2025 (5) TMI 1153 - AT - Customs

Liability of importer to pay customs duty - imports cleared using forged or tampered Duty Free Scrips issued by the Directorate General of Foreign Trade (DGFT) which were manipulated in the Customs Electronic Data Interchange (EDI) system - extended period of limitation - levy of penalty - HELD THAT - It clearly transpires that the Duty Free Scrips issued by the DGFT were tampered with by accessing the EDI system of Customs and enhancing and manipulating the data/information of the Duty Free Scrips and these Scrips were utilised for payment of duty for the goods imported by the importer. It is also not in dispute that the clearances of the goods where such Scrips were used to pay duty had taken place through one common Customs Broker namely M/s Kirti Cargo through G card holder Sharafat Hussain. It clearly therefore transpires that the original Scrips/Licence issued by DGFT were different from what were actually registered in the system. All has been contended on behalf of the Mukta Enterprises and Rajinder Jain is that they were not involved in this act of forgery/manipulation of Scrips. The Scrips through which duty was debited were clearly forged as the original Scrips had been tampered with. In M/s Mercedes Benz India Private limited M/s O.A. Associates Pashupati Acrylon Limtied versus Commissioner of Customs Delhi Additional Director General (Adjudication) New Delhi Directorate of Revenue (Intelligence) Others 2020 (2) TMI 437 - CESTAT NEW DELHI the Tribunal examined almost a similar situation and held that the importers cannot be permitted to take the plea that they were not involved in fraud or forgery even though the Scrips/Licences were forged. The aforesaid decisions have examined both the aspects namely as to whether the importer can contend that he was not responsible for the manipulation/forgery committed in the Scrips and whether in such circumstances the extended period of limitation can be invoked. These decisions do not support the contentions advanced by learned counsel for the appellants that the appellant was not responsible for the forgery. The aforesaid decisions hold that when the Scrips are forged they are void ab initio since fraud vitiates everything and the importers cannot be permitted to take plea that they were not involved in the fraud or forgery even though the Scrips were forged. It is also not possible to accept the contention advanced by the learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the present case. Conclusion - i) The fraud vitiates everything and instruments such as Duty Free Scrips that are forged or manipulated are void ab initio. Consequently any customs duty purportedly paid through such forged scrips is non-est and amounts to short payment of duty justifying demand under section 28(4) of the Customs Act. ii) The demand for customs duty with applicable interest and penalties upheld the plea of innocence by the importer and its partner rejected. There is no infirmity in the order passed by the Commissioner. The two appeals therefore deserve to be dismissed and are dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this case are:

- Whether the importer, Mukta Enterprises, is liable to pay customs duty on imports cleared using forged or tampered Duty Free Scrips issued by the Directorate General of Foreign Trade (DGFT) and fraudulently manipulated in the Customs Electronic Data Interchange (EDI) system.

- Whether the extended period of limitation under Section 28(4) of the Customs Act, 1962 is invocable in the facts and circumstances of the case.

- Whether penalties under Sections 112(a)(ii), 114A, and 114AA of the Customs Act are justified against Mukta Enterprises and its partner Rajinder Kumar Jain for their involvement or negligence in the fraudulent use of forged scrips.

- Whether the importer can claim innocence or lack of knowledge of the fraud and thereby avoid liability for customs duty and penalties.

- Whether the importer's reliance on a common customs broker and its 'G' card holder, who manipulated the scrips, absolves it of responsibility.

- Whether the invocation of the extended period of limitation and imposition of penalties are legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of Importer for Customs Duty on Imports Cleared Using Forged/Tampered Duty Free Scrips

Relevant Legal Framework and Precedents: The Customs Act, 1962 governs the levy and collection of customs duties. Section 28(4) allows for demand of duty where there is short payment or non-payment. The DGFT issues Duty Free Scrips under various export promotion schemes, which are instruments for claiming exemption from customs duty. The principle of "fraud vitiates everything" is well established in law, meaning instruments obtained or used by fraud are void ab initio and cannot confer any benefit.

