Custom, Excise & Service Tax Tribunal
M/S Deep Exports vs Cc, New Delhi on 22 March, 2016
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R. K. Puram, New Delhi. Date of hearing: 10.03.2016 Date of decision: 22.03.2016 For Approval and Signature: Honble Ms. Archana Wadhwa, Member (Judicial) Honble Sh. B. Ravichandran, Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? No 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Customs Appeal No. 424 of 2009 (Arising out of the Order in original No. 05/MKG/2009 dated 30.03.2009 passed by the Commissioner of Customs (Import and General), New Delhi). M/s Deep Exports Appellant Vs. CC, New Delhi Respondent
Appearance:
Shri Somnath Shukla, Advocate for the appellant Shri Amresh Jain & Sh. Gajraj Singh, DRs for the respondent Coram: Honble Ms. Archana Wadhwa, Member (Judicial) Honble Sh. B. Ravichandran, Member (Technical) Final Order No. 51043 / 2016 Per: B. Ravichandran:
The present appeal is against order dated 30.03.2009 of Commissioner of Customs (Import and General), New Delhi. This is in second round of litigation. The brief facts of the case are that based on certain information investigations were conducted by the officers of Customs regarding 62 Replenishment Licenses (REP) issued by the DGFT, New Delhi to two firms namely M/s Shivam Enterprises, New Delhi and M/s Shyam Exports, New Delhi. After investigation it was revealed that the said REP licenses were obtained on the basis of forged bank realisation certificates and exports shipping bills. These licenses have been used for import of about 350 kgs. of gold without payment of about Rs. 5.23 crores of customs duty. Some of these licenses have been used by the appellant for import of gold without payment of duty. Common proceedings were initiated against various parties through show cause notice dated 31.07.2002. Notices were issued to the firms and persons involved in obtaining the REP license based on forged documents and also to importers who purchased the REP licenses and utilised the same for importing gold without payment of duty. The present appellant was one of the noticees with reference to import of gold covered by 21 REP licenses valued at Rs. 5,17,06,898/-. The duty involved which was not paid on the basis of such REP licenses is Rs.2,38,14,129/-. The case was adjudicated by the Commissioner vide order dated 13.08.2004. In respect of the present appellant he held that the goods (gold) imported against 21 REP licenses are liable to confiscation under Section 111(o) of the Customs Act, 1962; confirmed demand of Rs, 2,38,14,129/-; appropriated the amount of Rs. 52 lakhs already deposited towards the confirmed demand and imposed a penalty equal to duty under Section 114(A) of the Act. On appeal the Tribunal vide final order No. 231/2007-Cus dated 11.04.2007 remanded the matter back to the original authority to decide the matter afresh. The Tribunal referred to the reasons stated in the order dated 18.07.2006 in respect of other appellants who are also parties to the original adjudication order.
2. Pursuant to the above said remand directions, the Commissioner again adjudicated the case vide the impugned order dated 30.03.2009. The directions of the Tribunal while remanding the matter for fresh adjudication as contained in the final order dated 18.07.2006 are as below:
Thus, the weight of authorities cited seems to be leaning towards the proposition that imports made before the cancellation of a licence even on the ground of fraud would be considered to be imports made under a valid licence. However, if the party to fraud seeks to avail of the benefit of such fraudulently obtain licence the door will be shut against such party. If the transferee is in any way associated with such fraud or knowingly accepts the licence or purchases the licence with the knowledge of such fraud, no benefit under the licence can be recognized in favour of such transferee, who has notice of fraud, because such a transferee cannot be considered to be a bonafide purchaser without notice of fraud, even assuming for the sake of argument, that such equitable principle may be extended in favour of such bonafide transferee. Whether a transferee in such cases has knowledge of fraud by which the licence was obtained from the licensing authority by the transferor, would be a question of fact, which would depend upon the material which is adduced before the adjudicating authority. Even when there is no direct evidence for demonstrating such knowledge about fraud or the licence having been fraudulently obtained, inference can be drawn on the basis of reliable material which is strong enough to attribute the knowledge of fraud.
When the party takes up such a plea of bona fide purchaser for value without notice of fraud in obtaining REP licence, it will be such party that will have to prove its assertion by showing the bonafide nature of the transaction and producing the contemporaneous record for showing the genuineness thereof. The adjudicating authority ought to take into consideration such material before deciding whether the purchase or rights under a REP licence was done bonafide or it was dubiously contrived, or whether the transferee was in any manner aware of the licence having been fraudulently obtained.
