Madras High Court
Tvs Motor Company Ltd vs Joint Director Of Foreign Trade on 11 July, 2022
Author: Anita Sumanth
Bench: Anita Sumanth
W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 11.07.2022
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
TVS Motor Company Ltd.
Represented by R.Murali,
General Manager (Legal),
P.B.No.4, Harita,
Hosur – 635 109,
Tamil Nadu. ... Petitioner in all W.Ps
Vs
1.Joint Director of Foreign Trade,
B.K.Raiport, 6-7, Asaf Ali Road,
New Delhi.
2.The Commissioner of Customs,
Sea Port – Export,
Custom House,
New No.60, Rajaji Salai,
Chennai – 600 001.
3.The Deputy Commissioner of Customs,
(Gr.7B) Custom House,
New No.60, Rajaji Salai,
Chennai – 600 001. . .. Respondents in W.P.No.24936 of 2007
1.Joint Director General of Foreign Trade,
Government of India, Ministry of Commerce & Industry,
Department of Commerce,
6-IV-C, Green Fields, Ludhiana – 141 002, Punjab.
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W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
2.The Joint Commissioner of Customs,
(SIIB) Custom House,
New No.60, Rajaji Salai,
Chennai – 600 001. ... Respondents in W.P.No.24937 of 2007
1.Joint Director of Foreign Trade,
1st Floor, KendriyaSadan, Sultan Bazar, Koti,
Hyderabad.
2.The Commissioner of Customs,
Sea Port – Export,
Custom House,
New No.60, Rajaji Salai,
Chennai – 600 001.
3.Directorate of Revenue Intelligence,
(Zonal Unit) 25, Gopalakrishna (Iyer) Road,
T.Nagar, Chennai – 600 017. ... Respondents in W.P.No.24938 of 2007
1.Joint Director of Foreign Trade,
C-IV, C Green Field,
Pakhowal, Ludhiana.
2.The Commissioner of Customs,
Sea Port – Export,
Custom House,
New No.60, Rajaji Salai,
Chennai – 600 001.
3.The Deputy Commissioner of Customs,
(Gr.7B) Custom House,
New No.60, Rajaji Salai,
Chennai – 600 001. ... Respondents in W.P.No.20056 of 2007
1.Government of India,
Ministry of Finance (Department of Revenue),
New Delhi – 110 001.
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W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
2.The Commissioner, Central Excise & Custom,
Surat-1, Room No.303, 3rd Floor,
New Central Excise Building,
Opposite Gandhi Baug,
Chow Bazar, Surat – 395 001.
3.The Additional Commissioner of Customs,
Custom House,
New No.60, Rajaji Salai,
Chennai – 600 001.
4.Joint Director of Foreign Trade,
634-636, Belgium Tower, Ring Road,
Surat – 395 003.
5.The Directorate of Revenue Intelligence,
Regional Unit: Surat, Gurukrupa Building,
Sangana Society Nr.Navyug College,
Rander Road, Surat – 395 009 ... Respondents in W.P.No.29866 of 2008
PRAYER in W.P.No.24936 of 2007: Writ Petition filed under Article 226 of the
Constitution of India, to issue Writs of Certiorarified Mandamus, calling for the
records of the impugned order dated 19.04.2022 bearing reference
F.No.MISC.1(68)/DRI/AM01/ECA/CLA of the 1st respondent as far as it seeks to
cancel DEPB Licence No.0510026492 dated 18.10.2000, DEPB Licence
No.0510027337 dated 08.11.2000, DEPB Licence No.0510027799 dated 23.11.2000,
DEPB Licence No.0510027546 dated 15.11.2000, DEPB Licence No.0510027232
dated 07.11.2000, DEPB Licence No.0510027544 dated 15.11.2000, DEPB Licence
No.0510027545 dated 15.11.2000, DEPB Licence No.0510027798 dated 23.11.2000
and quash the same and to forbear the 2nd respondent or any other officers of the
Customs Department from proceeding further with show cause notice dated
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W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
09.09.2003 bearing reference SCN No.SIIB/51/2003/SCN/SIIB/562003 issued by the
2nd respondent.
