East West Freight Carriers Pvt Ltd and Others Vs Commissioner of Customs Import Mumbai - Citation 942932 - Court Judgment

Judgment:

P.R. Chandrasekharan:

These appeals are directed against Orders-in-Original CAO No. 53/2004/CAC/CC/RJM dated 31/05/2004 and No. 66/2004/CAC/CC /DJM dated 29/06/2004 passed by the Commissioner of Customs, Adjudication Cell, New Customs House, Mumbai. Since a common issue is involved in both these cases, we take up them together for consideration and disposal.

2. The Directorate of Revenue Intelligence received an intelligence that several consignments of bearings have been imported in the name of M/s Hiral Overseas, M/s Ankit International, M/s Nippon Bearings Pvt. Ltd., M/s M.M.Corporation, M/s Nippon Bearings (India), M/s S.N.M. Enterprises, M/s Devanti Overseas and a few other firms under the cover of duplicate Advance Licence No. 0111434 dated 22/11/99 issued in the name of M/s Amrit Laxmi Machine Works, Mumbai and transferred in the name of these firms. The duplicate licence was issued against the original licence No. 0314593 dated 28/11/96 which permitted duty free import of 248 pieces of bearings totally valued at approx. Rs. 9 lakhs within the over all value limits of Rs.50,05,468/- allowed for duty free import and the said licencee had discharged the export obligation in February, 1997. The duplicate licence was issued on the ground that the original licence was lost/misplaced. The duplicate licence application sought enhancement of quantity and value of the raw materials/components and the duplicate licence was issued on 22/11/99 with an enhanced value of Rs.1,91,33,433/- and the quantity of import items as per the list attached therein, included 4248 pieces of bearings as against the 248 pieces originally endorsed while the export product remained the same and the export obligation was shown to have been fulfilled. The Bills of Entry in all these cases was filed by CHA No. 11/595. On going through the B/Es, it was found that against the said duplicate licence, 1137 pieces of roller bearings collectively valued at Rs. 1.38 crore (CIF) approx. was imported from M/s AL Marzook Trading LLC, Dubai under 15 B/Es and the same were cleared for home consumption on 20/12/1999 after availing concessional rate of duty of customs under the said duplicate advance licence.. The details of imports are as under.

S. No.

Name of the Importer

B/E No. and date

Quantity of bearings imported (pcs)

Hiral Overseas, Rajkot

6601, 6593, 6572, 6606and 6565 all dated 15/12/99 and 8667 dated 19/8/99

347

Naman Enterprises, Navi Mumbai

8670 dt. 19/8/99

Shalin Enterprises, Thane

6586 dt. 15/12/99

Nippon Bearings Pvt. Ltd., Thane

6592 and 6577 dated 15/12/99

240

Devanti Overseas

6579 and 6598 dated 15/12/99

234

Ankit International, Thane

8719, 8711 and 8629 dated 19/8/99

178

2.1. Investigation further revealed that after clearance from Mumbai, the goods had been transported to Delhi and the goods were lying in the godown of M/s Delite Cargo Carriers, Delhi. The goods were examined by DRI, Delhi and 1018 pcs. of bearings collectively valued at Rs.1.38 Crore (Market value) found lying there was seized on 28/12/99 under the provisions of section 110 of the Customs Act, 1962. Another 24 pieces arrived in the godown of the said Delite Cargo Carriers and these, valued at Rs. 3.25 lakhs (Market value) were also seized under the said section 110. Statements of the importers and other connected persons were recorded and the investigation was completed.

2.2. The investigation conducted revealed the following:-

(1) Import licence No. 03014593 dated 22/11/1996 was issued for a value of Rs. 50,05,468/- and the said licence, inter alia, covered 248 pieces of bearings of certain specifications in the list of import items at Sr. No. II (A to W) with a value of Rs. 9,22,110/-. The said licence was subject to both quantity and value limits as mentioned above. Further the said licence was not transferable.

(2) The list was amended on 11-5-99 to cover bearings generally as against bearings of particular specifications but the total quantity was maintained at 248 pieces and the value limit remained unchanged. The condition of non-transferability was retained. The licence was re-validated upto 21/05/1999.

(3) A duplicate licence no. 0111434 dated 22/11/1999 was issued against the original licence said to have been lost for a value of Rs. 50,05,468/- and the limiting factors for quantity and value were maintained. However in the list attached to the said duplicate licence, the quantity of bearings eligible for import was shown as 4248 nos. and the value as Rs. 1,91,33,433/- vide list attested on 08/12/1999. The licence was re-validated up to 21/11/1999 with transferability and with the endorsement that the total validity of the licence will not exceed beyond 36 months from the date of issue of original licence. That is, the said duplicate licence was valid only upto 21/11/1999, one day prior to the issue of the duplicate licence. The enhancement in value of the licence was made on 09/12/1999, after the issue of the duplicate licence and after the expiry of the original validity of the licence.

(4) The said duplicate licence was placed under suspension by the DGFT vide order dated 24/12/99 and later the list attached to the duplicate licence was cancelled and the original description with regard to bearings as amended on 11/05/1999 was restored.

(5) M/s Amrit Laxmi Machine Works applied and obtained the advance licence for Rs. 50,05,468/- in November, 1996 and export value was shown as Rs.3,52,96,940/- and they exported the goods in 1997 and the DEEC book was audited and returned in 1997 to the licence holder. The licence holder later caused imports in 1997, 1998 and 1999. By letter dated 27/09/1999, the licence holder sought issue of duplicate licence for un-utilized part of value of the licence amounting to Rs.13,97,029/- after its reported loss . However on 13-10-99, the licence holder made application when the original validity period of the licence had expired and re-validation was based on the ground that there was a delay in return of the audited DEEC book whereas the fact was that the audited DEEC book had already been returned in 1997 itself. Thus the re-validation was sought by mis-representation of facts.

(6) The original licence dated 22/11/1996 covered import of 248 pieces of bearings and the amendment sheet No.5 dated 11/05/1999 was obtained based on mis-representation with regard to the Sr. No. of the bearings. The original Sr. nos. of the bearings used in the export product were 207, 208, 210,212, 217, 22312, 22315, 22317 and 22318 with prefix/suffix. 256 pieces bearing of nos. 23052, 23044, 23064 and 23060 were cleared in May, 1999. The 1137 pieces of bearings imported vide 15 bills of entry mentioned in the Table in para 2 above and seized by the DRI were not covered by the amended licence either in terms of quantity or in terms of the Sr. Nos. for the bearings.

(7) As per the provisions of Import Policy 1992-97 read with notification No. 149/95 dated 19/09/1995, only such goods as have been used in the export product can be permitted to be imported and cleared duty free. The 1137 pieces of bearings imported under 15 bills of entry as mentioned above were not of the same type and variety of bearings used in the manufacture of export product. Therefore, the benefit of customs duty exemption under advance licensing scheme to the said goods were not available as only goods required for manufacture of export product is permitted to be imported duty free under notification No. 149/95-Cus dated 19/09/1995 as amended. Further the import licence had already been utilized for 248 pieces of bearing in May 1999 itself and there was no balance quantity of bearings available for importation duty free. The licence carried only a balance face value for utilisation for Rs.13,97,029/-. The licence had also expired on 21/05/1999. However re-validation of the licence was sought on 13/10/1999 on mis-representation of facts and after expiry of the licence on 21/05/1999.

(8) The issuance of the licence as duplicate licence and revalidation was obtained by mis-representation of facts with regard to delay in completion of DEEC audit and non-availability of raw material as per requirement. Further the list of items were also sought to be modified fraudulently. Any licence which is not a true replica of the original licence can not be called a duplicate licence. The duplicate licence bears the endorsement as duplicate issued against the original licence. Therefore, the duplicate licence can not exceed in scope than those given in the original licence. Hence the import of 1137 pieces of bearings are not covered by a valid advance licence and hence they can not the benefit of any duty free imports under the advance licensing scheme.

