2015 (12) TMI 1299 - AT - Customs

Duty demand - Import has obtained the DFIA license by fraud - Transfer of licenses DFIA - Misdeclaration - Transferee Appellants purchased part of such transferable DFIA Licenses from the market after paying due considerations and after verifying these licenses from the website of DGFT - Held that - A script obtained from the Licensing authority fraudulently cannot give licence to any transferee to avail any Customs duty exemption. Fraud in common parlance means dishonest dealing, deceit or cheating etc. It makes no difference whether fraud is committed by outrightly forging of documents or by willful misdeclaration/misrepresentation. A fraud is a fraud and there are no categories of mild frauds and severe frauds in taxation matters. - Section 28 AAA of the Customs Act, 1962 has been made effective from 28/5/2012 and cannot be made applicable to the present proceedings for the periods prior to 28/5/2012. This provision has been made to give the department a tool also to recover Customs duty even from a person other than the importer of the goods. It is also observed that proviso to Section 28AAA(1) does not absolve the actual importer from payment of duty. Further Hon ble Apex Court in the case of Tata Iron & Steel Co. Ltd. Vs. C.C. Mumbai (2015 (8) TMI 290 - SUPREME COURT) has held that extended period is available to the Revenue for demanding duty from the transferres also.State cannot be deprived of its share of duty if the same is claimed exemption by fraudulent acts of the exporters in the present proceedings. Duty demands and interest have been correctly confirmed by the Adjudicating authority against all the appellants. However, we are of the considered opinion that penalties are not imposable upon the transferee appellants as they have no knowledge of the nature of goods used and exported by the manufacturers/exporters. Accordingly, penalties imposed upon the transferee appellants are set aside. - Decided partly in favour of assessee.

Issues Involved:
1. Validity of the DFIA Licenses and the duty-free import of goods.
2. Allegations of mis-declaration and fraudulent procurement of DFIA Licenses.
3. Applicability of extended period for demanding duty.
4. Liability of transferee appellants for duty and penalties.
5. Relevance of the non-cancellation of DFIA Licenses by DGFT.
6. Applicability of Section 28AAA of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Validity of the DFIA Licenses and the duty-free import of goods:
The appellants argued that they purchased the DFIA Licenses on a bonafide belief that these licenses were genuine and issued by the appropriate authority. The licenses were valid at the time of import, and no duty or penalty should be imposed as the licenses were not canceled by DGFT. The appellants relied on several case laws, including Collector of Customs, Bombay Vs. Sneha Sales Corporation [2000 (121) ELT 577 (S.C.)] and Taparia Overseas (P) Ltd. Vs. U.O.I. [2003 (161) ELT 47 (Bom)].

2. Allegations of mis-declaration and fraudulent procurement of DFIA Licenses:
The Revenue received intelligence that M/s. Gemini Overseas Ltd. exported fabrics made of Noil Yarn but declared them as Natural Silk Fabrics to obtain DFIA Licenses for duty-free import of mulberry raw silk yarns. Samples tested from seized consignments confirmed the use of Noil Silk Yarn and cotton, not 100% mulberry silk as declared. Investigations extended to earlier exports revealed similar mis-declarations, leading to the fraudulent procurement of 23 DFIA Licenses.

3. Applicability of extended period for demanding duty:
The appellants contended that the demand for duty was time-barred and they had no intention to evade payment. However, the Tribunal observed that fraud vitiates everything, and the extended period for demanding duty is applicable. The Tribunal cited the case of Tata Iron & Steel Co. Ltd. Vs. C.C. Mumbai [2015 (319) ELT 546 (SC)], where the Supreme Court held that the extended period is available for demanding duty from transferees of fraudulently obtained licenses.

4. Liability of transferee appellants for duty and penalties:
The Tribunal held that the transferee appellants, who purchased the DFIA Licenses under a bonafide belief, cannot be held responsible for the fraud committed by the original license holders. However, they are still liable to pay the duty. The Tribunal differentiated from the CESTAT, Mumbai's order in the case of Incos ABS (India) Ltd. & others Vs. C.C., Kandla, stating that several relevant case laws were not considered in that order. The Tribunal set aside the penalties imposed on the transferee appellants as they had no knowledge of the fraudulent nature of the goods used and exported.

5. Relevance of the non-cancellation of DFIA Licenses by DGFT:
The appellants argued that no action could be taken against them until the DFIA Licenses were canceled by DGFT. The Tribunal rejected this argument, citing the Supreme Court's decision in C.C., Hyderabad Vs. M/s. Pennar Industries Ltd. [2015-TIOL-162-SC-CUS], which held that customs authorities could demand duty even if the licenses were not canceled by DGFT. The Tribunal emphasized that the conditions of the exemption notification must be fulfilled to the satisfaction of the customs authorities.

6. Applicability of Section 28AAA of the Customs Act, 1962:
The appellants argued that duty could only be demanded from the person to whom the DFIA Licenses were originally issued. The Tribunal observed that Section 28AAA, effective from 28/5/2012, allows the department to recover duty from both the original license holder and the transferee. However, this provision was not applicable to the present proceedings for periods prior to 28/5/2012. The Tribunal upheld the duty demands and interest but set aside the penalties on transferee appellants.

Conclusion:
The Tribunal upheld the duty demands and interest against all appellants but set aside the penalties imposed on the transferee appellants. The appeals filed by the transferee appellants were allowed to the extent of setting aside the penalties, while the appeals of the other appellants were dismissed.

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