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TMI Blog2006 (7) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... that an information was received to the effect that M/s. Shivam Enterprises, New Delhi and M/s. Shyam Exports, New Delhi had obtained 62 Replenishment (REP) licences from DGFT, New Delhi for the import of gold on the basis of forged bank realisation certificates and Export Shipping Bills and they had utilised these licences for import of approximately 350 kgs. of gold, without payment of customs duty resulting in loss of revenue to the extent of Rs. 5.23 crores to the Government. The enquiries revealed that these licences were obtained on the strength of forged documents, namely Bank Realisation Certificates and Registration-cum-Membership Certificates of Gem Jewellery Export Promotion Council and even Import Export Code number was obtained on the basis of such forged documents. Enquiries from Bank of Nova Scotia, New Delhi revealed that they had issued gold to the appellant M/s. K. K. Exports against 12 licences issued in the name of M/s. Shivam Enterprises and M/s. Shyam Exports. It also transpired during the enquiry that some licences of these two concerns were utilised by the appellant M/s. Kailash Jewellery House, New Delhi and the appellant M/s. M.D. Overseas Limited, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts (Customs Appeal No. 834 of 2004) it was similarly alleged that Mr. Neeraj Kapoor, partner of the firm, procured the licences at a premium either directly from Vinay Sethi alias Sanjay Sethi or through intermediaries and premium was paid in gold bullion beyond the normal business practice and that it appeared that the appellant concerned themselves in procuring the fraudulent gold REP licences and utilised the same for import of duty free gold. 4. As per the EXIM Policy 1997-2002, it was provided in para 8.37 that an exporter was eligible for freely transferable, replenishment (REP) licence at the rate of 87% of the FOB value of exports of plain gold/platinum jewellery and articles thereof. Under paragraph 8.85 of the said policy, REP licence holder may obtain gold/platinum/silver from the nominated agencies. Before supply of gold/platinum/silver, the nominated agencies were required to make the REP licences invalid for direct import. Such licences were treated as valid for a period of 12 months from the date of issue (paragraph 8.86). 4.1 It was alleged in the show cause notice that Mr. Rajiv Khanna along with Mr. Vinay Sethi alias Sanjay Sethi conspired for getting gold R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms, Mumbai reported in 2001 (136) E.L.T. 411 (Tri. Mumbai) and Suraj Sales Corporation v. Commissioner of Customs, Mumbai reported in 2002 (149) E.L.T. 1413 (Tri. Mumbai) in support of his finding that the licences have been obtained in the name of fictitious firms and that the licences are non est since inception in such a situation. It was, therefore, held that the imports were unauthorised and liable for confiscation under Section 111 of the Customs Act, 1962. For the appellant - M/s. M.D. Overseas, the Commissioner held that it had colluded in the fraud and was liable to pay duty as demanded in the show cause notice issued under Section 28 of the Customs Act. Penalty was imposed on the said appellant under Section 114A of the act. As regard the appellant - M/s. K.K. Exports, the Commissioner held that the nature of transaction as entered into by M/s. K.K. Exports, and the fact that they were in possession of more forged REP licences of the same firms when the investigations were carried out, clearly showed that they were involved in the said fraud and knowingly had utilised the forged licences, thereby rendering themselves liable to pay customs duty on the import of gold effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trength of the gold REP licences purchased by the appellant it had only drawn gold, from the Nova Scotia Bank. It was further contended that the licence was valid on the date of purchase of gold from the bank and its subsequent cancellation cannot invalidate the earlier imports. It was argued that the appellant did not participate in the forgery committed by other persons and there was nothing to connect the appellant with those persons. Therefore, it cannot be said that the appellant were party to the fraud committed by them for procuring the gold REP licences from the concern authority. It was submitted that the duty can be recovered only from the perpetrator of fraud and not from a bona fide purchaser for value without notice of fraud. It was also contended that the demand was barred by limitation and correct rate of duty was not applied. 