1. These three appeals have been filed by the appellants against the common order made by the Commissioner. Common show cause notice was issued against all the appellants.
2. During the course of hearing, the appellant Proprietor of M/s New Kailash Jewellary House gave an adjournment application on 12.7.2006 stating that his advocate was out of India. He was clearly told that hearing cannot be adjourned on such a ground and will continue and that he may participate in it. However, no one argued on behalf of the appellant M/s New Kailash Jewellary House.
3. The case of the revenue as reflected in the show cause notice was that an information was received to the effect that M/s Shivam Enterprises, New Delhi and M/s Shyam Exports, New Delhi had obtained 62 Replenishment (REP) licences from DGFT, New Delhi for the import of gold on the basis of forged bank realization certificates and Export Shipping Bills and they had utilized these licences for import of approximately 350 kgs. of gold, without payment of customs duty resulting in loss of revenue to the extent of Rs. 5.23 crores to the government. The enquiries revealed that these licences were obtained on the strength of forged documents, namely Bank Realisation Certificates and Registration-cum-Membership Certificates of Gem & Jewellery Export Promotion Council and even Import Export Code number was obtained on the basis of such forged documents. Enquiries from Bank of Nova Scotia, New Delhi revealed that they had issued gold to the appellant M/s K.K.Exports against 12 licences issued in the name of M/s Shivam Enterprises and M/s Shyam Exports. It also transpired during the enquiry that some licences of these two concerns were utilized by the appellant M/s Kailash Jewellery House, New Delhi and the appellant M/s M.D. Overseas Limited, and also one M/s Deep Exports whose appeal is said to be pending in the West Zonal Bench of the Tribunal at Mumbai.
3.1 As against the appellant, Shri Sukumaran Kumar Jain, Sole Proprietor of M/s New Kailash Jewellery House (Customs Appeal No. 760 of 2004) it was alleged that he had purchased five gold REP licences from Mr. Vinay Sethi alias Sanjay Sethi (of the aforesaid two concerns) at a premium of 8% and the premium to Mr. Vinay Sethi was paid in the form of gold bullion and the said gold REP licences were utilized by the appellant M/s New Kailash Jewellery House for the import of duty of gold resulting in loss of revenue. It was alleged that Mr. Vinay Sethi alias Sanjay Sethi offered such licences to Shri Sukumaran Kumar Jain at 8% premium. The premium was paid in the form of gold which was beyond the normal trade practice. Therefore, Shri Sukumaran Kumar Jain, Sole Proprietor of M/s New Kailash Jewellery House appeared to be knowingly concerned with procuring the REP licences which were utilized for import of gold.3.2 As regards the appellant M/s M.D. Overseas Ltd. (Custom Appeal No.833 of 2004), it was alleged in the show cause notice that it had obtained eight gold REP licences from Mr. Vinay Sethi at the premium of 8%. The Director of the said company Shri Satish Bansal obtained these licences with the help of the 'mediator' Shri Kulbhushan Sethi. All the eight gold REP licences were utilized by the appellant M/s M.D.Overseas Ltd., for import of gold resulting in loss of revenue to the Government. Four of the gold REP licences were obtained through Mr.
Kulbhushan Sethi and remaining four were obtained directly from Mr.
Vinay Sethi alias Sanjay Sethi at a premium of 8%. It was alleged that the payment of gold was beyond the normal business practice. The appellant had written a letter to DGFT office for confirmation of the genuineness of the licences to which no reply was received. It was alleged that on oral enquiry at DGFT office, this appeared to be an afterthought to cover up their action. The procurement of the licences was made by the appellant from a total stranger Mr. Vinay Sethi alias Sanjay Sethi, and it appeared that Mr. Satish Bansal, Director of the appellant had knowingly concerned himself in procuring the fraudulent gold REP licences and utilizing them for import of duty free gold.3.3 As regards the appellant M/s K.K. Exports (Customs Appeal No. 834 of 2004) it was similarly alleged that Mr. Neeraj Kapoor, partner of the firm, procured the licences at a premium either directly from Vinay Sethi alias Sanjay Sethi or through intermediaries and premium was paid in gold bullion beyond the normal business practice and that it appeared that the appellant concerned themselves in procuring the fraudulent gold REP licences and utilized the same for import of duty free gold.4. As per the EXIM Policy 1997-2002, it was provided in para 8.37 that an exporter was eligible for freely transferable replenishment (REP) licence at the rate of 87% of the FOB value of exports of plain gold /platinum jewellery and articles thereof. Under paragraph 8.85 of the said policy, REP licence holder may obtain gold/platinum/silver from the nominated agencies. Before supply of gold/platinum/silver, the nominated agencies were required to make the REP licences invalid for direct import. Such licences were treated as valid for a period of 12 months from the date of issue (paragraph 8.86).
