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TMI Blog2016 (9) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... the licence obtained fraudulently by some other persons. Similar issue has been decided in any cases. The case of Sumit Wool Processors & Others Vs. Commissioner of Customs, Nhavasheva - [2015 (10) TMI 329 - CESTAT MUMBAI] can be referred. The goods imported and cleared under DEPB licence much before the issue of show-cause notices, therefore at the time of import of the goods and clearance thereof, the DEPB licences were valid in the hands of the appellants-importers - the duty demand against the appellant not sustainable - appeal allowed - decided in favor of appellant. - C/1122/04, C/56, 647, 743 & 744/05 - A/89407-89411/16/CB - Dated:- 25-8-2016 - Mr. Ramesh Nair, Member (Judicial) and Mr. C.J. Mathew, Member (Technical) Shri D.H. Nadkarni, Advocate Shri T. Viswanathan, Advocate Ms. Aparna Hirandagi, Advocate for Appellants Shri M.K. Sarangi, Jt. Commr. (A.R.) Shri D.K. Sinha, Assistant Commr. (A.R.) Shri Kamal Puggal, Assistant Commr. (A.R.) for Respondents ORDER The common facts in all these appeals are that the appellants have purchased DEPB licence from open market on payment of consideration. Against such DEPB licences they have imported various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stoms, Kandla - [2015-tiol-2891-CESTAT-AHM] this Tribunal consistently held that the importer being bonafide buyer of DEPB, duty cannot be demanded from the importer. 3. On the other hand Shri D.K. Sinha, Shri M.K. Sarangi, Shri Kamal Pugal learned ARs appearing on behalf of the Revenue reiterates the findings of the impugned order. 4. We have carefully considered the submission made by both sides. 5. We find, there is no dispute that all the appellants have imported the goods by clearing the same against DEPB licence which were purchased by the appellant from the open market against proper payment of the consideration to the seller of the DEPB licence, while purchasing of DEPB licences and even at the time of import the DEPB licence was valid in the hands of the appellants-importers. Therefore, the appellants-importers cannot be made responsible for any fraud committed by some other person for obtaining the DEPB licence from DGFT. On this issue much water has flown. The Division Bench of this Tribunal consistently held that the duty cannot be demanded from the importer who is the bonafide buyer of the DEPB licence even though the licence obtained fraudulently by so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resultant product are endorsed on the said authorisation : Provided that where import takes place before fulfilment of export obligation, the quantity and FOB value of the resultant product to be exported are endorsed on the said authorisation; (iii) that the importer at the time of clearance of the imported materials executes a bond with such surety or security and in such form and for such sum as may be specified by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, binding himself to pay on demand an amount equal to the duty leviable, but for the exemption contained herein, on the imported materials in respect of which the conditions specified in this notification have not been complied with, together with interest at the rate of fifteen per cent per annum from the date of clearance of the said materials : Provided that bond shall not be necessary in respect of imports made after the discharge of export obligation in full; (iv) that the imports and exports are undertaken through seaports at Mumbai, Kolkata, Cochin, Magdalla, Kakinada, Kandla, Mangalore, Marmagoa, Chennai, Nhava Sheva, Paradeep, Pipavav, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall discharge export obligation by supplying the resultant products to the exporter in terms of paragraph 4.1.3 (ii) of the Policy; (vi) that the importer produces evidence of discharge of export obligation to the satisfaction of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, within a period of thirty days of the expiry of period allowed for fulfilment of export obligation, or within such extended period as the said Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, may allow; (vii) that exempt materials shall not be disposed of or utilised in any manner, except for utilisation in discharge of export obligation, before the export obligation under the said authorisation has been discharged in full; (viii) that where the Bond filed under condition (iii) against the said authorisation has not been redeemed by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, the unutilised material may be transferred to any other manufacturer for processing under actual user condition after complying the central excise procedure relating to job work; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to the following conditions, namely :- (i) that the importer has been issued a Duty Entitlement Pass Book by the Licensing Authority in terms of paragraph 4.3 or paragraph 7.9 of the Foreign Trade Policy; (ii) that the importer has been permitted credit entries in the said Duty Entitlement Pass Book by the Licensing Authority at the