Customs, Excise and Gold Tribunal - Mumbai
De-Nocil Corp. Protection Limited, ... vs Commissioner Of Customs on 1 January, 2004
Equivalent citations: 2004(171)ELT209(TRI-MUMBAI)
ORDER C. Satapathy, Member (T)
1. Section 129E of the customs Act, 1962 requires the appellants to pre-deposit the duty and interest demanded and the penalty levied. The first proviso to the said Section 129E, however, provides that in any particular case where the Tribunal is of the opinion that such pre-deposit would cause hardship, the Tribunal may dispense with such pre-deposit subject to such conditions as deemed fit so as to safeguard the interest of revenue. These stay applications have been filed by the appellants for waiver of pre-deposit of duty, interest and penalties determined under the impugned order dated 31/10/2002 relating to imports made without payment of customs duty during 11/06/1998 to 02/11/1998. The amounts required to be pre-deposited are as under :-
1) M/s. De-Nocil Corp. Protection Ltd.:
(i) Duty : Rs. 1,09,70,956/- of which Rs. 4,49,262/- has been paid.
(ii) Interest under Section 28 AB : Not quantified.
(iii) Penalty : Rs. 1,09,70,956/-
2) Shri P.K. Srinivas : Penalty Rs. 10,00,000/-
3) Shri R.C. Jain: Penalty Rs. 20,00,000/-
4) Shri Kirit Srimankar: Penalty Rs. 10,00,000/-
5) Shri Bharat K. Shah: Penalty Rs. 10,00,000/-
Out order on these stay applications and the reasons for our order are as follows :
ORDER :
2. After grant of several adjournments, we have heard at length the learned advocates for the appellants and the learned S.D.R. We particularly appreciate the detailed arguments by the learned advocate Shri Prakash Shah and the learned SDR Shri Hitesh Shah, who have taken us through various aspects of the case, the legal provisions and the case laws. After carefully considering all the arguments and perusing the case records, including the cited case laws, we order as follows :-
(i) M/s. De-Nocil shall make a pre-deposit of Rs 50 lakhs towards duty and furnish a Bank Guarantee for the balance duty within eight weeks from the date of the order and report compliance on 1.3.2004. Subject to such pre-deposit being made and Bank Guarantee furnished, pre-deposit of the interest and penalty amount shall remain waived during pendency of the appeal. Failure to do so will result in dismissal of the appeal.
(ii) All the order appellants shall pre-deposit 25% of the penalty levied on each of them within 8 weeks from the date of the order and report compliance on 1.3.2004. Subject to such pre-deposit being made and compliance reported, pre-deposit of the balance amount of penalty shall remain waived during pendency of the appeal. Failure to do so will result in dismissal of the appeal.
(iii) The concerned Chief Commissioner of Customs, Nhava Sheva shall cause an immediate enquiry into the acts and omissions of the concerned Customs, DGFT and Bank Officials which has resulted in duty loss of over Rs one Crore by way of grant of export related incentive by misuse of the DEPB Scheme, even though not one gm of goods has been exported and not even a single dollar or foreign exchange has been received. He shall submit a report in this regard to this Tribunal within 3 months and shall also direct the proper officer to initiate necessary action under the Customs Act, 1962 against the officials found guilty apart from forwarding a copy of the report to the concerned CVOs and/or CBI, if so warranted.
Reasons for the order:
3. In a similar case relating to M/s. Apar Limited, another Bench in its Order No. C-III/1170 to 1173/WZB/2003 dtd. 01/08/2003 has waived pre-deposit of the interest and penalty imposed on the importers on the ground that the entire duty amount of Rs. 72,45,465/- was deposited by the importer. In connected appeals, another Bench of the Tribunal in Order No. C-I/2905-2906/WZB/2003 dtd. 05/12/2003 has directed Shri Kirit Srimankar and Shri R.C. Jain to make a pre-deposit of 25% of the penalties imposed on them for their role in the fraudulent grant and sale of D.E.P.B.
4. The Government of India operates several export promotion schemes which are jointly operated by the Department of Revenue (through the Customs Department) and the Department of Commerce (though the D.G.F.T.). The main objective of these schemes is promotion of exports against receipt of foreign exchange. These schemes either allow drawback/rebate of duty paid on inputs used in the export products or allow import of such inputs duty free. In this case, we are concerned with the Duty Exemption Pass Book (D.E.P.B.) scheme. Under this scheme, a Duty Exemption Pass Book is issued to an exporter with provisional credits for utilizing towards payment of duty on imported goods to be used in the export product. The relevant Notification No. 34/97-Cus dts. 07/04/1997 contains several conditions, one of the important conditions binds the importer to pay duty along with 24% interest p.a. if there is failure to make export.
