Customs, Excise and Gold Tribunal - Mumbai
Kanta International vs Commissioner Of Customs on 16 January, 1996
Equivalent citations: 1997(92)ELT487(TRI-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. All the above appeals involve consideration of the same issues and they were heard together. They are disposed of by this common order.
2. The details of orders in original challenged in these appeals are as below:
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Appeal No. Order in Original Impugned Penalty
Imposed
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C.1233/87 34/IX/2/85 Inv dated 3-9-1987 Rs. 11 lakhs
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S/10-112-86 LSIIB
C-1326/87 S-10-77/86 LSIIB dated 3-9-1987 Rs. 1,15,000/-
C-1325/87 S-10-76/86 LSIIB dated 3-9-1987 Rs. 3,10,000/-
Rs. 50,000/-
C-1327/87 S-10-78/86 LSIIB dated 3-9-1987 Rs. 4,35,000/-
Rs. 1 1akh
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In all the above appeals, Polyester fabrics imported against D.E.E.C. licences were ordered absolute confiscation and the above penalties were imposed on the firm and the kartha of the firm Shri Motilal Gupta.
3. Consequent on investigation, carried out by officers of DRI, on the basis of intelligence gathered by them indicating that the above firms obtained DEEC licences by false representation and fraud, the licences in question were cancelled ab initio by the licensing authorities. However before such cancellation, 100% Polyester fabrics were imported against the said licences and sought to be cleared. However they were seized, pending completion of investigation, which ultimately resulted in cancellation of these licences ab initio. Thereafter, adjudication proceedings were held by the Collector, which resulted in passing of the impugned orders.
4.1 Shri J.C. Patel, the Ld. Advocate on behalf of the appellants, does not dispute that the licences were cancelled ab initio. However, he pleads that in all these cases, goods were imported against valid licences. They were detained consequent on investigation by DRI. The goods were seized in Dec., 1985, whereas the licences were cancelled only on 21-2-1986. Hence there is no legal justification for ordering confiscation of the goods imported against valid licences and for imposing penalties on the appellants.
4.2 He seeks to support his contention by citing the following case laws :
(i) In East India Commercial, 1983 (13) E.L.T. 1342 (SC), the Supreme Court held in Para 35 of the judgment as below :
" Nor is there any legal basis for the contention that licence obtained by misrepresentation makes the licence non-est, with the result that the goods should be deemed to have been imported without licence in contravention of the order issued under Section 3 of the Act so as to bring the case within Clause (8) of Section 167 of the Sea Customs Act. Assuming that the principles of law of Contract apply to the issue of licences under the Act, a licence obtained by fraud is only voidable; It is good till avoided in the manner prescribed by law."
(Emphasis supported by the ld. Advocate) He therefore, pleads that as per the above principle, when the goods have been imported against licences, which were valid and were not voided at the time of import, the goods imported against such licence cannot be held liable to confiscation under Section 111(d) of the Customs Act.
(ii) Referring to the commentary on the Indian Contract Act by Pollack & Mulla, he pleads that when a voidable contract is said to be avoided, it does not mean that the contract never existed; but it ceased to exist from the moment of avoidance. A voidable contract is valid, till it is avoided. This is what is recognised in the Supreme Court's decision in East India Commercial Co. Misrepresentation or fraud does not make a contract non-est; but is only voidable. According to this book, the pronouncement of the Supreme Court in the above case is in consonance with the decision of cases decided in England, that if a contract has been partly executed, it must be avoided promptly and until the right is exercised, the contract is valid and things done under it cannot be afterwards undone.
(iii) Citing the decision of the Bombay High Court in the case of K. Uttamlal (Exports) Ltd. reported in 1990 (46) E.L.T. 527, he pleads that the Bombay High Court have held that where the Bs/E have been filed prior to the suspension of the licence, transfer of licence was held to be bona fide. That decision also seeks to rely on the decision of the Supreme Court in East India Commercial Co.