rates notified by the Government of India in the Ministry of Commerce and Industry for the products exported; (iii) that the said Duty Entitlement Pass Book is produced before the proper officer of Customs for debit of the duties leviable on the goods, but for exemption contained herein : Provided that exemption from duty shall not be admissible if there is insufficient credit in the said Duty Entitlement Pass Book for debiting the duty leviable on the goods, but for this exemption. (iv) the said Duty Entitlement Pass Book shall be valid for twenty four months from the date of issue or such extended period as may be granted by the Licensing Authority for import and export only at the port of registration which shall be one of the sea ports at Mumbai, Kolkata, Cochin, Magdalla, Kakinada, Kandla, Mangalore, Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e permissible only against specific amount of credit, not being a provisional credit, transferred by a Duty Entitlement Pass Book holder to such person. This notification shall have effect upto and inclusive of 2. the 31st day of December, 2005. TABLE S. No. Description of goods Standard rate Additional Duty rate (1) (2) (3) (4) 1. Goods other than edible oils Nil Nil 2. Edible Oils 50% of applied rate of duty 50% of applied rate of additional duty In the first Notification, we find no restriction on the transferee for import of goods on the basis of licenses transferred to him. The only condition applicable to the transferee is in para (2) that benefit will be allowed only if the Certificate bears endorsement of transferability by the Licensing Authority. Similarly in the second notification 89/2005-Cus relating to DEPB, the only conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frequently; if the Customs had taken the trouble of delving into the records and made some inquiries, the obvious multiple fold over valuation could have been detected at the time of exports on basis of which DEPBs/DFIA Licences were granted as well as at the time of imports under the DEPBs/DFIA Licences. We find that the applications for transfer contained documents such as shipping bills which are signed by the custom officers. Thus the point is that the goods which are later detected by the DRI to have been over valued, were allowed to be exported by the customs officers without pointing any discrepancies in the value and thereafter DGFT allowed transfer of the license on the basis of such documents. The plea of the appellants is that they cannot be held responsible when the procedure for transfer involves only the transferor, Customs and DGFT. We agree with this contention. This contention is supported by the Supreme Court decision in Goodluck Industries(supra) and Jindal Dye Intermediate Ltd(supra). It was held in the former case by the Tribunal that where the license is made transferable by the licensing authority, the only condition of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustoms Act. The only provisions relied upon by the appellants are Clauses (d) and (o) in Section 111 of the Customs Act which we have set out hereinabove. In our opinion none of these clauses are attracted in the present case. Clause (d) contemplates an import which is contrary to any prohibition imposed either by the Customs Act or any other law for the time being in force. No such prohibition can be pleaded in this case since on the date of the import the said goods were covered by a valid import licence. The subsequent cancellation of licence is of no relevance nor does it retrospectively render the import illegal. [East India Commercial Co. Ltd. v. The Collector of Customs, Calcutta -1963 (3) S.C.R. 338 at 372.] Clause (o) contemplates confiscation of goods which are exempted from duty subject to a condition, which condition is not observed by the importer. Occasion for taking action under this clause arises only when the condition is not observed within the period prescribed, if any, or where the period is not so prescribed, within a reasonable period. It, therefore, cannot be said that the said goods were liable to be confiscated on the date of their import under Clause (o). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1986 after the goods had been imported and cleared. The Tribunal was, therefore, right in holding that the import of the goods was not in contravention of the provisions of Import and Export Order, 1955 and Import and Export (Control) Act, 1947 and the goods were not liable to be confiscated on that basis under Section 111(d) of the Act. The Special Counsel contended that these judgments of the Apex Court are distinguishable. In the case of East India Commercial Company (supra), he stated, it of about violation of post import condition. And in Sneha Sales Corporation (supra) the issue was of permitting import and not of authorising exemption from duty. He stressed that the Supreme Court judgments do not bar the issue of raising demand notices under Section 28 in such cases. He relied on the Apex Court judgement in the case of Tata Iron and Steel Co (supra). We do appreciate the manner in which judgments in the case of East India Commercial Co and Sneha Sales Corporation