PRAYER in W.P.No.24937 of 2007: Writ Petition filed under Article 226 of the
Constitution of India, to issue Writs of Certiorarified Mandamus, calling for the
records of the impugned Order-in-Original bearing reference F.No.9/61/A
M.2003/ECA/JTDGFT/LDH/130 643 to 130 651 dated 14.01.2005 passed by the first
respondent insofar as it seeks to reduce the DEPB credit to the extent of Rs.7,03,364/-
from Rs.10,06,243/- in DEPB Licence No.3010005210 dated 14.08.2000 and forbear
the second respondent from proceeding further with show cause notice dated
14.07.2005 bearing reference SIIB/27/2005, SCN/SIIB/70/2005 (Job No.4274/2005),
SCN/SIIB/443/2005.
PRAYER in W.P.No.24938 of 2007: Writ Petition filed under Article 226 of the
Constitution of India, to issue Writs of Certiorarified Mandamus, calling for the
records of the impugned order dated 13.05.2022 bearing reference F.No.(21)
ECA/2001-02/Hyd/87 passed by the first respondent insofar as it seeks to cancel
DEPB Licence No.0910004791/04/06/008 dated 21.12.2000 and to quash the same
and to forbear the 2nd respondent or any other officer of the Customs Department from
proceeding further with show cause notice dated 17.09.2003 bearing reference
F.No.VIII/26 5 (Chennai)/03-H.R.U. issued by the 3rd respondent.
PRAYER in W.P.No.20056 of 2007: Writ Petitions filed under Article 226 of the
Constitution of India, to issue Writs of Certiorarified Mandamus, calling for the
records of the impugned order dated 03.12.2001 bearing reference
F.No.9/121/AM2001/ECA/LDH/37678, 79 of the 1st respondent as far as it seeks to
cancel DEPB Licence No.3010006027 dated 29.09.2000 & 3010006022 dated
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W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
29.09.2000 and to quash the same and to forbear the 2nd respondent from proceeding
further with show cause notice dated 19.03.2004 bearing reference SCN
No.DEPB/Misc./336.
PRAYER in W.P.No.29866 of 2008: Writ Petitions filed under Article 226 of the
Constitution of India, to issue Writs of Certiorarified Mandamus, calling for the
records of the impugned order dated 01.06.2006 bearing reference
No.9/63/AM2007/ECA/SRT of the 4th respondent as far as it seeks to cancel DEPB
Licence No.5210003708 dated 17.05.2002, DEPB Licence No.5210003732 dated
21.05.2002 and DEPB Licence No.5210003840 dated 03.06.2002 issued by the 4th
respondent and quash the same and to forbear the 2ndrespondent or any other officers
of the 1st respondent from proceeding further with show cause notice dated 20.04.2007
bearing reference SCN No.DRI/SRU/INV-2/2005 issued by the 5th respondent.
W.P.Nos. For Petitioner For Respondents
W.P.Nos.24936, Mr.G.Shivadass Mr.V.Chandrasekaran
24937 of 2007 Senior Advocate Senior Panel Counsel – R1
and Mr.N.Prasad Mrs.R.Hemalatha
for Mr.R.Bharanidaran Senior Standing Counsel – R2
W.P.Nos.24938 Mr.G.Shivadass Mr.V.Chandrasekaran
and 20056 of 2007 Senior Advocate Senior Panel Counsel – R1
and Mr.N.Prasad Mrs.R.Hemalatha
for Mr.R.Bharanidaran Senior Standing Counsel – R2
& R3
W.P.No.29866 of Mr.G.Shivadass Mr.B.Rabu Manohar
2008 Senior Advocate Senior Central Govt. Standing
and Mr.N.Prasad Counsel - R1
for Mr.R.Bharanidaran Mrs.R.Hemalatha
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W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
W.P.Nos. For Petitioner For Respondents
Senior Standing Counsel – R2
& R3
Mr.V.Chandrasekaran
Senior Panel Counsel – R4
No appearance - R5
COMMON ORDER
This is a batch of five writ petitions filed challenging orders-in-original passed by R1, being Joint Director of Foreign Trade and a show cause notice issued to the petitioner by the second respondent, the Joint director of Customs.
2. At the time of admission, interim protection was granted to the petitioner in respect of WP.Nos.20056, 24937, 24938 of 2007 & 29866 of 2008 directing that the proceedings may go on but a final order not be passed. This benefit was not extended to the petitioner in W.P.No.24936 of 2007 and hence the authorities have proceeded to pass an order, that came to be contested by the petitioner before the appellate authorities.
