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.

The core legal questions considered in this case are:

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

2. Whether the extended period of limitation under the Customs Act can be invoked for demand of customs duty in cases involving forged or tampered scrips.

3. Whether penalties under sections 112(a)(ii), 114A, and 114AA of the Customs Act are justified against the importer and its partner, Rajinder Kumar Jain, for alleged involvement or negligence in the fraudulent use of forged scrips.

4. Whether the importer's plea of innocence and lack of involvement in the forgery/manipulation of scrips can absolve it from duty liability and penalties.

5. Whether the hearing of the appeal should be adjourned due to pending writ petitions involving similar issues before the Delhi High Court.

Issue-wise detailed analysis:

1. Liability of the importer for customs duty on imports cleared using forged or tampered Duty Free Scrips:

The relevant legal framework includes the Customs Act, 1962, particularly section 28(4) which empowers the department to demand duty where there is short payment or non-payment, and sections 114A and 114AA which provide for interest and penalties in cases of duty evasion or fraud. The Foreign Trade (Development & Regulation) Act, 1992 and the Foreign Trade Policy govern the issuance of Duty Free Scrips/Licences by the DGFT.

The investigation revealed that the Duty Free Scrips used by Mukta Enterprises were either tampered with by enhancing the duty exemption value, fraudulently re-registered multiple times, or were non-existent as per DGFT records. The manipulation was effected by illegal access to the Customs EDI system through a conspiracy involving a customs broker's 'G' card holder, Sharafat Hussain, and an impostor, Vinod Kumar Pathror.

The Court noted that the importer's goods were cleared through the customs broker M/s Kirti Cargo, but the duty was debited from forged scrips manipulated in the system. The importer did not possess physical copies of the scrips and had not verified the genuineness of the scrips used for duty payment, despite irregularities such as bills raised by companies owned by Sharafat Hussain rather than the broker itself.

Applying the principle that "fraud vitiates everything," the Court held that forged or tampered scrips are void ab initio and cannot be used to discharge customs duty liability. Consequently, the duty paid through such scrips is non-est and the importer is liable to pay the short paid customs duty. This aligns with precedents where importers cannot absolve themselves of duty liability by claiming ignorance of forgery when the instruments used are void.

The Court rejected the importer's argument that it was not involved in the forgery or manipulation, emphasizing that the importer's reckless and careless conduct in not verifying the scrips and its nexus with the customs broker who perpetrated the fraud made it complicit. The principle of caveat emptor (buyer beware) was applied, requiring the importer to exercise due diligence in verifying the authenticity of the scrips it used to claim duty exemption.

2. Invocation of the extended period of limitation:

The extended period of limitation under the Customs Act is invoked where fraud, willful misstatement, or suppression of facts is established. The Court referred to Supreme Court precedent which held that when forged or fake scrips are used to evade customs duty, the extended period of limitation is justifiably invoked because the duty was not paid due to fraud.

The Court found that the importer intentionally and willfully mis-stated and suppressed facts regarding the use of tampered/non-existent scrips, resulting in evasion of substantial customs duty. Hence, the invocation of the extended period of limitation was appropriate and justified in this case.

3. Imposition of penalties on the importer and its partner:

Penalties under sections 112(a)(ii) and 114AA of the Customs Act were imposed on the importer and its partner, Rajinder Kumar Jain. The Court observed that the partner was actively involved in day-to-day activities and failed to exercise due diligence, colluding with the customs broker's 'G' card holder to defraud the exchequer.

The Court emphasized that even if the importer was not directly involved in the forgery, its failure to verify the authenticity of the scrips and its reckless conduct amounted to mis-declaration and misstatement, warranting penalties. The partnership firm and the individual partner are distinct legal entities, and both can be held liable for penalties arising from the same act.

4. Importer's plea of innocence and lack of involvement in forgery:

The importer contended that it was not involved in the forgery and that the scrips were valid at the time of clearance. However, the Court rejected this plea based on the evidence that the scrips were forged or tampered with and that the importer did not possess physical copies or verify their authenticity. The Court relied on precedents where importers who claimed ignorance were held liable due to their failure to exercise reasonable care and caution, especially when dealing with instruments involving substantial financial transactions.

The Court held that the importer's conduct was reckless and careless, and it cannot escape liability by distancing itself from the fraudulent acts of its customs broker's agent. The principle of caveat emptor was reiterated to underline the importer's responsibility to verify the genuineness of the scrips.

5. Adjournment of hearing due to pending writ petitions:

The appellant requested adjournment citing pending writ petitions involving identical issues before the Delhi High Court. The Court declined the request, noting the absence of any restraining order from the High Court preventing the Tribunal from hearing the appeals. The hearing proceeded on the merits.

Significant holdings and core principles established:

The Court held that "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.

The Court emphasized the applicability of the principle of caveat emptor, requiring importers to exercise due diligence in verifying the authenticity of scrips/licences used to claim customs duty exemptions. Failure to do so, especially when the importer benefits from such scrips, renders them liable for duty and penalties.

Regarding limitation, the Court confirmed that the extended period can be invoked in cases of fraud or willful suppression of facts, as established by Supreme Court precedents. The importer's failure to disclose the use of forged scrips and the resulting evasion of duty justified the extended limitation period.

On penalties, the Court held that both the partnership firm and its individual partner can be held liable for penalties under sections 112(a)(ii) and 114AA, particularly where the partner was involved in the company's day-to-day operations and failed to exercise due diligence, effectively colluding in the fraud.

Finally, the Court dismissed the appeal, upholding the demand for customs duty with applicable interest and penalties, and rejecting the plea of innocence by the importer and its partner.

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