Not a bonfide importer, Paid For Making Forged Licences To Clear Bills of Entry: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has found that the appellant has not paid duty to the government exchequer but instead paid a percentage of the amount equivalent to the duty to the firms for making forged licences to clear the bills of entry.

The two-member bench headed by Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that caveat emptor (buyer beware) is a well-established principle that requires the buyer of any goods to take reasonable precautions with respect to what he is buying. When purchasing an instrument for lakhs of rupees and claiming the benefit of customs duty exemption, if such an instrument is numbered and issued by any authority, it is reasonable to expect the buyer to understand what instrument is being purchased and from whom and in whose name it was originally issued.

The CESTAT has noted that none of the purchase invoices produced by the appellant even indicate the licence or scrip that the appellant bought. The invoices show that the appellant purchased the benefit of a nontransferable exemption but not transferable licences or scrip. The appellant did not receive physical licences or scrip and did not produce them when claiming the exemption benefit.

The appellant is in the business of importing and trading paper-based articles. It imported goods under 29 Bills of Entry using various duty-free licences issued by the Directorate General of Foreign Trade to various persons under various export promotion schemes such as Duty-Free Import Authorization, Focus Product Scheme, Focus Market Scheme, Village and Khadi Gramodyog Yojna, and Duty Entitlement Passbook.

The licences and scrips are transferable, and after the exporter fulfils its export obligations under the licence, it can sell them to anyone else who can then import goods against the licence or scrip duty-free.

Usually, the licences or scrip are sold at a discount, say, at 95% of the value of the duty exemption available under the license. For imports under each of the schemes under which the licences or scrip are issued by DGFT, there is a corresponding exemption notification under the Customs Act. Thus, when the licence issued by the DGFT is produced before the customs for clearance, the appropriate value is debited from the licence or scrip, and goods are cleared without the importer paying the duty in cash in terms of the corresponding exemption notification.

Based on intelligence, investigations were conducted by the Customs officers, and it was found that Sharafat Hussain has been in the business of trading in the licenses. He also held a G-Card for Customs Broker M/s. Kirti Cargo. Investigations revealed that Sharafat Hussain, along with Shri Vinod Pathror, used the user IDs of the customs officers and entered the 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 the same licence multiple times. Using the licences, several importers cleared their consignments without paying duty. The appellant is one of them.

Following the completion of the investigations, a Show Cause Notice was issued, and the duty was demanded, along with interest and penalties.

The appellant contended that no duty was payable by the appellant because it is a bona fide purchaser of the duty credit scrips. The appellant was not aware of the modus operandi adopted by Sharafat Hussain. It 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.

The appellant submitted that even if the benefit of the licences/scrips is denied to the appellant following the principle "fraud vitiates everything," it is still entitled to at least that portion of the exemption in the five bills of entry where the legitimate limit of the exemption in the scrip is still available. It is only the excess amount of credit that can be denied. Since the appellant was not a party to the fraud and there is no evidence of his involvement in the fraud, penalties must be set aside.

The department contended that all the appellant did was ask Shri Sharafat Hussain to clear its goods without paying duty and pay a percentage of the duty so saved to Shri Sharafat Hussain. Thus, there was nothing in the entire document to show good faith or genuine belief on the part of the appellant.

"We find no reason to hold that the appellant was a genuine buyer of licences/scrips and had purchased them in good faith," the Tribunal said.

The tribunal found that there was no evidence that the appellant had knowledge of the fraud/forged licences/scrips being used to clear the goods and therefore, the penalty under Section 114AA cannot be sustained.

Case Title: M/s Nidhi Enterprises Versus Commissioner of Customs, (Export), New Delhi

Citation: Customs Appeal No. 52173 of 2019

Date: 16/11/2022

Counsel For Appellant: Advocate S.C. Jain

Counsel For Respondent: Rakesh Kumar

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