3. We find that the issue narrows down to the bonafideness of appellant in buying and utilising the REP licences which were obtained based on fabricated forged documents by others. In other words the Tribunal specifically directed whether a transferee has knowledge of fraud by which the licence was obtained from the licensing authority by the transferor, would be a question of fact, which would depend upon the material which is adduced before the adjudicating authority. It was further observed that it is the responsibility of the party who claims bonafide purchase to prove such assertion by showing the bonafide nature of transaction and producing the contemporaneous record for showing the genuineness thereof.
4. With the above position in the background we have to examine the present appeal against the findings in the impugned order. We have perused the impugned order carefully on this issue. Ld. Commissioner recorded the following findings to hold that the appellants had knowledge of licenses having been obtained by M/s Shivam Enterprises and M/s Shyam Exports fraudulently.
(a) The debit notes issued by the transferers of REP licences did not indicate the premium rate or amount and the delivery challans under which gold bars were delivered bears no signature of the recipient.
(b) In respect of one delivery challan there is no categorical evidence to support that the gold bars were delivered to the transferer as payment.
(c) The unusal practice to issue debit notes without mention of premium rate and not to take the receipt of gold to the consignee indicates the knowledge of the appellant about the fraud involved in obtaining licence by the transferer.
(d) For purchase of REP licences the premium is being paid in gold. Nowhere in the debit notes raised either by M/s Shivam Enterprises or M/s Shyam Exporters there is a mention of about payment of premium in gold.
(e) As per the sales bill the appellant have paid 8% premium for the 21 REP licenses by way of gold bars. The appellant have paid premium of 9% to other transferer.
(f) The appellant had not made any enquiry about the transferer who obtained REP licenses by fraudulent means.
Based on the above observations the original authority concluded that low payment of premium that too in gold clearly indicate that the appellant had knowledge of licences having been obtained fraudulently.
The appellants contested the above findings pointwise:
(a) For using five REP licenses M/s Shivam Enterprises have issued two different debit notes addressed to the appellant specifically mentioned in the licence number and the amount of licence. The said debit notes were stamped and signed by the proprietor. For four REP licence of M/s Shyam Exports similar details were available in the debit note which was signed and stamped by the proprietor.
(b) For payment of premium of 8.64% for five licenses of M/s Shivam Enterprises and 8.51% for four licenses of M/s Shyam Exporters there is a clear corroboration by way of statements of Sh. Kulbhusan Sethi, Agent, and Sh. Hashmukh Gadecha, Partner of the appellant firm. The delivery of gold for the premium amount through DHL Courier was also evidenced.
(c) The appellant had duly recorded all the transactions relating to sale invoices for the payment of premium and gold in their sales account and sales register. The payment of commission to Sh. Kulbhusan Sethi has also been recorded in the books of accounts alongwith the details of freight incurred, and the travelling expenditure incurred by the employees of the appellant in delivering such goods. The original copies of all invoices, freight receipts, travel vouchers, statements of all the concerned persons, financial statement of the appellant sales vouchers and delivery receipts etc. have also been stamped by the appellants.
(d) The gold was delivered by the appellants employees to Sh. Kulbhusan Sethi who admitted receipt of gold and hence there can be no question about delivery of gold for premium amount.
(e) There is no unusual practice in these transactions as the primary documents of the delivery challan is the sales invoices which in the present case is authentic and genuine. The debit notes can easily be substantiated by the books of accounts.
(f) Regarding the finding of the original authority about non mentioning of premium rate or amount in the debit notes it was contended that the debit notes issued by M/s Shyam Exports for twelve REP licences. The absolute amount of premium payable is mentioned.
(g) Regarding delivery of gold in one case in the name of M/s Sonam Overseas account of M/s Shyam Exports it was submitted that this was done as per the request of Sh. Kulbhusan Sethi with whom the appellant was dealing. In any case the final delivery of gold to Sh. Vinay Sethi was not disputed. By way of precaution the appellant added the name of M/s Shyam Exports in the bill. The appellants did not have a direct dealing with either M/s Shyam Exports or M/s Shivam Enterprises. The gold was intended to be sent to Sh. Kulbhusan Sethi and hence as per his instructions are consigned the name of M/s Sonam Overseas.
(h) Payment of premium for REP licence in gold is not against any legal provisions. The appellants dealt with Sh. Kulbhusan Sethi and as the transferer of the licence wanted premium to be paid in gold the same was done. This is clear from the statement of Sh. Kulbhusan Sethi dated 05.08.1999.
