2009 (2) TMI 75 - SC - Customs

Case of department is that Special Import License purchased by the importer from brokers for clearance of gold and silver was forged demand raised by invoking larger period by denying benefit of exemption under Not. No.117/94-Cus. It was for the buyer to establish that he had no knowledge about the genuineness of the SIL Since the SIL have been established to be forged obviously fraud was involved and that was sufficient to extend the period of limitation - appeal of revenue is allowed

Issues Involved:
1. Validity of Special Import License (SIL)
2. Knowledge of forgery by the importer
3. Applicability of the extended period of limitation
4. Liability for penalty and confiscation

Issue-wise Detailed Analysis:

1. Validity of Special Import License (SIL):
The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) reviewed the order of the Commissioner of Customs, who confirmed a duty demand on the grounds that the Special Import License (SIL) used by the importer was forged. The Commissioner had found that the SIL purchased by the importer from brokers was not valid for the consignments in question. The Joint Director General of Foreign Trade confirmed that no such license had been issued, and the signatures and security seals were forged. This finding was based on evidence including statements from various individuals involved in the transaction chain, who admitted to dealing in forged SILs.

2. Knowledge of forgery by the importer:
CESTAT concluded that there was no evidence to show that the importer had knowledge about the SIL being non-genuine. The tribunal held that the appeal could be disposed of on the ground of limitation without delving into the merits of whether the SIL was genuine. The revenue's stance was that since the licenses were forged and void, the buyer could not have a better title than the seller. However, the tribunal observed that the department failed to establish that the buyer had knowledge of the forgery, which is crucial for invoking the extended period of limitation.

3. Applicability of the extended period of limitation:
The tribunal's decision was based on the interpretation that the period of limitation should not be reckoned from the date of discovery of the forgery. The Supreme Court, however, emphasized that fraud vitiates every solemn act and that fraud and justice never dwell together. The court noted that the buyer must establish that he had no knowledge about the genuineness or otherwise of the SIL. The maxim "caveat emptor" (let the purchaser beware) was applied, indicating that the purchaser is bound by actual and constructive knowledge of any defect in the thing purchased, which might have been known by proper diligence.

4. Liability for penalty and confiscation:
The Commissioner had imposed penalties on the importer and other appellants, which were canceled by the CESTAT on the ground of limitation. The Supreme Court, however, noted that since the documents were established to be forged, fraud was involved, which was sufficient to extend the period of limitation. The court highlighted that the buyer is responsible for making necessary inquiries to ascertain the genuineness of the SIL. The principles of fraud, as discussed in various judgments, were reiterated, emphasizing that fraud vitiates all transactions and that misrepresentation itself amounts to fraud.

Conclusion:
The Supreme Court allowed the appeal, setting aside the CESTAT's decision. It concluded that the extended period of limitation was applicable due to the fraudulent nature of the SILs, and therefore, the demands and penalties imposed by the Commissioner of Customs were upheld. The appeal was allowed with no order as to costs.

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