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Eastern Silk Industries Ltd., Sr Shyam Sundar Saha, M/s. Lucky Goldenstar, Shri Shyam Sundar Lath, M/s. Gemini Overseas Ltd., M/s. Comet Overseas Pvt. Ltd., Subham Enterprises, S.K. Silk And Gautam Silks Versus Commr. of Customs (Airport/Admn.) , Kolkata

2015 (12) TMI 1299 - CESTAT KOLKATA

Duty demand - Import has obtained the DFIA license by fraud - Transfer of licenses DFIA - Misdeclaration - Transferee Appellants purchased part of such transferable DFIA Licenses from the market after paying due considerations and after verifying these licenses from the website of DGFT - Held that:- A script obtained from the Licensing authority fraudulently cannot give licence to any transferee to avail any Customs duty exemption. Fraud in common parlance means dishonest dealing, deceit or chea .....

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duty even from a person other than the importer of the goods. It is also observed that proviso to Section 28AAA(1) does not absolve the actual importer from payment of duty. Further Hon ble Apex Court in the case of Tata Iron & Steel Co. Ltd. Vs. C.C. Mumbai (2015 (8) TMI 290 - SUPREME COURT) has held that extended period is available to the Revenue for demanding duty from the transferres also.State cannot be deprived of its share of duty if the same is claimed exemption by fraudulent acts of t .....

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Nos. 75823-75826/14, 75834, 75880/14, 75802/14 to 75804/14 And Customs Appeal Nos. C/75752/14 to 75755/2014, 75759, 75803/14, 75735-75737/14 - ORDER NO : FO/A/75794-75802/2015 & SO/76474-76482/2015 - Dated:- 22-12-2015 - DR. D.M. MISRA, JUDICIAL MEMBER AND SHRI H.K. THAKUR, TECHNICAL MEMBER For the Petitioner : Sri A.D. Roy, Advocate, Sri S.N. Kantawala, Advocate, Sri S.K. Meheta, Advocate (For Subham Enterprise, S.K. Silks, Gautam Silks) For the Respondent : Sri A. Kumar, A.C. (A.R.) And Sri S. .....

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that Appellants Eastern Silk Industries Ltd., M/s. Lucky Goldstar Ltd. and M/s. Comet Overseas Pvt. Ltd. are transferees of the Licenses (Transferee Appellants) which were purchased by them on bonafide belief that Licenses were genuine. That DGFT has not cancelled these Licenses so far and all the DFIA Licenses were valid on the date of import of goods. It is thus the case of the appellants that no duty/penalty can be thrust upon the transferee appellants as the duty demand is time barred and no .....

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ten submissions that the issue of non-recovery of duty and imposition of penalty has been decided recently by CESTAT, Mumbai in favour of the transferees under order No.A/2919-2994/15/CB dated 31/8/2015. That no action of demand/penalty can be taken against the appellants as the said DFIA licenses have not been cancelled by the appropriate authority so far. It was the argument of the Learned Advocate on behalf of the transferees of DFIA licences that they have acquired the said licenses under a .....

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t consignments cannot be held to be admissible evidences for the subsequent exports as held by CESTAT in the case of Well Knit Apparel Pvt. Ltd. Vs. C.C., Madras [1999 (106) ELT 431 (Tribunal). That charge in the show cause notices is based only on certain statements of individuals without any other material corroboration which is not admissible as per Calcutta High Court s order in the case of Manindra Chandra Dey Vs. CEGAT- 1992 (58) E.L.T. 192 (Cal.) (writ petition No. 4015 of 1990 decided on .....

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Section 5 of the Foreign Trade and Development Regulation Act, 1985 Govt. of India notified Foreign Trade Policy which included Duty Free Import Authorisation (DFIA) Scheme under Chapter 4 of the policy. That this policy also provided for transferability of DFIA Licenses after the export obligation with respect to those licenses are fulfilled. That in these appeals his clients purchased DFIA Licenses and such transferable licenses are put up by licensing authority on their website. That such tra .....

