Whether duty and penalty is leviable on import of duty free material through forged/fake DEPB Scrips which are obtained bonafidely?

PJ/Case Law/2013-14/1718

Case:-TVS MOTOR COMPANY LTD VERSUS COMMISSIONER OF CUSTOMS (SEAPORT-EXPORT) CHENNAI

Citation:-2013-TIOL-1139-CESTAT-MAD

Brief Facts:-The relevant facts of the case as revealed from the record that applicant imported duty-free materials under 8 DEPB scripts in December 2000. The applicant purchased the DEPB scrips from M/s. Exim International. Subsequently, it was found that M/s. Exim International obtained 8 DEPB scrips fraudulently on the basis on forged/fake export documents. The DGFT authority by order F.No. Misc. (68)DRI/AM01/ECAOC;A/29 dt. 19.4.2002 cancelled all the DEPB scrips. Thereafter, a show cause notice dt. 9.9.2003 was issued for proposing to demand duty and penalty. The Commissioner by the impugned order confirmed the Customs duty of Rs.51,05,919/- and penalty of Rs.30 lakhs imposed under section 112 (a) of Customs Act amongst others.

Appellant Contentions:-The Applicant fairly submits that on this issue there are divergent decisions and ultimately the Tribunal in the case of Commissioner of Customs, Amritsar Vs Patiala Castings Pvt. Ltd. - 2012 (283) ELT 269 (Tri.-Delhi) = (2011-TIOL-2005- CESTAT-DEL) dismissed the appeal filed by Revenue on the identical issue. He further submits that if the DEPB scrip is itself forged, in that case, the Court has taken a view that demand of duty would be sustained. He submits that, in this case, there is no dispute that at time of purchase and import, the DEPB scrip was a valid document. He also submits that the demand is barred by limitation.

Respondent Contentions:-The Respondent submits that Hon'ble Punjab & Haryana High Court in the case of Friends Trading Co. Vs UOI - 2010 (254) ELT 652 (P&H) = (2008-TIOL-788-HC-P&H-CUS) on the identical issue dismissed the appeal filed by the importer. He further submits that, in afore cited case, the DEPB was found to be obtained by producing forged documents and cancelled by the competent authority and the demand of duty on the goods was upheld and even extended period of limitation would apply. He submits that the decision of the Punjab & Haryana High Court in the case of Friends Trading Co. (supra) was upheld by the Hon'ble Supreme Court as reported in 2012 (281) ELT A106 (SC).

Reasoning of Judgment:-We have heard submissions from both sides and on perusal of the records, we find that the Tribunal in the case of Patiala Castings Pvt. Ltd. (supra) had considered the decision of the Hon'ble Punjab & Haryana High Court judgement in Friends Trading Co. The relevant portion of the case of Patiala Castings Pvt. Ltd. (supra) are produced below:-

"6. In case of Friends Trading Co. v. UOI reported in 2010 (254) E.L.T. 652 (P & H), cited by the Revenue, DEPB scrips against which duty free import had been made by them, had been purchased by them from the original holder M/s. Parks Industries. Subsequent to imports, the DEPB scrips were cancelled by the DGFT on the ground that the same had been obtained by M/s. Parks Industries fraudulently by producing forged bank certificate of realization of export proceeds. There was no allegation against M/s. Friends Trading Co. that they were aware of the fraud committed by the transferor M/s. Parks Industries. In this case Hon'ble Punjab & Haryana High Court while upholding the recovery of duty from M/s. Friends Trading Co. has distinguished the Apex Court's Judgments in case of East India Commercial v. Collector (supra) and Collector of Customs, Bombay v. Sneha Sales Corporation = (2002-TIOL-440-SC-CUS) (supra) by relying upon its earlier judgment in case of M/s. Munjal Showa Ltd. v. CCE, Delhi reported in 2009 (246) E.L.T. 18 (P & H). But on going through para 12 of the judgment in case of M/s. Munjal Showa Ltd. reproduced in para 3 of the judgment, it is seen that in case of M/s. Munjal Showa Ltd. the DEPB scrips in question, were forged scrips, not the DEPB scrips actually issued by the DGFT on the basis of forged documents. In another case of M/s. Friends Trading Co. decided by the Tribunal vide order reported in 2011 (267) E.L.T. 57 (Tribunal) where the facts and the issue involved are identical, we find that while in para 13 of the order, the Tribunal has taken note of the judgments of the Apex Court in case of East India Commercial (supra), CC, Bombay v. Sneha Sales Corporation = (2002-TIOL-440-SC-CUS) (supra) and UOI v. Sampat Raj Dugar reported in 1992 (58) E.L.T. 163 (S.C.) = (2002-TIOL-141-SC-CUS), wherein it was held that even if a licence was obtained by fraud, this did not affect the right of a transferee unless the transferee had not acted bona fide, and various judgments of High Courts and Tribunal wherein the above mentioned judgments of the Apex Court have been followed, it has not discussed as to how these judgments are not applicable.

