2018 (9) TMI 330 - HC - Customs

DFIA scrips - Subsequent cancellation of the licenses/scrips - assessee purchased the DFIA scrips and has availed exemption from customs duty - interpretation of statute - Section 28 of the Act - extended period of limitation. Held that - The appellant steps into the shoes of the importer in the sense that they have purchased the advance licence, which was granted to the importer. If it is being that the licence obtained by the importer was obtained by fraud nothing further, remains to be done as fraud vitiates every solemn act and goes to the root of the matter and therefore, the assessee cannot be allowed to contend that on the date when they utilized the licence, it was not cancelled. Time Limitation - Held that - The show cause notice has been issued invoking Section 28(1) of the Act, which is well within the period of six months from the date on which the offence was deducted and the licence was cancelled by the Joint Director General of Foreign Trade. Therefore, the power of the Customs Authority to initiate action shall at best commenced from the date on which the offence report is received by them and not earlier. Therefore, the contention raised by the assessee in this regard, is rejected. The correct legal position has been spelt out in the decision in Friends Trading Co. 2011 (2) TMI 382 - PUNJAB HARYANA HIGH COURT , wherein also somewhat identical issue arose for consideration and the Court held that fraud or suppression continues, if document is not genuine and contrary interpretation defeating legislative intention will not enable perpetuation of fraud and a purchaser or successor of fraudulently obtained licence stands in the same position as the predecessor. The said decision squarely would apply to the case on hand, as the petitioner is a purchaser of licence, which was fraudulently obtained. Appeal dismissed - decided in favor of Revenue.

Summary

Issues Involved:
Appeal against Customs Tribunal order regarding duty exemption under Notification No.90/04-Cus. for import of Raw Silk Yarn; Validity of show cause notice proposing duty demand, confiscation, and penalty; Consideration of legal pleas on license cancellation effect on importation; Limitation period under Section 28(1) of the Customs Act; Fraudulent practices in availing duty exemptions.

Analysis:

1. Validity of Show Cause Notice:
The show cause notice dated 10.06.2011 proposed denying duty exemption for Raw Silk Yarn import under a cancelled license. The issue arose due to fraudulent practices by another party misusing DFIA and DFRC schemes. The Adjudicating Authority confirmed the duty demand, which was upheld by the Commissioner (Appeals) and the Tribunal. The appellant argued that the notice was vitiated due to the non-invocation of the extended limitation period under the proviso to Section 28(1).

2. Interpretation of Section 28 of the Customs Act:
Section 28(1) allows duty demand within specific timeframes, with the proviso extending the period to five years in cases of collusion or willful misstatement. The appellant, as the purchaser of the license, was considered an importer and liable under the Act. The Tribunal rejected the appellant's argument that the cancellation of the license post-importation should not affect their duty exemption claim, citing the principle that fraud vitiates every act.

3. Limitation Period and Fraudulent Practices:
The Tribunal's order was supported by the legal position that the initiation of action by Customs Authorities within six months of the offense being detected and the license being cancelled was valid. The appellant's reliance on the Supreme Court and High Court decisions was deemed inapplicable to the present case due to differing factual circumstances. The Division Bench's decision in a similar case highlighted that fraudulently obtained licenses cannot be perpetuated, affecting successors similarly to the original holder.

4. Final Decision and Legal Precedents:
The High Court dismissed the appeal, upholding the Tribunal's order. The judgment emphasized that fraudulently obtained licenses do not confer rights to successors, and the appellant's claim for duty exemption was rightfully denied. Legal precedents were cited to support the decision, emphasizing the importance of upholding the integrity of trade practices and preventing the perpetuation of fraudulent activities. The substantial questions of law were answered against the appellant in favor of the Revenue, with no costs awarded.

This detailed analysis of the judgment from the Madras High Court provides insights into the legal issues surrounding duty exemptions, fraudulent practices, and the interpretation of relevant provisions of the Customs Act.