4.1 It was alleged in the show cause notice that Mr. Rajiv Khanna along with Mr. Vinay Sethi alias Sanjay Sethi conspired for getting gold REP licences of 'F' scheme issued by the DGFT authority which were subsequently sold to save customs duty at the time of import of gold made by the buyers. The fraud was perpetrated through false and fabricated documents created by Mr. Rajiv Khanna, Sanjay Sethi alias Vinay Sethi, and, Smt. Rachna Gulati who participated by writing signatures of other persons on such forged and fabricated documents. It was alleged that Mr. Rajiv Khanna, knowingly, deliberately and intentionally used Sanjay Sethi alias Vinay Sethi as his "front man" for creating the fictitious documents, obtaining licences from DGFT authority and sale thereof to the prospective buyers and to avoid detection at a future stage. He financed all the expenses incurred towards committing the fraud and named the bogus front concerns as M/s Shyam Exports & M/s Shivam Enterprises respectively and arranged the photographs of unknown persons for affixing the same on the application forms for getting the import-Export Code. Mr. Sanjay Sethi alias Vinay Sethi, during the whole operation was fraudulently and actively involved in committing the fraud causing a substantial loss to the revenue and worked as a front man of Mr. Rajeev Khanna and arranged all details right from contriving forged documents to sale of licences. It was alleged that Shri Sukumaran Kumar Jain, the sole proprietor of the appellant M/s New Kailash Jewellery House, Shri Satish Bansal, Director of the appellant M/s M.D. Overseas Ltd. and Shri Neeraj Kapoor, partner of the appellant M/s K.K. Exports and others named in the show cause notice, knowingly concerned themselves in the sale/purchase of the REP licences procured through forgery.
5. The Commissioner on the basis of the statements of the witnesses and other relevant material on record held that importation under invalid licence cannot be considered as legal importation. He distinguished the decision of Hon'ble the Supreme Court in East India Commercial Co. Ltd. v. CC, Calcutta on facts, by observing that there existed no contract at all between the Government of India, the licence issuing authority and the firms in whose name the licences were issued and all the subject licences in this case were non est and void since their inception. Reliance was placed on the decision of the Tribunal in Blue Blends (India) Ltd. v. Commissioner of Customs, Mumbai reported in 2001 (136) ELT 411 (Tri. Mumbai) and Suraj Sales Corporation v. Commissioner of Customs, Mumbai reported in 2002 (149) ELT 1413 (Tri. Mumbai) in support of his finding that the licences have been obtained in the name of fictitious firms and that the licences are non est since inception in such a situation. It was, therefore, held that the imports were unauthorized and liable for confiscation under Section 111 of the Customs Act, 1962. For the appellant - M/s M.D.Overseas, the Commissioner held that it had colluded in the fraud and was liable to pay duty as demanded in the show cause notice issued under Section 28 of the Customs Act. Penalty was imposed on the said appellant under Section 114A of the act. As regard the appellant - M/s K.K. Exports, the Commissioner held that the nature of transaction as entered into by M/s K.K. Exports, and the fact that they were in possession of more forged REP licences of the same firms when the investigations were carried out, clearly showed that they were involved in the said fraud and knowingly had utilized the forged licences, thereby rendering themselves liable to pay customs duty on the import of gold effected by them, under Section 28 of the Customs Act. The appellant was penalized for the act of collusion in the fraud under Section 114A of the Customs Act. For the appellant - M/s New Kailash Jewellery House, the Commissioner found that the said appellant had the knowledge of the fraudulent nature of the licences and hence had offered less premium. Their confirmation to the middleman Mr.
Kulbhushan Sethi that if they intend to buy such licences from Mr.
Vinay Sethi, premium should not be paid more than 8.5%, and the mode adopted for purchasing the licences, corroborated the involvement of the appellant in the fraud. The said appellant was also held liable to pay duty in respect of the gold import against the forged licences, under Section 28 of the Act and penalty was imposed under Section 114A of the Customs Act. It was held that the appellants were not entitled to the benefit of the notification Nos. 49/97 and 5/98 in respect of such fraudulently obtained licences, which they had utilized knowingly.