3. Ultimately, an order has come to be passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in favour of the petitioner on 11.01.2018. With this, W.P.No.34936 of 2007 is rendered infructuous and the same is dismissed as 6 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 such. No appeal appears to have been filed by the revenue challenging the aforesaid order and hence the same is stated to have attained finality.
4. As far as remaining WP.Nos.20056, 24937, 24938 of 2007 & 29866 of 2008 are concerned, the relevant facts necessary to consider and decide the issues are as follows:
(i) The petitioner had purchased duty entitlement passbooks (DEPB) from various entities from open market. The purchase was through its customs house agents.
(ii) The purchase was bonafide, in the sense that the parties are unrelated and there is no allegation in regard to there being any connection whatsoever between the petitioner and the vendor from whom scrips were purchased.
(iii) The petitioner utilised the scrips and engaged in exports and no challenge has been raised nor any response sought in regard to those transactions of export even as per counter filed by the respondents.
(iv) While this is so, R1 appears to have come to know that the scrips have been issued to the original vendor on the basis of misrepresentation and suppression of facts by that vendor.
(v) The original vendor had been required to establish that the sale proceeds of the export transactions based upon which it had applied for the scrips had been received and had, apparently, furnished forged certificates from the bank in this regard.7
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(vi)This fact came to light only later as a result of which a show cause notice had been issued to the original vendors on various dates being 22.01.2001 (in respect of DEPB licence No. 3010006027 dated 29.09.2000 and 3010006022 dated 29.09.2000), 20.10.2003 (in respect of DEPB licence no. 3010005210 dated 14.08.2000), 25.01.2002 (in respect of DEPB licence no. 091000, 4781/04.06.008 dated 21.12.2000) and dated nil (in respect of DEPB Licence No. 5210003708 dated 17.05.2002, 5210003732 dated 21.05.2002, 5210003840 dated 03.06.2002).
(vii) While the petitioner has obtained copies of the notices in the 1st, 2nd, 3rd and 5th instances as above, it has not been successful in obtaining a copy of the notice in instance 4 above.
(viii)The petitioner was entirely unaware of the proceedings that had been launched as against the original vendor. The show cause notices culminated in the impugned orders of assessment dated 14.01.2005, 13.05.2002, 03.12.2001, and 01.06.2006 respectively.
(ix) Consequent upon the aforesaid orders in original, show cause notices have been issued by the authorities to the petitioner on 14.07.2005, 17.09.2003, 19.03.2004 and 20.04.2007 respectively, impugned in these writ petitions.
5. The petitioner argues that it is a bona fide purchaser who has transacted in the purchase of the scrips for valuable consideration. It was unaware at the time of purchase that there was fraud or suppression of facts in relation to the scrips. 8 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 Handbook of procedure provides for application of mind at the time of issuance of the scrips and the authorities are required to take note of any suspicious circumstances that would cast a cloud on the issuance of the scrips itself.
6. Thus, the issuance of the scrips to the original vendors would itself tantamount to a presumption that the validity of the scrips had been fortified and found to be acceptable by the authorities. Furthermore, the scrips are valid for a period of twelve months only and in the present case the impugned orders in original have all been passed after the expiry of twelve months. Thus, an order passed as against an invalid scrip would itself lose all force.
7. That apart, the show cause notices have been issued long past the relevant date, being the date of importation by the petitioner. An assessment is required to be made two years from the relevant date, that is, the date of the transaction in question. An extended period of five years is provided in those cases where the conditions set out in the proviso to Section 28A (1) are satisfied, being suppression, collusion or misrepresentation. In the present case, there is no allegation to this effect and hence, the impugned proceedings are vitiated on this ground as well.
8. Per contra, Mr.V.Chandrasekaran, learned Senior Panel Counsel appearing for R1 and Mrs.R.Hemlatha, learned Senior Standing Counsel appearing for R2 would 9 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 defend the impugned orders pointing out that the factum of fraud and collusion in this case is unquestionable. The impugned orders in original set out clearly the instances of fraud perpetrated by the exporter, that is, the original vendor and hence the proviso condition, according to them, has been satisfied in full.
