2024 (11) TMI 141 - HC - Customs

Confiscation of DEPB licences and TRAs - demands of Customs Duty u/s 28(1) of the Customs Act, 1962 (Act) along with penalty under various provisions, including Sections 112(a) and 114(A) of the Act - 67 appeals preferred by importers and traders of Duty Entitlement Pass Book (DEPB) scrips and Telegraphic Release Advice (TRA) challenging adjudication orders, alleging that the TRAs and DEPBs had been forged and constituted fabricated instruments - CESTAT dismissed the appeals in full in the case of Satish Mohan Agarwal holding him to have played a pivotal role in the entire sequence of fraudulent events including the preparation of the fake DEPB scrips and TRAs. Penalty was also upheld. HELD THAT - There is no question of deriving any credit from forged scrips. While one may defend his case stating that there was no collusion or fraud, the liability for duty, interest and other statutory consequences are unavoidable. The conclusions of the CESTAT are based upon the results of investigation which have established conclusively that the DEPB scrips and TRAs were fabricated and forged. The parties were thus held to be liable on the ground of fraud which, rightly has been held to vitiate the transactions in full. The orders of the lower authorities and the order of the Tribunal, the final fact finding authority establishes clearly that the documents were fake. The explanations tendered by the individual appellants have also found to have no credence and nothing new is placed before us to persuade as to take a different view in this matter. The questions of law raised for our consideration touch upon the factual findings rendered by the authorities. We see no reason to intervene in those findings as no perversity has been made out in any of the findings or in the appreciation of the facts and circumstances based upon which those findings have been rendered. There is no question of law that arises for determination save what has been answered in the paragraphs to follow. The component of duty and interest have been confirmed in all cases and we find no cause to intervene. Some portion of the penalties have been reduced and the revenue is in appeal on this score. Justification in the Tribunal having deleted the penalty on importers in full - Having stated that the importers had not conducted due diligence from the market and also having referred to the evidence gathered by Revenue that established the falsity of the scrips, we do not find any justification in the Tribunal having deleted the penalty on importers in full. The exercise of discretion as in the case of the traders/brokers would have been appropriate in the case of importers as well. Hence, we restore the penalty to the extent of 50% of the same in line with the penalty confirmed in the case of the brokers and traders. The revenue appeals are disposed as above. Some of the co-noticees had approached the Settlement Commission for settlement of the issues arising from the common show cause notice and the Settlement Commission had accepted the settlement in their cases. Hence the individual appellants before us would seek to avail the benefit of those orders of the Settlement Commission based upon its status as a co-noticee - Section 127-B is clear in stipulating that the application for settlement should be in respect of a case relating to an importer, exporter or any other person. Case has been defined under Section 127-A(b) to mean any proceeding under the Act or any other Act for the levy, assessment and collection of customs duty, pending before an adjudicating authority on the date on which an application under Sub- Section (1) of Section 127-B is made. In our view, the reference to case u/s 127-B can only be to the case qua the declarant and cannot encompass the cases of all other co-noticees under the proceedings offered for settlement by the declarant. In fact, a common show cause notice normally contains the proposals in respect of several persons related to a common cause of action. The proposals as relating to one noticee would also vary based upon the role and involvement of that person to that common cause of action. Therefore the contours of a case as relevant to one noticee may or may not contain the same ingredients as in the case of other co-noticees. Section 127-C sets out the procedure to be followed by the Settlement Commission on receipt of an application under Section 127-B in minute detail, such as admission, calling for report from the Commissioner in regard to the application, examination of records and report of the Commissioner and thereafter passing of an order. Thus, in our considered view, there is a vast difference between the Kar Vivad Samadhan Scheme and the scheme of Settlement as envisaged under the Customs Act. The consequences of extension of benefit of settlement to co-noticees who have not approached the Settlement Commission, is that they too would be offered immunity if the declarant has been granted the same, without even having approached the Settlement Commission. There is thus no merit in the contention that an order passed by the Settlement Commission in the case of one declarant would apply in the case of other co-noticees as well. This question of law is answered in favour of the revenue.

Summary

Issues Involved:

1. Legitimacy of penalties imposed under Section 112(a) of the Customs Act, 1962.
2. Validity of Tribunal's findings regarding the knowledge of forged DEPB Licences/TRAs.
3. Jurisdiction and authority of officers under the Customs Act.
4. Applicability of Section 28 AAA of the Customs Act retrospectively.
5. Implications of Settlement Commission orders on co-noticees.
6. Role of negligence or collusion in customs duty evasion.
7. Discretionary power of the Tribunal in imposing penalties.
8. Impact of fraud on judicial acts and transactions.

Detailed Analysis:

1. Legitimacy of Penalties:
The Tribunal confirmed penalties on various appellants under Section 112(a) of the Customs Act, 1962, despite arguments that the appellants had no prior knowledge of the forged nature of the DEPB Licences/TRAs. The Tribunal held that the appellants should have conducted due diligence, such as verifying the validity of the licences with the Customs Authorities. The penalties were upheld for those found to have played a pivotal role in the fraud, while penalties for others were reduced by half.

2. Validity of Tribunal's Findings:
The Tribunal's findings were challenged on the grounds that the appellants had no reasonable belief regarding the forged nature of the licences/TRAs. The Tribunal noted that the appellants failed to make necessary inquiries and thus did not establish bona fides. The Tribunal's decision to penalize the appellants was based on the evidence of forged documents and the lack of due diligence by the appellants.

3. Jurisdiction and Authority:
The question of whether the Directorate of Revenue Intelligence officers were 'Proper Officers' under Section 2(34) of the Customs Act, 1962, was raised. The Tribunal upheld the penalties, asserting the jurisdiction of the officers involved in the investigation and adjudication of the case.

4. Applicability of Section 28 AAA:
The appeals questioned whether Section 28 AAA of the Customs Act, introduced in 2012, could be applied retrospectively to transactions from 2003. The Tribunal held that the duty and interest components were confirmed, and there was no cause to intervene in the findings related to fraud and forged documents.

5. Implications of Settlement Commission Orders:
The appellants argued that they should benefit from the Settlement Commission's orders favoring co-noticees. The Tribunal and the Court clarified that the Settlement Commission's orders apply only to those who approached it, and there was no merit in extending the benefits to others who did not conform to the procedural requirements.

6. Role of Negligence or Collusion:
The appellants contended that any discrepancies were due to negligence by Customs officials. However, the Tribunal found that the appellants' failure to verify the authenticity of the DEPB scrips constituted negligence on their part, leading to the imposition of penalties.

7. Discretionary Power of the Tribunal:
The Tribunal exercised discretion in reducing penalties for traders and brokers but deleted penalties for importers, which the Court found unjustified. The Court restored penalties for importers to 50%, aligning them with those imposed on traders and brokers.

8. Impact of Fraud on Judicial Acts:
The Tribunal and the Court reiterated that fraud vitiates all transactions, referencing the Supreme Court's judgment in S.P. Chengalvaraya Naidu v. Jagannath. Fraudulent acts, such as the use of fake DEPB scrips, nullify any claims of entitlement to benefits under the scheme.

The judgment concluded by addressing the appeals, confirming the duty and interest components, and modifying penalties where necessary. The Court also addressed the role of Customs officials in the fraud, with disciplinary actions reported against involved personnel. The appeals were disposed of in line with these findings, with no costs awarded.