2019 (5) TMI 983 - AT - Customs

Illegal obtaining of duty credit license for various fraudulent export - duty free scrips - TRA Confirmation reports forged by utilising services of telephone department and by forging stamp of customs duty officers - recovery of customs duty with interest and penalty - HELD THAT - The Department has taken up the matter for cancellation of this FPS license with DGFT by the DRI on 08.12.2016. However, it appears that the license has not been cancelled by DGFT as yet. In other words, the above FPS license is a genuine licence in the record of DGFT even as of now. In so far as the appellant is concerned they have purchased the license in question from M/s Nilesh International on 26/12/11 on payment through banking channel. As per record the appellant was not involved in the fraud. The contention of the Department that the appellant has obtained the said license without verifying the existence of M/s Nilesh International before purchase thereof is not sustainable on account of the fact that the various licences issued by the DGFT are being traded by the Broker as trading commodities which is permitted under DGFT policy. It would be practically impossible for any buyer to verify as to whether the person to whom the licence has been issued has been existing or otherwise by conducting enquiries. At the best what buyers could do is to verify the existence of license issued from DGFT. In case at hand, even now the license has not been cancelled by the DGFT in spite of specific request being made by the DRI. The appellant cannot be held responsible for payment of import duty and interest along with the imposition of penalty under the provisions of Customs Act as has been held in the impugned order. Invocation of Extended period for recovery of the Customs Duty - HELD THAT - It is evident that the appellant has not suppressed any fact from the Department to the extent that the license which was submitted for clearance of import consignment is issued by the DGFT, although the claimed to have been obtained fraudulently by the transferee and utilised on 06/12/11 on ICD Patpargang. The Show Cause Notice has been issued in this case on 02/12/2016, that is after the lapse of normal period of raising demand under the provisions of Section 28 of the Customs Act 1962 - the demand is also time barred. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Confirmation of Customs duty and recovery thereof under Section 28(4) of the Customs Act, 1962.
2. Demand for interest under Section 28(AB) and penalty under Section 114(A) of the Customs Act.
3. Legality of utilizing fraudulently obtained duty-free scrips (FPS license) for import.
4. Applicability of extended period for issuance of Show Cause Notice under Section 28(4) of the Customs Act.
5. Responsibility of the appellant for verifying the authenticity of the FPS license before purchase.

Issue-Wise Detailed Analysis:

1. Confirmation of Customs Duty and Recovery Thereof:
The appeal challenges the confirmation of Customs duty and recovery under Section 28(4) of the Customs Act, 1962. The Directorate of Revenue Intelligence (DRI) discovered a syndicate involved in obtaining duty credit licenses through fake export documents. The appellant purchased an FPS license from M/s Nilesh International, which was obtained fraudulently. The Adjudicating Authority confirmed the demand against the appellant, which is contested in this appeal.

2. Demand for Interest and Penalty:
The Adjudicating Authority also confirmed the demand for interest under Section 28(AB) and imposed a penalty under Section 114(A) of the Customs Act. The appellant argued that the license was validly issued by the DGFT and had not been canceled, thus denying the benefit of the license was not permissible. The appellant cited several judgments, including Pee Jay International vs. Commissioner of Customs, to argue that duty could not be demanded from an importer not involved in the fraud.

3. Legality of Utilizing Fraudulently Obtained Duty-Free Scrips:
The appellant contended that they were a bona fide purchaser of the FPS license without knowledge of the fraudulent activities. The license was purchased after due inquiry and payment through banking channels. The appellant relied on the decision in Union of India vs. Sampat Raj Dugar, where it was held that the cancellation of a license after the date of import is irrelevant if the goods were covered by a valid license at the time of import.

4. Applicability of Extended Period for Issuance of Show Cause Notice:
The appellant argued that the extended period for issuing the Show Cause Notice under Section 28(4) of the Customs Act was not applicable. They cited the decision in Commissioner of Customs, Amritsar vs. Vallabh Design Products, where it was held that the extended period could not be invoked if the transferee of DEPB Scrips obtained them in good faith from the open market without any misrepresentation, collusion, or suppression of facts.

5. Responsibility of the Appellant for Verifying the Authenticity of the FPS License:
The appellant argued that it was impractical for buyers to verify the existence of the license issuer, as licenses are traded like commodities. The appellant verified the existence of the license issued by the DGFT, which had not been canceled despite a request from the DRI. The Tribunal agreed, stating that the appellant could not be held responsible for verifying the existence of M/s Nilesh International before purchasing the license.

Conclusion:
The Tribunal found that the appellant was not involved in the fraud and had purchased the license in good faith. The FPS license was still valid in the records of the DGFT. The Tribunal held that the appellant could not be held responsible for the payment of import duty, interest, and penalty. The extended period for issuing the Show Cause Notice was also deemed inapplicable, making the demand time-barred. The impugned order was set aside, and the appeal was allowed. The judgment did not examine the impugned order concerning other noticees in the Show Cause Notices.

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