TMI Blog2022 (11) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Customs (Export), Air Cargo, New Delhi who passed the impugned order. Whether in a case where forged or manipulated scrips or licences have been used for clearance of goods and there is no evidence that the fraud was committed by the importer, demand can been raised for the duty on the importer and if so whether extended period of limitation can also be invoked? - HELD THAT:- This issue is no longer res integra and it has been settled by the Supreme Court in M/S. MUNJAL SHOWA LTD. VERSUS COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE (DELHI IV) AND M/S. FRIENDS TRADING CO. VERSUS UNION OF INDIA AND ORS. [ 2022 (9) TMI 1076 - SUPREME COURT] . The Supreme Court was seized of a matter where forge/fake DEPB licences/scrips were used to pay duty on imported goods. After completing investigation, show cause notices were issued invoking the extended period of limitation which were challenged both on the ground of limitation as well as on the ground that though the scrips were forged, the importers had no intention to evade the customs duty. Similarly in the case of M/S MERCEDES BENZ INDIA PRIVATE LIMITED, M/S O.A. ASSOCIATES, PASHUPATI ACRYLON LIMITED VERSUS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble when a demand invoking extended period of limitation and since we have upheld the confirmation of the demand invoking extended period of limitation, the imposition of penalty under section 114A is upheld - Penalty under section 112(a) (ii) on Jain (the partner) and penalty under section 114A on Nidhi (the partnership firm) in this case arise out of the same cause of action and therefore, penalty under section 112 cannot be sustained as penalty has been imposed under section 114A which is upheld - there is no evidence that Nidhi or its partner Jain had knowledge of the fraud/forged licences/ scrips being used to clear the goods and therefore, the penalty under section 114AA cannot be sustained. Appeal disposed off. - Customs Appeal No. 52173 of 2019 AND Customs Appeal No. 52174 of 2019 - Final Order Nos. 51072-51073/2022 - Dated:- 16-11-2022 - HON BLE MR JUSTICE DILIP GUPTA, PRESIDENT AND HON BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Appearance Shri S.C. Jain, Advocate for the Appellant. Shri Rakesh Kumar, Authorized Representative for the Respondent. P.V. Subba Rao These two appeals have been filed assailing the order-in-original ( Impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the officer. 4. Based on intelligence, investigations were conducted by the Customs officers and it was found Shri Sharafat Hussain alias Sharafat Ali has been in the business of trading in these licences. He also was also a G card holder in the Customs Broker M/s. Kirti Cargo. Investigations further revealed that Shri Sharafat Hussain, along with Shri Vinod Pathror, used the User IDs of the Customs officers and entered wrong details of the licences in the Customs EDI system enhancing the value of the duty free entitlement, by entering fake and forged licences and by entering the same licence multiple times. Using such licences, several importers cleared their consignments without paying duty. The appellant Nidhi is one of such importers. Jain is a partner in Nidhi. 5. After completing the investigations, Show Cause Notice (SCN) dated 17.3.2017 was issued to the appellants covering the period 16.2.2013 to 3.6.2015 which culminated in the passing of the impugned order confirming the demand of duty with interest and imposition of penalties as discussed above. The operative part of the order is as follows: (i) I demand duties of Customs (BCD+CVD) amounting to Rs. 57, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty under Section 114AA of the Customs Act, 1962 on M/s Kirti Cargo. 6. Learned counsel for the appellant made the following submissions. a) No duty is payable by the appellant because Nidhi is a bonafide purchaser of the duty credit scrips and it was not aware of the modus operandi adopted by Shri Sharafat Hussain and Shri Pathror. It had purchased the scrips at a discount of 2% to 5% of the face value of the scrips and it had paid the purchase price through banking channels to Shri Sharafat Hussain. b) The SCN and the impugned order have not put forth any substantive evidence that the appellant was aware of the modus operandi. c) The department had registered FIRs against Shri Sharafat Hussain and Shri Pathror but not against the appellants. It shows that the department also accepted that the appellants were not involved in the fraud. d) It was not possible for the appellant to find out about the illegality committed with respect to the scrips and therefore, the appellant should not be asked to pay the duty. e) The appellant is a bonafide purchaser of scrips and hence no duty should be confirmed against it. Reliance is placed on the following case la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant was not a party to the fraud and there is no evidence of involvement of the appellant in the fraud, penalties must be set aside. 8. On behalf of the respondent Revenue, learned authorized representative made the following submissions. i) The period of violation is from 30/08/2013 to 26/02/2015 when there was no system of exchange of data between DGFT and Customs EDI and the genuineness of the scrips was to be verified from physical copies as per paragraph 3.11.3 of Chapter 3 of the Foreign Trade Policy. This system of verification of physical scrips was phased out much later after the system of online exchange of information between DGFT and Customs EDI was put in place and CBIC Circular No 11/2019 dated 09/04/2019 was issued. ii) While the scrips were freely transferable in the market, Nidhi did not follow the procedures of buying, owning physical copy of the scrip, getting it registered, etc. and has relied totally on fraudsters for buying, registration and using them to pay the duty. iii) Fraud nullifies everything- whether it is carried out wilfully or recklessly. Nidhi cannot profit from the fraudulent scrips even if it is not the one which has