The Commissioner, therefore, confirmed the demands and imposed penalties on the noticees as per the impugned order. It was, inter-alia, held that the subject goods valued at Rs. 11.30 crores imported against 46 gold REP licences were liable for confiscation under Section 111(o) of the Act. The demand of Rs. 54,25,844/-was confirmed against the appellant - M/s New Kailash Jewellary House and the amount of Rs. 11,91,520/- already deposited by them was appropriated towards the duty liability. Penalty of the like amount of Rs. 54,25,844/- was imposed on the appellant - M/s New Kailash Jewellery House, under Section 114A of the Customs Act. Demand of Rs. 83,58,911/- was confirmed against the appellant - M/s M.D. Overseas Ltd. under Section 28 of the Act and the like amount of penalty was imposed under Section 114A of the Act. The amount of Rs. 15,00,000/- already deposited by them was appropriated towards the duty liability.
As against the appellant M/s K.K. Exports, the Commissioner confirmed the demand of Rs. 1,45,18,998/- imposing penalty of the like amount and ordered amount of Rs. 31,46,840/- already deposited on 19.7.99 by them to be appropriated towards the duty liability.
6. The learned Counsel appearing for the appellant - M/s K.K. Exports (Custom Appeal No. 834 of 2004) contended that the appellant was not the importer of the goods because on the strength of the gold REP licences purchased by the appellant it had only drawn gold, from the Nova Scotia Bank. It was further contended that the licence was valid on the date of purchase of gold from the bank and its subsequent cancellation cannot invalidate the earlier imports. It was argued that the appellant did not participate in the forgery committed by other persons and there was nothing to connect the appellant with those persons. Therefore, it cannot be said that the appellant were party to the fraud committed by them for procuring the gold REP licences from the concern authority. It was submitted that the duty can be recovered only from the perpetrator of fraud and not from a bonafide purchaser for value without notice of fraud. It was also contended that the demand was barred by limitation and correct rate of duty was not applied.
6.1. The learned Counsel for the appellant M/s K.K. Exports relied upon the following decisions in support of her contentions:East India Commercial Co. Ltd. Calcutta v. Collector of Customs, Calcutta reported in 1983 ELT 1342 (S.C.) was cited for the proposition contained in paragraph 35 of the judgment that there was no legal basis for the contention that licence obtained by misrepresentation makes the licence non est, with the result that the goods should be deemed to have been imported without licence in contravention of the Order issued under Section 3 of the Act so as to bring the case within Clause (8) of Section 167 of the Sea Customs Act. It was held that assuming that the principles of law of contract apply to the issue of a licence under the Act, a licence obtained by fraud is only voidable; it is good till avoided in the manner prescribed by law. It was further held that the specified authority had not cancelled the licence issued in that case on the ground that the condition had been infringed. It was further held that when the goods were imported, they were imported, under a valid licence and therefore, it was not possible to say that the goods imported were those prohibited or restricted by or under chapter IV of the Act within the meaning of Clause (8) of Section 167 of the Sea Customs Act.Union of India v. Sampat Raj Dugar proposition emanating from paragraph 21 of the judgment that subsequent cancellation of licence was of no relevance nor did it retrospectively render the import illegal.Sneh Sales Corporation v. Collector of Customs for the same proposition that the licence obtained by fraud and misrepresentation continues to be valid till it is avoided. It was also held that cancellation did not operate with retrospective effect. On facts, it was held that cancellation of licence was subsequent to the imports of goods and that such cancellation had no effect and the imports cannot be treated as unauthorized. It was submitted that appeal against this decision was dismissed by Hon'ble the Supreme Court reported in 1998 97 A42 (SC) [2000 (121) ELT 577].
Hon'ble the Supreme Court held in para 5 of the judgment, reiterating the ratio of East India commercial Co. Ltd. v. Collector, that misrepresentation or fraud does not render licence non est as a result of its cancellation so as to result in the goods that were imported on the basis of the said licence being treated as goods imported without a licence in contravention of the Order passed under Section 3 of the Import and Export Act and that, fraud or misrepresentation only renders a licence voidable and it remains operative before it is cancelled. It was noted that in the case before the Hon'ble Supreme Court the licences were cancelled after the goods had been imported and cleared. Therefore, the Tribunal held that the import of the goods was not in contravention of the provisions of Import and Export Order, 1995 and Import and Export (Control) Act, 1947.