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ntly his clients received show cause notice for demanding duty and imposition of penalty on the grounds that M/s. Gemini Overseas Ltd. has obtained the impugned licenses by fraud and that importers will be liable to pay the duty forgone as per Notification No. 40/2006-CUS DATED 1/5/2008 . iv) That licenses issued by DGFT have not been cancelled so far and appellant was bonafide purchaser of licenses for a valid consideration and had no knowledge till the receipt of show cause notice that the lic .....

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vi) That in view of the above case laws, once licenses were validly issued and purchased by the appellants then no duty can be recovered from the transferee till the said DFIA Licenses are cancelled by the appropriate DGFT authorities. vii) That for any fraud on the part of exporters duty could still be demanded from the exporters under Section 28 AAA of the Customs Act, 1962. 4. Shri S.P. Pal (Appraiser) A.R., & Shri A. Kumar, A.C. (A.R.) appearing on behalf of the Revenue argued that this .....

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Appellants mentioned at Sr. No. (1) to (6) were heard on 29/9/2015 whereas those at Sr. No. (7) to (9) were heard on 18/11/2015. As the issues involved in all these appeals are the same, therefore, after allowing the stay applications, all appeals are being taken up together for disposal under this common order. Brief facts involved in these proceedings, as reflected in the Order-in-Original dated 11/5/2012, are that appellant M/s. Gemini Overseas Ltd. manufactured certain fabrics and exported .....

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t documents to be made predominantly from mulberry raw Silk Yarn. On the basis of said intelligence certain consignments were intercepted at N.S. Docks, Kolkata. Samples of the seized goods were drawn and forwarded to Central Silk Board, Kolkata for testing. As per the test report of the samples taken from the Live consignments, the fabric was found to be made out of Noil Silk Yarn and cotton. Other six consignments of similar fabrics obtained from M/s. Gemini Overseas Ltd. were intercepted fr .....

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fabrics. These DFIA Licenses were obtained under Sr. No. J-123 of SION prescribed by DGFT and reads as follows: Sl. No. Export Item Qty. Import item Quantity Allowed J 123 100% Natural Silk (Chiffon/Chinnon/Crepe/Georgette/Taffeta/Satin 1 Kg. 1 Mulberry Raw Silk (Gummed) of any grade (other than Dupion Yarn) 1.39kg/kg content in the export product Fabrics/Made-ups/Sarees 2 Dup. on Silk Yarn (gummed and untwisted Or Dupion Silk Yarn (de-gummed and twisted). 1.39kg/ kg content in export product O .....

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indicated Noil Yarn, Mulberry Silk and other yarns received by the appellant and subsequently issued to the weavers under cover of issue challans. As per the calculations done by the investigation, from the records supplied by M/s. Gemini Overseas Ltd., Mulberry Silk Yarn supplied to weavers only represented 6.24% to 6.68% of the total weight of the fabrics and the yarns supplied to weavers also were of the categories of Noil Yarn, duk yarn (mulberry raw silk), throster, thorn silk yarn,tussar .....

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r of Eastern Silk Industries Ltd. is the promoter of M/s. Gemini Overseas Ltd. as stated by Shri Shyam Sunder Lath, who is one of the Directors of M/s. Gemini Overseas Ltd. Shri Shyam Sunder Shah, also admitted in his statement dt. 28/7/11 that he is the promoter of M/s. Gemini Overseas Ltd., M/s. P.K. Textile Ltd. & M/s. Lucky Goldstar Co. Ltd. and these units are under his control. M/s. Gemini Overseas Ltd. vide a letter dated 2/1/2009 also admitted that the exports made by M/s. Export Sil .....

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e same which was exported by the Appellant in the earlier export consignments. The stand of the appellants that test reports of fabrics for the subsequent period cannot be made applicable to the earlier period is devoid of merits in the light of investigation done and the statements given by the appellants who were associated with manufacture & export of misdeclared goods. The case law of Well Knit Apparels Pvt. Ltd. Vs. C.C., Madras [1999 (106) E.L.T. 431 (Tribunal] and Manindra Chandra Dey .....