5. The scheme also permits prior exports against which D.E.P.B. is issued containing credits at the rates notified for the relevant export product. Such credits can be utilized by the exporter himself or the D.E.P.B. with credits can be transferred by sale and the transferee can pay duty on goods imported by him utilizing the credit from the transferred D.E.P.B. The main features of the D.E.P.B. Scheme as operated under the aforesaid Customs exemption Notification and the relevant Exim Policy are the following :-
(a) Duty exemption under the scheme is available against export of goods.
(b) The exemption is to be availed by debiting credits which is to be earned at the specific rate notified for the relevant product which is exported.
(c) The D.E.P.B. credit is subject to realization of export proceeds. If the export proceeds are not realized within six months or such extended period as allowed by R.B.I., the D.E.P.B. holder has to pay cash equivalent of the credit amount.
6. In the instant case, it is not in dispute that nothing has been exported and no export proceeds have been realized. In fact, it is on record that the shipping documents and bank realization documents showing export proceeds submitted for obtaining D.E.P.B. were forged. There is thus no dispute that the basic conditions for grant of duty exemption under the relevant customs Notification No. 34/97 have not been fulfilled. As no export has taken place, there is also no basis available for grant of any credit or for even calculating the credit amount which is dependent on the rate notified for different export products. When nothing has been exported, no credit amount can be calculated or granted.
7. Shri Prakash Shah, learned Advocate for M/s. De-Nocil has strenuously argued that the appellants are transferees who have purchased the D.E.P.B. in good faith from the market, that the D.E.P.B.s in question were genuinely issued by the D.G.F.T. authorities, that the D.E.P.B.s have been cancelled only after the importation has taken place and that the transferees are entitled to import the impugned goods duty free against such transferred D.E.P.B.s even though no export has taken place and no export proceeds have been realized. In support of his claim, he relies on the decision of the Hon'ble Bombay High Court in the case of Taparia Overseas (P) Ltd. and others v. U.O.I. and others - 2003 (2) Bom.C.R. 7 and also on various decisions of the Apex Court cited in the said order of the Hon'ble Bombay High Court. We, however, find that the said decision of the Hon'ble Bombay High court was rendered in the context of importability of goods under R.E.P. Licences issued under Exim Policy relating to 1985-88. In the said case, the main challenge was to 'that action of the Revenue withholding the clearance of the goods described as "Polyester Filament Yarn" imported by the petitioners under the licences acquired and held by them as transferees for value without notice of the alleged frauds' as recorded in the very first paragraph of the said decision of the Hon'ble High Court. However, in the present case, there is no dispute relating to clearance of goods under any licence. The D.E.P.B. Scheme is primarily concerned with grant of duty benefit subject to export taking place and the amount of duty benefit is linked to the notified rates for relevant export product which is based on the duty on the inputs used in such export product. D.E.P.B. is not a licence, it is a mere pass book showing credit of duty earned on export which can be utilized for paying duty on imported goods. In case, the imported goods required licence for import, the same has to be obtained separately. As such, we are of the prima facie view that the cited decision of the Honourable Bombay High court rendered in the context of withholding imports made by transferees of R.E.P. licences acquired fraudulently cannot be applied for grant of customs duty exemption under Notification No. 34/97 dtd. 07/04/1997 issued in the context of D.E.P.B. Scheme.
8. Shri Hitesh Shah, Learned S.D.R. has cited the decision of ICI India Ltd. v. C.C. Calcutta - 2003 (151) ELT 336 which has been rendered in the context of imports under fake D.E.P.B. As such, it covers a situation different from the present case where the D.E.P.B. is not fake but it has been issued on the basis of fake shipping documents and fake bank remittance documents. However, we take note of his submissions to the effect that D.E.P.B.s issued on the basis of fake documents would not acquire legal validity, in view of the Apex Court decision in New India Assurance Co. v. Kamala & Others 2001 (4) SCC 342 cited in the said decision of the Tribunal. We also note that in the said decision, the Tribunal has referred to fake D.E.P.B. licences, but we presume that this is through inadvertence as the Duty Exemption Pass Book is not a licence as observed by us in the preceding paragraph.
9. We have also perused one of the cancellation orders issued by the Deputy D.G.F.T. in respect of four related D.E.P.B.s issued in the name of Sipla Exports and Marketing. The order reveals that not only no export has taken place and no remittance received but the notice for cancellation issued to the D.E.P.B. holder was received back with the remark from postal authority "Left/Not known". On a visit by a team of D.G.F.T. officials to the office and residential addresses as given in the application for D.E.P.B., it was found that no such firm was at the given address in existence. The addresses given were fictitious and fabricated. Apart from the export documents and bank realisation papers being bogus and fabricated, it is clear that the transferers of D.E.P.B.s are non-existent and fictitious.