(iv) Referring to the judgment of the Supreme Court in the U.O.I. v. Sampat Raj Dugar - 1992 (58) E.L.T. 163 (SC), he points out that it has been held by the Apex Court that subsequent cancellation of licence is of relevance nor does it retrospectively render the import illegal. This observation is based on their earlier judgment in the case of East India Commercial Co.
(v) In the case of Sneh Sales Corporation decided by Tribunal Spl. Bench 'A', reported in 1993 (63) E.L.T. 128, in paras 9 and 10 of this decision, it is held that where a licence is obtained by fraud or misrepresentation it continues to be valid, till it is avoided. In other words, cancellation did not operate with retrospective effect.
14.2 Based on the above decisions, he pleads that their appeals be allowed.
5.1 After hearing both the sides, the only issue to be decided in these appeals is whether the goods, imported against DEEC licences, which were cancelled ab initio subsequent to import, could be held to be imported unauthorisedly and they could be held liable to confiscation under Section 111(d) of the Customs Act and whether the appellants are liable to penalty.
5.2 The ld. Counsel heavily relies on the decision of the Supreme Court in East India Commercial and the decision of the Bombay High Court and Tribunal's decision based on East India Commercial, whereas the ld. D.R. seeks to rely on the decision of the 5 Judges Bench of the Supreme Court in M/s. Fedco reported in AIR 1960 SC 415.
5.3 In the cases before us, there is no dispute that the goods are under Customs control and are to be cleared by Customs Deptt. from the Customs area, when investigations into the question of obtaining the licences on misrepresentation and fraud were commenced by DRI, which resulted in the cancellation of the licence ab initio by the competent licensing authority. In such a situation, the question would arise whether the Customs authorities, in whose custody the goods are lying uncleared for whatever be the reason, could allow clearance? Before considering the case laws cited by either side, we are to consider this question. It is a settled law that the Customs authorities cannot go beyond the licence. In this case, though licences were available, they were suspect and the matter was under investigation by DRI. Hence the goods were not cleared. Before a view could be taken about their clearance by the Customs authorities, licences came to be cancelled ab initio. The word ab initio means "from the beginning." Hence as per the licensing authority's order (though passed subsequent to import), licence has been cancelled from the beginning. Apart from this, on the day of clearance, licences in any case cannot be said to be valid. In such a situation, Customs authorities, who are to go strictly by the licence, cannot allow clearance, when the licences produced for clearance cease to be in operation right from the beginning arid they are not valid, on the date, they were to be accepted for allowing clearance. In this simpliciter view, we are to hold that the goods cannot be allowed clearance against these licences as on date. This is not a case, where the goods, after clearance against these licences, have been seized outside and they are sought to be confiscated on the ground that the licences, which were accepted and goods cleared, came to be cancelled from the beginning. If that were the case, a different view may be possible in favour of the appellants. Hence in the facts of the present case, we find that irrespective of the validity of the licence on the date of import, Customs officers, who are now presented with an order of the licensing authority cancelling the licences from inception may not be justified in allowing clearance of the goods. Such goods cannot, in our view, be allowed clearance, unless the said cancellation orders are set aside by the competent authority. In this view of the matter, prima facie, even without going into the citation made before us, it would appear to us that confiscation of the goods cannot be averted in the facts and circumstances of the present appeals.
5.4 However, we would not like to base our conclusions only on this prima facie view, without considering the implications of the judgment cited before us.
5.4.1 Let us first have a look at the judgment of East India Commercial Co. The facts involved in that case can be briefly stated as below. The petitioners obtained a licence for import of fluorescent tubes and fixtures, representing that they are needed for their actual use and the licence was issued with a condition that the goods will be utilised only for consumption as raw material or accessories in the licence holder's factory and no portion thereof will be sold to any party.
