Customs, Excise and Gold Tribunal - Delhi
Ici India Ltd. vs Commissioner Of Customs on 26 September, 2002
Equivalent citations: 2002ECR834(TRI.-DELHI), 2003(151)ELT336(TRI-DEL)
ORDER P.G. Chacko, Member (J)
1. The brief facts of the case are as follows :- The appellants are manufacturers of paints and allied products. The raw material requirements for the manufacture are met mainly by imports. Since October, 1999, the appellants imported certain raw materials and cleared the same duty-free by availing exemption under Notification No. 34/97-Cus., dated 7-4-97 which provided for duty-free imports of raw materials against credit earned by any exporter and certified by the Director-General of Foreign Trade (in short, DGFT) under the Duty Exemption Pass Book (in short, DEPB) Scheme in terms of the relevant provisions of Exim Policy 1997-2002. Post-export DEPB certificates/scrips/licences issued by the DGFT to an exporter were transferable in the market and a transferee-importer was entitled, under the above Notification, to utilise the certified credit for paying basic customs duty and surcharge on imports of non-restricted items of raw materials. The imports made by the appellants without payment of duty were on the strength of four DEPB scrips procured from the market. In early 2000, the Customs authorities, through investigation, found the DEPB scrips to be forged and fake and issued four show cause notices (SCNs) for recovering a total duty amount of Rs. 70,39,862/- from the appellants under Section 28(1) of the Customs Act, holding the imported goods to be liable to confiscation under Section 111(o) of the Act and for imposing penalties on the party under Sections 112(a) and 114A of the Act. The appellants hotly contested the SCNs, maintaining that they had not violated any condition under the notification and hence they were entitled to the benefit of exemption and were not liable to any penal action. Ld. Commissioner of Customs who adjudicated the dispute found against the party and passed Order No. 37/2000, dated 25-5-2000 confirming the above demand of duty against them under Section 28(2) and imposing on them a penalty of equal amount under Section 114A besides holding the goods to be liable to confiscation under Section 111(o). Hence the present appeal.
2. We have carefully examined the records and heard both sides.
3. Ld. Commissioner's findings in support of the above order can be summarized as under : -
(a) The appellants cleared their imported raw materials without payment of duty by availing DEPB credits, totalling to Rs. 70,39,862/-, under the following four DEPB licences/scrips :
(i) No. 0210004562, dated 6-7-99 issued in the name of M/s. Hindalco Industries Ltd. and transferred in favour of the appellants.
(ii) No. 0210004560, dated 7-7-99 issued in the name of M/s. Hindalco Industries Ltd. and transferred in favour of the appellants.
(iii) No. 0210004698, dated 14-7-99 issued in the name of M/s. S.B. Agro (India) Ltd. and transferred in favour of the appellants.
(iv) No. 0210005770, dated 3-9-99 issued in the name of M/s.
S.B. Agro (India) Ltd. and transferred in favour of the ap-
pellants.
(b) The above licences were forged and fake as confirmed by M/s. Hindalco Industries Ltd. and M/s. S.B. Agro (India) Ltd. as also by the DGFT.
(c) The duty exemption availed under Notification No. 34/97 on the strength of the above forged and fake licences is a nullity in law and the entire duty with interest is payable by the appellants.
(d) As the licences had not been issued at all by the licensing authority (DGFT), the conditions of the above notification were ab initio violated and, on account thereof, the goods in question were liable to confiscation under Section 111(o) of the Customs Act.
(e) The appellants are liable to penal action under Section 114A of the Customs Act for their complicity in the evasion of Customs duty.
4. The finding of fact mentioned at 3(a) above is not under challenge, nor is it the appellants' case that the subject licences were issued by the competent licensing authority. On our part, we have examined the evidence on record and have found that the Commissioner's finding at 3{b) above is supported by unrebutted evidence. It has been found beyond doubt that the DEPB licences in question had not been issued by the DGFT and were forged documents. It was reported by the DGFT's office that the licences in question had not been issued to M/s. Hindalco Industries Ltd. or M/s. S.B. Agro (India) Ltd. and it was deposed by senior functionaries of these companies that they had not transferred any such licences to the appellants. It was also proved that the signatures shown as that of transferor in the transfer letters were forged and further that the bank accounts cited in the said letters, as the bank accounts of transferors, were bogus. The appellants stated under Section 108 of the Customs Act that they had purchased the licences through M/s. Classic International and M/s. James Enterprises and that the payments were made through banks. But further enquiries made with reference to the addresses of these two firms as seen in the bank records proved that the firms did not exist at such addresses. None of these investigative findings has been challenged by the appellants. We, therefore, uphold ld. Commissioner's finding that the licences were forged and fake.