10. A plea was also made by Shri Prakash Shah, the learned advocate that transfer of the D.E.P.B. was not governed by any statutory provision and hence it has to be governed by common law. However, this contention was vehemently opposed by the learned D.R. stating that the transfer was in terms of the Exim Policy 1997-2002 which is a part of the statute in view of the specific provision under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992. He also states that apart from the transferers being fictitious and non existent, the transfer of the D.E.P.B.s in violation of the Exim Policy, which is not part of the law, amounts to a legal fraud.
11. Shri Prakash Shah, the learned Advocate also advanced the argument that there are two sets of Show Cause Notices and that even though the first set of notices was within the time limit, the second notice was issued beyond the normal time limit of six months which invoked liability to penalty and interest. We are of the prima facie view that the extended time under Section 28 of the Customs Act, 1962 is applicable since the said Section refers to "collusion or any wilful mis-statement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter".
Moreover, we note that the duty demands were issued under the first set of notices within the time limit and there is not time limit prescribed for initiating penal action under the Act.
12. We are thus of the prima facie view that the impugned goods are liable to pay duty even though the transferred who was imported the impugned goods may not have a role in obtaining the D.E.P.B.s by forging shipping documents and bank remittance papers. In view of the Apex Court decisions in :-
i) Nova Pan India Ltd. v. CCE, Hydrabad - 2002-Taxindiaonline-89-SC-CX, and
(ii) Rajasthan Spinning and Weaving Mill v. CCE - 1995 (58) ECR 569 (SC), We are of the view that the conditions of the exemption Notification No. 34/97-Cus dt. 07/04/1997 has to be strictly applied and since no exports have been made, the duty exemption under the said notification cannot be allowed.
13. The learned advocate for the other appellants pleaded for waiver of pre-deposit of penalty on the ground of financial hardship. Income Tax Return were also submitted on their behalf showing meager incomes. However, the learned S.D.R. strongly opposes the prayer for waiver of pre-deposit on the ground that the statements recorded clearly reveal that the appellants were instrumental in obtaining the impugned D.E.P.B.s on the basis of forged and fake documents and for their subsequent sale and the each of them had received substantial amount by way of commission. He further states that the income tax returns showing ridiculously low income only means that apart from abetting the customs fraud, the appellants are also not reflecting their true income in the Return to the Income Tax Department and are evading income tax. He states that since the appellants received substantial amounts from illegal acquisition and sale of D.E.P.B.s they should be asked to pre-deposit the penalties levied on them. We find force in the submissions made by the learned S.D.R.
14. In view of the foregoing, we hold that the appellants have not succeeded in making out a case for complete waiver of duty, interest and penalty. Accordingly, we direct M/s. De-Nocil to pre-deposit Rs. 50 Lakhs towards duty amount and furnish bank guarantee for the balance duty, and direct the other appellants to pre-deposit 25% of the penalty amounts, in terms of our directions contained in paragraph 2(i) and (ii) above.
15. Before parting with the case, we not that though no exports have been made and no foreign exchange has been received, yet D.E.P.B.s have been issued to fictitious and non-existent firm on prior export basis and subsequently, these D.E.P.B.s have been utilised for importing large quantity of imported goods duty free without any verification of the export documents or bank remittance details by either the D.G.F.T. officials or the Customs officials. We also note that some of the transfer documents have been signed by Bank officials purporting to verify the signature of the transferers. However, we find out to utter surprise that the Show Cause Notices issued do not bring out the role of any of the D.G.F.T. officials, Customs officials or the Bank officials in the grant of such D.E.P.B.s issued on the basis of fraudulent shopping documents and Bank remittance papers and subsequent grant of duty exemption of a huge amount at the time of clearance of the impugned imported goods. We also note that this is not an isolated case as there are other similar cases cited in paragraph 3 above. Shri Prakash Shah, the learned advocate for M/s. De-Nocil had in fact argued that duty exemption should be allowed since the D.G.G.T. and Customs officials had issued the D.E.P.B. and had failed to verify the authenticity of shipping documents and Bank remittance papers. We are of the view that such action and omission on the part of defaulting individual D.G.F.T. officials and Customs officials cannot be a ground for extending duty exemption when the conditions of the exemption notification issued in public interest are not met. Public exchequer cannot be allowed to be defrauded merely because some officials have either been negligent or collusive in their acts or omissions. At the same time, we are of the firm view that the acts and omissions. At the same time we are of the firm view that the acts and omissions of the concerned D.G.F.T., Customs and Bank officials resulting in loss of customs duty should be through investigation and necessary action should be taken against the defaulting officials, if so warranted, both under the Customs Act, 1962 as well as under the relevant Conduct Rules. Hence, our directions as contained in paragraph 2 (iii) above. The Registry shall send a copy of this order to the Chief Commissioner of Customs, Nhava Sheva, by name in view of our directions.