2024 (12) TMI 1413 - AT - Customs

Fraudulent availing Duty Free Credit Entitlement Certificates from DGFT - valid import of goods against the DFCE Licences or not - mis-using the DFCE scheme by way of wrongly obtaining the licences, resorting to Circular trading of CPDs. Whether the respondents had validly imported the goods against the DFCE Licences? - whether respondent had resorted to Circular trading of CPDs and thereby mis-used the DFCE scheme by way of wrongly obtaining the licences? - HELD THAT - The allegations and charges levelled under the said show cause notice dated 30.03.2007 as well as in the present disputed show cause notice dtd.19.12.2012 are similar in nature. The adjudication order passed in respect of the SCN dated 30.03.2008 was carried in Appeal to the CESTAT and decided in respondent s favour in CC (II) AIRPORT SPECIAL CARGO, MUMBAI AND OTHERS VERSUS SHRI SAMIR VORA AND OTHERS 2015 (9) TMI 1370 - CESTAT MUMBAI by holding that there was neither any mis-declaration of value /product nor there was circular trading. The CESTAT inter-alia held that all the transaction of Cut and Polished Diamonds (CPD) were genuine and there was no circular trading - the disputed matter is well settled in favour of the respondents by the above decision. Since the issue is no longer res integra, the instant demand cannot be sustained. In the present matter the department s appeal does not allege that the licences had been cancelled by the DGFT in the instant case. Clearly, the facts are on record that the DGFT has not cancelled the DFCE Licence issued to the respondent and same were valid in the eyes of law. The DGFT has still not cancelled or modified the DFCE licences already granted. So it is clear that DGFT does not agree with the contention of the department. The allegation of the revenue cannot be agreed that the exports have been misdeclared and DFCE licenses have been sought for and obtained fraudulently and imports have been made using invalid DFCE licenses. Conclusion - The contention of the department that the DFCE licences are invalid cannot be agreed. As valid DFCE licences have been used for import of the goods by the respondents, hence, there are no reason for demand of duty or confiscation of the goods, or imposition of penalties. In the light of this, there are no valid grounds have been brought out to interfere with findings of the Ld. Adjudicating authority. There is no infirmity in the impugned orders and they need to be upheld - Appeal of Revenue dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily revolves around the following core issues:

• Whether the respondents validly imported goods against Duty Free Credit Entitlement (DFCE) Licences.
• Whether the respondents engaged in circular trading of Cut and Polished Diamonds (CPD) and misused the DFCE scheme by fraudulently obtaining licences.
• Whether the DFCE licences used for importing goods were obtained fraudulently.
• Whether the customs authorities have the jurisdiction to question the validity of DFCE licences when the DGFT has not cancelled them.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Imports Against DFCE Licences

• Relevant Legal Framework and Precedents: The DFCE Scheme under the EXIM Policy allowed imports without duty if they had a nexus with exported products. The legal framework includes provisions of the Customs Act, 1962, and notifications under the EXIM Policy.
• Court's Interpretation and Reasoning: The court found that the imports were valid as the DFCE licences were not cancelled by the DGFT, and the goods imported had a broad nexus with the exported goods.
• Key Evidence and Findings: The court noted that the DGFT had not cancelled the licences and confirmed their validity.
• Application of Law to Facts: The court applied the principle that valid licences, unless cancelled by the issuing authority, remain valid for imports.
• Treatment of Competing Arguments: The department's argument that the licences were obtained fraudulently was rejected due to the lack of cancellation by the DGFT.
• Conclusions: The imports were valid under the DFCE licences as they were not cancelled by the competent authority.

Issue 2: Alleged Circular Trading of CPD

• Relevant Legal Framework and Precedents: Circular trading allegations were evaluated under the Customs Act and relevant precedents regarding the genuineness of transactions.
• Court's Interpretation and Reasoning: The court found no evidence of circular trading, noting that all transactions were genuine and properly documented.
• Key Evidence and Findings: Statements from involved parties and examination of transaction documents showed no circular trading.
• Application of Law to Facts: The court applied principles of evidence and found the department's allegations unsubstantiated.
• Treatment of Competing Arguments: The respondents' arguments that transactions were genuine were upheld, and the department's lack of evidence was highlighted.
• Conclusions: The court concluded there was no circular trading or misuse of the DFCE scheme.

Issue 3: Jurisdiction of Customs Authorities Over DFCE Licences

• Relevant Legal Framework and Precedents: The court referred to precedents which establish that customs authorities cannot question the validity of licences issued by the DGFT unless they are cancelled.
• Court's Interpretation and Reasoning: The court reasoned that customs authorities lack the jurisdiction to invalidate licences that are still valid under DGFT.
• Key Evidence and Findings: The DGFT had not cancelled the licences in question.
• Application of Law to Facts: The court applied the principle that only the issuing authority can cancel a licence.
• Treatment of Competing Arguments: The department's arguments were dismissed due to the absence of any action by the DGFT to cancel the licences.
• Conclusions: Customs authorities cannot contest the validity of DFCE licences unless they are cancelled by the DGFT.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The sole ground of the Commissioner to reject the FOB value, is that the value addition of 5% or more cannot be achieved only by carrying out simple processes, is not sustainable."
• Core Principles Established: The validity of DFCE licences is determined by the DGFT, and customs authorities cannot override this unless the licences are cancelled.
• Final Determinations on Each Issue: The court upheld the validity of imports under DFCE licences, found no evidence of circular trading, and dismissed the department's appeals.

The judgment underscores the importance of adhering to established legal frameworks and respecting the jurisdictional boundaries between different government authorities in trade-related matters. The court's decision reinforces the principle that only the issuing authority (DGFT) has the power to cancel or invalidate licences, and customs authorities must operate within these constraints.