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ics exported has been clearly brought out by the Adjudicating authority in paras 42 (i) & 42 (ii) of the Order-in-Original dated 28/2/2014. This data is made from the documents recovered from the appellants. 7. Appellants have also taken an argument that said DFIA Licenses have not been cancelled by the Licensing authorities so far and no action can be taken against the appellants till those licenses are cancelled. Appellants have, interalia, relied upon the case law of Supreme Court in the .....

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not been cancelled by the Licensing authority and that license obtained fraudulently is only voidable and valid till it is avoided. Apex Court in the case of Titan Medical Systems Pvt. Ltd. New Delhi [2003 (151) ELT 254 (S.C)], also relied upon by the appellants, held that licensing authority has to take action if any condition of the license is not fulfilled. It is evident from para 13 of this case law that no condition of a Customs exemption notification was violated. In the present proceedin .....

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ubject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer. 7.1 Regarding violations of the conditions of a customs exemption notification, Honble Supreme Court in a recent case of C.C., Hyderabad Vs. M/s. Pennar Industries Ltd. [2015-TIOL-162-SC-CUS] held as follows: 14) In the .....

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roduced from the material so imported. However, it is the case of the assessee that for certain bona fide reasons (as the bona fides of the assessee have been accepted by the DGFT), as the assessee was not able to export same very goods produced by it from the material imported on which he was given exemption from payment of the import duty, the DGFT allowed the assessee to meet the export 14) In the present case, advance licence was issued to the assessee in terms of para 7.4 of the EXIM Policy .....

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bona fide reasons (as the bona fides of the assessee have been accepted by the DGFT), as the assessee was not able to export same very goods produced by it from the material imported on which he was given exemption from payment of the import duty, the DGFT allowed the assessee to meet the export obligation through third party. 15) It is also correct that insofar as DGFT is concerned, it has passed Order-in-Original dated 03.08.2011 holding that the export through third party would tantamount to .....

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ough third party. The DGFT, in its order, also mentioned that there was no misutilization of the raw material imported by the assessee and there was no violation of any other conditions of the licence causing Revenue loss at the cost of exchequer. 16) The aforesaid Order-in-Original of DGFT was under the provisions of EXIM Policy. It is held by this Court in Sheshank Sea Foods Pvt. Ltd. (supra) that the same would not be binding on the customs authorities and as far as action taken under the Cus .....

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e Customs authorities to confiscate imported goods under Section 111(o) of the Customs Act. The said communication stated that before Section 111(o) could be attracted there had "to be an exemption, subject to a condition, from a prohibition :. Where a valid licence has been issued, it is not a case of an exemption from the prohibition. Therefore, if a post-importation condition of a licence is contravened, it cannot be said that any condition of exemption is contravened. For the reasons st .....

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bject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer." 8. Section 111(O) states that when goods are exempted from customs duty subject to a condition and the condition is not observed, the goods are liable to confiscation. The case of the respondents is that the goods im .....

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emotely suggests that the aforesaid power of the Customs authorities had been taken away or abridged or that an investigation into such alleged breach could be conducted only by the licensing authority. That the licensing authority is empowered to conduct such an investigation does not by itself preclude the Customs authorities from doing so. 10. The communication of the Central Board of Excise and Customs dated 13-5-1969, refers to the breach of the condition of a licence and suggests that it m .....

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ants obtained exemption from payment of customs duty and, therefore, the terms of Section 111(o) enable the Customs authorities to investigate." 17) The decision in the aforesaid case, which is of the Coordinate Bench, binds us. 18) Judgment in the case of Titan Medical Systems (P) Ltd. (supra), which was referred to by Mr. Banerji, has no relevance at all. In that case, one of the conditions of duty exemption scheme contained in Notification No. 116/88-CUS was for conversion of raw materia .....

