2025 (5) TMI 1043 - AT - Customs

Demand for Customs duty under section 28(4) along with interest and penalties under section 114A and 114AA of the Customs Act - forged or manipulated Duty Free Scrips utilised for payment of import duties - illegal access to the Electronic Data Interchange EDI systems of the Indian Customs and tampered with details at the Inland Container Depot - Duty Free Scrips issued by the Directorate General of Foreign Trade DGFT - HELD THAT - From the record 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. What is also important to notice is that Sharafat Hussain a G card holder of M/s Kirti Cargo was looking after the import clearance and bills were raised by him through his own companies and not through M/s Kirti Cargo. This should have drawn the attention of Raja Ram and Company and Jinender Jain but notice was not taken of this fact at all. It also transpires from the record that the importer was not even in possession of the Scrips. In the present case Raja Ram and Company had engaged M/s Kirti Cargo a customs broker for clearance of the exported consignments and Sharafat Hussain a G card holder of this customs broker had cleared the goods. In this view of the matter the confirmation of customs duty with interest upon Raja Ram and Company and imposition of penalty upon Jinender Jain is justified. Thus 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. Thus for all the reasons stated above there is no infirmity in the order passed by the Principal Commissioner. The two appeals therefore deserve to be dismissed and are dismissed.

Summary

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

1. Whether the demand of Customs duty with applicable interest can be confirmed under Section 28(4) of the Customs Act, 1962, where duty payment was made through forged or manipulated Duty Free Scrips/Licences/Authorisations.

2. Whether the extended period of limitation under Section 28(4) can be invoked in cases involving fraud and forgery in the use of Duty Free Scrips.

3. Whether penalties under Section 112(b)(ii) of the Customs Act can be imposed upon the partner of the importing firm for collusion or failure to exercise due diligence in relation to the fraudulent use of Duty Free Scrips.

4. Whether the importers can avoid liability on the ground that they were not involved in the forgery or manipulation of the Duty Free Scrips and that the fraud was committed by their customs broker or agent.

5. Whether the appellants are entitled to any relief or stay on the ground that identical issues are pending before the Delhi High Court.

Issue-wise Detailed Analysis:

Issue 1: Recoverability of Customs Duty under Section 28(4) where forged Duty Free Scrips were used

The relevant legal framework includes Section 28(4) of the Customs Act, 1962, which allows for demand and recovery of customs duty beyond the normal limitation period in cases involving fraud, willful mis-statement, or suppression of facts. The Tribunal relied on precedents including the Supreme Court's ruling in the case involving forged DEPB licenses, where it was held that "fraud vitiates everything" and forged or fake licenses are void ab initio, thus no benefit can be claimed through such instruments.

The Court's reasoning emphasized that the duty payment made through forged or manipulated Scrips could not be considered valid payment, as the instruments were void from inception. The importers' contention that they were not involved in the forgery was rejected on the ground that the duty was admittedly debited through these forged instruments. The Court noted that the importers had entrusted the customs clearance to a broker's employee who was involved in the manipulation, and the importers failed to verify the genuineness of the Scrips or take any precautionary steps.

Key evidence included the investigation findings that the Scrips were tampered with by unauthorized access to the Customs EDI system, the use of fictitious or non-existent Scrips, and multiple fraudulent re-registrations of Scrips. The importers' failure to possess or verify physical copies of the Scrips and their reliance on the broker's employee who raised bills through his own companies, not the customs broker, further supported the conclusion of complicity or negligence.

The Court applied the law to the facts by holding that since the instruments were void ab initio, the duty paid through them was non-est and hence recoverable. The competing argument that the importers were innocent purchasers was dismissed based on the principle of caveat emptor and the importers' failure to exercise due diligence.

The conclusion was that the demand of Customs duty with interest under Section 28(4) was justified and valid.

