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2023 (7) TMI 1481 - AT - CustomsDenial of DFIA benefit due to the original license holder fraudulently obtaining the licenses - fraudulent exports of betel nut power - mis-declaration of description, quantity and value of goods attempted to be exported and exported in the past - violation of provisions of Section 50 of the Customs Act, 1962 - Confiscation - penalty - extended period of limitation - HELD THAT - It revealed that at the time of importation by the appellants, these licenses were valid in law until and unless the same are cancelled by the Licensing Authority. The appellants being transferees of the licenses, are bonafide purchaser of the licenses in question and imported the goods and cleared thereof. Therefore, subsequent suspension or cancellation of the license cannot affect the imports made prior to such suspension and cancellation. In the case of Friends Trading Company 2011 (2) TMI 382 - PUNJAB HARYANA HIGH COURT , the scrips obtained by the appellants, were held to be void ab-initio. There is a big difference between the forged scrip which is ab-initio void at the time of import whereas the DEPB obtained on the basis of fraudulently by the exporter and sold to the appellants and transferrable to DGFT, may be voidable unless the same has been cancelled by the issuing authority. Accordingly, the same cannot be equated altogether. Further, the case of Tata Iron Steel Company Limited 2015 (8) TMI 290 - SC ORDER relied upon by the ld.A.R. for the Revenue, has no relevance in the facts and circumstances of this case as in that case the license holder has deliberately suppressed the fact of having availed movat credit and made willfully wrong declaration to the licensing authority to obtain the endorsement of transferability of the same while transferring the licenses to the appellants and the issue before the Hon ble Supreme Court was that in such cases the extended period of limitation was invokable or not. The Revenue has relied on the decision in the case of Munjal Showa Ltd. 2022 (9) TMI 1076 - SUPREME COURT , which is distinguishable on facts as in that case, during verification, it was found that the DEPB licenses on the basis of which TRAs were issued were forged and it was also found that these DEPB Scrips were forged. But in the case in hand, the DFIA License was genuine and the same were made transferrable by the DGFT and were valid at the time of import effected by the appellants. Therefore, the decision of the case Munjal Showa Ltd. cannot be equated in this case. It is found that the facts in this case, are similar to the case of M/s Neev Trading Company 2022 (3) TMI 1005 - CESTAT NEW DELHI as at the time of importation, the DFIA license against which the appellants have affected the duty free import of betel nut (split) were valid and made transferrable by DGFT, therefore, relying on the decision in the case of M/s Neev Trading Company, it is found that the subsequent suspension cannot affect the duty free import made by the appellants as on the date of import license was valid and made transferable by DGFT. As the licenses in question were valid against which, the appellant has imported duty free goods, the duty cannot be demanded from the appellants being bonafide purchasers of DFIA licenses - whole of the demands against the appellants are set aside. Consequently, no penalties were imposable on the appellants. The appeals filed by the appellants are allowed.
Issues Involved:
1. Whether the goods imported by the appellants under freely transferable DFIA licenses are liable to be denied the DFIA benefit due to the original license holder fraudulently obtaining the licenses. 2. Whether the DFIA licenses obtained by fraud are void or voidable. 3. Whether the appellants, as bona fide purchasers of DFIA licenses, are liable for the duty forgone. 4. Applicability of extended period of limitation under Section 28(4) of the Customs Act, 1962. 5. Legality of penalties imposed on the appellants. Issue-wise Detailed Analysis: 1. Denial of DFIA Benefits Due to Fraudulent Obtaining of Licenses: The core issue was whether the appellants, who imported goods under DFIA licenses that were fraudulently obtained by the original holder, could be denied the DFIA benefits. The tribunal found that the DFIA licenses were valid and transferable at the time of importation. It was established that the appellants were bona fide purchasers of these licenses and had no involvement in the original fraud. Therefore, the subsequent suspension or cancellation of the licenses could not affect the imports made prior to such actions. 2. Nature of DFIA Licenses: Void or Voidable: The tribunal examined whether the licenses obtained by fraud were void or voidable. Citing precedents, it was concluded that a license obtained by fraud is voidable, not void ab initio. It remains valid until cancelled by the appropriate authority. This principle was supported by various judgments, including East India Commercial Company Ltd vs CC and Union of India v Sampat Raj Dugar, which held that subsequent cancellation does not retrospectively render imports illegal. 3. Liability of Bona Fide Purchasers for Duty Forgone: The tribunal emphasized that the appellants, as bona fide purchasers, were not liable for the duty forgone. The DFIA licenses were valid and genuine at the time of import, and the appellants had no knowledge of the fraud committed by the original license holder. The tribunal relied on cases like Pee Jay International Vs. Commissioner of Customs and Supreme Castings Limited Vs. Jt. Director General of Foreign Trade, which supported the appellants' position that bona fide purchasers should not be penalized for fraud they were unaware of. 4. Applicability of Extended Period of Limitation: The tribunal found that the extended period of limitation under Section 28(4) of the Customs Act, 1962, was not applicable. There was no evidence of fraud, misstatement, or suppression of facts by the appellants. The tribunal cited the case of M/s Neev Trading Company, which held that the extended period could not be invoked when the appellants acted in good faith and the licenses were valid at the time of import. 5. Legality of Penalties Imposed: Given the findings that the appellants were bona fide purchasers and the licenses were valid at the time of import, the tribunal concluded that penalties imposed on the appellants were not justified. The tribunal set aside all demands and penalties, affirming that the appellants were entitled to consequential reliefs. Conclusion: The appeals filed by the appellants were allowed, and all demands and penalties against them were set aside. The tribunal held that the appellants, as bona fide purchasers of valid DFIA licenses, were not liable for the duty forgone, and the subsequent cancellation of licenses did not affect their imports. The decision underscored the principle that a license obtained by fraud is voidable, not void, and remains valid until officially cancelled.
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