iv) The decision of the Bombay High Court in Taparia Overseas (P) Ltd. v. Union of India was cited for the proposition that the effect of fraud was not to render the transaction void ab-initio but it renders it voidable at the instance of the party defrauded and the transaction continues to be valid until the party defrauded has decided to avoid it. It was held in paragraph 31 of the judgment that, on the above canvas of settled law recognized by the Apex court and catena of decisions of various High Courts, it was clear that a licence obtained by fraud was not void ab-initio and is merely voidable. It is good till avoided in the manner prescribed by law. The Court held that in the case before it when the goods were imported into India and even when the bills of entry were filed neither the licence was suspended nor cancelled.M.M.T.C. Limited v. Commr. of Cus. ICD Tughlakabad, Delhi for the proposition that in respect of gold import by MMTC, the MMTC was held liable as an importer despite the fact that it had supplied gold to various units. On this basis it was contended that the gold was supplied by Nova Skotia Bank to the appellant on the strength of the gold REP licences purchased by the appellant and it was the bank that was the importer and not the appellant.
vi) The decision of this Tribunal in Marino Classic v. Commissioner of Customs (EP) Mumbai , was cited to point out that fraud was required to be established and even if established, the principle that would apply was laid down in the judgment of the Hon'ble Supreme Court in M/s East India Commercial Co. Ltd. (supra) as held in K. Uttamlal (Exports) Pvt. Ltd. v. UOI . The appeal against this decision was summarily dismissed by the Hon'ble Supreme court as reported in 2003 ELT 152 A85.
7. The learned Counsel appearing for the appellant - M/s M.D. Overseas (Customs Appeal No. 833 of 2004) adopted the legal contentions raised on behalf of the appellant - M/s K.K. Exports (Customs Appeal No. 834 of 2004). He further argued that the appellant - M/s M.D. Overseas had purchased first four duty free REP licences in February 1999 through Mr. Kulbhushan Sethi who was doing manufacturing of gold jewellery for them on job work basis while the other four licences which were obtained in March 1999 from M/s Shivam Enterprises, which were offered/confirmed, by Vinay Sethi and that the cheque for the payment of premium was issued but he did not collect the cheque. Since the earlier transaction was through Mr. Kulbhushan Sethi, the appellant had given gold for purchase of four licences. However, since the subsequent four licences were being purchased from a stranger Mr. Vinay Sethi, the appellant made enquiries about the genuineness of the licences. It was submitted that the payment was to be given by account payee cheque in respect of these four licences but the person concerned did not turn up to collect the cheque from the appellant. It was submitted that the appellant was not in picture when the licences were fraudulently obtained by Mr. Rajeev Khanna, Vinay Sethi and Mrs. Archana Gulati by forging documents, as alleged in the show cause notice. It was submitted that care and precaution was taken by the appellant - M/s M.D. Overseas while purchasing the first four licences through Kulbhushan, and by making enquiry before making payment for the second set of four licences about their genuineness. It was submitted that the premium paid at 8% was not low so as to create such suspicion.
8. The learned Authorised Representative for the department supported the reasoning and findings of the Commissioner against these appellants and submitted that all the appellants had participated in the conspiracy of getting the gold REP licences on the basis of the forged documents. It was submitted that these licences were not purchased by paying price in terms of money but payment was said to be made in gold bullion which was not the normal mode of making payment in case of genuine purchases of such licences. He submitted that price in terms of money was required to be paid for goods sold. It was submitted that 8% premium was also not normal. Moreover, since the licences were admittedly obtained on the basis of forged documents they could not be given any legal efficacy and recognition by the Court in the hands of the transferees. It was submitted that in cases of fraud between the private parties the defrauded party may continue to affirm the contract but such a situation cannot be allowed when fraud is perpetrated on the State authorities, because the State officials cannot confirm fraudulent acts like the private parties in contract inter-vivos. He contended that fraud vitiates everything and no benevolent view can be taken in favour of the transferees of the REP licences fraudulently obtained.
8.1. The learned Authorised Representative for the department placed reliance on the following decisions in support of his contentions:Commissioner of Customs, Kandla v. Essar Oil Ltd. cited to point out from paragraph 31 of the judgment that it was held by the Hon'ble Supreme Court that fraud vitiates every solemn act. Fraud and justice never dwell together and that fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata. In paragraph 32 of the judgment, the Supreme court held that fraud in public law was not the same as in private law, nor can the ingredients, which establish fraud in commercial transaction, be of assistance in determining fraud in administrative law. Fraud in public law arises from a deception committed by disclosure of incorrect facts knowingly and deliberately to invoke exercise of power and procure an order from an authority.Blue Blends (India) Ltd. v. Commissioner of Customs, Mumbai reported in 2001 (136) ELT 411 (Tri.
