2024 (10) TMI 843 - AT - Customs

Confirmation of duty demand under Proviso to Section 28(1) of CA, 1962, upon the appellant who is importer and transferee of license issued by DGFT - Liability of the appellant as a bona fide transferee of a fraudulently obtained license - Levy of penalties under Section 114A of the Customs Act - extended period of limitation - HELD THAT - It is observed from the records of the case that the said license was issued and made transferable by the DGFT, and the same was valid and subsisting on the dates of imports and clearance of the consignments by the appellant. Further, customs have duly verified the said license before clearance of the consignments imported by the appellant. It is further noticed that in their statements recorded under section 108 of the Customs Act, Shri Sanjay Raturi, Manager (Taxation) and Shri Chandresh Shah, Manager (Logistics) of the Appellant inter alia stated that they had purchased the said license from broker M/s. Milan Overseas and they had taken the requisite precautions before buying the said license from the open market i.e. the IEC verification from DGFT website, particulars of license details from DGFT website, checking of license, registration and balance from the Customs Department, all the payments were made through Bank and relevant invoices of Milan Overseas, bank statements, bills of entry and copy of license were also submitted. Admittedly and undisputedly the alleged fictitious exports and fraud have been allegedly committed by the exporter/original license holder and its proprietor, and there is no allegation or evidence that the appellant was aware about the alleged fraud perpetrated by the exporter, in the circumstances, duty forgone on the said license should be recovered only from the exporter/original license holder, however, duty demand has been confirmed against the appellant. It is observed that show cause notice is dated 28.1.2015 raised demand of duty for the goods imported during April 2010; the notice is thus issued invoking extended period of limitation provided under proviso to section 28 (1) of the Act, however appellant is bonafide transferee of license for a valuable consideration. Consequently, larger period of limitation cannot be made applicable to demand duty as against the appellant. The impugned Order by which demand of duty under proviso to section 28(1) and penalty under section 114A of the Act has been confirmed as against the appellant is liable to be set aside on the ground of time bar alone - the impugned order is set aside - appeal allowed.

Issues Involved:

1. Validity of duty demand under proviso to Section 28(1) of the Customs Act.
2. Applicability of extended period of limitation for duty demand.
3. Liability of the appellant as a bona fide transferee of a fraudulently obtained license.
4. Imposition of penalties under Section 114A of the Customs Act.

Issue-wise Detailed Analysis:

1. Validity of Duty Demand under Proviso to Section 28(1) of the Customs Act:

The core issue was whether the duty demand on the appellant, who purchased a Focus Market Scheme license from the open market, was valid. The license was initially issued by the DGFT and was valid at the time of importation. The customs authorities had verified the license before clearing the consignments. The appellant argued that they were a bona fide transferee of the license, having conducted due diligence before purchase. The tribunal observed that the license was valid and subsisting on the date of import and that the appellant had no knowledge of any fraud committed by the original license holder. Therefore, the duty demand on the appellant was deemed unsustainable.

2. Applicability of Extended Period of Limitation for Duty Demand:

The notice demanding duty was issued on 28.1.2015 for goods imported in April 2010, invoking the extended period of limitation under Section 28(1) of the Act. The appellant contended that the extended period was not applicable as there was no collusion, willful misstatement, or suppression of facts on their part. The tribunal agreed, citing the Gujarat High Court's decision in Commissioner of Customs, Kandla V Indian Acrylics Ltd, which held that the extended period could not be invoked when the importer was not party to the fraud. Thus, the demand was barred by limitation.

3. Liability of the Appellant as a Bona Fide Transferee of a Fraudulently Obtained License:

The appellant purchased the license in good faith from the open market, having verified its validity through various checks, including IEC verification from the DGFT website and customs registration. The tribunal noted that the fraud was committed by the exporter/original license holder, and there was no evidence implicating the appellant in the fraud. Consequently, the duty forgone should be recovered from the exporter/original license holder, not the appellant.

4. Imposition of Penalties under Section 114A of the Customs Act:

The Additional Commissioner of Customs had imposed a penalty under Section 114A of the Act on the appellant. However, since the duty demand was unsustainable due to the time bar and the appellant's bona fide status, the penalty was also deemed unjustified. The tribunal set aside the penalty, aligning with its decision to annul the duty demand.

Conclusion:

The tribunal concluded that the impugned order confirming the duty demand and penalty against the appellant was unsustainable due to the time bar and the appellant's bona fide status. The appeal was allowed, and the order was set aside, granting consequential relief to the appellant in accordance with the law. The judgment emphasized the importance of distinguishing between genuine and fraudulent transactions and the applicability of the extended period of limitation.

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