committed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipts from the licensee exporters in the name of M/s Zealous Overseas Pvt. Ltd (in which he was a Director), forged/ manipulated them in the Customs EDI system with the help of Shri Vinod Pathror who was not even an employee of the Customs Broker Kirti Cargo but posed as such. x) Shri Rajesh Kumar Jain, accountant of M/s K.S. Impex Ltd (RUD 20), original Exporter, in his statement dated 14.09.2016, stated that License No 0519001934, 0519001935, and 0519001145 were sold to M/s Zealous Overseas (Owner Sh Sharafat Hussain), which were, after being forged in terms of enhancement of value, used by M/s Nidhi Enterprises. xi) Similarly, M/s. Zealous Exims India (Director Sharafat Hussain) bought License No 0510389153 dated 27/06/2014 from the exporter M/s Jechand Khushaldas Overseas Co. and fraudulently enhanced its value while entering in the Customs EDI from Rs 7,19,837 to Rs 21,29,688/- was used to pay import duty for M/s Nidhi Enterprises. xii) Nidhi has submitted several invoices drawn by Shri Sharafat Hussain in the name of M/s Zealous Overseas purportedly for purchase of DEPB/FPS/FMS scrips by Nidhi. However, none of these even indicate the details of the scrip being sold a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 5/7/2012. xviii) Paragraph 3.11.3 of the Handbook of Procedures (Vol. 1) of Foreign Trade Policy 2009-14 also required that the genuineness of the duty scrip must be verified by the Customs authorities before registering it. It reads as follows: Port of Registration 3.11.3- Duty Credit Scrip (including splits) shall be issued with a single port of registration which shall be the port of export. After issue of Duty Credit Scrip, but before registration with Customs, the Applicant can change the port of registration from RA concerned. Before registration, authorities shall verify genuineness of Duty Credit scrip, from RA concerned, until EDI system of message exchange is put in place. However, applicant may use Duty Credit Scrip for imports from any other port (that includes ICD/LCS) after obtaining TRA from authorities at port of registration. The above procedure shall be applicable only in respect of EDI enabled ports. In case of exports through non-EDI ports, the port of registration shall be the port of exports. xix) Similarly, the Board s circulars for the earlier periods 68/2000, 72/2003, 8/2009 and 50/2011 required the original licence covering the desc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a scrip in its possession, it was also not aware as to which scrip it was buying. All the appellant did was ask Shri Sharafat Hussain to clear its goods without paying duty and paid a percentage of the duty so saved to Shri Sharafat Hussain. Thus, there is nothing in the entire documents to show good faith or genuine belief on the part of the appellant. xxv) Therefore, the appellant cannot claim the benefit of the exemption notification even when the scrip has covered its duty liability in the case of any Bill of Entry. No physical copy of the scrip was produced at the time of clearance of the goods or else the fraud would have been detected. xxvi) The extended period of limitation has therefore, been correctly invoked and penalties have also been correctly imposed. xxvii) The partnership firm is different from the partners and therefore, imposition of penalty both on Nidhi (the partnership firm) and Jain (the partner) is sustainable. xxviii) Both appeals may therefore be dismissed. 9. Learned authorised representative relied on the following case laws: i) Aaflaot Textiles 2009(235) ELT 587(SC) in which Supreme Court upheld the invocation of extended period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as follows: Notification No.91/2018-Customs (N.T.) New Delhi, the 5th November, 2018 G.S.R._____ (E). -In exercise of powers conferred by clause (a) of section 152 of the Customs Act, 1962 (52 of 1962), the Central Government hereby directs that the powers exercisable by the Central Board of Indirect Taxes and Customs under sub-section (1) of section 5 of the Customs Act, 1962, shall also be exercised by the Principal Chief Commissioner or Chief Commissioner of Customs for the purposes assigning the cases for adjudication of show cause notices issued under the provisions of the said Act or rules, regulations made there under, within his jurisdiction. [F.No. 450/150/2017-Cus. -IV] (Zubair Riaz) Director (Customs) 13. By order no. 1/2018 dated 15.11.2018, the Chief Commissioner had assigned the work of this adjudication to the Commissioner of Customs (Exports), Air Cargo complex, New Custom House, New Delhi who has adjudicated the matter. 14. We have considered the submissions from both sides. The undisputed facts of the case are that Nidhi imported goods by 29 Bills of Entry as listed in the annexure to the show cause notice usin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, it is the submission that the appellant Nidhi is a partnership firm and Shri Jain is one of the partners and once the penalty has been imposed on the firm it cannot also be imposed on the partner. For these reasons, learned counsel prays that the impugned order may be set aside in its entirety. 19. Learned counsel also questioned the jurisdiction of the officer who issue the show cause notice and the officer who passed the impugned order and relied on the judgment of Supreme Court in Cannon India Private Limited Vs. Commissioner of Customs Civil Appeal No. 1827 of 2018 to assert that the show cause notice and the impugned order were issued without jurisdiction and hence are void. It is his submission that the show cause notice has been issued by the Commissioner of Customs (Export), ICD Tughlakabad, New Delhi demanding duty payable at the time of import and it has been adjudicated by the Commissioner of Customs (Export), Air Cargo Export, New Customs House, New Delhi. 