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the conditions of the exemption notification are not fulfilled and the law requires strict compliance of the exemption notification, the assessee becomes liable to pay the import duty which was payable, but for the benefit of exemption Notification No 30/1997, which was obtained by the assessee. 10. The communication of the Central Board of Excise and Customs dated 13-5-1969, refers to the breach of the condition of a license and suggests that it may not be possible to take action under Section .....

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y and, therefore, the terms of Section 111 (o) enable the Customs authorities to investigate. 8. The ratio laid by the Apex Court in the above case law is squarely applicable to the facts involved in the present proceedings in as much as the conditions contained in exemption notification No. 40/2006-CUS dated 1/5/2006 have to be fulfilled to the satisfaction of the Customs authorities and if these conditions are not satisfied then action can be taken by the Customs authority for demanding duty e .....

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not be held to be proper and action for demanding Customs duty against the appellants is justified even if no action is taken by DGFT for cancellation of impugned DFIA Licenses. 9. Appellants who imported the goods against transferable DFIA Licenses have also taken an argument that they have purchased the DFIA Licenses under a bonafide belief that the same were genuine. It is thus their case that they cannot be held as party to the fraud and extended period cannot be made applicable for demandin .....

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ourt, were not brought to the notice of CESTAT, Mumbai. On this issue Delhi CESTAT in the case of C.C. Amritsar Vs. Sona Castings [2010 (259) ELT 693 (Tri-Del)] held that fraud vitiates everything and transferee is also responsible to pay duty against such scripts obtained fraudutantly. This conclusion drawn is based on several quoted case laws of Apex Court and High Courts of Kolkata & Punjab & Haryana. The ratio laid down by Calcutta High Court in the case of ICI India Ltd. Vs. C.C. (P .....

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151) E.L.T. 336 (T) Dr. Pal contends that there is a finding that there was no collusion on the part of the appellant. Therefore, according to him, if no fraud or collusion is found on the part of the appellant, in that event, the appellant would be entitled to the benefit of the DEPB licences /scrips. Relying on the decision in United India Insurance Company V. Lehru, (2003) 3SCC 338, Dr. Pal contends that it is just not possible for the appellant to verify the DEPB licenses/scrips which is oth .....

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d of the credit of the DEPB licences/scrips purchased by him bona fide for valuable consideration since found to be forged. 4. The DEPB licence/scrip is admittedly a negotiable one and is available in the market. Anyone can purchase it from the market and avail of the credit out of it. This was so done by the appellant. But ultimately it was found that the said DEPB licence/scrips were forged. These facts are not in dispute as we find from the finding of the learned CEGAT. The only question that .....

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ent itself, on the strength whereof credit is claimed is forged. In that event, the same cannot be equated with merely an irregularity in the licence of the driver driving the vehicle in relation to the liability of the insurer in relation to a valid insurance policy under the Motor Vehicles Act providing for compulsory insurance to secure third party interest. In this case, the document itself having been found to be forged whether there was collusion or fraud on the part of the appellant in th .....

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o pay the duty and interest and for other statutory consequences which one cannot avoid. 9.1 A script obtained from the Licensing authority fraudulently cannot give licence to any transferee to avail any Customs duty exemption. Fraud in common parlance means dishonest dealing, deceit or cheating etc. It makes no difference whether fraud is committed by outrightly forging of documents or by willful misdeclaration/misrepresentation. A fraud is a fraud and there are no categories of mild frauds and .....

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e we find that the original licence holder, namely, Indian Card, Clothings Company Limited had deliberately suppressed the fact of having availed Modvat credit under Rule 57A of the Central Excise Rules, 1944, and made willfully wrong declaration to the licensing authority to obtain the endorsement of transferability of the same while transferring the licenses to the appellant herein. In view thereof, the extended period of limitation would be available to the authorities for the purpose of clai .....

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ed to a person has been obtained by him by means of (a) Collusion; or (b) Willful misstatement; or (c) Suppression of facts, For the purposes of this Act or the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992), by such person or his agent or employee and such instrument is utilized under the provisions of this Act or the rules made or notifications issued thereunder, by a person other than the person to whom the instrument was issued, the duty relatable to such utilization of in .....

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