2015 (10) TMI 329 - CESTAT MUMBAI

Over valuation of export goods - merchant exporters inflated the FOB value of their exports significantly and obtained the DEPB Scrips/DFIA Licenses against such exports. - duty benefits under Notifications 40/2006 and 89/2005 are sought to be denied - The demand of duty has been confirmed against the importers i.e. transferees of the scrips under Section 28 alongwith confirmation of penalties under Section 28AB. Penalties have also been imposed on the exporters and importers under Section 112/114A.

Held that:-vIn 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 condition relevant to the importer is condition No. (vii) which states that where benefit of exemption of duty is claimed by the person who is not Duty Entitlement Passbook Holder, such benefit shall be permissible only against specific amount of credit transferred by the DEPB holders. - in terms of the notifications there is no failure on the part of transferees availing duty benefits under these scheme.

Procedure for transferability of the License/material imported against such scrips. - Held that:- authorities themselves are also responsible to the extent of not having checked the fraud at the time of exports. We should not be affected in our findings only by the fact that grant of benefit to transferees will encourage fraudsters.

Transfer of DEPB scrips in the present cases will governed by the provisions of the statute, that is the Sale of Goods Act. In such a situation the Mumbai High Court decision in the case of Taparia Overseas will prevail. Resultantly, applying the ratio of Taparia, we are convinced that effect of misrepresentation in the present 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 Customs duty for imports under Licences nor could availment of credit in DEPB scrips be denied.

In view of analysis above based on judicial pronouncements, we set aside the confiscation, demands of duty and interest and penalties.

In some cases, the exporter had deposited duty at the investigation stage on behalf of the importer also. In such cases too, the question of demanding duty to the extent of amount already deposited does not arise. In cases where the importer bought the goods on High Sea sales basis, misrepresentation of their part has not been proved. In any case we have stated in paras above that the transferees in cases of all appeals had no knowledge of mis-representation by the exporters.

The confiscation of goods imported by the appellants who are transferees of the licenses/scrips does not arise - The demands of duty against them and penalties are set aside. - Decided in favor of assessee.