9. That apart, reliance is placed by Mrs.Hemlatha on two judgments of the Hon’ble Supreme court in the cases of Radhakrishna Industries Vs. State of Himachal Pradesh, (2021 6 SCC 771) and Union of India and another Vs. Kunnisetty Satyanarayana, [(2006) 12 SCC 28] for the proposition that intervention of the Court at the stage of show cause notice are only in very selective situations such as, violation of principles of natural justice, order being without jurisdiction, the provisions under which the order is passed being unconstitutional, to name a few, that a writ petition would lie. In the present case, none of these conditions have been made out to warrant interference under Article 226 of the Constitution of India.
10. Heard learned counsels and devoted anxious study to the facts and circumstances of the case, the documents filed as well as the case law relied upon.
11. The original vendor has purchased the scrips in compliance of the procedure set out under the Handbook of Procedure to the Export Import Policy 1997-2002. The objectives of the Handbook are set out in para 2.1 thereof, that is, to implement the 10 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 provisions of the Foreign Trade (Regulation, Development and Regulation) Act, 1992 as well as the export policy for the relevant period.
12. The procedure in relation to DEPB scrips set out in paragraphs(1) and (2) of clause 7.38 are relevant and are extracted below:
7.38 DEPB An application for grant of credit under DEPB may be made to the licensing authority concerned in the form given in Appendix-11C alongwith the documents prescribed therein. The provisions of paragraph 7.2 shall be applicable for DEPB also. The FOB value in free foreign exchange shall be converted into Indian rupees as per the authorised dealer's T/T/buying/ on demand buying rate, as the case may be, prevalent on the date of negotiation/purchase/collection of document. The DEPB rate of credit shall be applied on the FOB value so arrived.
The DEPB shall be initially issued with non-transferable endorsement in such cases where realisation has not taken place to enable the exporter to effect import for his own use. However, upon receipt of realisation, the DEPB shall be endorsed transferable. In such cases where the applicant applies for DEPB after realisation, the DEPB shall be issued with transferable endorsement.
13. The procedure makes it clear that once an application is received for grant of credit under DEPB, a scrip is initially issued as a non-transferable endorsement. This is to ensure that the authorities satisfy themselves that the release of the sales proceeds have, in fact, been received.
14.It is only upon confirmation of receipt of export realisations that the scrip shall be endorsed to be non-transferable. This is what has transpired in the present 11 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 case as well. Admittedly and undoubtedly, in my considered view, there is a presumption that the officer endorsing the scrips to be transferable would and should have satisfied himself that the conditions precedent to issuance of the scrips are in order. The endorsement of transferability was made only after such satisfaction by the officer, and the fatal error, in this case, has transpired at this stage, and not at the instance of the petitioner.
15. Separately, the original vendor had forged the bank realisation certificates. In such an event, the fraud is attributable to the original vendor only and not to the petitioner who is a subsequent purchaser. In fact, the impugned show cause notices, in conclusion, attribute fraud only to the original vendor and not to the importer.
16. This would beg the question as to the applicability of the proviso to Section 28 of the Customs Act, 1962 (in short 'Act') in a case such as the present one. Section 28 reads thus:
Section 28. Notice for payment of duties, interest etc.- (1) When any duty has not been levied or has been short-levied or erroneously refunded, or when any interest payable has not been paid, part paid or erroneously refunded, the proper officer may,-
(a) in the case of any import made by any individual for his personal use or by government or by any educational, research or charitable institution or hospital, within one year;
(b) in any other case, within six months, 12 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 from the relevant date, serve notice on the person chargeable with the duty or interest which has not been levied or charged or which has been so short-levied or part paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
Provided that where any duty has not been levied or has been short- levied or the interest has not been charged or has been part paid or the duty or interest has been erroneously refunded by reason of 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, the provisions of this sub-section shall have effect as if for the words “one year” and “six months”, the words “five years” were substituted.
17. Section 28 of the Act sets out the time frame for issuance of notice where there is a short levy or erroneous refund of duty or refund. The time frame is six months from the relevant date. However, the proviso states that where short levy or the erroneous refund is attributable to collusion, willful misstatement or suppression of facts by the importer or the exporter, then the Department has the benefit of five years to take action under Section 28 rather than six months as in other cases.
