1996 (1) TMI 263 - AT - Customs

Summary

Issues Involved:
1. Validity of DEEC licenses obtained by fraud and their subsequent cancellation ab initio.
2. Legality of confiscation of goods imported against such licenses under Section 111(d) of the Customs Act.
3. Imposition of penalties on the appellants and the kartha of the firm.

Issue-wise Detailed Analysis:

1. Validity of DEEC Licenses Obtained by Fraud and Their Subsequent Cancellation Ab Initio:
The appellants imported polyester fabrics against DEEC licenses, which were later cancelled ab initio by the licensing authorities due to fraud and misrepresentation. The investigation carried out by the Directorate of Revenue Intelligence (DRI) revealed that the licenses were obtained through fraudulent means. The appellants argued that the goods were imported against valid licenses and were detained before the licenses were cancelled. They contended that the cancellation of licenses after the import does not retrospectively render the import illegal.

2. Legality of Confiscation of Goods Imported Against Such Licenses Under Section 111(d) of the Customs Act:
The Tribunal examined whether goods imported against DEEC licenses, which were subsequently cancelled ab initio, could be held liable to confiscation under Section 111(d) of the Customs Act. The appellants relied on several case laws, including the Supreme Court's decision in East India Commercial Co., which held that a license obtained by fraud is voidable and valid until avoided. They argued that since the goods were imported against valid licenses, they should not be confiscated. However, the Tribunal noted that the licenses were cancelled ab initio, meaning from the beginning, and thus were not valid at the time of clearance. The Tribunal held that the Customs authorities could not allow clearance of goods against licenses that had been cancelled from inception. The Tribunal distinguished the present case from the East India Commercial Co. case, where the goods had already been cleared before the license was questioned.

3. Imposition of Penalties on the Appellants and the Kartha of the Firm:
The Tribunal upheld the penalties imposed on the firms, citing the fraudulent means used to obtain the licenses. However, the Tribunal deemed it proper to remit the separate penalties imposed on Shri M.L. Gupta, the kartha of the firm. The Tribunal emphasized that the appellants attempted to import sensitive goods like polyester fabrics through misrepresentation and fraud, justifying the imposition of penalties.

Separate Judgment by Member (J):
While concurring with the order, Member (J) emphasized that the appellants could not take advantage of their own fraud. The Customs Authority's action of withholding clearance and informing the licensing authority, leading to the cancellation of licenses ab initio, was deemed permissible. The Member (J) also highlighted that even if the provisions of the Contract Act were applicable, Section 65 mandates the restoration of benefits derived through fraud. The judicial pronouncements cited by the appellants did not examine Section 65, making them inapplicable to the present case.

Conclusion:
The Tribunal held that the goods involved in all four appeals were liable to confiscation and upheld the orders of absolute confiscation. The penalties imposed on the firms were sustained, but the separate penalties on Shri M.L. Gupta were remitted. The appeals were otherwise rejected, affirming the legality of the actions taken by the Customs authorities.