On information, the C.B.I. seized the goods, after their clearance from the petitioner's godown, because they, on investigation, found that a large number of such imported tubes and fixtures were sold by the petitioners. This matter went up before the Supreme Court, through a tortuous route. It was urged before the Supreme Court that there is a violation of the condition of the licence. Licence was obtained by misrepresentation. Having cleared the goods under the licence with a condition of no sale, they have resorted to sale of goods. While dealing with the various contentions raised by the Revenue, the (Supreme court in Para 35) [extracted in 4.2(i) above] made these observations : From these observations, we find that the Supreme Court have not come to a conclusion that licence issued is a form of contract nor it has laid down that principles of law of contract would apply to issue of licences under the Impex Act. It assumes such a position in law and goes into the question. When the Apex Court assumes such a proposition in law, it is not for us to question the basis of such an assumption, whatever be the possible contrary views, which can be urged against such an assumption. All the same, we cannot overlook the fact that the case before the Apex Court was a case of having accepted the licence and cleared the goods by the Customs and not the one, as is now before us, where the goods are still in the Customs area awaiting the order of clearance from Customs. In that factual context, the Supreme Court assumed the licence to be a contract, where, as per the contract existing, goods having been allowed, it was not open to seize the goods on the ground of violation of the contract. The Apex Court have also observed in the same para as below :
"The notified authority has not cancelled the licence issued in this case on the ground that the condition has been infringed. We need not consider the question, whether the Chief Controller of Imports or the Govt. of India, as the case may be, can cancel a licence after the terms of the licence has expired, for no such cancellation has been made in this case. In the circumstances, we must hold that when the goods were imported, they were imported under a valid licence and it is not possible to say that the goods imported were those prohibited or restricted by or under Chapter IV of the Act within the meaning of Section 167(8) of the Sea Customs Act."
From the above observations of the Apex Court in the same Para 35, it is evident that the Apex Court dealt with a case, where goods were imported and cleared against valid licences and even those licences were not cancelled. In these circumstances, the observations of the Supreme Court have been made. Let us look at the facts of the present appeals. Here the goods are to be cleared by Customs and are in the Customs area. Licences have been cancelled ab initio by the order of the competent authority prescribed under the Act. Hence even applying the provisions of Contract Act, when fraud is detected before performance of contract by allowing the goods, contract is revoked by cancelling the licence ab initio. The contract has become non-est and cannot seek to cover the import of the goods. It would be a hazardous step to apply the case of East India Commercial in such a case, where the facts are totally different from the ones considered by the Supreme Court.
5.4.2 Now coming to the other decision of the Supreme Court in Sampat Raj Dugar's case, we take note of the following factual position in that case. A consignment of raw silk was imported by a D.E.E.C. licence holder. When the consignment arrived, the Customs authorities noticed that in regard to earlier three consignments cleared, the importer has not complied with the condition of the licence. Hence proceedings were initiated with regard to the consignment by Customs authorities. The importers took no steps to clear the goods. Thereupon, the supplier of the goods from Hongkong approached the authorities for allowing re-shipment on the ground that he is the owner of the goods and have bona fide exported the goods against valid licence. However his claim for re-shipment was rejected by the Custom authorities, on the ground that the licence under which the goods were imported, was cancelled and there is no valid import licence for clearance of the goods. Since for re-exporting the goods, a valid licence is necessary and because it is not there, and also because the importer has abandoned the goods, permission for re-export cannot be granted. In the context of the above factual backdrop, the Apex Court, while considering the various submissions by the Revenue in Para 21 of the judgment considered whether the import of the goods was contrary to law in any manner. The Supreme Court observed thus :
"The only provision relied upon are Clauses (d) and (o) in Section 111 of the Customs Act, which we have set out hereinabove. In our opinion, none of these clauses are attracted in the present case. Clause (d) contemplates an import, which is contrary to any prohibition imposed either by the Customs Act or any other law for the time being in force. No such prohibitions can be pleaded in this case, since on the date of import, the said goods were covered by a valid licence. The subsequent cancellation of licence is of no relevance nor does it retrospectively render the import illegal (East India Commercial Co. v. The Collector of Customs, Calcutta - 1963 (3) SCR 338 at 372)."