Mumbai), rendered in the context where REP licence was granted to a non-existent party on the basis of fraud and misrepresentation of facts, was cited to point out that in paragraph 13 of the judgment the Tribunal held that, the application for licence was not made by the Overseas Enterprises and licence granted to it, was, therefore, to a non-existent party. Therefore, there was no contract at all between the Government of India, which issued the licence, and the person to whom it was issued. That being the case, the licence which had been issued was not a valid licence, and imports made under such a document were not authorized by law, for the purpose of licence.
It was, therefore, held that the goods under consideration were liable to confiscation. The decision of the Hon'ble the Supreme Court in East India Commercial Co. Ltd. was sought to be distinguished by the learned DR appearing in that case, on the ground that the Court was not concerned with the cancellation of licence because licence had not been cancelled. Reliance was placed upon the Commissioner's finding that the appellant had colluded in the acts of forgery or falsification of facts to obtain the licence.ICI India Limited v. Commissioner of Customs (Port), Calcutta where the DEPB licences/ scrips were forged. It was held that the document itself having been found to be forged, whether there was collusion or fraud on the part of the appellant in the issue of the DEPB licences/scrips becomes absolutely immaterial and irrelevant since no credit can be derived from a forged DEPB. The credit is made available on the strength of a valid DEPB. If the DEPB is forged, then the same is non est and therefore, there is no valid DEPB. As such, there can be no credit derived thereunder. It was pointed out that special leave petition was dismissed by Hon'ble the Supreme Court, as reported in 2005 (287) ELT A31 (SC).Jupitor Exports v. Commissioner of Cus. (Genl.) Mumbai point out that the definition of the term 'importer' under Section 2(26) of the Act was considered to be wide enough not only to cover the person who causes the import of the goods but to any owner or the person holding himself out to be the importer at any time between their importation and their clearance for home consumption.Dharam Exports v. Commissioner of Customs, Nhava Sheva reported in 2005 (192) ELT 503 (Tri. Mumbai) was cited to point out that transferee of licence who imports goods was held to be importer. The Court held that the duty cannot be demanded from that appellant on the goods imported by some other importers.Suraj Sales Corporation v. Commissioner of Customs, Mumbai reported in 2002 (149) ELT 1413 (Tri. Mumbai) was cited for the proposition, in paragraph 6 of the judgment, to the effect that there cannot be a contract between the licencing authority on the one hand and a non-existent person on the other. The essential requirement of the meeting of the minds of parties would not be fulfilled and therefore, the licence was non est and cannot be utilized for import of goods.Friends Trading Co. v. CC, Amritsar in Customs Appeal No. 606/04-Cus rendered on 4.4.2006 was cited for the proposition that DEPB scrips obtained by producing forged documents would remain null and void and would not acquire legal validity at any time. The Tribunal referred to the decision of Hon'ble the Supreme Court in New India Insurance Co. v. Kamla reported in 2001 AIR {SC} 1419 for the proposition that what was originally a forgery would remain null and void forever and it would not acquire legal validity at any time by whatever process of sanctification subsequently done on it. Forgery is antithesis to legality and law cannot afford to validate a forgery.
viii) The decision of constitution bench of the Hon'ble Supreme court in FEDCO (P) LTD. v. S.N. Bilgrami reported in 1999 (110) ELT 92 (SC) was cited for the proposition in para 5 of the judgment, that, in most of the cases, if not in all cases, where a licence is obtained by fraud or misrepresentation it would be reasonable to think that the person in whose favour the licence has been obtained, cannot but be a party to the fraud or misrepresentation.
9. It is clear from the provisions of the EXIM Policy 1997-2002 that gold REP licence issued under paragraph 8.37 of the policy was freely transferable. Such licence, in contradistinction with a contract inter-vivos, is basically a statutory licence granted on certain conditions. In the present case the scheme was devised for promoting exports. The licences in all these cases have been proved to have been obtained on the strength of the forged documents which misled the licencing authority into issuing such licences. These licences, on discovery of fraud, came to be cancelled by the licencing authority by orders dated 22nd July 1999. The orders were made under Section 9 of the Foreign Trade (Development & Regulation) Act, 1992 which authorized by Sub-section (4), the Director General who is empowered to suspend or cancel any licence, after giving the holder of the licence a reasonable opportunity of being heard. Such an order was appealable under Sub-section (5) of Section 9. In the present case all the REP licences which are the subject matter of these three appeals, issued in the names of M/s Shyam Exports and M/s Shivam Enterprises were cancelled after it came to be known that the bank realization certificates were fake and RCMC's purportedly issued by the Gem and Jewellery Export Promotion Counsel, New Delhi were also fake. It was, therefore, held that the said licencee firms had obtained the Gold Replenishment licences by fraud, suppression of facts and misrepresentation. The licences were, therefore, cancelled ab-initio with immediate effect.