20. We first proceed to deal with the issue of the jurisdiction. A perusal of the first paragraph of the impugned order clarifies the position. Learned authorized representative further for the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of limitation as well as on the ground that though the scrips were forged, the importers had no intention to evade the customs duty. The Commissioner of Customs passed orders confirming the duty which was upheld by the Tribunal and the High Court. Aggrieved, the appellant appealed to the Supreme Court which upheld the confirmation of the demands invoking extended period of limitation. However, insofar as the penalties were concerned, Supreme Court held that whether the buyers had knowledge of fraud or forged/fake DEPB licences/scrips and whether the buyers were to take precautions to find out the genuineness of the scrips which they had purchased would have a bearing the imposition of penalty, though it has nothing to do with the duty liability. For that purpose only the matter was remanded to the adjudicating authority. Paragraphs 7 to 12 of this judgment are reproduced below: 7. We have heard the learned counsel appearing on behalf of the respective parties at length. 8. From the judgment and order passed by the Tribunal and even from the findings recorded by the Department, it has been found that the DEPB licenses/Scripps, on which the exemption benefit was availed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, both the appeals are dismissed. No costs. 22. Similarly in the case of Mercedes Benz India Ltd. Others Vs. Directorate of Revenue Intelligence, this Tribunal in the Final Order Nos. 50031-50060/2020 dated 9.1.2020 [2020 (2) TMI 437 New Delhi] upheld the demand of duty on the importers where fraudulent/forged DEPB scrips or licences were used. Respectfully following these decisions, we hold that duty can be demanded from the importer invoking extended period of limitation where fraudulent or forged licences/scrips are used to clear the goods even if the importer itself has not committed the fraud or forgery and even if there is no evidence that the importer knew about it because fraud vitiates everything . 23. The alternative submission of the learned counsel for the appellants in this case is that it should at least be allowed the benefit of the licences/scrips which were not forged but whose value was enhanced in the Customs EDI system to the extent the licences were valid. To consider this submission, the conduct of the importer and what precautions it had taken while purchasing and using those licences/scrips must be examined. It is also important to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance of the goods. The buyer of the scrip/licence cannot acquire any right over and above what was available to the exporter nor can he be placed in a better position than the exporter. The irresistible conclusion is that buyer of the scrip also has to produce the scrip or licence for debit at the time of clearance of the goods. While an arrangement is made by the customs Department to have an online ledger of the scrips since there was no online transfer the data from DGFT to the Customs and a mechanism of online verification to check the genuineness, the scrip or licence had to be physically produced before the proper officer at the time of clearance. This responsibility under the exemption notifications and under the Foreign Trade Policy has neither been diluted nor extinguished by the system of registration of scrips/licences under the Customs EDI system. Any arrangement for the registration in the Customs EDI system does not, and cannot, in any way modify the conditions of exemption notifications which have to be construed strictly as has been held by the Supreme Court in the case of Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar 2018 (361) ELT 577 (SC) and in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B the right to travel is also transferred as a consequence. Without transferring the ticket, A cannot simply say let B travel instead of me because the right to travel flows from the ticket and cannot be separated from it. Just like railway tickets, the licences/scrips issued by the DGFT are also NOT bearer instruments which can be used by anyone to claim exemption. They are issued to the licensees/scrip holder who can freely transfer them to anybody else but without such a transfer, the benefit of the exemption itself cannot be transferred. The invoices issued by the companies owned by Shri Sharafat Hussain to the appellant produced before us do not indicate that any licence/scrip was transferred to the appellant Nidhi. Consequently, Nidhi never had any licence/scrip with it nor was even aware as to the benefit available under which licence/scrip issued to whom and/or transferred who was used in the Bill of Entry was known to the appellant. The question of producing the scrip or licence at the time of clearing the goods does not arise as a consequence. As the appellant had not fulfilled the requirements of either getting the licence/scrip transferred to it or producing it at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Precautions taken while buying the scrap and the responsibility for taking precaution. 34. We do not find any evidence of appellants knowledge of fraud or forgery of the scrips/licences in this case. However, as far as the question of responsibility to take precautions and if such precautions were taken are concerned, we agree with the learned authorized representative that 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. When one is buying an instrument for lakhs of rupees and claiming benefit of exemption from customs duty from it and such an instrument is numbered and is issued by any authority, it would be reasonable to expect that the buyer would know what instrument it is buying from who and in whose name it was issued originally. Even if one buys a car from another one would at least check the registration number of the car, make, model, etc. In the present case, none of purchase invoices produced by the appellant even indicate the licence or scrip which the appellant bought. The invoices show that the appellant bought the benefit of exemption whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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