On a careful reading of these observations in the context of the factual backdrop in that case, it was not the importer (holder of DEEC licence), who claimed clearance of the goods, notwithstanding the cancellation of the licence. The importer abandoned the goods. It was the supplier, holding title to the goods, who sought for clearance of the goods for re-shipment. Hence, notwithstanding the violation of the contract having been detected before clearance and renovation of the contract by cancellation of licence, the Apex Court held the supplier holding title to the goods to be eligible for re-shipment. It is not a case of ordering release of the goods to the importer, who obtained the licence by mis-representation. The Apex Court itself have observed in Para 24 as below:
"It is also significant to notice that it is not the case of the appellants that the first respondent was a party to any conspiracy or other fraudulent plan hatched or sought to be implemented by the second respondent. If that was the case, different considerations would have arisen."
(emphasis supplied by us) From the above, it is clear that the Apex Court made the observation based on East India Commercial only in the context of the case, when the supplier, being not a party to any fraud, having exported the goods against a valid licence cannot be deprived of his goods, by refusing re-shipment. These observations are made to protect the interest of a totally innocent third party, who supplied the goods on a valid contract existing. These observations do not lead us to the conclusion that the Supreme Court would have allowed the goods to the importer being party to the fraud, if they had asked for clearance. They would not have done that, as is evident from Para 24 of their judgment extracted above.
5.4.3 As against these two Supreme Court decisions relied upon by the Ad. Counsel Shri JC Patel, the ld. D.R. points out the decision of 5 Judges Bench of the Supreme Court in Fedco case. We go into this judgment and take note of the factual backdrop in that case. The goods were imported by the petitioner on the basis of licences granted to them. After the arrival of the goods proceedings were initiated by the Chief Controller of Imports for cancelling the licence on the ground that the licence has been obtained by fraud. The licences were cancelled by the Chief Controller of Imports. However the goods have arrived at the port and were sought to be cleared against those licences cancelled. Prayer before the Supreme Court by the petitioners was two fold.
(i) to quash the order of cancellation of the licence issued by the C.C.I.E.
(ii) to order the Collector of Customs, Bombay to assess the goods and clear them on the strength of the licences valid at the time of import. Both the prayers were rejected. While considering the points raised by the petitioners, it was thus observed in Para 6 of the judgment:
"The entire scheme of control and regulations of imports by licences is on the basis that the licence is granted oh the correct statement of relevant facts. The basis disappears, if grant of licence is induced by fraud or misrepresentation. The fact remains that in such cases, the basis of the grant of licence has disappeared. It will be absolutely unreasonable to hold that such a licence shall be allowed to continue".
From the above observations made in the context of the factual backdrop, two things are clear. A licence is granted on the basis of correct statement of facts. If that basis disappears because of practice of fraud or misrepresentation by the applicant for licence or by any other person, the basis for grant of licence disappears. Hence such a licence cannot be allowed to continue. The Apex Court did not seek to impart the provisions of Contract Act in such a situation but held that if fraud is practised in obtaining licence, the very basis for licence disappears and hence rejected the prayers.
5.4.4 Thus on a careful reading of all the three judgments of the Supreme Court we find that even based on the assumption that principles of contract would apply in the case of licence, if fraud has been practised in obtaining the licence, goods imported but pending clearance, have not been permitted clearance to the importers by the Supreme Court in any of the three cases. This would support our prima facie view expressed in Para 5.3 above.
5.5 In the judgment of Bombay High Court in the case of Uttamlal Exports - 1990 (46) E.L.T. 527, there was no order cancelling the licence. The licence was under suspension. Before suspension, transfer of the licence has taken place, when it was in operation. Hence the ratio of East India Commercial was adopted in the judgment in support.
