2020 (2) TMI 437 - AT - Customs

Liability of bonafide importers who purchased the duty script from the market and used to pay customs duty - Misuse of various Export Promotion Scheme - Fake export - duty credit licenses, such as, DEPB/ FPS/DFIA/ VKGUY etc - Legal import or not - forged/fake documents - purchase of forged TRA alongwith DEPBs issued based on forged/fake export documents - whether the appellants had validly imported the consignments duty free on the strength of the licenses involved in these appeals? HELD THAT - The bona fide of imports which were made under the various export promotion schemes under Chapter 3 and 4 of the Exim Policy has to be examined. The importers purchased these licenses, which were transferrable from the license brokers. After the purchase of license, the importers did not apply for the issue to Telegraphic Release Advice (TRA) from the port of Registration (POR) as was required to be obtained the TRAs from the brokers. Not only that, they also failed to ascertain the veracity of such TRAs from the Port of Registration. Thus, the due diligent that was required to be exhibited by the importer was not carried out. The entire racket has been carefully planned and executed by Paresh Daftary, Prabir Ghosh and Jyoti Biswas. These three persons circumvented all the laws, be it Customs, Foreign Trade or Exim Policy. They attempted to hoodwink all the government agencies and committed a fraud, which could only be detected, subsequently, in the investigation by the DRI. The appellants have not asserted that the exports had not been effect for they only contend that they were not a party to the fraudulent activities. The Adjudicating Authority has taken great pains to evaluate the entire sequence of events. In EAST INDIA COMMERCIAL CO. LTD., CALCUTTA VERSUS COLLECTOR OF CUSTOMS, CALCUTTA 1962 (5) TMI 23 - SUPREME COURT , the Supreme Court noticed that the goods were imported under a valid license and, therefore, it was not possible to hold that the goods imported were prohibited or restricted under Customs Act. This case pertained to Sea Customs Act, 1872, while the present case is under the Customs Act, 1962 - It is manifestedly clear that the case at hand is distinguishable since there was no issue of TRA and the involvement of transferee had not been brought on record in the investigation. Thus, this case would not help the appellants. In TAPARIA OVERSEAS (P) LTD. VERSUS UNION OF INDIA 2003 (1) TMI 127 - BOMBAY HIGH COURT , the original license was obtained by the transferee fraudulently which were subsequently transferred to the transferee. It was held that since the goods had been imported under a valid license, the duty liability would not accrue on the transferee - As the issue of forged TRA was not the issue before the Court, the case would have no application. In COMMISSIONER VERSUS LEADER VALVES LTD. 2008 (3) TMI 665 - SC ORDER , the issue was identical as the DEPB was issued by the DGFT on the basis of forged document, bank realization certificate. The appellant was not a party to the fraud and had purchased DEPB from open market under a bona fide belief that it was genuine. The appellant paid full prices and availed the benefit. Merely because at a later stage the DEPB has been found to be fabricated, the assessee could not have been deprived of the benefit. The adjudicating authority, in the impugned order, has wrongly held that the appellants have utilized forged TRA, although the issue pertained to the utilization of FPS licenses. Thus, the appeals filed by the department are allowed and they are remanded to the adjudicating authority for a fresh decision after granting a hearing to the appellants. Appeal allowed by way of remand.

Summary

Issues Involved:

1. Validity of DEPB scrips and TRAs.
2. Bona fide purchase and utilization of DEPB scrips.
3. Fraudulent procurement and subsequent cancellation of licenses.
4. Liability of importers for duty and penalties.
5. Jurisdiction of DRI officers to issue show cause notices.
6. Application of extended period of limitation for demand of duty.
7. Role of intermediaries and brokers in the fraudulent activities.

Issue-Wise Detailed Analysis:

1. Validity of DEPB scrips and TRAs:
The judgment extensively discusses the fraudulent procurement of DEPB scrips and TRAs. The appellants were found to have used forged TRAs and DEPBs issued based on fake export documents. The Directorate of Revenue Intelligence (DRI) investigation revealed that the DEPB scrips were obtained using forged shipping bills and bank certificates of export realization, which were never tendered or registered at the relevant customs division. The DEPBs and TRAs were thus deemed invalid, and the duty exemption against such fraudulent documents was rejected.

2. Bona fide purchase and utilization of DEPB scrips:
The appellants argued that they purchased the DEPB scrips in good faith and for valuable consideration from the open market, relying on the validity of the licenses as verified on the DGFT website. They contended that they should not be held responsible for the fraudulent activities of the original license holders. However, the tribunal held that the appellants failed to exercise due diligence in verifying the authenticity of the TRAs and DEPBs from the port of registration. The concept of "buyer beware" was emphasized, and it was concluded that the appellants could not claim the benefit of duty exemption based on fraudulent documents.

3. Fraudulent procurement and subsequent cancellation of licenses:
The DRI investigation uncovered a syndicate involving Paresh Daftary, Prabir Ghosh, and Jyoti Biswas, who orchestrated the fraudulent procurement of DEPB scrips and TRAs. The DGFT subsequently canceled most of these licenses ab initio. The tribunal noted that the fraudulent procurement of licenses vitiated the validity of the DEPBs and TRAs, rendering them void from the beginning.

4. Liability of importers for duty and penalties:
The tribunal held that the appellants were liable for the customs duty along with interest and penalties. The duty demands were justified as the appellants utilized forged TRAs and DEPBs for duty-free imports. The tribunal rejected the appellants' argument that they were bona fide purchasers, emphasizing that the fraudulent procurement of licenses and TRAs invalidated the duty exemption claims.

5. Jurisdiction of DRI officers to issue show cause notices:
The appellants challenged the jurisdiction of DRI officers to issue show cause notices under Section 28 of the Customs Act. However, the tribunal upheld the validity of the notices, citing the ongoing legal precedents and the authority of DRI officers to investigate and issue notices in cases of customs fraud.

6. Application of extended period of limitation for demand of duty:
The tribunal justified the application of the extended period of limitation for demanding duty under Section 28 of the Customs Act. It was held that the fraudulent activities and suppression of facts by the appellants warranted the invocation of the extended period. The appellants' failure to verify the authenticity of the TRAs and DEPBs constituted willful suppression, justifying the extended period for duty demands.

7. Role of intermediaries and brokers in the fraudulent activities:
The judgment highlighted the involvement of intermediaries and brokers in the fraudulent procurement and sale of DEPB scrips and TRAs. The brokers facilitated the issuance of forged documents and TRAs, which were then used by the appellants for duty-free imports. The tribunal emphasized that the appellants could not absolve themselves of liability by shifting the blame to brokers, as they failed to exercise due diligence in verifying the authenticity of the documents.

Conclusion:
The tribunal dismissed the appeals of the importers and upheld the duty demands, interest, and penalties imposed by the adjudicating authority. The appeals filed by the Revenue were allowed by way of remand for re-examination of certain factual errors. The judgment reinforced the principle that fraudulent procurement of licenses and TRAs invalidates any duty exemption claims, and importers must exercise due diligence in verifying the authenticity of such documents before utilizing them for duty-free imports.