have been attempted to be distinguished by the Ld. Spl. Counsel. At the same time we cannot agree with Special Counsel for various reasons. In the case of Sneha Sales Corporation the license had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and East India Commercial Co. Ltd. dealt with the confiscation and not with the payment of duty. We may examine these contentions of Ld. Spl. Counsel. As regards the case of Dow Agro Sciences India Ltd., we find that the DEPB was obtained as a result of a racket involving forgery of export documents which is not so in the present case. Secondly, we also note that the Hon ble Member who delivered the judgment in the case of Dow Agro Sciences India Ltd took an opposite view in the case of Binani Cement Ltd. Vs. Commissioner of Customs, Kandla 2010 (259) ELT 247 (Tri. Ahmedad) which was affirmed by the Hon ble High Court of Gujarat. While affirming this judgment the Honble High Court categorically recorded that the Tribunal had followed the decision of the Supreme Court in the case of Sneha Sales Corporation. In this case of Binani Cement Ltd. we note that the circumstances were similar to the appeals at hand. In those cases also the Licenses were cancelled ab-initio after the transferee had utilized them for import. We also note that the observation of the Hon ble Tribunal decision in the case of Dow Agro Sciences India Pvt. Ltd. (supra) at para 9.25 stating that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y covered by the judgment of this Court in the case of Taparia Overseas v. Union of India (supra) and the petitioner is liable to succeed on merits . Therefore we are not inclined to agree with the Special Counsel. 8.5 Here we would also mention about the discussion of the case of Taparia Overseas Pvt. Ltd. (Mumbai High Court) in the judgment in Dow Agro Sciences India Pvt. Ltd. The Tribunal held that the Taparia Overseas Ltd. was dealing with REP Licenses whose transfer was governed by common law because the licenses were freely transferable. But that in cases where the licenses required endorsement of transferability, the concept of fraud vitiating everything will be applicable to such transactions. And that in the case of Taparia Overseas Pvt. Ltd. and Sneha Sales Corporation, the Apex Court treated DEPB Scrips/ REP Licenses as goods for the purpose of Sales Tax Laws only. And the Court did not compare the two from the point of view that the concept of fraud vitiating everything will be applicable when the transfer of licenses is made under a statute. On the point of contention whether fraud vitiates everything we may refer to the Hon'ble High Court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been originally founded on fraud, the original vice will continue to taint it, and not only is the person who has committed fraud is precluded from deriving any benefit under it, but an innocent person is so likewise, unless there has been some consideration moving from himself. In the cases at hand, it is not in dispute that all the petitioners had obtained licences for valuable consideration without any notice of the fraud alleged to have been committed by the original licence holders while obtaining licences. If that be so, the concept that fraud vitiates everything would not be applicable to the cases where the transaction of transfer of licence is for value without notice arising out of mercantile transactions, governed by common law and not by provisions of any statute....................................... On the above canvas, having examined the well settled, established and well recognised concept of law that the effect of fraud is not to render the transaction voidable initio but renders it voidable at the instance of the party defrauded and transaction continues valid until the party defrauded has decided to avoid it. 37. Alternatively, let us consider it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ud, it has to be held that the concept of fraud vitiating everything is not applicable. It was argued that the endorsement of transferability under provisions of EXIM policy being a statutory requirement to make DEPB scrips transferable, the concept of fraud vitiating everything must then be applicable to such transaction. And that this concept was not applicable to transfer of REP Licenses in the case of Taparia Overseas. It was further argued that the DEPB scrips could not be equated with REP Licenses because in cases like Tapariya and Sneha Sales Corporation, the two were treated as goods for purpose of sales tax laws only and situation contemplated under Sales Tax Act could not in the absence of intendment, be given effect to while applying provisons of the Act or the FT(Development Regulation) Act. We are unable to agree with this argument. We find that transfer of REP Licenses is also in terms of the Import Export Policy. Further, we may refer to the case of Jindal drugs Ltd. Vs. State of Maharashtra [2004(178) ELT 105(Bom). It was held therein that 23. ............ The Apex Court in the case of Jugalkishore v. Raw Cotton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in the D.E.P.B. R.E.P. licence is merely a licence which grants a right to import goods, which right is transferable. Whereas, credit in the D.E.P.B. is not a licence, which merely gives right to import goods. It is an amount available to the credit of the holder to be liquidated against the payment of import duty for future imports. Therefore, in his submission, reliance placed on the judgment in the case of Vikas Sales Corporation (supra) while deciding that the credit in the D.E.P.B. is goods is not correct in law. He further submitted that the Delhi High Court while deciding the case in Philco Exports (supra) and the Apex Court in the case of Vikas Sales Corporation (supra), in turn, relied upon its earlier judgment in the case of [N. Anraj v. Government of Tamil Nadu], A.I.R. 1986 S.C. 63, holding that R.E.P. licence is not an actionable claim. 29. The Delhi High Court rightly relied upon the case of Vikas Sales Corporation (supra) and rightly held that D.E.P.B. credit is not an actionable claim. We concur with the view taken by the Delhi High Court and hold that the D.E.P.B. credit is liable for sales tax under the Bombay Sales Tax Act......... The same view wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent cases has not rendered the transaction between the original license holders and the transferees void ab-inito but rendered it voidable at the instance of the party( in this case importer)defrauded and transaction continues to be valid until the party defrauded has decided to avoid it. In the present case the licences/scrips were transferred to the appellant importers who had no knowledge of the misrepresentation by the exporters in obtaining them. The Bills of Entry were filed by the appellant importers well before the cancellation of licenses, thus imports were made under valid licenses. Therefore goods could not be subjected to levy of Custom duty for imports under Licences nor could availment of credit in DEPB scrips be denied. 8.5A The view that duty cannot be demanded from the tranferees was perhaps recognised by Government when it introduced Section 28 AAA in the Customs Act with effect from 28/5/2012. Section 28AAA provides that in such cases duty shall be recovered from the person to whom the instruments (such as DEPB) is issued. If law had been so clear that duty could be demanded from the transferee, there would have been no need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport the case of the Revenue at all. The Reliance on the case of Ram Preeti Yadav (supra) is also misplaced. Here the issue was that a person whose result in an Intermediate Examination was withheld, being suspected of using unfair means, was at the same time issued a provisional mark sheet. The person thereafter passed his B.A. and M.A. examination, got employment as a teacher. The Hon ble Apex Court held that there is no equity in favour of the person in as much he knew that his result has been withheld because of the allegation of having used unfair means. He suppressed this fact and took admission in B.A. and studied thereafter. In this context the Hon ble Court held that benefit of fraud cannot be allowed to be enjoyed. However in the present case before us no evidence of fraud is produced as far as transferees of the licences are concerned. Similarly, other judgment of K.I. International Ltd. (supra) is on a different platform. In this case the element beneficiaries used TRAs were was sold to them at throw away prices and did not exercise normal diligence to check the veracity of TRAs. In the present case there is no allegation that l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision is not an authority on point B. Point B is said to pass sub silentio . In view of this judgment, we hold that the judgment cited by Spl. Counsel is per incuriam. The judgments in the case of East India Commercial Company and Sneha Sales Corporation would hold fort in the circumstances. 8.8 In view of analysis above based on judicial pronouncements, we set aside the confiscation, demands of duty and interest and penalties. 8.9 Although, we have dealt with the core issue in our discussion above, some submissions of various counsels do need our attention. One of the submissions is that in respect of some transferees, the exporter namely M/s. Rajat Pharma Ltd had approached to the Settlement Commission and deposited the entire amount of duty, thereafter matter was settled. In such cases it is obvious that duty cannot be demanded both from the exporter and the importers (who are before us). Further in terms of Section 127(J), every order of the Settlement Commission passed under Section 127(C) shall be conclusive and no matter covered by such order shall be re-opened in any proceedings under this Act. Therefore dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isc.-1243/98 Gr. 7 S/10-DEPB-23/99 dated 29.01.1999 11650/24.09.98 S/16-Misc.-1243/98 Gr. 7 S/10-DEPB-24/99 dated 29.01.1999 11660/24.09.98 S/16-Misc.-1243/98 Gr. 7 S/10-DEPB-25/99 dated 29.01.1999 11669/24.09.98 S/16-Misc.-1243/98 Gr. 7 S/10-DEPB-26/99 dated 29.01.1999 11640/24.09.98 S/16-Misc.-1243/98 Gr. 7 S/10-DEPB-27/99 dated 29.01.1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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