18. To my mind, there is no doubt on the position that the requirement of collusion or willful misstatement and suppression of facts is required to be satisfied by the respondent Department qua the noticee, that is, the petitioner. In the instant case, while the notice is issued to the importer that is subsequent purchaser, the allegation of collusion, willful misstatement and suppression of facts is made only qua the original vendor. Thus, the proceedings are, in my view, barred by limitation.13
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19. That apart, to my mind, this is a case where the Department has missed the bus. The presumption which is apparent from a reading of Article 7.38 of the Handbook would make it clear that there is a burden cast upon the respondent to fully apply his mind and satisfy himself prior to issuance or endorsing scrips as transferable. If there is an error committed by the authority at that juncture, then the gravity and the burden of that error has to be borne by the Department and cannot be passed on to a subsequent purchaser. In fact, the SCNs issued reveal that action has also been proposed as against named officials of the Customs Department for their role in colluding with the original vendor in the forgery of the BRCs.
20. Finally, the period of scrips is long gone and thus there is absolutely no justification for the Department to retrospectively cancel such non-existent scrips. In such an event, the question that would arise is as to what really, the Department seeks to cancel, as the asset/scrip has expired and is no longer in existence.
21. Reliance is placed on a decision of the Division Bench of this Court in Glory Impex and Others Vs. Commissioner of Customs and Others, [CMA.Nos.567 to 570 of 2017 dated 16.08.2018] wherein the Court had, in conclusion, upheld the liability of the importer to pay duty, though setting aside the penalty. However, I find that the facts are distinguishable when compared with the facts of the present case as recorded in paragraph 14.02 extracted below:
14
https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 14.02. Materials on record revealed that neither investigation nor process of investigation was challenged to be perverse. Modus Operandi of all the appellants proved to be male fide due to various dubious practices adopted and secret arrangements made without genuine DEPB scrips presented to Chennai customs and clearance of imports were made without genuine DEPB scrips acquired. What was apparent was not proved to be real. Chain of evidence established nexus of the persons involved to serve their illwill. Investigation brought out entire deliberate acts and omissions of appellants to the fold of law. Nexus of each other ad their close proximity came to light by cogent evidence gathered by DRI during investigation and very minutely evaluated and assessed by learned Adjudicating Authority in the adjudicating process.
22. There is an unambiguous findings of fact to the effect that the appellants in that case (the subsequent purchasers) were engaged in dubious practices and secret arrangements and the nexus between those entities and the fraudulent acts have been clearly established by the revenue in that case. This is absent in this case and in fact, there is not even an allegation of collusion, willful misstatement or suppression of facts in the present case.
23. Learned Senior Standing Counsel relies on a series of cases as follows:
(i) Commissioner of Customs (Preventive) V. M/s.Aafloat Textiles India Private Limited and others (2009 (235) ELT 587 (SC)
(ii) M/s.Friends Trading Co. V. The Union of India and others (2011 SCC Online P & H 1985)
(iii) ICI India Limited V. Commissioner of Customs (Port), Calcutta &Ors. (2004 SCC Online Cal 560) 15 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
(iv) Golden Tools International V. Joint DGFT, Ludhiana (2005 SCC Online P & H 1372)
(v) Munjal Showa Ltd. V. Commr. Of C.Ex. (Delhi – IV), Faridabad (2008 SCC Online P & H 2155)
(vi) Commissioner of Customs, Kandla V. M/s. Essar Oil Limited & others (2004 (11) SCC 364)
24. The first judgment in the case of Aafloat Textiles (supra) authored by Justice Arijit Pasayat (as he then was) confirms an order passed by the Customs, Excise and Service Taxes Appellate Tribunal (Mumbai) (CESTAT). The challenge was on the ground that the scrips themselves stood vitiated since they had been forged.
Thus the very substratum of the transaction fails and in such a case, the benefit of extended limitation must be available to the Department.
25. The Bench examined the question of fraud, noticing that fraud constitutes an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a cheating intended to get an advantage. Fraud vitiates every solemn act. After some deliberation, the Bench noted that caveat emptor qui ignorare non debuitquod jus alienum emit, cautioning that it is for the purchaser to beware of what he is purchasing and to ensure that the title of what he has purchased, is solid.
