2004 (10) TMI 90 - SC - Customs

Whether fraud is established? Held that - CEGAT did not consider the aberrations highlighted by the Commissioner and in a very cryptic manner dealt with the issues. No plausible reason has been indicated as to why the allegations which are quite serious in nature and the conclusions in relation thereto recorded by the Commissioner were not to be maintained. Only an abrupt conclusion was reached that Shri Thakur and Sri Chaudhuri had absolutely no connection with the acceptance of cheques. There was not even any reference to the allegations regarding accepted backdating or acting contrary to specific directions. Sri Sharma was given a clean chit in view of the finding recorded about the date on which receipt of payment has to be taken. Here again the allegations were not considered in the proper perspective. The findings regarding deemed removal are really inconsequential in the present dispute as the very foundation for removal was based on established fraud. Therefore, it is not necessary in the present dispute to go into the question regarding effect of deemed removal. The manipulative roles of respondents 2 to 7 have been clearly established. They were clearly active participants in the well-planned deception and fraudulent acts leading to evasion of duty. They had played major roles in the whole game of fraud and deception. There was clearly wilful disregard and deliberate defiance of statutory provisions. Levy of penalty is clearly warranted. Impugned order of CEGAT is set aside and order of Commissioner is restored.The appeals are allowed

Issues Involved:
1. Whether duty could be treated to have been paid on the 25th February, 1999.
2. The date for determination of rate of duty and whether the Warehouse License could be treated as canceled.
3. Whether the charge of evasion of duty by mala fide intent, willful misdeclaration, suppression of facts is established.
4. Whether the goods are liable to confiscation under Section 111(j) of the Customs Act, 1962.
5. Determination of the appropriate penal clause and whether penalty against the noticee M/s. EOL is leviable under Section 114A or Section 112(a)/(b) of the Customs Act, 1962.
6. The extent of involvement of individual persons and evidence on record to sustain the charge of collusion on the part of employees of M/s. EOL and officers of the department.

Detailed Analysis:

Issue 1: Whether duty could be treated to have been paid on 25th February, 1999
- Commissioner's Findings: The Commissioner held that duty could not be treated as paid on 25-2-1999 due to the misdeclaration about the availability of funds. The fact that funds were not available was not disclosed until 3-3-1999. The Commissioner relied on the bank's specific instructions regarding the return of cheques in case of non-availability of funds and concluded that had the assessee correctly disclosed the facts, the application dated 25-2-1999 would not have been accepted.
- CEGAT's Findings: The CEGAT observed that the Commissioner failed to notice the non-applicability of the Trade Notice. It concluded that duty was paid on 25-2-1999 since the payment of the cheque relates back to the presentation, and the cheque was not dishonored.

Issue 2: The date for determination of rate of duty and cancellation of Warehouse License
- Commissioner's Findings: The Commissioner observed that the cancellation of the warehousing license was obtained by fraud. Reference was made to the undertaking given before the High Court accepting liability to pay duty. Consequently, it was held that there was no cancellation under Section 68, and therefore, provisions of Section 15(1)(c) were applicable.
- CEGAT's Findings: The CEGAT held that as duty shall be treated to have been paid on 25-2-1999, requirements of Section 68 were complied with, and therefore, Section 15(1)(b) and not Section 15(1)(c) was applicable.

Issue 3: Charge of evasion of duty by mala fide intent, willful misdeclaration, suppression of facts
- Commissioner's Findings: The Commissioner held that the charge of evasion of duty by mala fide intent, willful misdeclaration, and suppression of facts was clearly established.
- CEGAT's Findings: The CEGAT held that there was no willful misdeclaration, no evasion, or short levy. The declaration was held to have been made under a bona fide belief.

Issue 4: Liability of goods for confiscation under Section 111(j) of the Customs Act, 1962
- Commissioner's Findings: The Commissioner held that the goods were liable for confiscation under Section 111(j) as deemed removal was contrary to the permission and fraudulent intention was clearly established. However, a redemption fine of Rs. 20 crores was imposed.
- CEGAT's Findings: The CEGAT held that there could not be any confiscation as goods had been cleared under permission.

Issue 5: Determination of the appropriate penal clause and penalty against M/s. EOL
- Commissioner's Findings: The Commissioner held that Section 114A was not invokable, but a penalty of Rs. 10 crores was imposed under Section 112(b).
- CEGAT's Findings: The CEGAT set aside the penalties holding that respondent nos. 2 to 7 had not committed any breach.

Issue 6: Involvement of individual persons and evidence on record for collusion
- Commissioner's Findings: The Commissioner held that respondents 2 to 7 were involved in the fraud and were liable to penalty under Section 112(a). Specific findings were made regarding the roles of each respondent in the fraudulent acts.
- CEGAT's Findings: The CEGAT did not consider the aberrations highlighted by the Commissioner and dealt with the issues in a very cryptic manner. It concluded that the allegations were not to be maintained without providing plausible reasons.

Supreme Court's Conclusion:
The Supreme Court found that the CEGAT had not considered the fraudulent acts and misdeclarations in the proper perspective. It emphasized that fraud vitiates every solemn act and highlighted the manipulative roles of respondents 2 to 7. The Supreme Court restored the order of the Commissioner, confirming the demand of duty, order of confiscation, and penalties. The appeals were allowed with no order as to costs.

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