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2015 (12) TMI 1299 - CESTAT KOLKATA

2015 (12) TMI 1299 - CESTAT KOLKATA - 2016 (336) E.L.T. 141 (Tri. - 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 d .....

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s provision has been made to give the department a tool also to recover Customs 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 deprive .....

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ellants are set aside. - Decided partly in favour of assessee. - Stay Petition 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. .....

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red on behalf of M/s. Comet Overseas Pvt. Ltd. It is the case of the Advocates 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 .....

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Advocates appearing on behalf of the appellants during hearing and through written 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 .....

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e exports of the consignments under consideration. That test reports of the past 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 .....

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by CESTAT Registry on 23/11/15, made the following arguments:- i) That as per 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 transfer .....

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d no objection was raised at all by the Customs Authorities. iii) That subsequently 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 consid .....

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LT 254 (S.C.)] (e) Taparia Overseas (P) Ltd. Vs. UOI [2003 (161) ELT 47 (Bom)] 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., & .....

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he appellants. 5. Heard both sides to each appeal and perused the case records. 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 .....

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exported fabrics made of Noil Yarn and wrongly declared the same in the export 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 .....

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M/s. Gemini Overseas Ltd. and 23 DFIA Licenses were obtained by exporting such 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 D .....

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nts. Documents tendered by Shri Mohanlal Singhania of M/s. Gemini Overseas Ltd. 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 categorie .....

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tern Silk Industries Ltd. Shri Shyam Sunder Shah, Chairman-cum-Managing Director 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 .....

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e nature of fabrics found in the consignments, seized by DRI and tested, was the 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. L .....

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g supply of natural silk yarn and its percentage contained in the finished fabrics 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 .....

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has no case to take action under the Sea Customs Act, 1878 when the License has 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 condi .....

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elevant in these proceedings and is reproduced below: (o) any goods exempted, subject 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. .....

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30/1997, puts the onus upon the assessee to make the exports of the products produced 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, adv .....

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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 obligation through third party. 15) It is also correct that insofar as DGFT is concerned, it has passed Order-in-Original da .....

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the date on which last consignment of exports were effected by the assessee through 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 .....

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vention of a post-importation condition of an import licence, it was open to the 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 ca .....

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ide India shall be liable to confiscation - xx xx xx (o) any goods exempted, subject 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 goo .....

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s issued by the Ministry of Commerce, Government of India, anything that even remotely 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- .....

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o a breach of the condition in the exemption notification upon which the appellants 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 sc .....

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hich has no bearing on the controversy involved in the present case. 19) Since 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 .....

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cation upon which the appellants obtained exemption from payment of customs duty 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 s .....

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ith cotton, therefore, the import of goods other than the material exported cannot 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 a .....

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TAT, Mumbai as several case laws, including some recently decided by the Apex Court, 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 r .....

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learned CEGAT in Appeal No. C/358/2000-NB(D) dated 26th September 2002 [2003 (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 .....

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sence of bona fide on the part of the appellant, the appellant could be deprived 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 d .....

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Policy was not found to be forged. The question would be different if the document 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 .....

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d and exposed to other penalties therefor, but still then one would be liable to 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/misre .....

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he benefit of extended period of limitation. 2. In the facts of the present case 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 per .....

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tion [28AAA. Recovery of duties in certain cases.- (1) Where an instrument issued 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 .....

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