2.3. As regards the persons involved in the amendments made to the licence, the investigation revealed the following:

(a) During January, 1999, Shri Jitendra Vakharia, a broker for advance licences met Mr. S.P.Shah working as Accountant with M/s Amrit Laxmi Machine Works and Sri. Brahmachari, Director of the said firm. Shri. Vakharia introduced Shri. Ashwin Mehta of Nippon Bearings to S.P.Shah. Mr. Mehta offered to pay premium by way of price for the sale and transfer of the advance licence dated 22/11/1996 for the balance value of the said licence which was available at Rs. 27,34,557/- and also agreed to bear all necessary expenses in getting the licence transferred.

(b) Later Shri Mehta informed Mr. Shah that the bearing listed in the licence had no market value and hence it will have to be amended. Thereafter, a memorandum of understanding dated 12-2-99 was signed by Shri. Mehta, Jitendra Vakharia and S.P.Shah in the presence of Shri. N.K.Brahmachari. Shri Mehta paid a sum of Rs.50,000/- by way of cheque of Nippon Bearings as advance which was later encashed on 08/04/1999 by the original licence holder. The non-transferable licence was transferred by the licence holder to M/s Nippon Bearings India which is a partnership firm of M/s Shalin Vohra, Ms. Namrata Shalin Vohra and Sri. Ashwin Mehta.

(c) The other related firms operating from the same premises of Nippon Bearings India are - (1) Nippon Bearings Pvt. Ltd with Shri Shalin Vora, Sri. Ashwin Mehta as Directors and Sri. Manharlal Hakimchand Vora as Managing Director; (2) M/s Shalin Enterprises (Bombay) with the said three persons as partners; (3)M/s Shalin Bearings Corporation with S/Shri. Shalin M, Vora, Manharlal Hakimchand Vora, Smt. Mridula M. Vora and Ms. Swati M. Vora as partners; (4) M.M.Corporation with Smt. Mridula M.Vora as proprietrix; and (5) S.N.M. Enterprises with Ms. Namrata S. Vora as proprietrix. In other words, all these firms were inter connected firms with the various family members as directors/partners.

(d) The licence holder submitted the original licence to M/s Nippon Bearings India on 09/04/1999 which was received by Shri. Shanti Lal Doshi on behalf of the latter firm. Subsequently, a Chartered Engineers Certificate given by Shri. J.A.Bharwada was received by the licence holder and on 16/04/1999, the licence holder wrote to the DGFT for endorsement of the same as transferable licence.

(e) Subsequent to the MOU, the amendment sheet No.5 dated 11/05/1999 was obtained from DGFT by Shri. Ashwin Mehta of Nippon Bearings and Shri. Shantilal Doshi based on a Chartered Engineer’s certificate issued by Shri. J.A. Bharwada. The said Chartered Engineer could not be located at the given address suggesting the bogus nature of the certificate. The said certificate was showing use of 248 pcs. of bearings in the export product; however the series nos. of the bearings differed from the original list of bearings attached to the licence. Shri. Ashwin Mehta got the amendment incorporated from the office of DGFT using the services of one Shri. Shailesh Doshi (whose address and whereabouts could not be given by Mr. Mehta). Thus Mr. Ashwin Mehta got the amendment sheet no.5 dated 11/05/1999 by producing a fraudulent Chartered Engineer’s certificate dated 05/05/1999 issued by Shri. J A Bharwada showing the use of bearings in the export product which were not actually used.

(f) In May, 99 Shri Ashwin Mehta approached Sri. Shah of Amrit Laxmi Machine Works informing them that as the said licence could not be made transferable and the goods will have to be imported against the licence by entering into high sea sales agreement. As the imports had already taken place, two high seas sales agreements were signed by M/s Amrit Laxmi Machine Works with M/s Shalin Corporation and M/s Nippon Bearings Ltd. to facilitate customs clearance of the goods free of duty.

(g) The bearings covered by the amended list dated 11/05/1999 had already been shipped from Dubai on 20/03/1999 (even before amendment of the licence) and two bills of entry were filed by M/s Amrit Laxmi Machine Works through CHA M/s East West Freight Carriers covering 256 nos. of bearings and 16 nos. of bearings were cleared on payment of duty as they were in excess of the quantity of advance licence. These were imported by M/s Nippon Bearings and in view of non-transferability of the licence, high seas sale agreements were entered into. The customs clearance and delivery of the goods were taken by Shri. Ashwin Mehta and Sri. Manharlal Vora from the CHA.

(h) In order to account for the bearings on the high seas sales in the books of accounts, two debit notes dated 29/04/1999 were issued by Shri. Ashwin Mehta in the name of Nippon Bearings Pvt. Ltd. and Shalin Bearings Corporation and in pursuance thereto M/s Amrit Laxmi Machine Works issued 3 cheques in favour of M/s Nippon bearings and M/s Shalin Corporation. Since the imports were actually made by the above two firms, the amount was paid back to M/s Amrit Laxmi Machine Works by M/s Ankit International.(i) As per the MOU dated 12/02/1999, the licence holder was to receive approx. 32% of the value plus sales tax from the users of the licence and the licence holder received Rs. 50,000/- as advance in April, 99. Further payments were made by adjustments in the books of accounts.

(j) In May, 99, to make the licence transferable and to cause imports, Mr. Mehta used to drafts of letters addressed by the licence holder to the office of DGFT, Mumbai for obtaining signatures of Shri. N.K.Brahmachari of the licence holder’s firm and after signature, the same were returned to Sri. Mehta for submission to DGFT.

(k) On 18th August 1999, an agreement was signed by M/s Ankit International with M/s Amrit Laxmi Machine Works for the sale of the advance licence wherein the balance value available for importation was Rs. 17,03,052/-

(l) On 25/09/1999, Shri. Mehta lodged an FIR with the Police authorities reporting loss of original advance licence No. 030014593 dated 22/11/1996 along with DEEC book and at that point of time the licence had not been made transferable.

(m) On 27/09/1999, Mr. Ashwin Mehta sent a draft letter to M/s Amrit Laxmi Machine Works addressed to Jt. DGFT for issue of a duplicate licence and the said application after obtaining signature from the latter, was submitted to office of Jt. DGFT. Further in response to DGFT’s letter dated 18/11/1999, M/s Amrit Laxmi Machine Works vide letter dated 29/11/1999 informed payment particulars of duty and CVD along with interest. However, all the above payments were made by Shri Ashwin Mehta and Shri. Manohar Vora.

(n) The duplicate licence in lieu of original licence and valid upto 21/05/1999 was issued vide licence No.0111434 dated 22/11/1999 and revalidated upto 21/11/1999. The duty payment challans as directed by DGFT bore the dates of 26/11/1999 and 29-11-99, subsequent to the issue of duplicate licence on 22/11/1999. The licence list was attested for issue on 09/12/1999 and the licence was made transferable by endorsement on the sheet/list attached, that is, on 09/12/1999. At the time of issue of duplicate licence, the value was enhanced from Rs. 43,41,410 to Rs. 1,91,33,433 and the quantity of bearings permitted to be imported was increased from 248 nos. to 4248 nos. and the description of bearings covered by the licence was changed from specific nos. to generic description. Quantity of other items was also increased. However, on DRIs report, the DGFT vide amendment sheet dated 24/12/1999 cancelled transferability, revision in the list of imports as also the validity period of the licece and restored the duplicate licence to the originally issued licence as amended upto amendment sheet No.5 dated 11/05/1999. In other words, both the enhancement in quantity and value made at the time of issue of duplicate licence as also the description of the bearings eligible for importation made at the time of issue of duplicate licence was cancelled. The period of validity of the licence was only upto 21/5/1999.

(o) Subsequent to the issue of duplicate licence on 22/11/1999, the licence was made transferable on 09/12/1999 in terms of para 7.27 of Handbook of Procedures 1997-92. After receipt of the licence by M/s Amrit Laxmi Machine Works, it was transferred to M/s Ankit International vide letter dated 14/12/1999.