6.1. The learned Counsel for the appellant M/s. K.K. Exports relied upon the following decisions in support of her contentions: (i) The decision of Hon ble the Supreme Court in East India Commercial Co. Ltd., Calcutta v. Collector of Customs, Calcutta reported in 1983 E.L.T. 1342 (S.C.) was cited for the proposition contained in paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out a licence in contravention of the Order passed under Section 3 of the Import and Export Act and that, fraud or misrepresentation only renders a licence voidable and it remains operative before it is cancelled. It was noted that in the case before the Hon ble Supreme Court the licences were cancelled after the goods had been imported and cleared. Therefore, the Tribunal held that the import of the goods was not in contravention of the provisions of Import and Export Order, 1995 and Import and Export (Control) Act, 1947. (iv) The decision of the Bombay High Court in Taparia Overseas (P) Ltd. v. Union of India reported in 2003 (161) E.L.T. 47 (Bom.) was cited for the proposition that the effect of fraud was not to render the transaction void ab initio but it renders it voidable at the instance of the party defrauded and the transaction continues to be valid until the party defrauded has decided to avoid it. It was held in paragraph 31 of the judgment that, on the above canvas of settled law recognised by the Apex Court and catena of decisions of various High Courts, it was clear that a licence obtained by fraud was not void ab initio and is merely voidable. It is good till avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count payee cheque in respect of these four licences but the person concerned did not turn up to collect the cheque from the appellant. It was submitted that the appellant was not in picture when the licences were fraudulently obtained by Mr. Rajeev Khanna, Vinay Sethi and Mrs. Archana Gulati by forging documents, as alleged in the show cause notice. It was submitted that care and precaution was taken by the appellant - M/s. M.D. Overseas while purchasing the first four licences through Kulbhushan, and by making enquiry before making payment for the second set of four licences about their genuineness. It was submitted that the premium paid at 8% was not low so as to create such suspicion. 8. The learned Authorised Representative for the department supported the reasoning and findings of the Commissioner against these appellants and submitted that all the appellants had participated in the conspiracy of getting the gold REP licences on the basis of the forged documents. It was submitted that these licences were not purchased by paying price in terms of money but payment was said to be made in gold bullion which was not the normal mode of making payment in case of genuine purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-existent party. Therefore, there was no contract at all between the Government of India, which issued the licence, and the person to whom it was issued. That being the case, the licence which had been issued was not a valid licence, and imports made under such a document were not authorised by law, for the purpose of licence. It was, therefore, held that the goods under consideration were liable to confiscation. The decision of the Hon ble Supreme Court in East India Commercial Co. Ltd., was sought to be distinguished by the learned DR appearing in that case, on the ground that the Court was not concerned with the cancellation of licence because licence had not been cancelled. Reliance was placed upon the Commissioner s finding that the appellant had colluded in the acts of forgery or falsification of facts to obtain the licence. (iii) The decision of the Calcutta High Court in ICI India Limited v. Commissioner of Customs (Port), Calcutta reported in 2005 (184) E.L.T. 339 (Cal.) where the DEPB licences/scrips were forged. It was held that the document itself having been found to be forged, whether there was collusion or fraud on the part of the appellant in the issue of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty at any time by whatever process of sanctification subsequently done on it. Forgery is antithesis to legality and law cannot afford to validate a forgery. (vii) The decision of Constitution Bench of the Hon ble Supreme Court in FEDCO (P) LTD. v. S.N. Bilgrami reported in 1999 (110) E.L.T. 92 (S.C.) was cited for the proposition in para 5 of the judgment, that, in most of the cases, if not in all cases, where a licence is obtained by fraud or misrepresentation it would be reasonable to think that the person in whose favour the licence has been obtained, cannot but be a party to the fraud or misrepresentation. 9. It is clear from the provisions of the EXIM Policy 1997-2002 that gold REP licence issued under paragraph 8.37 of the policy was freely transferable. Such licence, in contradistinction with a contract inter vivos, is basically a statutory licence granted on certain conditions. In the present case the scheme was devised for promoting exports. The licences in all these cases have been proved to have been obtained on the strength of the forged documents which misled the licencing authority into issuing such licences. These licences, on discovery of fraud, came to be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raud on individuals in a contract inter vivos and fraud on State cannot be treated on the same footing, in the context of the plea of the bona fide purchaser without notice of fraud on the State, because, public interest as distinguished from private interest warrants a different approach and fraudulently obtained statutory licence ought not in public interest and on grounds of public policy, be recognised to create any transferable rights or interest, or, the State and public interests will be at stake. 