Precedents include the Supreme Court ruling in a case involving forged DEPB licenses/scrips, where it was held that the extended period of limitation was rightly invoked and duty liability sustained even if the importer had no direct role in the forgery, as the forged scrips were void ab initio. The Tribunal's decisions in cases involving the same customs broker and 'G' card holder (Sharafat Hussain) reiterated that importers cannot avoid liability by pleading ignorance or lack of involvement in forgery.

Court's Interpretation and Reasoning: The Tribunal found that the Duty Free Scrips used by Mukta Enterprises were tampered with in the Customs EDI system by unauthorized persons who fraudulently enhanced or manipulated the scrip details. The importer's goods were cleared through a common customs broker, M/s Kirti Cargo, via its 'G' card holder Sharafat Hussain, who was involved in the fraudulent scheme. The importer did not possess physical copies of the scrips and relied on invoices from companies owned by Sharafat Hussain rather than the customs broker, which was suspicious.

The Tribunal held that the forged scrips were void ab initio and any duty paid through such scrips was non-est, resulting in short payment of customs duty. The importer's failure to verify the genuineness of the scrips and reliance on the customs broker's 'G' card holder amounted to reckless and careless conduct. The principle of caveat emptor (buyer beware) applied, requiring the importer to exercise due diligence before availing exemption benefits.

Key Evidence and Findings: Investigation revealed illegal access to the Customs EDI system, fraudulent registration and enhancement of scrips, multiple re-registration of scrips with altered details, and use of fictitious/non-existent scrips. The importer's bills of entry showed scrip particulars that did not match legitimate DGFT-issued scrips. The importer did not have possession of physical scrips and paid duty amounts to companies linked to the 'G' card holder rather than the customs broker.

Application of Law to Facts: The Tribunal applied the settled legal principle that forged or fake scrips cannot be used to claim exemption and that the importer is liable to pay the customs duty short paid. The importer's failure to exercise due diligence and its reckless conduct justified the confirmation of the demand.

Treatment of Competing Arguments: The importer argued it was not involved in the forgery and that the scrips were valid at the time of clearance. The Tribunal rejected this, noting that the forged scrips were void ab initio and the importer's ignorance was not a defense. The importer's failure to obtain or verify physical scrips and reliance on suspicious intermediaries negated any claim of innocence.

Conclusion: The importer is liable to pay the customs duty short paid due to use of forged/tampered scrips, and the demand under Section 28(4) is justified.

Issue 2: Invocation of Extended Period of Limitation under Section 28(4)

Relevant Legal Framework and Precedents: Section 28(4) of the Customs Act allows for demand of duty beyond the normal limitation period if there is evidence of fraud or collusion. The Supreme Court has held that invocation of extended limitation is justified where forged instruments have been used to evade duty.

Court's Interpretation and Reasoning: The Tribunal found that the importer's use of forged scrips constituted fraud and suppression of material facts, warranting invocation of the extended period of limitation. The fraudulent manipulation of scrips was not discoverable without investigation, justifying extended limitation.

Key Evidence and Findings: The investigation revealed the modus operandi of forgery and manipulation, which was concealed from the department. The importer's failure to disclose full facts and reliance on forged scrips demonstrated fraud.

Application of Law to Facts: The extended period was rightly invoked as the importer's conduct amounted to fraud, and the department discovered the fraud only after investigation.

Treatment of Competing Arguments: The importer contended that extended limitation should not apply as the scrips were valid. The Tribunal rejected this, citing the Supreme Court's precedent and the fact that the scrips were forged and void ab initio.

Conclusion: The extended period of limitation under Section 28(4) was correctly invoked.

Issue 3: Imposition of Penalties on Mukta Enterprises and Rajinder Kumar Jain

Relevant Legal Framework and Precedents: Penalties under Sections 112(a)(ii), 114A, and 114AA of the Customs Act are imposed for mis-declaration, suppression of facts, and fraudulent conduct. The Supreme Court has held that knowledge or negligence of the importer affects penalty imposition but not duty liability.