(p) M/s Ankit International apart from utilising part of the licence for imports, also transferred the balance in the name of M/s Nippon Bearings Pvt. Ltd., Shalin Enterprises, Hiral Overseas, Naman Enterprises and Devanti Enterprises.

(q) Shri Y.R.Ullal, Chartered Engineer had given the certificate in 1996 as requested by M/s Amrit Laxmi Machine Works giving the details of the bearings required for use in the export goods - that is, 248 nos. of bearings of specific serial nos. On the request of Mr. Ashwin Mehta and Mr. Ashok Jhaveri, Shri Ullal, in December, 1999, furnished another Certificate, backdating them as 28th February,1997 and 1st March, 1997, for a quantity of 4248 nos. of bearings and for a totally different serial nos. than those certified in 1996. In other words, the Chartered Engineers certificate submitted to the licence authorities for enhancing the quantity and nature of the bearings was a manipulated one and the manipulation was managed by Shri. Ashwin Mehta and the broker Mr. Ashok Jhaveri.

2.4. On completion of investigation, a show cause notice dated 21st June, 2000, was issued proposing to,-

(i) confiscate 1042 nos. of bearings seized (out of 1137 nos. imported) and hold 95 nos. of bearings not seized as liable to confiscation under the provisions of 111(d) of the Customs Act, 1962 read with Foreign Trade (Development andRegulation) Act, as also under sections 111(m) and 111(o) of the said Customs Act;

(ii) demand differential duty totaling Rs. 65,78,106/- from M/s Shalin Enterprises, Nippon Bearings P. Ltd., Hiral overseas, Naman Enterprises, Devanti Overseas, Ankit International and M/s Amrit Laxmi Machine Works under the provisions of section 28 of the Customs Act by denying the benefit under notification no. 149/95-Cus dated 19/09/1995 as amended read with duplicate advance licence No. 0111434 dated 22/11/1999 and original advance licence no. 0304593 dated 28/11/1996;

(iii) impose penalties under section 114A of the Customs Act on the above mentioned firms for evasion of customs duty by willful mis-statement and suppression of facts;

(iv) impose penalties under section 112(a) and/or 112(b) on the above firms, Sri. N.K. Brahmachari. Director of original licence holder, CHA M/s East West Freight Carrier Pvt. Ltd. and its Director Mr. A.A.Colombowala, Shri Ashwin Mehta, Mr. Manharlal H. Vora, Sri. Ashok Jhaveri, Yaswant R. Ullal, Nilesh V. Joshi, Vipin Pujara and H.R.Trivedi

2.5. At the time of seizure of 1018 pcs. of bearing in Delhi 28/12/1999 and 03/01/2000, goods covered by another 29 Bills of entry were pending clearance in Mumbai under the very same duplicate advance licence no.0111434 dated 22/11/1999.One bill of entry No.6603 dated 15/12/1999 filed for clearance of 47 nos. of bearings was assessed to duty under notification no.31/97 and duty of Rs.42267/- assessed was paid on 18/12/1999. Another 28 bills of entry as detailed below were pending assessment. Clearance in these cases was sought duty free under notification 31/97 against advance licence no.0111434 dated 22/11/1999.

Importer’s name

B/E no. and date

Quantity of bearings (nos.)

CIF value in Rs.

M.M. Corporation

8485 dt. 20-12-99

118205

-do-

8478 dated 20-12-99

388432

Nippon Bearings (India)

8438 dt.20-12-99

272536

Nippon Bearings Pvt. Ltd.

8443 dt. 20-12-99

100

439518

-do-

6603 dt. 15-12-99

261555

SNM Enterprises

8497 dt. 20-12-99

264389

Devanti Overseas

8448 dt 20-12-99

182502

8487 dt. 20-12-99

243322

10781 dt. 28-12-99

152

616417

10770 dt.28-12-99

175089

8449 dt. 20-12-99

164

854008

Goyal Engineering and Traders

8730 dt. 20-12-99

424482

Hiral Overseas

8429 dt.20-12-99

68614

8470 dt. 20-12-99

161254

8444 dt. 20-12-99

194177

8521 dt. 20-12-99

331887

8776 dt. 20-12-99

395567

8722 dt. 20-12-99

346444

8659 dt. 20-12-99

109495

8525 dt.20-12-99

221234

10788 dt.28-12-99

156

632638

10783 dt.28-12-99

192

843875

10772 dt. 28-12-99

314135

10765 dt. 28-12-99

215857

CrystalOverseas

8768 dt. 20-12-99

203685

10769 dt. 28-12-99

100

440399

10771 dt. 28-12-99

220200

Shravan Enterprises

10773 dt. 28-12-99

417835

10789 dt. 28-12-99

220200

2033

9752540

2.6. A show cause notice dated 26th July, 2000 was issued to the importers, CHA, original licence holder and other persons connected with the transactions in respect of the above 29 bills of entry proposing to:-

(1) Confiscate the bearings under importation under the provisions of section 111(d) of the Customs Act,1962 read with the Foreign Trade (Development and Regulation) Act, 1962 and under section 111(m) of the Customs Act;

(2) Impose penalties under section 112(a) and /or 112(b) of the said Customs Act;

(3) Reject the coif value declared in respect bills of entry No.8429 dated 20/12/1999, 10783 and 10770 dated 28/12/1999 and to fix the CIF value at US $ 2670.20, 32832 and 4299.90 respectively on the basis of the price list for identical bearings prevailing at the time of importation under section 14 ibid read with the Customs Valuation Rules;

(4) Deny the benefit of notification No. 31/97 and assess the goods to duty on merit rates.

2.7. The notice dated 21/06/2000 was adjudicated vide order No. 53/2004 dated 31/05/2004 wherein the duty demands were confirmed against the importer firms along with interest thereon. 1137 pcs. of bearings were held liable for confiscation under section 111(d), 111(m) and 111(o) of the Customs Act read with FTDR Act, 1992. However option to redeem the goods on payment of fine totaling Rs. 3,79,500/-. Penalty equivalent to duty evaded was imposed on the 6 importers under section 114A of the Customs Act. Penalties under section 112(a) and (b) of the Customs Act were imposed at (1) Rs. 50,000/- each on the CHA firm and its director Mr. Colombowala, (2) Rs.7.5 lakhs each on S/Shri. Ashwin Mehta and Manharlal H. Vora, (3)Rs. 1.5 lakhs each on Nilesh V. Joshi, Vipin Pujara andSri. H.R.Trivedi. Penalties under section 112(a) was imposed at Rs. 5 lakhs on M/s Amrit Laxmi Machine Works, at Rs. 2 lakhs each on Shri. N.K.Brahmachari, Director of Amrit Laxmi Machine Works and Sri. Yashwant R. Ullal, Chartered Engineer and Rs. 1 lakh on Shri. Ashok Jhaveri, Licence broker. He dropped the penal action against Shri. J.K. Vakharia.

2.8. The notice dated 26/07/2000 was adjudicated vide order no.66/2004 dated 29/06/2004. Vide the said order, the adjudicating authority confiscated 2033 nos. of bearings imported under 29 bills of entry under section 111(d) and 111(m) of the Customs Act, 1962, read with Foreign Trade (Development and Regulation) Act, 1992. However he gave the option to the importers to redeem the same on payment of fine totaling Rs. 9.98 lakhs under section 125 of the said Customs Act. In respect of goods imported under B/Es 8429 dt. 20/12/1999, 10783 and 10770 both dated 28/02/1999, he rejected the CIF value declared and enhanced the same to US $ 2670.20, US$32832 and US$4299.90 respectively under the provisions of section 14 of the said Customs Act read with the Customs Valuation Rules on the basis of the price list for the said bearings prevailing at the time of importation. He further denied the benefit of notification No. 31/97 on all the 2033 nos. of bearings and ordered that the goods be assed to duty on merits. He imposed varying penalties under section 112(a) and 112(b) on the noticees except four of them on whom he imposed varying penalties under section 112(a) alone. He dropped the penal action against Shri. J.K. Vakharia.