Issue 2: Invocation of extended limitation period under Section 28(4)

The extended limitation period under Section 28(4) is applicable in cases of fraud, willful mis-statement, or suppression of facts. The Court relied on the Supreme Court's decision which upheld the invocation of extended limitation where forged or fake licenses were used to evade customs duty.

The Court observed that the fraud was committed by the customs broker's employee and admitted by the partner of the importing firm that the broker's employee used licenses at his free will and sent debit notes accordingly. The importers did not question the unusual billing practices or verify the licenses, indicating either knowledge or willful blindness.

The Court rejected the contention that the extended period could not be invoked because the appellants were allegedly unaware of the fraud. It held that even if the importer was unaware, the fraud committed by their agent brings the case within the ambit of Section 28(4).

The conclusion was that the extended period of limitation was correctly invoked.

Issue 3: Imposition of penalties under Section 112(b)(ii)

Section 112(b)(ii) penalizes persons who abet or are knowingly involved in the commission of an offence under the Customs Act. The Court found that the partner of the importing firm, who was actively involved in day-to-day activities, did not exercise due diligence and colluded with the customs broker's employee in the fraudulent use of Scrips.

The Court relied on precedents which held that knowledge or failure to take reasonable precautions can attract penalties. The partner's admission that they did not verify the genuineness of the Scrips and blindly relied on the broker's employee supported the imposition of penalty.

The competing argument that the partner was not involved was rejected based on the evidence of collusion and negligence.

The conclusion was that the penalty imposed on the partner was justified and sustainable.

Issue 4: Liability of importers despite non-involvement in forgery

The appellants contended that they were not involved in the forgery or manipulation and that the fraud was committed by their customs broker's employee. The Court examined this contention in light of the principle of caveat emptor and the duty of importers to exercise due diligence.

The Court referred to multiple precedents where importers who purchased forged or manipulated licenses without verifying their genuineness were held liable for duty and interest. The Court emphasized that the benefit of exemption under such licenses is not transferable unless properly transferred, and the importers had not produced physical copies or verified the licenses at the time of clearance.

The Court also noted that the importers' failure to question the unusual billing by multiple companies owned by the broker's employee and their acceptance of debit notes without verification indicated complicity or at least gross negligence.

The conclusion was that importers cannot avoid liability by disclaiming knowledge of forgery when they failed to take reasonable precautions and accepted benefits from forged instruments.

Issue 5: Adjournment of appeal pending writ petitions in Delhi High Court

The appellants sought adjournment on the ground that identical issues were pending in writ petitions before the Delhi High Court. The Court observed that no restraining order from the High Court was placed on record and therefore there was no justification for adjournment.

The Court declined to adjourn the hearing and proceeded to decide the appeal.

Significant Holdings:

"It is a settled law that no benefit could be claimed through an instrument which was void ab-initio and thus the duty paid through such scrips is non-est. Therefore, the duty has been short paid to that extent."

"Fraud vitiates everything and such forged/fake DEPB licenses/Scripps are void ab initio, it cannot be said that the Department acted illegally in invoking the extended period of limitation."

"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."

"Caveat emptor (Buyer Beware) is a well established principle and it requires the buyer of any goods to take reasonable precautions with respect to what he is buying."

"Even if it is presumed that importer was unknown of the fraud, it was the agent of the importer who committed the fraudulent act and thus caused misstatement and suppression of correct facts. This fact itself brings the case under the ambit of Section 28(4)."

"The partnership firm is a different identity from the partner and, therefore, imposition of penalty both on Raja Ram and Company and Jinender Jain is justified."

The Tribunal finally dismissed the appeals, confirming the demand of Customs duty with interest under Section 28(4) of the Customs Act and upholding the imposition of penalty under Section 112(b)(ii) on the partner of the importing firm. The principles reaffirmed include the applicability of extended limitation in cases of fraud, the non-est status of duty paid through forged instruments, the importers' duty to exercise due diligence, and the liability of partners for penalties despite the separate legal identity of the firm.