2013 (4) TMI 704 - AT - Customs

Fraudulent claim of DEPB script - overvaluation of export goods - Held that - By resorting to some methods, overvaluation of export transactions have been done and on the basis of such overvaluation, DEPB scrips have been obtained for much higher values than actually eligible. All these manipulations have been corroborated by documentary evidences as also by statements recorded under Section 108 of the Customs Act from the exporters or their authorized signatories, the transporters of the goods, raw material suppliers, cheque discounters, CHAs who dealt with the transactions and so on. On the strength of such evidences, the licensing authority has cancelled all the DEPB scrips ab initio. There are strong and convincing evidences against M/s. Nidhi Textiles by way of evidences collected both locally and at Dubai through diplomatic sources which shows that the value declared by the Dubai based importers of the goods exported by Nidhi Textiles, i.e. M/s. AGS General Trading, Dubai, M/s. Ditty Trading (LLC), Dubai and others, is just a fraction (average 6.4 %) of the export values declared by M/s. Nidhi Textiles (in the Shipping Bill and related export documents) before the Indian Customs. While the value declared before the Indian Customs in respect of 39 consignments/shipping bills during the period October, 2006 to April, 2008, amounted to US 3009931.41, for the same consignments, the value declared by the importers in Dubai amounted to only US 147446, that is, 6.35% of the export value declared in India. Thus the magnitude of overvaluation has been clearly established. The commission of fraud has been admitted to by Shri Rajeev Kumar Tulsyan, Proprietor of the said M/s. Nidhi Textiles in his Statements recorded under Section 108 of the Customs Act, 1962, wherein he has explained that while remittances of the full amount for the exports made were received from overseas buyers through banking channels, the differential amount (difference between the actual and the declared value) was paid back to the local representatives of the overseas buyers in cash and the said statement has not been retracted in any legally permissible manner - Though the appellant has pleaded financial difficulties, no reliable evidence has been placed before us in support of this submission. Considering the huge amount of revenue evaded in the matter and the deep involvement of the appellant in such duty evasion, we direct the appellant M/s. Nidhi Textiles to make a pre-deposit of ₹ 1,00,00,000/- (Rs. one crore only) within a period of 8 weeks. If licence has been obtained by fraud by the original allottee who transferred the same to others and the licences were valid at the time of imports by the transferee who bought it for a valid consideration without being aware of the fraud committed by the transferor, subsequent cancellation of the licence will not have any bearing upon the imports already made by the transferee. - a purchaser of goods cannot acquire a better title than the seller and if the statute provides for transferability by endorsement, then common law will not apply and the specific statute shall prevail. If the statute provides for retrospective cancellation, full effect will have to be given to the said provisions. Whether the DEPB itself was forged or was obtained by submission of forged documents would not make any difference and both are incapable of vesting any credit on the DEPB holder. Unconditional waiver from pre-deposit of dues adjudged against the transferees of DEPB licences and stay recovery thereof during the pendency of the appeals is granted - M/s. Nidhi Textiles, the exporter, Mr. Sanjay Kumar Agarwal and Mr. Paramanand Joshi, have not made out any case in their favour for waiver of pre-deposit of the dues adjudged against them. - Decided partly in favour of appellant.

Summary

Issues Involved:
1. Condonation of Delay (COD) Application
2. Allegations of Overvaluation and Fraudulent Export Benefits
3. Penalties and Confiscation under Various Sections of the Customs Act
4. Validity and Transferability of DEPB/DFIA Scrips
5. Liability for Duty and Penalty on Transferees
6. Evidentiary Value and Natural Justice

Detailed Analysis:

1. Condonation of Delay (COD) Application:
- Judgment: The Tribunal found the reasons for the delay in filing the appeal satisfactory and allowed the application for condonation of delay.

2. Allegations of Overvaluation and Fraudulent Export Benefits:
- Judgment: The Directorate of Revenue Intelligence (DRI) investigated a case of overvaluation of export goods by various exporters to fraudulently obtain DEPB scrips. The investigation revealed that exporters inflated the FOB value of textile fabrics and pharmaceutical formulations to obtain undue export benefits. The Tribunal noted the fraudulent nature of these transactions, supported by documentary evidence and statements recorded under Section 108 of the Customs Act.

3. Penalties and Confiscation under Various Sections of the Customs Act:
- Judgment: Show cause notices were issued proposing confiscation of export goods under Section 113, imposition of penalties under Section 114, confiscation of imported goods using the transferred DEPB scrips under Section 111, demand of duty under Section 28 read with 28AB, and penalties on importers under Sections 112/114A. The Tribunal upheld the penalties and confiscations, emphasizing the fraudulent nature of the transactions.

4. Validity and Transferability of DEPB/DFIA Scrips:
- Judgment: The Tribunal discussed whether DEPB/DFIA scrips obtained fraudulently are void or voidable. It was argued that licenses obtained by fraud are voidable and valid until cancelled. The Tribunal referred to various judgments, including East India Commercial Company Ltd. v. CC and Sampat Raj Duggar, which held that licenses obtained by fraud are voidable, not void, and remain valid until cancelled.

5. Liability for Duty and Penalty on Transferees:
- Judgment: The Tribunal considered whether transferees of fraudulently obtained DEPB/DFIA scrips are liable for duty and penalty. It was held that if the transferee purchased the scrips in good faith for valuable consideration without knowledge of the fraud, they should not be held liable. However, the Tribunal also noted conflicting views in other cases, such as Friends Trading Co. v. CC, where transferees were held liable. Given the conflicting views, the Tribunal granted unconditional waiver from pre-deposit of dues adjudged against the transferees.

6. Evidentiary Value and Natural Justice:
- Judgment: The Tribunal addressed the evidentiary value of statements recorded under Section 108 and the denial of cross-examination. It was held that statements not retracted in a legally permissible manner are valid evidence. The Tribunal rejected the plea of non-compliance with natural justice, noting that sufficient opportunities were given to the appellants to present their case.

Conclusion:
- For Exporters: M/s. Nidhi Textiles and its associates were found to have committed fraud and were directed to make pre-deposits of substantial amounts pending appeal.
- For Transferees: The Tribunal granted unconditional waiver from pre-deposit of dues, considering the conflicting judicial views on their liability.
- Evidentiary and Procedural Aspects: The Tribunal upheld the validity of evidence collected and the procedural fairness of the investigation and adjudication process.

Operative Part: The Tribunal directed specific pre-deposits for M/s. Nidhi Textiles and its associates and granted unconditional stay for the transferees of DEPB licenses, allowing both sides to seek early hearing due to the significant revenue involved.