26. The arguments advanced are two fold in the context of this judgment. Firstly, that fraud vitiates the transaction at the inception and in such a situation, it 16 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 cannot be said that the extended limitation provided under the proviso to Section 28 is unavailable to the Department. Secondly, that it is for the subsequent purchaser to have been vigilant and ensure that the title to the scrip that he purchased was proper. Thus, on both counts, the Department would submit that the petitioner must fail.
27. Before adjudicating upon this argument, I would also notice the other judgments relied upon by the parties. In the case of Commissioner of Customs V. M/s.Ajay Kumar & co. (2009 (238) ELT 387) the same Hon'ble Judge who decided the case of Aafloat Textiles (supra) considered the challenge to an order of CESTAT that had dismissed the appeal filed by the Department, which order had been confirmed by the Punjab and Haryana High Court.
28. The Tribunal in this case had found that the show cause notices issued to the subsequent purchaser had been barred by limitation, specifically noting that there was no suppression or misstatement with an intent to avoid or evade duty that could be attributed to the appellant, i.e., the subsequent purchaser. In such an event, they found the demands to be barred by limitation. The aforesaid order of the Tribunal has come to be confirmed by the Hon'ble Supreme Court, wherein at paragraph 3, they specifically note the finding of fact that there was no role that was ascribed to the subsequent purchaser.
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29. The above two views of the Hon'ble Supreme Court were placed before a Division Bench of the Gujarat High Court and in the case of Prayagraj Dyeing & Printing Mills Pvt. Ltd. V. Union of India (290 ELT 61), the Court has reconciled the same in the following terms:
46. In this connection, we find substance in the contention of Mr. Parikh, the learned senior advocate appearing on behalf of the appellants, that there is a marked distinction between a forged document and a document issued by practicing fraud. If it appears that a document is a forged one or a manufactured one, it is concocted or a created one in the eye of law and it is in the eye of law a non-existent document. On the other hand, a document issued in the context of a fraud or misrepresentation, is by itself a genuine document and according to settled law, such document is, at the most, voidable and is valid till it is set aside. A transaction that takes place on the basis of such document is good one and can even give a good title to the holder in due course for valuable consideration. At this juncture, we may profitably refer to the observations of the Supreme Court made in the case of CCE v. Decent Dyeing Co., reported in (1990) 1 SCC 180 wherein, the Supreme Court held that it would be intolerable if the purchasers were required to ascertain whether excise duty had already been paid as they had no means of knowing it. It was further pointed out that duty of excise is primarily a duty levied on a manufacturer or purchaser in respect of a commodity manufactured or produced. As pointed out by a Division Bench of this Court in the case of Commissioner of Central Excise v. D.P. Singh reported in 2011 (270) E.L.T. 321, the judgment of the Supreme Court in the case of New India Assurance Company (supra), was distinguished, being one relating to a forged document which renders a document null and void, and as such, has no application to this type of cases. Similarly, reliance over the judgment of the Supreme Court in the case of Commissioner of Customs (Preventive) v. Aafloat Textiles (I) P. Ltd. reported in 2009 (235) E.L.T. 587, cannot be supported as Afloat case is one pertaining to a forged document but not in respect to a document otherwise genuine, issued by practicing fraud. The facts stated in the case of Afloat indicated that the same was a case of a forged invoice and thus, the principles laid down 18 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 therein cannot have any application to an invoice which is, otherwise, genuinely issued by a manufacturer registered with the Revenue. Justice Arijit Pasayat who delivered the judgment of the Supreme Court in the case of Afloat (supra), in a subsequent case of Commissioner of Customs v. Ajay Kumar & Company, reported in 2009 (238) E.L.T. 387, clearly indicated that the same being not a case of forged document but one of issue of license by practicing fraud, the Tribunal was right in holding that the transferee of the license should not be made liable. It may not be out of place to mention here that the Tribunal, in its judgment, reported in 2006 (205) E.L.T. 747 indicated in paragraph-7 as follows:
if that be so, the concept that a fraud vitiates everything would not be applicable to cases where a transaction of transfer of license is for value consideration without notice, arising out of mercantile transactions, governed by common law and not provisions of any statute.
