2012 (11) TMI 266 - AT - Customs

Demand of duty - forged DEPB scrip Held that - 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 - 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 demand set aside

Issues Involved:

1. Validity of DEPB scrips obtained through fraudulent means.
2. Recovery of duty from the importer using DEPB scrips.
3. Applicability of extended period under proviso to Section 28(1) of the Customs Act, 1962.
4. Imposition of penalties and confiscation of goods.

Detailed Analysis:

1. Validity of DEPB Scrips Obtained Through Fraudulent Means:

The DEPB scrips in question were issued to M/s. ATM International based on fabricated documents. These scrips were subsequently transferred to the respondent, who made duty-free imports. The DEPB scrips were later canceled by the Director General of Foreign Trade (DGFT) upon discovering the fraud. The primary issue was whether these scrips, once canceled, could still be considered valid for the imports made by the respondent.

The judgment referenced the case of East India Commercial Company Ltd. v. Collector of Customs where the Supreme Court held that a license obtained by fraud is voidable, not void ab initio. Therefore, it remains valid until canceled. This principle was reiterated in Collector of Customs, Bombay v. Sneha Sales Corporation, where the Supreme Court stated that goods imported under such a license before its cancellation are not considered to have been imported without a license.

2. Recovery of Duty from the Importer Using DEPB Scrips:

The Revenue sought to recover the duty from the respondent, arguing that the DEPB scrips, being obtained fraudulently, were non est (non-existent) and thus invalid for duty exemption. However, the tribunal relied on the judgment in Commissioner of Customs v. Leader Valve Ltd., where it was held that duty cannot be demanded from an importer who purchased DEPB scrips in good faith, unaware of the fraud.

The tribunal also considered the case of Hico Enterprises v. Commissioner of Customs, Mumbai, where it was established that a transferee who acquires a license in good faith obtains a valid title to it, even if the original license was obtained fraudulently.

3. Applicability of Extended Period Under Proviso to Section 28(1) of the Customs Act, 1962:

The Revenue invoked the extended period under proviso to Section 28(1) for recovery of duty, arguing that the respondent's imports were based on fraudulent DEPB scrips. However, the tribunal noted that the respondent had no knowledge of the fraud and acted in good faith. As per the judgment in Commissioner of Customs v. Leader Valve Ltd., the extended period cannot be invoked if the importer is not involved in fraud, misrepresentation, or suppression of facts.

4. Imposition of Penalties and Confiscation of Goods:

Penalties were imposed on M/s. ATM International and its partners under Section 112 of the Customs Act, 1962, but not on the respondent. The proposal for confiscation of goods was dropped as the goods were not available for confiscation. The tribunal upheld this decision, emphasizing that the respondent acted in good faith and was not a party to the fraud.

In conclusion, the tribunal dismissed the Revenue's appeals, reinforcing the principle that an importer who purchases DEPB scrips in good faith and without knowledge of any fraud cannot be held liable for duty or penalties if the scrips are later found to be fraudulently obtained and canceled. The tribunal's decision aligns with established legal precedents, ensuring that bona fide purchasers are protected under the law.

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