10. Fraud in the context of a contract inter-vivos would vitiate the contract if the defrauded party who is not ad idem on the fraudulent conduct of the other party chooses to avoid the contract on the ground of such fraud. The defrauded party may, however, continue to recognize the contract even after discovery of such fraud and treat the contract as valid notwithstanding the fraud having been practiced on it. Fraud practiced on the State authority to procure a licence, has, however, a different dimension, because, the State official issuing licence has authority to issue legally valid licences and such official cannot ex post facto accept being defrauded by forgery by treating the fraudulently obtained licences as valid. Being a trustee of public interest a State official has no authority to ratify fraud committed against the State. He can issue only a valid licence and cannot validate a fraudulently obtained licence. The licence issued as a result of fraud can create no privilege or right against the State and so no such purported right or privilege can be validly transferred through such invalid licence. The plea of bonafide purchaser for value without notice of fraud, which may be available in contracts inter-vivos, if allowed against the State, will create a situation conducive to misappropriation of State properties and put public resources to a great jeopardy. Fraud on individuals in a contract inter-vivos and fraud on State cannot be treated on the same footing, in the context of the plea of the bonafide purchaser without notice of fraud on the State, because, public interest as distinguished from private interest warrants a different approach and fraudulently obtained statutory licence ought not in public interest and on grounds of public policy, be recognized to create any transferable rights or interest, or, the State and public interests will be at stake.
11. The ratio of the constitution bench judgment of Hon'ble the Supreme Court in FEDCO (P) Ltd. (supra) may be recalled in this context. In paragraph 5 of the judgment while considering the question whether the provision for cancellation of licences on the ground that they have been obtained by fraud or misrepresentation was a reasonable restriction, in the interest of the general public, on the exercise of the petitioner's fundamental rights under Article 19(1)(f) and (g) of the Constitution, the Hon'ble the Supreme Court held that, the scheme of control and regulation of imports by licences was on the basis that, the licence was granted on a correct statement of relevant facts. That basis disappears if grant of the licence is induced by fraud or misrepresentation. Whether the licensee himself or some other party is responsible for the fraud or misrepresentation, the fact remains that in such cases the basis of the grant of licence has disappeared. It will be absolutely unreasonable that such a licence should be allowed to continue. The Hon'ble the Supreme Court, therefore, held that the provision that licence may be cancelled, if it is found, after giving a reasonable opportunity to the licensee to be heard, to have been obtained by fraud or misrepresentation, was a reasonable restriction in the interest of the general public. Dealing with the argument that, though it may not be unreasonable that a licence should be cancelled where the licensee himself has practiced fraud in obtaining it, cancellation is wholly unreasonable if it is made merely on the ground that it has been obtained by fraud, without it being further shown that the licensee himself has been a party to the fraud, the Hon'ble the Supreme Court held: "it appears to us that in most of the cases, if not in all cases, where a licence is obtained by fraud or misrepresentation it would be reasonable to think that the person in whose favour the licence has been obtained, cannot but be a party to the fraud or misrepresentation". We may also recall the ratio of the decision in CC, Kandla v. Essar Oil Ltd. (supra) in the context of fraud, reflected in para 31 of the judgment, that fraud vitiates every solemn act and that fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine. The doctrine of bonafide purchaser for value without notice is an equitable doctrine. Therefore, it cannot be readily encouraged in cases of fraud against the State Authority leading it to issue statutory licences on the basis of fabricated documents. In East India Commercial Co. Ltd. Calcutta v. CC, Calcutta (Supra), on which reliance has been placed on behalf of the appellant, Hon'ble the Supreme Court held that, if the goods were imported under a valid licence it cannot be said that the goods imported were those prohibited or restricted under Section 167 of the Sea Customs Act, 1878. Hon'ble the Supreme Court held, in para 34 of the judgment, that, the infringement of a condition in the licence not to sell the goods imported to third parties was not an infringement of the Order, and, therefore, the said infringement did not attract Section 167(8) of the Sea Customs Act. Licence contained an endorsement that it was issued subject to the condition that the goods will be utilized only for consumption as raw material or accessories in the licence holder's factory and that no portion thereof will be sold to any party. Hon'ble the Supreme Court noted that the Order issued under Sub-section (1) of Section (3) of the Imports and Exports (Control) Act, 1947 did not provide for a condition in the licence that subsequent to the import the goods should not be sold. It was held that the specified authority had not cancelled the licence on the ground that the condition