11. The ratio of the Constitution Bench judgment of Hon ble the Supreme Court in FEDCO (P) Ltd. (supra) may be recalled in this context. In paragraph 5 of the judgment while considering the question whether the provision for cancellation of licences on the ground that they have been obtained by fraud or misrepresentation was a reasonable restriction, in the interest of the general public, on the exercise of the petitioner s fundamental rights under Article 19(l)(f) and (g) of the Constitution, the Hon ble the Supreme Court held that, the scheme of control and regulation of imports by licences was on the basis that, the licence was granted on a correct statement of relevant facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sell the goods imported to third parties was not an infringement of the Order, and, therefore, the said infringement did not attract Section 167(8) of the Sea Customs Act. Licence contained an endorsement that it was issued subject to the condition that the goods will be utilised only for consumption as raw material or accessories in the licence holder s factory and that no portion thereof will be sold to any party. Hon ble the Supreme Court noted that the Order issued under sub-section (1) of section (3) of the Imports and Exports (Control) Act, 1947 did not provide for a condition in the licence that subsequent to the import the goods should not be sold. It was held that the specified authority had not cancelled the licence on the ground that the condition had been infringed. The case before the Hon ble Supreme Court was not of issuance of a licence on the basis of forged documents as is the present case. The Hon ble Supreme Court held that there was no legal basis for the contention that licence obtained by misrepresentation makes the licence non est, with the result that the goods should be deemed to have been imported without licence in contravention of the order issued un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it was held that, the concept that fraud vitiates everything would not be applicable to the cases where the transaction of transfer of licence was for value without notice arising out of mercantile transactions, governed by common law and not by provisions of any statute. The Division Bench of Bombay High Court taking note of the fact that the REP licences were allowed to be transferred freely without any endorsement or permission from the licensing authority and observing that such transfers were to be governed by common law subject to the compliance of the conditions laid down for transfer in the relevant import EXIM policy and on the footing that it was not disputed that the required procedure was followed in getting the licences transferred, reiterated the proposition that the effect of fraud was not to render the transaction void ab initio but was to render it voidable at the instance of the party defrauded and transaction continued to be valid until the party defrauded has decided to avoid it. It was held in that case that when the goods were imported into India and when the bills were filed, neither the licence was suspended nor the same was cancelled and the imports were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that in paragraph 31 of the impugned order it is held that the appellant M/s. New Kailash Jewellery House (Customs Appeal No. 760 of 2004) had purchased five gold REP licences from Mr. Vinay Sethi and utilised them for import of gold. It was held that the premium paid in gold bullion at 8% was beyond the normal business practice. It was also held that 8% was a cheaper premium for buying such licences and therefore, the proprietor Mr. Sukumaran Kumar Jain appears to have knowingly concerned himself in procuring the fraudulent REP licences, which were utilised for import of gold. For M/s. M.D. Overseas Ltd. (Customs Appeal No. 833 of 2004) who obtained 8 gold REP licences, it was held that the payment of premium of gold bullion was beyond the normal business practice and that it appeared that Mr. Satish Bansal, Director of the company was knowingly concerned in procuring REP licences and had utilised the same for import of duty free gold. Even for M/s. K.K. Exports (Customs Appeal No. 834 of 2004), the partnership firm, it was held, in para 33 of the order that, the premium paid in gold bullion was beyond the normal business practice and the appellant had knowingly concerned them ..... X X X X Extracts X X X X X X X X Extracts X X X X
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