SC: Liability to pay customs duty invocable when DEPB license is fake/forged

[CA Bimal Jain]

The Hon’ble Supreme Court of India in M/S. MUNJAL SHOWA LTD. VERSUS COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE (DELHI – IV) AND M/S. FRIENDS TRADING CO. VERSUS UNION OF INDIA AND ORS. - 2022 (9) TMI 1076 - SUPREME COURT dismissed both the appeals filed by the assessee and directed the adjudicating authority to complete the penalty proceedings on remand, at the earliest preferably within a period of six months from the date of this judgment as the penalty proceedings were reported to be pending pursuant to the remand order passed by the CESTAT.

Facts:

M/s. Munjal Showa Ltd. (“the Appellant”) imported consignments using Transfer Release Advice (“TRAs”) issued by the Bombay Custom House. On verification, by the assessing authority (“the Respondent”) it was found that the Duty Entitlement Passbook Scheme (“DEPB”) licensees based on which TRAs were issued, were not genuine. The Respondent informed the Appellant that TRAs issued against the DEPB Scripps and the DEPB both are forged and, therefore, asked the Appellant to deposit the duty with interest in place of the DEPB benefit availed by it.

Thereafter, a show cause notice dated October 03, 2006 (“SCN”) was issued to the Appellant alleging evasion of duty by seeking exemption against debits in DEPB scripts, which were forged and which were not genuinely issued by the competent authority. The Appellant replied to the SCN stating that though the DEPB Scripps were forged but there was no intention to evade Customs Duty.

It was held that DEPB Scripps were forged and void ab initio and, therefore, the exemption availed by the Appellant was inadmissible. Further, being aggrieved by this order the Appellant filed an appeal before the Customs Excise and Service Tax Appellate Tribunal (“CESTAT”). The CESTAT rejected the plea of the Appellant on the issue of liability of duty but remanded the matter to the original authority on the issue of penalty.

Further, being aggrieved by the order of the CESTAT, the Appellant filed an appeal before the High Court under Section 130 of the Customs Act, 1962 (“the Customs Act”). The High Court in its order (“the Impugned order”) dismissed the appeal and upheld the order passed by the CESTAT confirming the demand of duty on the ground that “fraud” vitiates everything and therefore, the Respondent was justified in invoking the extended period of limitation.

Being aggrieved by the Impugned order, the Appellant filed an appeal in the Hon’ble Supreme Court of India.

Issue:

Whether or not the Appellant is liable to pay the customs duty for fake/ forged DEPB Licenses?

Held:

The Hon’ble Supreme Court of India in M/S. MUNJAL SHOWA LTD. VERSUS COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE (DELHI – IV) AND M/S. FRIENDS TRADING CO. VERSUS UNION OF INDIA AND ORS. - 2022 (9) TMI 1076 - SUPREME COURT, held as under:

• Held that whether the Appellant had knowledge about the fraud or the forged / fake DEPB licenses/Scripps and whether the Appellant was aware to take requisite precautions to find out about the genuineness of the DEPB licenses/Scripps which they purchased, would have a bearing on the imposition of the penalty, and has nothing to do with the duty liability.
• The Hon’ble Supreme Court also stated that in the present case so far as the penalty proceedings are concerned, the matter is remanded by the CESTAT to the adjudicating authority, which was reported to be pending.
• Dismissed the appeal and as the penalty proceedings are reported to be pending pursuant to the remand order passed by the CESTAT, the Hon’ble Court directed the adjudicating authority to complete the penalty proceedings on remand, at the earliest preferably within a period of six months from today.

(Author can be reached at [email protected])

Discussions to this article

[DEV KUMAR KOTHARI]

Dear Mr. Jain,

I think some elaborate discussion about procedure for availment of credit against DEPB licence and issue of TRA's and related provisions will help readers to understand subject matter in detail.

TRA's were issued by Customs House, Bombay. I believe it was authority for the same.

If authorities had occassion to examine DEPB licence before issue of TRA's and thier availment of benefit by importer, then importer should not be liable , if authorities failed to detect forgery in DEPB purchase from other exporters, and used by importer.

Regards and best wishes

Dev Kumar Kothari.

[manjeet singh]

Sir, on plain reading of article many facts are not known like When department issued the DEPB then how it become forged? What is the proper allegation in the SCN? Please Clarify? What is Transfer Release Advice (TRA) and how one can avail it? What is the procedure of the TRA availment? In my view, besides focusing on the SC judgment, it will be very insightful if you can cover all these scopes also?