2.9. It is against these orders that the appellants are before us.

3. The ld. Counsel for M/s Nippon Bearings Pvt. Ltd. and other importers involved in the matter made the following submissions:-

(1) All the imports in respect of which demands have been made vide order dated 31-5-2004 is concerned, the same were made prior to suspension of Advance Licence No. 03014593. As regards the demand confirmed vide order dated 29/06/2004 is concerned, out of 18 bills of entry, only 4 bills of entry were filed after the date of suspension of the aforesaid licence and in all the remaining cases the bills of entry have been presented prior to the licence being cancelled.

(2) The case of the revenue is that the licences have been amended by mis-representation of facts before the DGFT authorities. This by itself is not enough to deny then the benefit of duty free import against advance licences or render the goods liable for confiscation as the licence was valid and in force on the date of import. A licence obtained by fraud is not void or non-est but is only voidable and is good till it is avoided by the Licensing authorities. It is their contention that till 24th December, 1999 when the licence was suspended, the imports made against the said licence before the suspension are unaffected by the said suspension and the importers are eligible for benefit of duty exemption and also the goods imported against it were not liable to confiscation.

(3) In support of the above contention, the appellants rely on the following judicial pronouncements, namely,

(a) CC vs. Sneha Sales Corporation [200 (121) ELT 577 (SC)]

(b) UOI vs. Sampat Raj Duggar [1992 (58) ELT 163 (SC)]

(d) K.Uttamlal (Exports) Pvt. Ltd. Vs. UOI [1990 (46) ELT 527 (Bom)]

(e) Bansilal Jesasingh vs. UOI [1998 (36) ELT 52]

(f) East India Commercial Co. Ltd. vs. CC

(g) Binani Cement Ltd. vs. CC [2010 (259) ELT 247 (Tri.)]

(h) K.K. Manufacturing Co. Vs. CC [997 (91) ELT 635]

In all the above decisions, it has been held that where licence has been obtained by representation/fraud, the same is valid till it is voided by subsequent cancellation /suspension of the licence. Thus imports in respect of which licence has been produced prior to suspension of the same, would be eligible for benefit of the said licence.

(4) As regards revenue’s contention that the validity period of the licence expired on 21/11/1999 and consequently imports made thereunder based on endorsement of transferability should not be extended the benefit of the said licence, the ld. Counsel submits in Circular No.31/1997-98 dated 31/07/1997 it has been clarified that in a case where licence has been endorsed with transferability, the validity gets extended for a period of 6 months from the date of endorsement. Even otherwise para 4.15 of HOB 1997-92, clarifies that where the date of expiry of a licence falls on a day before the last of the month, the licence shall be deemed to be valid for the whole of the month.

(5) Ld. Counsel argues that validity of the import licence should be decided with reference to the date of shipment/dispatch of the goods from the supplying country and not the date of arrival of the goods at an Indian port. Para 15.5 of the policy provides that in case the goods are exported by sea, it is the date of Bill of lading which is to be taken as relevant date. In all the imports made in the instant case, the Bill of Lading is much prior to November 30, 1999 and consequently all imports were within the validity period of the licence and were eligible for benefit of the same.

(6) The goods being eligible for benefit of licence, the order of confiscation and consequent penalties do not survive. Even otherwise, confiscation under section 111(d) was not warranted as the goods were freely importable and there is no prohibition imposed by or under Customs Act or any other law for the time being in force against import of the same. In so far as confiscation under section 111(m) is concerned, as the imported goods correspond in respect of value as also other particulars with the entry made under the Act, there is no violation under the said section. As regards section 111(o) is concerned, the same is not sustainable as there was no post import condition subject to which the exemption has been granted which stood violated.

3.1. The Ld. Advocate for M/s Amrit Laxmi Machine Works and its Director Sri. N.K.Brahmachari, made the following submissions. Neither M/s Amrit Laxmi Machine Works nor Mr. Brahmachari had any role to play in increasing the value of the Advance Licence and getting the said licence amended and therefore, imposition of penalty on them is not warranted by law. There is no material or evidence available on record to show that they were in any manner aware or have knowledge about the mischief and/or mala fide intention of Mr. Vora /Mr. Mehta and therefore, there is no justification for imposition of penalty on them. All the parties in the case, namely, brokers, bankers, benami account holders of Vora, Transporters, CHA etc. have clearly in their statements under section 108 confirmed to the DRI that they at no time met or took instructions from Mr. Brahmachari and all the while they were acting for and on behalf of Mr. Vora/Mr. Mehta. It is submitted that the appellants bonafidely believed that having transferred the licence, they were under contractual obligation to do all such acts, deeds, matters and things to give effect to the MOU. Accordingly, they executed and / or signed various letters and applications including revised applications as prepared and made by Mr. Mehta and Mr. Vora who laised with their account Mr. Shantilal P. Shah for the said purpose. Further the two Chartered Engineers Mr. J.A. Bharwada and Dr. Yeshwant R. Ullal have in their respective statements admitted the certificates were issued by them at the instance of Mr. Mehta and Mr. Vora. The appellant had no knowledge of such a certificate dated 5-4-99. The appellant and Mr. Brahmachari trusted Mr. Mehta and Mr. Vora and in good faith acted as per their instructions only because of the MOU. It is also submitted that the appellant and Mr. Brahmachari requested for cross examination of the persons involved in the scheme of enhancing the value of the licence but the same was denied by the adjudicating authority. In view of the above the Ld. Counsel submits that the appeals of M/s Amrit Laxmi Machine Works and Mr. Brahmachari be allowed by setting aside the penalties imposed on them.

3.2. The Ld. Advocate for the CHA firm M/s East West Freight Carriers Pvt. Ltd. and its director Shri. S.A. K. Colombowala makes the following submissions. The CHA or is director were not concerned with obtaining of original or duplicate advance licence. They had acted in the capacity of Custom House Agent for clearance of the goods after obtaining valid IEC code and authorizations from the importers and all the declarations relating to imports were made by the concerned importer (which was attached to the bills of entry) for whom they had undertaken the clearance work. After completing the customs formalities, the imported goods were handed over to the respective transporters. Their action was in consonance with the settled law in the matter of Thawerdas Wadhoomal reported in 2008 (221) ELT 252 which was upheld by the hon'ble high reported in 2009 (240) ELT A 143 (Bom-H.C.) It is further submitted that the appellants were issued with three show cause notices wherein similar proceedings were involved. Of the 3 notices, one notice was finally decided by this Tribunal in order No. M/177-182/WZB/2007/CSTB dated 20-3-2007. In the said order, penalty on the appellant and its director Sri. Colombowala was set aside. The appellant relies on this decision in support of their plea that they are not liable to any penalty.

3.3. Sri. Ashok Jhaveri in his written submissions dated 19-3-2012 has stated as follows. The charge against him is that the idea of amendment and enhancement of quantity and value was given by him and he had admittedly received a sum of Rs. 10 lakhs out of Rs.18 lakhs promised by Mr. Manharlal Vora and this established the role played by him in obtaining the amendment in the license in a fraudulent manner based on documents which are not genuine. He submits that neither in the show cause notice nor in the impugned order it was the charge that he had committed any fraudulent act in obtaining duplicate copy of licence or enhancement of quantity and value of duty free inputs. There is no allegation in the notice that he played a key role in getting the Chartered Engineers certificate used for enhancement of value and quantity of duty free inputs. In other words, neither in the notice nor in the impugned order it is alleged that he was in any way involved in the import of duty free inputs. The charge against him is only with respect to the role played by him in the DGFT office as a laisoning agent . The licensing authorities has not initiated any action against him alleging any foul play. Therefore, the question of invoking the Customs Act against him for imposition of penalty is not sustainable in law and pleads for setting aside the penalty imposed on him.

