting it. The Apex Court has laid down in the said decision that even if the order impugned before the Court in a writ petition suffers from any legal infirmity, the Court is not to interfere with such order if it advances justice. In the case of A.M. Alison v. B.L. Sen, AIR 1957 SC 226 also, the Honourable Supreme Court has held that the writ jurisdiction is not to be exercised merely because the order is shown to be illegal, if there is not failure of justice.
16. In view of the finding of fact given by the Commissioner of Customs (Appeals) that Advance licences were fraudulently obtained by the four firms through the petitioner by showing exports which were not actually made, we are of the view that the pre-deposit of Rs. 50 lacs ordered by the Tribunal as against the penalty of Rs. 4 crores imposed by the Commissioner of Customs on the petitioner does not call for any interference at the instance of the petitioner who is found to be instrumental in the forgery/concoction of documents as found by the Commissioner of Customs (Adjudication).
17. We, therefore, do not find any merit in any of the contentions raised before us.
The petition is, therefore, summarily dismissed.