Court's Interpretation and Reasoning: The Tribunal found that Rajinder Kumar Jain, as partner and active participant in the company's affairs, failed to exercise due diligence and was in collusion with the customs broker's 'G' card holder. The importer acted recklessly, did not verify scrips, and was aware of suspicious circumstances such as payments to companies owned by the 'G' card holder rather than the customs broker. This conduct justified imposition of penalties.

Key Evidence and Findings: The importer's contradictory statements, failure to produce physical scrips, and reliance on forged scrips demonstrated culpability. The partner's role in day-to-day operations and failure to prevent fraud was established.

Application of Law to Facts: The penalties were imposed to penalize mis-declaration and suppression of facts, as well as failure to exercise due diligence.

Treatment of Competing Arguments: The importer argued penalties were unjustified due to lack of knowledge. The Tribunal distinguished between duty liability and penalty imposition, holding that negligence or failure to take precautions suffices for penalties.

Conclusion: Penalties on Mukta Enterprises and Rajinder Kumar Jain are justified and sustainable.

Issue 4: Whether Importer's Reliance on Customs Broker and 'G' Card Holder Excuses Liability

Relevant Legal Framework and Precedents: The importer is responsible for acts of its agents and intermediaries engaged in customs clearance. The principle of caveat emptor requires importers to verify documents and exercise due diligence.

Court's Interpretation and Reasoning: The Tribunal observed that the importer engaged M/s Kirti Cargo and its 'G' card holder Sharafat Hussain, who was involved in the fraud. The importer's failure to notice that duty debit notes were not in the customs broker's name but in companies owned by the 'G' card holder was reckless. The importer's ignorance of the forgery was not acceptable.

Key Evidence and Findings: The importer did not possess physical scrips, paid duty amounts to unrelated entities, and failed to verify authenticity of scrips and brokers.

Application of Law to Facts: The importer cannot escape liability by shifting blame to the customs broker or its employees. The importer's conduct amounted to complicity or at least gross negligence.

Treatment of Competing Arguments: The importer contended it was a bonafide purchaser and not involved in forgery. The Tribunal rejected this on facts and legal principle.

Conclusion: Reliance on the customs broker and its 'G' card holder does not absolve the importer of liability.

Issue 5: Whether Hearing Should Be Adjourned Due to Pending Writ Petitions

Court's Interpretation and Reasoning: The Tribunal noted that no stay or restraining order from the High Court was placed on the Tribunal proceedings. Mere pendency of writ petitions involving similar issues does not warrant adjournment.

Conclusion: The request for adjournment was rejected.

3. SIGNIFICANT HOLDINGS

- "The forged scrips were used to pay duty on the goods imported by various Importers. It emerged from the investigations that M/s. Mukta Enterprises is one of the Importers who used the forged scrips to pay duty on imported goods."

- "Since the instrument through which the duty was debited was void at the time of registration in the Customs system... any debit of duty from such scrip can, at no cost, be considered payment of Customs duty due on such imports. It is clear that the said forged scrips could not have been used for payment of duty."

- "The principle envisaged in the legal maxim 'caveat emptor' applies here. Therefore, the Importer was a part of the fraud done to evade the duty."

- "Fraud vitiates everything and such forged/fake DEPB licenses/Scripps are void ab initio... the Department was absolutely justified in invoking the extended period of limitation."

- "The buyer of the licenses has to fulfill the requirement of Caveat Emptor... the appellant neither received physical licences/scrips nor has it produced at the time of claiming the benefit of the exemption."

- "The benefit of the exemption notification is available to a person to whom the licence is either issued or is transferred neither is the case of the appellant."

- "The impugned order correctly confirmed the demand of duty from the appellant. Since, the duty is payable the corresponding interest also has to be paid, as applicable."

- "The importer's plea of ignorance of the forgery done to the scrips is not sustainable inasmuch as the Importer acted so recklessly and carelessly that they did not even obtain the copy of the scrip."

- "The penalties on the partner are justified as he did not exercise due diligence and colluded with the customs broker's 'G' card holder to defraud the exchequer."

- "Mere pendency of writ petitions involving similar issues does not warrant adjournment in the absence of any restraining order."