47. We, therefore, find no substance in the contention of the learned counsel for the Revenue that simply because the original manufacturer is now not traceable, is sufficient for reversal of cenvat credit already taken by the appellants by virtue of the original invoices. However, at the same time, we find substance in the contention of Mr. Oza and Mr. Champaneri, the learned counsel appearing on behalf of the Revenue, that in order to get the credit of CENVAT, Rule 7(2) cast a further duty upon the appellants to take all reasonable steps to ensure that the inputs or the capital goods in respect of which the Appellants had taken the credit of CENVAT are the goods on which appropriate duty of excise as indicated in the documents accompanying the goods, has been paid. The Explanation added to Rule 7(2) even describes the instances which are the reasonable steps. The Appellants in these cases, however, not having taken those steps, cannot get the benefit of the credit even though he is not party to fraud. In this connection, we fully agree with the views taken in the case of Sheela Dyeing (supra), and hold that the said decision supports the case of the Revenue and taking of all reasonable steps as provided in Rule 7(2) is an essential condition of availing the credit. The distinction sought to be made by Mr. Parikh that the period involved therein related to June, 2003 is not tenable because sub-rule (e) of Rule 7 was introduced even earlier with effect from April 1, 2003.19
https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
48. The next question is whether demand of reversal is barred by the period of limitation. In our opinion, in view of our above finding that if the original document is issued even by practising fraud, a holder in due course for valuable consideration unless shown to be a party to a fraud, cannot be proceeded with by taking aid of a larger period of limitation as indicated in Section 11A(1) of the Act. It is now settled law that Section 11A(1) is applicable when there is positive evasion of duty and mere failure to pay duty does not render larger period applicable. In the case before us, it is not the case of the Revenue that the transferees were party to any fraud and therefore, the Revenue cannot rely upon a larger period of limitation. Our aforesaid view finds support from the following decisions of the Supreme Court:
(i) CCE v. Chemphar Drugs & Liniments, reported in 1989 (40) E.L.T. 276.
(ii) Padmini Products v. Collector of Central Excise, reported in 1989 (43) E.L.T. 195.
(iii) Lubrichem Industries Limited v. CCE, Bombay, reported in 1994 (73) E.L.T. 257.
(iv) Nesle (India) Limited v. CCE, Chandigarh, reported in 2009 (235) E.L.T. 577.
49. We thus find substance in the contention of Mr. Parikh that in the case before us, in the absence of any allegation that the appellants were parties to the fraud, the larger period of limitation cannot be applied, and thus, even if the original document was assumed to be issued by practising fraud, the appellants being holders in due course for valuable consideration without notice, the larger period of limitation cannot be extended in the case before us. In this connection, we may profitably refer to the decision of the Supreme Court in the case of Commissioner of Central Excise, Belapur v. E. Merck India Ltd. reported in 2009 (238) E.L.T. 386 (S.C.) where the Supreme Court took a view that in the absence of a willful misdeclaration on the part of the respondent- assessee, there was no scope of invoking Section 11A of the Act.
50. We now propose to deal with the decisions cited by the Revenue.
51. In the case of Narayanan v. Kumaram reported in (2004) 4 SCC 26, the question before the Supreme Court was whether the High Court was justified in going into excruciating details on facts in a Second Appeal by 20 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 exceeding its jurisdiction under Section 100 of the Code of Civil Procedure by reversing a well-considered judgment of the first appellate Court on facts especially when no question of law, much less any substantial question of law, arose for consideration, and in that context it was held appeal being one under Order 43 Rule (1) clause (u) against an order of remand, the High Court should have confined itself to such facts, conclusions and decisions which have a bearing on the order of remand and cannot canvass all the findings of facts arrived at by the lower appellate Court. The Supreme Court further held that it was quite safe to adopt that an appeal under Order 43 Rule (1) clause (u) should be heard only on the grounds enumerated in Section 100 of the Code. 52.1.1 In the case before us, as the Tribunal below committed substantial error of law in overlooking the fact that the provisions of limitation stood in the way of reopening of transaction on the ground of fraud as the appellants were not even alleged to be parties to the fraud, and this is a question which goes to the root of the jurisdiction, and thus, the error committed by the Tribunal amounted to substantial question of law. The decision relied upon by the Revenue, therefore, cannot have any application to the facts of the present case.