5. The appellants' case now is that the DEPB scrips were duly verified and endorsed by the proper officer of Customs in accordance with the established procedure and, therefore, the benefit of credit of duty taken in good faith by the appellants on the strength of the scrips cannot be denied to them, They have availed the benefit under Notification No. 34/97, in the manner prescribed by law and any denial of the benefit to them will be barred by promissory estoppel. The assessment of duty had attamed finality and the same could not be reopened under Section 28 of the Customs Act. Any fraud in relation to the DEPB scrips is not attributable to the appellants. The conduct of the Customs officer who certified and endorsed the scrips has contributed to the fraud if any. The appellants should not be asked to suffer on account of any illegal or improper action of any officer of Customs. In support of these contentions of the appellants, ld. Counsel, Shri A.R. Madhav Rao has relied on the Madras High Court's decision in Agfa-Gavert India Limited v. State of Tamil Nadu, 2001 (123) STC 108 as well as the apex Court's judgment in State of Madras v. Radio and Electricals Ltd., 1966 (18) STC 222 (S.C.). Ld. Counsel has also cited the following decisions of the Supreme Court: -
(i) Hindustan Sugar Mills Ltd. v. State of Rajasthan, (1979) 43 STG 13 (S.C.).
(ii) Rathi Alloys and Steel Ltd. v. C.C.E., Jaipur, 1990 (47) E.L.T. 205 (S.C.) = 1990 (2) SCC 324.
(iii) Priyanka Overseas Pvt. Ltd. v. Union of India, 1991 (51) E.L.T. 185 (S.C.).
(iv) Kuil Fireworks Industries v. CCE, 1997 (95) E.L.T. 3 (S.C.).
Reliance has been placed on the cited decisions to drive home the point that the customs authorities cannot be allowed to take advantage of their own wrongful acts and that, in the facts and circumstances of the case, the adjudicating authority ought to have allowed the DEPB benefit to the appellants on equitable considerations.
6. Ld. JDR, Shri V.K. Verma has opposed the above arguments by seeking to distinguish the decisions cited by the Counsel as well as on the strength of the findings of the adjudicating authority.
7. The challenge in this appeal is, indeed, only against the adjudicating authority's findings noted at (c), (d) and (e) in Para 3 above. The main issue which we have to examine in the case is as to whether the benefit of exemption availed by the appellants under Notification No. 34/97 on the strength of fake DEPB scrips should be held to be admissible to them by reason of the fact that the proper officer of Customs verified and endorsed the scrips. We have examined this issue. A fake document is ab initio unlawful and void. Any amount of official action upon such a document cannot sanctify it or otherwise make it lawful. Such a document cannot give rise to any right or benefit in law. This is the legal position settled by the Hon'ble Supreme Court in New India Assurance Co. v. Kamla and Ors., 2001 (4) SCC 342. In that case, the main issue which was considered by their Lordships, with reference to relevant provisions of the Motor Vehicles Act, 1988, was as to whether a fake driving licence would get legally sanctified by reason of its renewal by the statutory authority. Their Lordships gave their ruling in Para 13 of their judgment as under : -
"The observation of the Division Bench of the Punjab and Haryana High Court in National Insurance Co. Ltd. v. Sucha Singh [1994 ACJ 374 (P & H)] that renewal of a document which purports to be a driving licence, will robe even a forged document with validity on account of Section 15 of the Act, propounds a very dangerous proposition. If that proposition is allowed to stand as a legal principle, it may, no doubt, thrill counterfeiters the world over as they would be encouraged to manufacture fake documents in a legion. What was originally a forgery would remain null and void forever and it would not acquire legal validity at any time by whatever process of sanctification subsequentty done on it. Forgery is antithesis to legality and law cannot afford to validate a forgery ."(emphasis supplied)
8. Following the above ruling, we hold that the DEPB "licences" which have been found to be forged and fake documents are null and void ab initio and whatever verification or other proceedings made or taken on the documents by any authority in the Customs department has not had any effect whatsoever on the inherent nullity of the "licences". No right or benefit could accrue from the null and void "licences". In other words, no credit of duty was available to the appellants under the forged DEPB scrips. The paramount condition under Notification No. 34/97 remained unfulfilled and consequently the appellants were not entitled to the benefit of exemption under the notification. The appellants were liable to pay duty on the imported goods. The Commissioner's order confirming the demand of duty is legally correct and hence cannot be interfered with.
