2018 (1) TMI 775 - AT - Customs

Cancellation of DEPB Scrips - denial of benefit on the ground that it was subsequently found that the said Exim International had obtained DEPB scrips fraudulently on the basis of fake documents - Held that - There is no allegation that the appellants have colluded in any manner with Exim International in the fraud committed by the latter for obtaining the DEPB scrips. The appellants have purchased the scrips in a bonafide manner and with bonafide belief that they were genuine and valid - similar issue decided in the case of CC, Amritsar Vs. Vallabh Design Products 2007 (4) TMI 274 - PUNJAB & HARYANA HIGH COURT , where it was held that in the case of DEPB scrips obtained by fraud and forgery and where the transferee of these scrips are not a party to the fraud and were obtained on payment of full price from the open market on bonafide belief, the transferee is not liable to duty, penalty and interest - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Validity of duty demand and penalty imposed under Section 112(a) of the Customs Act, 1962 due to cancellation of DEPB scrips obtained fraudulently.
2. Applicability of judicial precedents in cases of DEPB scrips obtained through fraud and subsequent cancellation.

Issue 1: Validity of Duty Demand and Penalty:
The appellant imported duty-free materials under DEPB scrips purchased from a company that obtained the scrips fraudulently. Subsequently, the DEPB scrips were cancelled ab initio by the DGFT, leading to a demand of duty and penalty. The adjudicating authority confirmed a duty demand of &8377; 51,05,919/- and imposed a penalty of &8377; 30,00,000/- under Section 112(a) of the Customs Act, 1962. The appellant contended that they were not involved in the fraud, had valid DEPB scrips at the time of imports, and had purchased the scrips in good faith. The appellant argued that they should not be deprived of benefits due to the cancellation of the DEPB scrips after the fraud was discovered.

Issue 2: Applicability of Judicial Precedents:
The appellant relied on various case laws to support their argument, including the case of Binani Cement Ltd. Vs. CC, Kandla and other judgments. The appellant cited precedents where courts held that if an assessee is not involved in the fraud and purchased DEPB scrips in good faith, they should not be deprived of benefits even if the scrips are later found to be forged. The Tribunal noted that there have been conflicting decisions on this issue, with some judgments supporting the appellant's position. The Tribunal referred to cases where courts ruled in favor of importers who acted in good faith based on valid DEPB licenses at the time of imports, despite subsequent cancellations.

In conclusion, the Tribunal found that the appellant had purchased the DEPB scrips in good faith, without collusion in the fraud committed by the seller. Relying on relevant judicial precedents, the Tribunal held in favor of the appellant, setting aside the impugned order and allowing the appeal with consequential benefits as per law.