(i) The rate of premium paid by the appellant for the purchase of 21 REP licences is in the range of 8.51% to 8.93% and not 8% as recorded by the Commissioner in his order. These are negotiated rates. The Commissioner erred in calculating the premium by comparing quantities of gold at a different date at different rates. The premium rate was calculated by the Commissioner is on the date of import and he compared it with date of debit notes. Such calculation was incorrect as the rates of gold varies on a day-to-day basis and quantities purchased earlier cannot be compared with future dates. Further, such comparison should not be made based on gold locally sold.
(j) The appellants purchased these licences from Sh. Kulbhusan Sethi, who duly enquired about the licence before purchasing the gold.
5. During the course of hearing, apart from elaborating on each of the above points, ld. Counsel for the appellants submitted compilation of decided cases to support his view that the bonafide buyer of freely transferable licence is not liable for any adverse consequences, in case if later it was found that the licences were obtained by presentation of forged documents by fraudulent means.
6. Ld. AR elaborated on the findings of the original authority as already summarised herein above and submitted that fraud committed by the transferer vitiates everything and the appellant cannot claim any benefit on the basis of licences which were cancelled ab initio by the competent authority. He also relied on many decided cases with the specific reference on Tribunals decision in Pee Jay International vs. CC, Amritsar 2014 (312) ELT 464 (Tri. Del.) and decision of Punjab & Haryana High Court in Friends Trading Co. vs. Union of India 2011 (267) ELT 33 (P&H).
7. We have heard both the sides carefully and examine the appeal records. We take note that this is a second round of litigation of the same case. As already noted herein above, the first adjudication order dated 13.08.2004 was set-aside and matter was remanded back to the original authority for decision afresh in line with observations made in the final order dated 18.07.2006. We find that the remand directions narrowed down the area of dispute to a point that if a transferee is in any way associated with fraud or knowingly accepts or purchases the license with the knowledge of such fraud no benefit under the licence can be recognised in favour of such transferee. It was also observed by the Tribunal that such a knowledge of fraud would be a question of fact, even if there is no direct evidence for demonstrating such knowledge about the fraud, inference can be drawn on the basis of reliable material which is strong enough to attribute the knowledge of fraud.
8. Thus, we are not to decide the wider issue of the effect of subsequent cancellation of such transferred licence on the imports made by bonafide buyer of the said licences. Here the remand directions are to find out the effect of whether or not the appellant has a knowledge of fraud by which the licence was obtained from the licensing authority by the transferer. On remand proceedings the original authority categorically noted such directions and proceeded to give his finding. On careful perusal of the impugned order we find the conclusion of the original authority that the appellant had knowledge of licence having been obtained by the transferers fraudulently is based on three fold observations:
(a) Low premium has been paid and that too in gold;
(b) Debit notes did not mention premium rate and there is no endorsement of receipt by the consignees for receipt of gold; and
(c) There is no evidence on record as to either the appellant or their commission agent (Shri Kulbhusan Sethi) had made an enquiry about M/s Shyam Exports and M/s Shivam Enterprises.
9. We find each one of these observations have been duly contested and explained by the appellant. Regarding the commission being low we find the quantification of percentage of commission itself was contested as incorrect. Apparently, the commission amount being given in the form of gold the rate of gold applicable during the relevant time should be adopted. The appellants have categorically stated that the commission paid by them in respect of these 21 licences were in the range of 8.51% to 8.93% whereas the original authority stated that to be 8%. We find the import made by the appellant based on the applicable rate relevant during the time is to adopted to arrive at the percentage of commission. Further, we also take note that the appellants have purchased such REP licences from others during the relevant time with a premium rate ranging from 8.2% to 9%. Three licences were bought in February/ March 1989 from M/s D.S. Exports and M/s K. B. Jhaveri Exports with a premium rate of 8.2% and 8.1% respectively. Even otherwise we find such a marginal variation in premium rates cannot lead to a presumption of knowledge of fraud on the part of appellant.
10. On the issue of paying amount in gold we find there is nothing in the finding of the original authority to show such payment through gold can be linked to the knowledge of fraud. We find no ground for such presumption. There is no bar in payment through gold especially when the parties involved were in gold business.
11. Regarding the debit note not mentioning the premium rate and not signed by the consignee the appellants explained the position that the transactions are through their commission agent and all the sales invoices of gold towards commission has been correctly captured in all records and admitted by the commission agent as well as the person with whom the commission agent dealt with. Further, the appellants filed a detailed Chartered Accountant certificate on 15.07.2011 as per the order dated 18.05.2011 of the Tribunal. In the said certificate the quantum of commission in rupee terms for each accounting year paid to the two transferors of REP licences have been certified by the Chartered Accountant alongwith the relevant portion of ledger accounts and schedules. We find that the details of gold sold with amounts to M/s Shyam Exports and M/s Shivam Enterprises have been evidenced by the said certificate with supporting documents.