5.6 In the case of Sneh Sales Corporation -1993 (63) E.L.T. 128 (Tribunal), the Tribunal applied the ratio of East India Commercial, in preference to Fedco, because the goods were allowed clearance against valid licences. Thereafter seizure took place of such goods cleared, and the cancellation of licence was cited as the ground for confiscation. We, ourselves, have indicated that our view might be different, if goods had been already cleared. Hence we find that there is no reason for us to refer the issue to a larger Bench., since the facts are different in this case.
5.7 Lastly, we are to consider the provisions of the Contract Act cited by the Ld. Advocate quoting from the book by Pollack & Mulla. Under Section 6 of the Indian Contract Act, "when an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it or to make compensation for it, to the person from whom he received it."
In the commentary under that section, in the book Indian Contract Act by Singhal & Subraminian-2nd edition, Vol. II, citing the decision in Harnathkhar v. Inder Bahadur Singh, it is commented that Section 65 of the Contract Act does not apply to contracts, which were ab initio void to the knowledge of the contracting parties but is applicable to cases where at least the plaintiffs were not aware of the void character. We feel that where a contract (licence) is obtained by fraud, of which the licensing authority was not aware, he can avoid the contract ab initio and when goods have been imported against such licence, the advantage derived by the licence holder is bound to restore it as per Section 65 of the Contract Act.
6. In view of the aforesaid discussions, we hold that the goods involved in all the four appeals are liable to confiscation. We don't find any reason to interfere with the orders of absolute confiscation, which we uphold.
7. Going by the allegations sustained. by the licensing authorities resulting in cancellation of licences obtained by misrepresentation and fraud, the appellants attempt at import of sensitive goods like polyester fabrics justifies imposition of penalty. We sustain the penalties imposed on the firms, but would deem it proper to remit the separate penalties imposed on Shri M.L. Gupta.
8. In the result, all the four appeals are otherwise rejected, excepting the remission of separate penalties on Shri M.L. Gupta.
P.K. Desai, Member (J) While concurring with the order as proposed by my Ld. Brother, I deem it desirable to project my views, which are kept restricted to the legal aspect.
10. There is no challenge to the allegation that the licences have been cancelled ab initio and cause for such cancellation is shown to be fraud practised and mis-representations made for the purpose of obtaining licence. Thus, the appellants had at the time of obtaining licence, a clear design to defraud the Government and flout the Policy provisions.
11. It is settled proposition of law that none be permitted to take advantage of his own fraud. Notwithstanding any other thing therefore the appellants could not be permitted to take shelter into legal jugglery and claim same benefit which they otherwise, are not entitled to.
12. It is also pertinent to note that, at the time of clearance itself the Customs Authority suspected the foul play and informed the licensing authority, by withholding the clearance and pursuant to such approach to the licensing authority, the subject licences came to be cancelled ab initio. Such a course of action by the Customs Authority is always permissible.
13. The word "ab initio" means "from the very inception" and when the licences are cancelled ab initio, they are deemed to have never existed.
14. Thus when the occasion to clear the goods arose, the licences had already stood cancelled.
15. Even assuming that the provisions of Contract Act are held as applicable and the licences are held as valid till they are cancelled, Section 65 of the said Act, clearly provides that whatever benefits that are derived by the party defrauding, have to be restored, and position ante has to be brought back. The Judicial pronouncements that have been referred to, have not examined the statutory provisions of Section 65 of the Contract Act, and hence, the ratio of those decisions could not stand attracted. Further, as has been duly discussed by my Ld. Brother, even on factual aspects, these Judgments are distinguishable.
16. Thus, when a party cannot be permitted to take advantage of their own fraud and when the law envisages that on voiding the voidable contract, the position ante has to be restored, and when on the date on which the clearance of goods has to be effected the licences have stood cancelled, there appears no ground to interfere with the order as passed by the authority below.