3.4. The ld. Advocate for Sri. Mohan Singh Rajpurohit, Proprietor of Shravan Enterprises submits that the transferable licence was purchased by the appellant without knowledge of the same being invalid. Thus the appellant was a bona fide transferee and there is no admission or confession of knowledge. Natural justice was denied to the appellant as they were not heard before passing of the order and no intimation for personal hearing was received by them by the authority who adjudicated the matter finally. As innocent transferee, the appellant’s case is covered by the decisions in Goodluck Industries [1999 (108) ELT 818], Hico Enterprises 2005 (189) ELT 135, Ajay Kumar and Co. 2009 (238) ELT 387, Sanjay Sanwarmal Agarwal 2004 (169) ELT 261. Accordingly it is prayed that the appeal be allowed with consequential reliefs.

4. The ld. AR appearing for Revenue made the following submissions:-

4.1. This is a case of ‘fraud’. Original licence was issued for 248 nos. of bearings of specified description for a total value of Rs. 50,05,468/-. Amend sheet No.5 dated 11/05/1999 was obtained by Sri. Ashwin Mehta by producing a fraudulent certificate dated 05/05/1999 issued by the Chartered Engineer Mr. J.A. Bharwada and the said certificate was obtained by Shri. Shailesh Doshi. Bearings either having series nos. shown in the original list or the ones having the sr. shown in the amendment sheet only could have been used in the export product and not both of them.

4.2. Though after imports made in May1999, no balance of bearings were left in the original licence, duplicate licence in lieu of the original was issued for 4248 nos. of bearings. The said duplicate licence was issued with revalidation on 22/11/1999 with the endorsement that the total validity will not exceed 36 months from date of issuance of the licence. Since Original licence was issued on 22/11/1996, its validity already expired on 21/11/1999. Thus the duplicate was issued one day after its expiry.

4.3. Even value of licence shown on duplicate licence was RS. 50,05,468/- and vide amendment dated 09/12/1999, its value was enhanced to Rs. 1,91,33,433/-. Even the licence was made transferable vide endorsement dated 09/12/1999 after its expiry on 21/11/1999.

4.4. Shri. Ullal , the Chartered Engineer in his statement had admitted that the certificates dated 01/03/1997 and 28/02/1997 was issued by him without verification as desired by Shri. Ashwin Mehta and the same were issued on 05/04/1999 by backdating the dates of the certificate. Thus the duplicate licence was obtained by mis-representation/fraud .

4.5. The duplicate licence used for import is ‘void’ ab-initio. The relevant exemption notifications Nos. 149/95-Cus dated 19/09/1995 and 31/97-Cus dated 01/04/1997 prescribe a condition that the materials imported are covered by a Quantity based duty exemption entitlement certificate issued by the licensing authority in respect value, quantity, description, quality and technical characteristics and the same materials should be actually used in manufacturing of export product. In the instant case, there is violation of EXIM policy and the conditions stipulated in the said notifications read with explanation given thereto. The quantity, technical specification and value of bearings shown in the duplicate licence was not a valid credit available therein. So the duplicate licence is void ab-initio and relies on the judgment of this Tribunal in De-nocil case vide Order No. A/178-179/11/CSTB/C-1 dated 18/11/2010.

4.6. ‘Fraud’ vitiates everything ab-initio and the buyer can not get a better title than the seller in the case of fraud. Even DGFT cancelled the duplicate licence and restored the status as on 11/05/1999. Importers are not bona-fide purchaser of the said duplicate licence. In fact, they master minded everything and the duplicate licence was obtained fraudulently by producing false CE certificates to DGFT and by creating ‘front companies’ for the purpose. Thus the said licence is not voidable but void ab-initio.

4.7. The ld. AR relies, inter alia, on the following judgments in support of his above contention - (1) Denocil Crop Protection Ltd. vs. CC (Exp) cited supra; (2) Apar Ltd. Vs. CC (Exp) vide final order No. A/229-232/11/CSTB/C-1 dated 12-5-2011; (3) Friends Trading Co. vs. UOI [2010 (254) ELT 652 (PandH)] upheld by honble apex court [2010 (258) ELT A 72 (SC)]; (4) Golden Tools International vs. Jt. DGFT [2006(199) ELT 213 (PandH)]; (5) ICI India vs. CC (Port) Calcutta [2005 (184) ELT 339 Cal.] upheld by honble apex court in 2005 (187) ELT A 31(SC); (6) Munjal Showa Ltd. vs. CCE, Faridabad [2009 (246) ELT 18 ( PandH)].

4.8. Ld. AR refers to the admissions made by Shri. Ashwin Mehta in statement recorded under section 108 of the Customs Act as per which Shri Mehta informed M/s Amrit Laxmi that the bearings listed in their licence had no market value and hence it would have to be amended. Accordingly MOU dated 12/02/2009 was entered with S.P.Shah of Amrit Laxmi and Jitendra Vakharia (broker of advance licence). Thus the non-transferable licence was de-facto transferred to M/s Nippon bearing. Sri. Mehta along with Sri. Shantilal Doshi of Nippon Bearings got amendment sheet 5 dated 11/05/1999 from DGFT by producing a fraudulent certificate dated 05/05/1999 of Shri. J.A. Bharwade. Sri Mehta and Sri. M.H.Vora admitted that they advised Shri. Brahmachari, Director of Amrit Laxmi for the said amendments and enhancement of value and quantity with assistance of Sri. Ashok Jhaveri, Licence broker. Sri. Mehta prepared the CE certificate with the knowledge of Sri. Brahmachari and got it signed by the Chartered Engineer Sri. Ullal. Sri. Mehta and Sri. Vora used Shri. Nilesh Doshi to create front companies. Shri. Nilesh Joshi and Sri. Bipin Pujara have also corroborated these facts in their statements. The above factual position has been reconfirmed by Sri. Mehta and Sri Vora in their subsequent statements dated 31/01/2000 and 25/05/2000.

4.9. Sri. Brahmachari in his statement has admitted to signing the application for duplicate licence including enhancement of quantity, type of bearings and value of licence and has also admitted to have received cheques worth Rs. 10,40,000/- from Shri. Mehta as a consideration for the transfer of the licence.

4.10. Sri. Nilesh Joshi has admitted to getting commission for allowing Sri. Mehta and Shri. Vora for import in his firm’s name and for signing blank papers, letter heads and cheques to allow the use of his firm as a front company by Mr. Mehta and Mr. Vora.

4.11. Sri. Bipin Pujara of M/s Hiral Overseas has admitted to letting his firm’s name to be used by Mr. Mehta and Mr. Vora for a monetary consideration and having signed blank papers/cheques etc. for use by Mr. Mehta and Mr. Vora.

4.12. Though no statement has been recorded from Sri. H.R. Trivedi of Naman Enterprises, Mr. Mehta in his statement has averred to using the name of the firm as a front company.

4.13. Sri. Ashok Jhaveri has admitted to discussing the modus operandi along with Mehta and the officials of DGFT office. He has also admitted to receiving Rs. 18 lakhs as a consideration for his services.

4.14. Shri. Y.R. Ullal in his confessional statement has admitted to issuing CE certificate dated 28/08/2006 without verification and also issuing similar certificates dated 01/03/1997 and 28/02/1997, without verification, at the behest of Mr. Mehta which were actually used on 05/04/1999 by Shri Mehta.

4.15. Shri. Colombowalla has admitted that all the front companies involved in the transaction were managed by Mr. Vora and Mr. Mehta and was aware of the fraud.

4.16. Finally, the ld. AR submits that the goods are liable to confiscation under the provisions of section 111(d) (for violation of EXIM Policy), 111(m) (for wrong declaration of bearings in the SEEC book and Advance Licence) and 111(o) for violation of conditions stipulated in notification nos. 149/95 and 31/97.

4.17. He also relies on the judgment in Om Prakash Bhatia case. Accordingly the Ld. AR strongly pleads for upholding the impugned order.

5. In their rebuttal to the ld. AR’s submissions, the ld. Counsel for the appellant importers submits that the decisions relied upon by the ld. AR for revenue were dealing with cases where forgery was involved in respect of documents submitted for obtaining the licence. None of the said decisions related to dealing with licences obtained by mis-representation of facts before the Licensing authorities. Therefore the facts of the cases are different from those involved in the present case and hence they can not be relied upon. They re-iterated their arguments detailed in para 3 above.