12. Regarding lack of evidence on record to the effect that either the appellant or the commission agent had made any enquiry about the transferers. We find that the REP licences transferred were genuine documents issued by the competent authority. Even if the appellants had made any enquiry with the DGFT themselves as the issuing authority at the time of purchase or utilisation for import of gold, there is no way the validity of REP licence could have been put to question. This is clear from the fact that the fraudulent submission of forged bank document/ shipping bills by the original exporters who obtained the REP licence was unearthed much later by the detailed enquiry of the officers. We find the original authority extensively quoted and relied on the decision of Honble Supreme Court in CC (Prev.) vs. Aafloat Textiles (I) P. Ltd. 2009 (235) ELT 587 (SC). We have perused the said decision. The Honble Supreme Court in that case was dealing with a Special Import Licence (SIL) which was forged and was never issued by the DGFT. The signature and security seal of the authority was forged. Now in the present case, the REP licences were issued by the competent authority and as such were genuine documents. However, the original parties/ exporters made fraudulent representation by giving forged documents to obtain such REP licences. As such there is a clear difference in facts between the case decided by the Honble Supreme Court and the present case. In this connection, we may refer to the decision of the Honble Supreme Court in East India Commercial Co. Limited 2002-TIOL-138-SC, it was held as under:
35. 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 a licence under the Act, a licence obtained by fraud is only voidable: it is good till avoided in the manner prescribed by law. On May 1, 1948, the Central Government issued an order in exercise of the power conferred on it by Section 3 of the Act to provide for licences obtained by misrepresentation, among others, and it reads:
In the circumstances, we must hold that when the goods were imported, they were imported under a valid licence and therefore it is not possible to say that the goods imported where those prohibited or restricted by or under Chapter IV of the Act within the meaning of Clause (8) of Section 167 of the Sea Customs Act.
The Apex Court in the case of Union of India vs. Sampat Raj Dugar 2002-TIOL-141-SC Cus held that when on the date of import the goods were covered by a valid licence, subsequent cancellation of licence is of no relevant nor does it retrospectively render the import illegal.
Again, in CC vs. Sneha Sales Corporation 2002-TIOL-440-SC-Cus. held that licence obtained by misrepresentation or fraud does not make it non est as a result of its cancellation. As per Section 3 of the Import and Export Act misrepresentation or fraud renders a licence voidable. When the goods were imported and cleared before such cancellation, contravention of import cannot be alleged.
13. Ld. AR relied on the decision of Honble Punjab & Haryana High Court in Friends Trading Co. vs. Union of India 2011 (267) ELT 33 (P&H) to contend that the appellant cannot escape the liability in view of cancellation of these REP licences by the competent authorities. We have perused the said decision. The Honble High Court did not accept the contention that when the licences were cancelled subsequently the benefit cannot be withdrawn which was availed earlier. The High Court relied on their decision in Munjal Showa Ltd. vs. CC&CE (Delhi-IV), Faridabad 2009 (246) ELT 18 (P&H). We find that these decisions were dealing with forged DEPB scripts. As already noted in the present case we are not dealing with forged licences. The licences have been issued by Competent Authority and were valid till they were cancelled by the competent authority. They were not forged licences. Various case laws examined indicate that the consequences of bonafide buyer using a forged licence or bonafide buyer using a genuine licence but obtained on submission of fabricated or forged documents by the transferers vary.
14. Tribunal in CC vs. Patiala Castings Pvt. Ltd.- 2012 (283) ELT 269 examined this issue and held that in the absence of evidence that the transferee have not acted bonafide or was aware of the fraud committed by the original holder of licence, duty cannot be recovered from them.
15. In a recent case while disposing of a large batch of appeals the Mumbai Bench of the Tribunal reported as - 2015-TIOL-2090-CESTAT-MUM. examined the whole gamut of case laws relevant to the issue and held that duty cannot be demanded from the transferers as in such situation where the licences were genuine but obtained by fraudulent representation they can be made only voidable and imports which happen prior to the cancellation cannot be held as improper. The Tribunal also noted the insertion of new legal provision as Section 28AAA in the Customs Act, 1962 to meet such situation.
16. Considering the above analyses, we find that the duty demand confirmed by the impugned order cannot be sustained. We accordingly set-aside the impugned order and allow the appeal.
(Pronounced on 22.03.2016).
(Archana Wadhwa) Member (Judicial) (B. Ravichandran) Member (Technical) Pant