30. To summarize, the test laid out was whether the subsequent purchaser had been found to have played a part in the original transaction. In the instant case, the scrip had been obtained on the strength of a forged Bank Realisation Certificate (BRC). However, while the scrip itself stands vitiated, the Department had clearly been remis in not just issuing the scrip, but in enforcing the same as 'transferable' six months after the issuance thereof. Moreover, the petitioner has admittedly obtained the scrip, bonafide and for valuable consideration and only after an endorsement of transferability was made upon it by the officers. No fraud has been attributed to it, and 21 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 rightly so, as it had entered into the transaction with the legitimate expectation that the scrip was genuine, with an endorsement/stamp of departmental approval.
31. In fact, the show cause notice makes this aspect of the matter clear and categoric, stating that commission of the fraud was only at the original instance, attributable only to the exporter and not to the petitioner. The language in the show cause notice at paragraph 21 is clear on this aspect of the matter, reading as follows:
The extended period of five years is invokable under proviso to Section 28(1) of the Act, 1962 as the DEPB scrip was obtained fraudulently by the exporter by forging/substituting the export documents and by making misrepresentation / misstatement before the Licensing Authority. But for the DEPB Scrip obtained fraudulently by the Exporter, the importer i.e. Noticee No. 2 would not have been able to import the goods duty free under Notification No.34/97-Cus dated 7.4.1997. Moreover, in terms of Hon'ble Supreme Court Judgment delivered by the Apex court in Commissioner of Customs Vs Candid Enterprises, 2001 (130) ELT 404 (SC) fraud nullifies everything and the normal period of limitation does not apply.
32. Thus, by stating that the exporter had obtained the scrip by misrepresentation and making a misstatement before the authority and thereafter proceeding to make a clear distinction between the exporter and the importer, i.e., the noticee in the present case, the officer makes it abundantly clear that the petitioner has no role whatsoever to play in this transaction and was an innocent and bonafide by- stander/victim in the proceedings.
22 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
33. In light of the aforesaid discussion, the impugned show cause notices are liable to be quashed and I do so. WP.Nos.20056, 24937, 24938 of 2007 & 29866 of 2008 are allowed. No costs.
11.07.2022 ska/sl Index : Yes/No Speaking Order/Non speaking Order To
1.Joint Director of Foreign Trade, B.K.Raiport, 6-7, Asaf Ali Road, New Delhi.
2.The Commissioner of Customs, Sea Port – Export, Custom House, New No.60, Rajaji Salai, Chennai – 600 001.
3.The Deputy Commissioner of Customs, (Gr.7B) Custom House, New No.60, Rajaji Salai, Chennai – 600 001.
4.Joint Director General of Foreign Trade, Government of India, Ministry of Commerce & Industry, Department of Commerce, 6-IV-C, Green Fields, Ludhiana – 141 002, Punjab.
5.The Joint Commissioner of Customs, (SIIB) Custom House, New No.60, Rajaji Salai, Chennai – 600 001.
23 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008
6.Joint Director of Foreign Trade, 1st Floor, KendriyaSadan, Sultan Bazar, Koti, Hyderabad.
7.Directorate of Revenue Intelligence, (Zonal Unit) 25, Gopalakrishna (Iyer) Road, T.Nagar, Chennai – 600 017.
8.Joint Director of Foreign Trade, C-IV, C Green Field, Pakhowal, Ludhiana.
9.Government of India, Ministry of Finance (Department of Revenue), New Delhi – 110 001.
10.The Commissioner, Central Excise & Custom, Surat-1, Room No.303, 3rd Floor, New Central Excise Building, Opposite Gandhi Baug, Chow Bazar, Surat – 395 001.
11.Joint Director of Foreign Trade, 634-636, Belgium Tower, Ring Road, Surat – 395 003.
12.The Directorate of Revenue Intelligence, Regional Unit: Surat, Gurukrupa Building, Sangana Society Nr.Navyug College, Rander Road, Surat – 395 009.
13.The Additional Commissioner of Customs, Custom House, New No.60, Rajaji Salai, Chennai – 600 001.
24 https://www.mhc.tn.gov.in/judis W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 Dr.ANITA SUMANTH, J.
ska/sl W.P.Nos.24936, 24937, 24938, & 20056 of 2007 & 29866 of 2008 11.07.2022 25 https://www.mhc.tn.gov.in/judis