6. We have carefully considered the rival submissions.

6.1. We have perused the copy of the Advance licence which is the subject matter of dispute in the present case. The said Licence No.03014593 was issued to M/s Amrit Laxmi Machine Works on 22/11/1996 with a cif value of Rs.50,05,468/- and was valid for a period of 12 months. The F.O.B. value of exports to be achieved against the said licence was fixed at Rs.3,52,96,940/-. As per the list attached to the said licence, 248 nos. of bearings (23 specified varieties) with a CIF value of Rs.9,22,1110/- was allowed to be imported with the following specifications:-

UC 207 NTN, UC 208 NTN, UC 212 NTN, UCF 207 NTN, UCF 208 NTN, UCF 210 NTN, UCF 212 NTN, UCF 214 NTN, UCF 217 NTN, UCFL 204 NTN, UCFL 205 NTN, UCP 204 NTN, UCP 205 NTN, UCP 207 NTN, UCP 210 NTN, 22315 EK, 22315 22317E E, 22318 EK, 22317 E, 22317 EK and 22313 E.

6.2. Vide amendment sheet No.1 dated 12/02/1997, the licence was subjected to Actual User Condition . It also stipulated that the licence would not be made transferable in terms of Notification No. 11(RE-95)/92-97 dated 01/12/1995 and read with Customs Notification No. 162/95 dated 01/12/1995. Vide amendment sheet No.2 dated 24/04/1998, the CIF value of imports was amended to read as Rs. 43,41,140/- and the fob value of exports was amended to read as 3,06,12,320/-.

6.3. Vide amendment sheet No.3 dated 01/07/1998, the validity of the licence was extended upto 21/11/1998.

6.4. Vide amendment sheet No.4 dated 22/01/1999, the licence validity period was extended upto 21/05/1999.

6.5. Vide amendment sheet No.5 dated 11/05/1999, the import of bearings under SR. No.11 of import List (A to W) was deleted and substituted by the following bearings:-

Specification of bearings Quantity

UCP 204 1

UCP 210 1

UCP 217 1

22312 1

22318 1

22330 2

22340 1

23044 44

23052 62

23056 80

23060 31

23064 23

------------------

Total 248

------------------

The amendment further stated -

“There is no change in total quantity of bearings allowed and in the total CIF value of the licence.

Individual CIF value restriction shown against each import item stands deleted. Import will be made within the quantity mentioned against each import item and within the overall CIF value of the licence. The above amendment was obtained on the basis of a Chartered Engineer’s certificate dated 05/05/1999 issued by Mr. J.R.Bharwada who stated the above bearings or equivalent of these have been used in the exports shipment of machines vide shipping bill no. 718767 dated 13/02/1997, 726529 dated 28/02/1997 and 818856 dated 28/02/1997.

6.6. Vide letter dated 13th May, 1999, M/s Amrit Laxmi Machine Works had requested Sahar ACC customs for release of 160 nos. of bearings [23052 - 62 nos + 23044 - 44 nos. + 23064 - 23 nos. + 23060 -31 nos.] of value Rs. 6,34,176/- from the advance licence dated 22/11/1996 revalidated upto 21/05/1999 as they wanted to clear the same under DEEC. Again vide another letter dated 13th May, 1999, the said Amrit Laxmi Machine Works requested for release of 80 nos. of bearings of sr. no. 23056 of value Rs.3,54,117/- Thus a total quantity of 240 nos. of bearings of value Rs.9,88,293/- had been cleared by Amrit Laxmi Machine Works in May 1999 itself. Therefore, what was left for clearance within the permissible limit was only 8 nos. of bearings, as per amendment No.5 dated 11/05/1999.

6.7. A duplicate licence No. 0111434 dated 22/11/1999 against original licence no. 03014593 dated 22/11/1996 was issued in the name of M/s Amrit Laxmi Machine Works with CIF value as Rs.50,05,468/-. On 08/12/1999, the list of import items for import against the said duplicate licence was with CIF value of imports at Rs. 1,91,33,444/- and the no. of bearings eligible for import at 4248 nos. with the description ‘bearings - all types , bore dia 10mm and above’ . Amendment sheet No.1. dated 09/12/1999 was issued to the said duplicate licence wherein it was stated that ‘This licence is revalidated upto 21/11/1999 with transferability’. The CIF value was amended to read as Rs.1,91,33,433/-. A note was added in the said amendment sheet which reads as follows:-“Note:- However, the total validity of the licence will not exceed 36 months from the date of issue of the licence, i.e. upto 21/11/99.”.

From the above endorsements, it is very clear that the licence was made transferable on 09/12/1999 and the validity of the duplicate licence was only upto 21/11/1999, that is, one day prior to the issue of the duplicate licence.

6.8. Para 7.27 of the Handbook of Procedures of EXIM Policy 1997-2002 dealt with the transferability of licences/materials imported against them. The relevant portion of the said para reads as follows:-

“7.27 (i) After export obligation has been fulfilled and the Undertaking redeemed and subject to fulfillment of other conditions as laid down in paragraph 7.25 above, the duty free licence holder (except the Special Imprest Licence, Advance licence with actual user condition issued in terms of paragraph 7.4 of the Policy and Annual Advance Licence) shall be allowed transfer of licence, by the licensing authority. The concerned licence holder may transfer:

(a) The licence in full, if no imports have been made;

(b) The licence in part, excluding the quantity and value of imports already made; and

(ii) Upon endorsement of transferability, issue of duplicate licence, enhancement in the CIF value or amendments including re-validation shall not be allowed.

(iii) Upon endorsement of transferability, a duty free licence shall be valid for the balance period of its validity or a for a period of six months, whichever is later. However, licences submitted for endorsement of transferability after 30 months of the issuance of the licence shall have a validity upto a maximum period of 36 months from the date of issuance.”

6.9. In the instant case, it is on record that the original licence was lost in September, 1999. Hence the said licence could not have been handed over for endorsement of transferability. Only the duplicate licence could have been handed over for transferability and the same could have been done only after its issuance, that is, on or after 22/11/1999. It is for this reason that the endorsement in the amendment sheet No.1 was made on 09/12/1999 for transferability. Since the licence was submitted for transferability after 30 months of the issuance of the licence, the validity of the licence could have been only for a total period of 36 months from the date of issuance of the licence. That is the reason why the endorsement regarding validity of the licence stated that the licence is valid only upto 21/11/1999 in terms of the provisions of para 7.27 (iii) enumerated above. Since as per policy circular no.31/97-98, when the validity expires during the middle of the month, then in terms of para 4.15(b) of the Handbook of Procedures, the licence automatically stands validated till the end of the month. From the above, it is obvious that in the instant case, the duplicate licence with all its modifications and transferability was valid only from the date of its issuance, that is, 22/11/1999 to the end of the month, that is till 30/11/1999.

6.10. Chapter 7 of the Exim Policy 1997-2002 governed Duty Exemption/Remission schemes. As per para7.2 of the said policy:-

“An Advance Licence is issued under Duty Exemption Scheme to allow import of inputs which are physically incorporated in the export product (making normal allowance for wastage). In addition, fuel, oil, energy, catalysts, etc. which are consumed in the course of their use to obtain the export product may also be allowed under the scheme.”

6.11. In other words, only raw materials and consumables could be imported under the Advance Licence Scheme. As per para 7.3 (a),-

“Advance Licence is issued for duty free import of inputs, as defined in paragraph 7.2, subject to actual user condition. Such licences and/or materials imported thereunder shall not be transferable even after completion of export obligation. However, in exceptional cases, the material may be allowed to be transferred on merits by ALC.”

6.12. A reading of the above policy provisions make it abundantly clear that only those inputs which are physically incorporated in the export product are allowed to be imported under the Advance Licence Scheme. Secondly, the Advance Licence is not transferable even after completion of export obligation.