had been infringed. The case before the Hon'ble Supreme Court was not of issuance of a licence on the basis of forged documents as is the present case. The Hon'ble Supreme Court held that there was no legal basis for the contention that licence obtained by misrepresentation makes the licence non est, with the result that the goods should be deemed to have been imported without licence in contravention of the order issued under Section 3 of the Act so as to bring the case within Clause (8) of Section 167 of the Sea Customs Act relating to the offence of importation or exportation of prohibited or restricted category of goods. Again in Union of India v. Sampat Raj Dugar case (supra), the Hon'ble Supreme court held that since on the date of the import the goods were covered by valid import lincence, the subsequent cancellation was of no relevance. It was held in para 21 of the judgment that Clause (d) in Section 111 of the Customs Act contemplates an import which is contrary to any prohibition imposed either by Customs Act or any other law for the time being in force and that no such prohibition can be pleaded in that case, since on the date of the import, the goods were covered by a valid import licence. In Sneh Sales Corporation v. CC (supra) , the Tribunal held in para 12 of the judgment that the order of the Bombay Collectorate was without jurisdiction. In para 9 of the judgment, the Tribunal referred to East India Commercial Co. Limited v. CC as well as FEDCO Pvt. Ltd. (supra) and proceeded to hold in para 10 that, where a licence is obtained on the basis of fraud or misrepresentation it continues to be valid till it is avoided and that once it was declared that the licence was obtained by fraud and misrepresentation it should not be allowed to continue. It was held that cancellation did not operate with retrospective effect. Again in K.K. Manufacturing Co. v. Commissioner of Customs, Bombay the Tribunal following Sneh Sales Corporation (supra) that, the imports made by the appellant under the cover of licence, which were subsequently cancelled as having been obtained by fraud, were valid at the time of importation. In Angel Overseas Ltd. v. Commissioner of Customs, Mumbai reported in 2000 (124) ELT 1092 (Tribunal), which related to REP licence, the Tribunal took note of the fact in para 13 of the judgment that, there was no specific and clear allegation and finding that the appellant abetted, connived and took active part in getting the REP licence and its transfer in his favour for wrongful gain. In Taparia Overseas (P) Ltd. v. Union of India (supra), the licences were for valuable consideration without any notice of the fraud alleged to have been committed by the original licence holders while obtaining licences, and it was held that, the concept that fraud vitiates everything would not be applicable to the cases where the transaction of transfer of licence was for value without notice arising out of mercantile transactions, governed by common law and not by provisions of any statute. The Division Bench of Bombay High Court taking note of the fact that the REP licences were allowed to be transferred freely without any endorsement or permission from the licensing authority and observing that such transfers were to be governed by common law subject to the compliance of the conditions laid down for transfer in the relevant import EXIM policy and on the footing that it was not disputed that the required procedure was followed in getting the licences transferred, reiterated the proposition that the effect of fraud was not to render the transaction void ab-initio but was to render it voidable at the instance of the party defrauded and transaction continued to be valid until the party defrauded has decided to avoid it. It was held in that case that when the goods were imported into India and when the bills were filed, neither the licence was suspended nor the same was cancelled and the imports were made under a valid licence. FEDCO Pvt. Ltd. (supra) was distinguished in paragraph 32 of the judgment, by observing that it was a case dealing with the rights of the licence holder, who was a party to the fraud proved against it.
The Court held that one who is guilty of fraud shall never be permitted to avail any benefit of it.
12. Thus, the weight of authorities cited seems to be leaning towards the proposition that imports made before the cancellation of a licence even on the ground of fraud would be considered to be imports made under a valid licence. However, if the party to fraud seeks to avail of the benefit of such fraudulently obtained licence the door will be shut against such party. If the transferee is in any way associated with such fraud or knowingly accepts the licence or purchases the licence with the knowledge of such fraud, no benefit under the Hence can be recognized in favour of such transferee, who has notice of fraud, because such a transferee cannot be considered to be a bonafide purchaser without notice of fraud, even assuming for the sake of argument, that such equitable principle may be extended in favour of such bonafide transferees. Whether a transferee in such cases has a knowledge of fraud by which the licence was obtained from the licensing authority by the transferor, would be a question of fact, which would depend upon the material which is adduced before the adjudicating authority. Even when there is no direct evidence for demonstrating such knowledge about fraud or the licence having been fraudulently obtained, inference can be drawn on the basis of reliable material which is strong enough to attribute the knowledge of fraud.