9. All the decisions cited by the Counsel are distinguishable. In none of those cases did any statutory authority act upon any forged document so as to enable any person to derive any benefit thereunder. In particular, we note that/ in the cases of Hindustan Sugar Mills, Rathi Alloys & Steel and Priyanka Overseas, the Apex Court was applying principles of equity. In Hindustan Sugar Mills, the Court found that the Government had no legal liability to refund to the assessee the sales tax collected on freight. Nevertheless, the court desired that, on considerations of fairness and justice, a legalistic attitude might not be adopted by the Government to defeat the assessee's claim for reimbursement of tax. In Rathi Alloys also, the Apex Court was applying the rule of fairness in the peculiar facts and circumstances of the case while discharging a demand notice which the Central Excise department had issued to the assessee. Significantly, the court made it explicit in that case that its decision was not to be a precedent. In Priyanka Overseas, again, equity was pressed into service to do complete justice between the parties. The precedent of Priyanka Overseas was agreed by the department (represented by Additional Solicitor-General) to be followed in Kuil Fireworks Industries (supra) also. Thus the Apex Court's decisions relied on by ld. Counsel are all decisions rendered by the Court on equitable considerations. This Tribunal cannot function like a court of equity and has got to strictly apply the principles of taxation within the parameters set by the statute. Moreover, equity will not work in favour of a party who plays fraud or seeks to eat the fruit of a fraudulent act committed by someone else. In the instant case, the appellants cannot even claim the sympathy of a court of equity as they were defrauding the Revenue by availing credit under forged documents.
10. In the SCNs, there was a proposal under Section 124 of the Customs Act to confiscate the imported goods under Section 111(o) of the Act. The adjudicating authority has found the goods liable to such confiscation. We do agree with this finding as we have found that the paramount condition under the notification was not fulfilled by the importer. However, we note, the adjudicating authority has not examined under Section 125 the question whether the goods were redeemable on payment of a fine.
11. Ld. Commissioner imposed penalty equal to duty on the appellants under Section 114A "having regard to the liability of the impugned goods to confiscation under Section 111 (o) of the Customs Act." We find that any liability of the goods to confiscation under Section 111 is no ground for imposing a penalty under Section 114A. However, we notice the finding recorded by the Commissioner as to the appellants' complicity in the evasion of customs duty. We have to examine whether this finding would suffice to invoke Section 114A which reads :
"Section 114A. Penally for short-levy or non-levy of duty in certain cases. - Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful misstatement t or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under Sub-section (2) of Section 28 shall also be liable to pay a penalty equal to the duty or interest so determined".
For a penalty to be imposed on any person under the above provision of law, any of the three specific acts viz. collusion, wilful misstatement and suppression of facts should be proved against that person. The allegation in the SCNs is that the appellants had colluded with non-existent firms. There is no allegation of misstatement or suppression of facts. Vis-a-vis the charge of collusion, the Commissioner's finding is to the effect that the appellants' indifference and reluctance in initiating action against the brokers or other suspects are suggestive of their complicity in the evasion of Customs duty. The Commissioner has not found that the appellants colluded with any determinate person or persons, whether natural or juristic, in forging the scrips and/or using the same for evading payment of duty. What the adjudicating authority ought to have established, in this case, for the purpose of penalizing the appellants under Section 114A was that the non-levy of customs duty on the imported raw materials at the time of clearance thereof was due to collusion as aforesaid. The adjudicating authority could not do so. The sine qua non of a penalty under Section 114A having not been fulfilled, we set aside the penalty imposed by the Commissioner.
12. The Commissioner has directed the appellants to pay interest on the duty as well. We note that in this appeal there is no challenge to the demand of interest. The SCNs demanding duty were issued under Section 28(1) of the Customs Act. The Commissioner has confirmed the demand on 25-5-2000 under Section 28(2). The appellants are liable under Section 28AA of the Act to pay interest on the duty amount from 25-8-2000 till the date of payment of duty.
13. In the result, we dispose of the appeal as under :-
(a) The duty demand as confirmed by the adjudicating authority is affirmed. The appellants shall, within three months from the date of receipt of this order, pay up the duty with interest from 25-8-2000 at such rate as prescribed under Section 28AA of the Customs Act;
(b) The order of confiscation of goods is affirmed. The adjudicating authority is directed to examine the question of redeemability of the goods under Section 125 after giving the party a reasonable opportunity of being heard on the said limited question.
(c) The penalty imposed on the party under Section 114A is set aside.