6.13. The original licence dated 22/11/1996 permitted import of 248 nos. of bearings of specified serial nos. Vide amendment sheet dated 11/05/1999, the number of bearings eligible for import was retained at 248 only but the serial nos. of the bearings were modified. In other words, as per the original licence read with the import list, only 248 nos. of bearings were physically incorporated in the export product and only these were eligible for duty free import under the said licence. From the records, it is seen that this quantity of bearings had already been imported by May, 1999. Therefore, as per the policy, no further bearings could have been allowed to be imported against the said licence. Therefore, endorsement made on 08/12/1999 by the licensing authority in the duplicate licence issued on 22/11/1999 allowing import of 4248 nos. of bearings was not permissible under the EXIM policy as it stood at the relevant time. Further as per para 7.3, the licence could not have been made transferable since the advance licence is subject to actual user condition and it is non-transferable even after completion of export obligation. Thus the endorsement of transferability made vide amendment sheet dated 09/12/1999 was not sanctioned by law and was in complete disregard of the EXIM policy provisions as they stood at the relevant time.

6.14. Further para 7.27 (i) of the Handbook of Procedures clearly excluded from the scope of transferability three types of licences, namely, Special imprest licence, advance licence with actual user condition and annual advance licence. It is for these reasons that when the discrepancies were pointed out by the DRI, the licensing authority immediately suspended the duplicate licence on 24/12/1999 and restored the duplicate licence to the originally issued licence as amended upto amendment sheet No.5 dated 11/05/1999. In other words, the licensing authority not only cancelled the revised list of imports (by way enhancing the quantity and value and change of description ) but also cancelled the transferability. This is for the reason that the endorsements he made on 8th and 9th December, 1999 was not permissible under the EXIM policy and the same were made without the authority of law. In other words, the amendments made in the duplicate licence with regard to transferability and revising the list of imports was specifically prohibited by the EXIM Policy.

6.15. Black’s Law Dictionary defines ‘Void ab-initio’ as follows. A contract is null from the beginning if it seriously offends law or public policy in contrast to a contract which is merely voidable at the election of one of the parties to the contract. The Exim Policy specifically prohibited transferability of advance licence with actual user condition. Thus transferability was in gross violation of the Exim Policy and the law connected thereto. Thus the endorsement of transferability made in the duplicate licence was void ab-initio.

6.16. The hon’ble apex court in the case of Deepak Agro Foods vs. State of Rajasthan [2008 (228) ELT 510] considered the distinction between null and void orders and orders which are irregular, wrong or illegal. The apex court held that all irregular or erroneous or even illegal orders can not be held to be null and void. Where an authority making order lacks inherent jurisdiction, such order would be without jurisdiction, null, non-est and void ab-initio as defect of jurisdiction of an authority goes to the root of the matter and strikes at its very authority to pass any order and such a defect can not be cured even by consent of the parties. Applying the ratio to the facts of the present case, in the case advance licences with actual user condition, the Exim policy prohibited transferability even after discharge of export obligation. Therefore, if the licensing authority endorses transferability on such a licence, the said action seriously offends the public policy and hence the same is void ab-initio. So is the case with respect to revision of list of items for import under the advance licence. Only materials which are physically incorporated in the export product or consumables used in the manufacture of export product is permitted to be imported under the advance licence. Therefore, the licensing authority can not permit any items for import duty free under the advance licence which do not satisfy the above condition. If any such endorsement is made, the same violates the public policy and such endorsement is void ab-initio.

6.17. The hon’ble apex court had an occasion to examine and deal with fraud in Commissioner of Customs (Preventive) vs. Affloat Textiles P. Ltd.[2009 (235) ELT 587. The hon’ble apex court made the following observations.

“10.A ‘fraud’ is an act of deliberate deceiption with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another’s loss. It is a cheating intended to get an advantage.(See S.P.Chengalvaraya Naidu v. Jagannath [1994(1)SCC 1].

11. ‘Fraud’ as is well known vitiates every solemn act. Fraud and justice never dwell together. Fraud is a conduct either letter or words, which includes the other person or authority to take a definite determinative stand as a response to the c onduct of the former either by words or letter. It is also well-settled that misrepresentation itself amounts to fraud. An act of fraud on court is always viewed very seriously. A collusion or conspiracy with a view to deprive the rights of others in relation to a property would render the transaction void ab initio. Fraud and deception are synonymous. Although in a given case a deception may not amount to fraud, fraud is anathema to all equitable principles and any affair tainted with fraud can not be perpetuated or saved by the application of any equitable doctrine including res judicata. (see Ram Chandra Singh v. Savitri Devi and Ors. [2003 (8) SCC 319].

12. ‘Fraud’ and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. ‘fraud’ is proved when it is shown that a false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false. The colour of fraud in public law or administration law, as it is developing, is assuming different shades. It 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 or tribunal. “

If one applies the definition of fraud as lucidly explained by the hon’ble apex court to the facts of the present case, it can be easily seen that what is involved in the present case is a licence fraud with a view to evade customs duty on goods imported under advance licence. In the instant case , the list of items used in the manufacture of export product was deliberately mis-declared so as to import ineligible items by producing a false chartered engineer’s certificate; the fact that the goods eligible for import had already been imported and used and the licence was exhausted was withheld; the fact that the importer is not going to be the actual user was withheld; thus the entire facts were misdeclared and mis-represented and a duplicate licence was obtained. These actions on the part of the appellants in the instant case clearly satisfies the definition of ‘fraud’ as defined by the hon’ble apex court and the licence so obtained becomes void ab-initio.

6.18. The purpose and object of issue of Advance Licence is for duty free imports, subject to actual user condition as stated in paragraph 7.3(a) of the Exim Policy. Such licences are exempted from payment of Basic customs duty, Surcharge, Additional Customs Duty, Anti-dumping duty and Safeguard duty, if any. Therefore in order to avail the benefit of Advance Licence, such a licence should be valid at the time of assessment of customs duty. The relevant date for determination of rate of duty and customs valuation is the date of filing of bill of entry. Therefore, at the time of filing the bill of entry, a valid Advance licence in the name of the importer should exist for availing the benefit of duty free import under the said licence.

6.19 In respect of 15 bills of entry dealt by order dated 31/05/2004, it is seen that 5 out of the 15 were filed on 19th August, 1999 and the balance 10 bills of entry on 15/12/1999. In respect of 29 bills of entry dealt by order dated 29/06/2004, 10 bills of entry were filed on 28/12/1999, 1 bill of entry on 15/12/1999 and the balance on 20/12/1999. All these bills of entry were filed by importers who are not the original licence holder but are transferees of the licence. Therefore, the question to be considered is on these dates, namely 19th August 1999, 15th December,1999, 20th December,99 and 28th December, 1999, whether there was a valid advance licence in the name of the importers. The answer is a clear NO for the following reasons.

6.20 The Original licence in the name of M/s Amrit Laxmi Machine Works was valid up to 21/05/1999. The same was lost in September, 99 as per the FIR lodged with the Police and the application for issue of a duplicate licence was made only in October,99 and the duplicate licence was issued only on 22/11/1999, that too, in the name of the original licence holder. In other words, on 19th August, 99 when the bills of entry were filed, there was no valid advance licence in the name of the importers. Notification No. 31/97 stipulates a condition that ‘Where the benefit of this notification is sought by a person other the licencee, such benefit shall be allowed against the said licence and the said certificate only if it bears endorsement of transferability by the Licensing authority.’ From the records, it is evident that on 19th August, 99, no application for transferability had been made by the original licence holder nor the licence was made transferable. Therefore, in respect of bills of entry filed on 19th August, 99, the question of extending the benefit under the said notification does not arise at all and we hold accordingly. Similarly in respect of 10 bills of entry filed on 28/12/1999, the duplicate licence with transferability stood suspended on 24/12/1999. Thus there was no valid licence in the name of the importers on 28/12/1999. As regards, the bills of entry filed on 15/12/1999 and 20/12/1999, the duplicate licence was issued on 22/11/1999 and the endorsement thereon clearly showed that the validity of the licence was only upto 21/11/1999. Even after taking into account the grace period for validity, the said licence could have been valid only up to the end of the month, that is, 30/11/1999. Therefore, on these two dates also, there was no valid licence in the name of the importers so as to enable them to avail the benefit of the Advance Licence. Therefore, in respect of all the imports made in this case, there was no valid advance licence in favour of the importers at the time of importation and therefore, the denial of benefit of exemption under notification No. 31/97-Cus dated 01/04/1997 was correct in law and we uphold the same.