13. When the party takes up such a plea of bonafide purchaser for value without notice of fraud in obtaining REP licence, it will be such party that will have to prove its assertion by showing the bonafide nature of the transaction and producing the contemporaneous record for showing the genuineness thereof. The adjudicating authority ought to take into consideration such material before deciding whether the purchase of rights under a REP licence was done bonafide or it was dubiously contrived, or whether the transferee was in any manner aware of the licence having been fraudulently obtained.
14. In the present appeals which have been disposed of by a common order by the Commissioner, we find that in paragraph 31 of the impugned order it is held that the appellant M/s New Kailash Jewellery House (Customs Appeal No. 760 of 2004) had purchased five gold REP licences from Mr. Vinay Sethi and utilized them for import of gold. It was held that the premium paid in gold bullion at 8% was beyond the normal business practice. It was also held that 8% was a cheaper premium for buying such licences and therefore, the proprietor Mr. Sukumaran Kumar Jain appears to have knowingly concerned himself in procuring the fraudulent REP licences, which were utilized for import of gold. For M/s M.D. Overseas Ltd. (Customs Appeal No. 833 of 2004) who obtained 8 gold REP licences, it was held that the payment of premium of gold bullion was beyond the normal business practice and that it appeared that Mr. Satish Bansal, Director of the company was knowingly concerned in procuring REP licences and had utilized the same for import of duty free gold. Even for M/s K.K. Exports (Customs Appeal No. 834 of 2004), the partnership firm, it was held, in para 33 of the order that, the premium paid in gold bullion was beyond the normal business practice and the appellant had knowingly concerned themselves in procuring the fraudulent gold REP licences and utilized the same for import of duty free gold. It will however, be seen that the Commissioner has not examined the receipts showing handing over of gold by way of premium nor has he examined the entries of the books of accounts to find out whether the transactions were reflected in a genuine way. In the statements which were recorded under Section 108 of the Customs Act, there is reference to payment having been made on gold, for example, in the statement of Mr. Neeraj Kapoor, Partner of M/s K.K. Exports. The said appellant in his statement stated that the licences were delivered to him and that he made the payment by gold bars. There is reference to sale vouchers in respect of these 12 licences. Even Mr. Kulbhushan Sethi has spoken of premium given in gold. Various other witnesses have referred to the premium being paid in gold in their statements.
However, during the arguments, reliance was sought to be placed on sale vouchers to argue that gold was in fact sold and its value adjusted against purchase of gold REP licence. If such material was placed on record before the Commissioner, it ought to be considered and discrepancies, if any, in the statements and such material can be noticed. The Counsel for the appellant - M/s M.D. Overseas Ltd., whose cheque which was said to have been prepared in respect of four REP licences, but not collected by Mr. Vinay Sethi had shown to us that cheque, the number of which was neatly cut off, and said that it was cut off for safety's sake, though it was an account payee cheque.
According to him, though the contention was taken up on behalf of the appellant that the cheque was kept ready, the Commissioner has not examined this relevant aspect to find out whether there was any bonafide transaction, notwithstanding the fact that no payment was made for these four licences and that the cheque remained with the said appellant who imported the goods under the said four licences without actually being paid for by them. It is also not examined by the commissioner whether any enquiry was actually made, in respect of the genuineness REP licences, by M/s M.D. Overseas Ltd. as stated by its Director. The appellants had taken up a plea of bonafide purchases for value without notice of fraud, on which the Commissioner was required to give a finding by going into the details of the statements, and the documentary evidence including the books of accounts, bills etc. Even the contention on behalf of the appellant - M/s K.K. Exports that the said appellant was not an "importer" has not been examined by the Commissioner for deciding whether the appellant was liable to pay duty.
He ought to have considered this aspect in light of the definition of "importer" under the relevant provision of law and orders that may have a bearing on the extended meaning of 'importer' in such context.
15. For the foregoing reasons, we set aside the impugned order in all these three appeals and remand the matters to the Commissioner for considering them afresh and taking a decision thereon in accordance with law, after hearing both the sides, expeditiously preferably within four months from the date of the receipt of this order. The appeals are, accordingly allowed by way remand.