There is difference between a forged DEPB scrip, which is ab initio void, even if the same has been transferred on sale and a DEPB scrip actually issued by the DGFT, though on the basis of forged documents provided or false declaration made by the exporter, which is like a voidable contract. The two categories of DEPB scrips cannot be equated. In the former case, where the DEPB scrip, being forged/fabricated, is ab initio void, the judgment of Apex Court in case of Aafloat Textile Industries reported in 2009 (235) E.L.T. 587 (S.C.) = (2009-TIOL-42-SC-CUS) will apply and duty can be demanded even from the transferee who had made duty free imports against the forged scrip and for this purpose, the principle of caveat emptorbeing applicable, longer limitation period under proviso to Section 28(1) would be applicable, while in the latter case, where the DEPB scrip had been validly issued by the DGFT, but being obtained by fraud/mis-declaration on the part of the exporter, was subsequently cancelled, the judgment of the Apex Court in case of East India Commercial (supra) and Sneha Sales Corporation (supra) will apply and duty can not be recovered from the transferee if before the cancellation of the DEPB scrips duty free imports had been made by the transferee and there is no evidence showing that the transferee had not acted bona fide or was aware of the fraud committed by the original holder of the DEPB scrip.

Under the law of the contracts when a contract between two parties has been entered into by fraud or mis-representation on the part of one party and for this reason, the contract is a voidable contract which can rescinded by the other party, the right of rescission is lost if before rescission, the third party acting in good faith, acquires rights in the subject matter of the contract. Thus, when a person obtains some goods from another person by fraud and before the seller is able to avoid the contract, he disposes of the same to a bona fide third party, the seller can not recover the goods from the third party. Since as held by the Apex Court in the case of East India Commercial (supra), principles of law of contract apply to the issue of import licence, the above mentioned principle would apply to the present case also and unless it is proved that the respondent in this case, who obtained the licence on transfer/purchase basis from M/s. ATM International, had knowledge about licence having been obtained by M/s. ATM by fraud, the duty cannot be demanded from them, when at the time of import, the licence was a valid licence and had not been cancelled. In this case, there is neither allegation nor any evidence to show that the appellant had knowledge about the fraudulent mis-representation of M/s. ATM International in obtaining the DEPB scrips.

In view of this, we do not find any merit in the Revenue's appeals. The same are dismissed.

Prima facie, we find that the present case is covered by the decision of the Tribunal in the case of Patiala Castings Pvt. Ltd. (supra), which has considered the decision of Friends Trading Co. (supra). The contention of Ld. AR would be looked into at the time of appeal hearing in detail. In view of that, pre-deposit of duty and penalty along with interest is waived and its recovery stayed during pendency of appeal.

Decision:-Stay granted.

Comment:- The essence of this case is that primarily the duty and penalty are not leviable on the import made against DEPB scrips that were found to have been obtained by way of fraud by the transferor whenthere is no evidence showing that the transferee had not acted bona fide or was aware of the fraud committed by the original holder of the DEPB scrip.

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PJ/Case Law/2013-14/1718

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