6.21 The ld. Counsel for the appellant has strongly argued that the appellants are entitled for duty exemption in as much as the licence was made transferable and the licence stood cancelled only on 24/12/1999. Therefore, the imports made prior to this date are eligible for duty exemption. He has submitted that the licence in this case is only voidable and not void and has relied on a number of decisions of the hon’ble apex court and hon’ble Bombay High Court. In the Sneha Sales Corporation case decided by the apex court, relied upon by the ld. Counsel, it was held that in a case where the licence is obtained by mis-representation or fraud, it is not rendered non est as a result of its cancellation so as to result in the goods that were imported on the basis of the said licences being treated as goods imported without a licence and that fraud or mis-representation only renders a licence voidable. However, in that a case there was a valid licence in the name of the importer at the time of importation, though obtained by fraud. Similarly in the Sampat Raj Duggar case, it was held by the hon’ble apex court that if on the date of import the goods were covered by a valid import licence, its subsequent cancellation is of no relevance nor does it retrospectively render the import illegal. In the Jupiter Exports case decided by the hon’ble Bombay High Court, the question before the court was when there was a licence issued by the DGFT in the name of the licence holder which was obtained by fraud, whether the licence could be held to be valid and the hon’ble high court ruled that until the licences are cancelled by the licensing authority, they are deemed to be valid. So was the position in the other cases relied upon by the appellant. In all the above mentioned cases, there was a valid licence in the name of the importer at the time of importation which was subsequently cancelled for the reason that the licence had been obtained by fraud or mis-representation. But in the case before us, there was no valid licence in the name of the importer. Either the licence had expired at the time of importation or the licence was not transferable. In none of the above decisions, the hon’ble courts held that a licence should be held to be valid after its validity expired or a licence could be used by a person other than the licence holder when the licence was non- transferable. Therefore, the facts of the case before us are distinct and distinguishable from the facts involved in the cases mentioned above and hence, the ratio of these decisions can not be held to be applicable.

6.22 Another argument has been adduced that the validity of the licence has to be considered at the time of dispatch of the goods from abroad and not at the time of importation. This argument has no relevance as we are dealing with an advance licence. An advance licence is issued not for the importability of the goods but for duty free importation. The goods are freely importable even otherwise. The duty liability has to be determined as per the provisions of section 15 of the Customs Act, 1962, that is , on the date on which the bill of entry is filed. Therefore, in order to avail the benefit of duty exemption, there should be valid advance licence in the name of the importer at the time of filing of the bill of entry. In the instant case we have already held that no such licence existed and accordingly, we reject this contention.

6.23 The next issue for consideration is whether the goods imported under the aforesaid advance licences vide 44 Bill of Entries covered by the two orders dated 31/05/2004 and 29/06/2004 and part of which was seized at Delhi at 28/12/1999 and 03/01/2000 are liable to confiscation under the provisions of Sections 111(d), 111(m) and 111(o) of the Customs Act, 1962 as held by the adjudicating authority. Under Section 111(d) any goods which are imported or attempted to be imported or are brought within the Indian Customs waters for the purpose of being imported contrary to any prohibition imposed by or under this Act or any other law for the time being in force shall be liable to confiscation. Section 111(m) deals with goods which do not correspond in respect of value or any other particular with the entry made under this Act shall be liable to confiscation and 111(o) deals a situation where any goods exempted subject to any condition from duty or in 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-observation of the condition was sanctioned by the proper officer, shall be liable to confiscation. From the facts narrated above it can be easily seen that the transaction involved in the present case is a racket in advance licensing scheme. The advance licence, which was subject to actual user condition and which had expired on 21/05/199 and which was non-transferable was sought to be revalidated and made transferable, and items which were not permissible to be imported were sought to be included by both changing the description of the goods and the value thereof by mis-representation and fraud. To achieve these objectives, false Chartered Engineer’s certificate were procured and submitted to the licensing authorities and front companies as were made use of, to act as front men for the purpose of importation. The goods which were subject to actual user condition were imported and diverted to Delhi for the purpose of trading. When these facts were brought to the notice of the licensing authority, the amendments made to the licence were cancelled and the licence was restored to its pre-amendment position as on 11/05/1999. From the details narrated above violations of the EXIM policy and the provisions thereof have been clearly established. This has been done with view to evade Customs duty which was otherwise leviable. Therefore, violations of Section 111(d) of the Customs Act, 1962 is clearly established. Similarly the advance licence envisaged that goods which were actually used in the export product was only eligible for importation and by mis-declaring by manipulation of Chartered Engineer’s certificate, attempt was made avail ineligible exemptions and part of the goods was also diverted for trading purpose. These activities clearly attracts provisions of Section 111(o) of the Customs Act, 1962. Thus, in the instant case in respect of the goods dealt in order dated 31/05/2004 the goods were liable to confiscation both under Section 111(d) and Section 111(o) and in respect of goods dealt in order dated 29/06/2004 the goods were liable to confiscation under Section 111(d) and we hold accordingly. Therefore, we uphold the confiscation of the goods as held in the above to orders.

6.24 The importers have been given option to redeem the goods by payment of fine under Section 125 of the Customs Act, 1962. While imposing the fine, the adjudicating authority has kept in mind reduction in the market value of the goods, deterioration of the quality of the goods, reduction in the rates of the duty, demurrages incurred and after taking into account these facts into consideration, he has imposed a redemption fine which is approximately 10% of the CIF value of the goods. Considering the fact that bearing is an item which fetches high premium in the market, the redemption fine imposed by the adjudicating authority in the instant case cannot be said to be unreasonable. Therefore, we uphold the redemption fine imposed by the adjudicating authority in lieu of confiscation in the above two orders.

6.25 The adjudicating authority has also confirmed the demand of differential duty amounting to Rs. 65,78,106/- in respect of the 15 bills of entry covered in order dated 31/05/2004 by denying the benefit of Notification No. 149/95 dated 19/09/1995 on the ground that the importers did not have a valid advance licence covering the said imports. He has also demanded interest at the applicable rates on the duty short paid. We have already had that the appellants did not have a valid advance licence at the time of importation of the goods and were not eligible for duty free imports under Notification No. 149/95 dated 19/09/1995 and 31/97/ dated 01/04/1997. In view of the above the appellants are liable to pay differential duty on imports at merit rates without the benefits of the duty exemption under the advance licensing scheme and we hold accordingly. Once that the differential duty is liable to be paid the levy of interest thereon is automatic and consequential and accordingly we hold that the importers are liable to pay interest on the duty short paid under the provisions of Sections 128AB of the Customs Act, 1962. In respect of the 29 bills of entry covered by the order dated 29-6-2004, the importers are not eligible for the benefit of duty exemption under notification 31/97 and the goods are liable to duty at merit rates as held by the adjudicating authority.

6.26 The next issue for consideration is regarding imposition of penalties under Section 114A of the Customs Act, 1962 on the importers and under Sections 112(a) and 112(b) on others. As regards the penalty under Section 114A on the importers, the same is equal to the duty and interest short paid. In the instant case as discussed above the advance licence was sought to be modified/amended by suppression and willful mis-statement of facts and duty was sought to be evaded due to these reasons. Therefore, the penalty equivalent to duty under Section 114A is mandatory. Inasmuch as we have upheld the demand for duty, the penalty of equivalent amount under Section 114A is also confirmed and upheld.

6.27 The next issue for consideration relates to penalties imposed on the importers or the partners/proprietors of the importing firms and other persons involved in the transaction such as the Original Licence holder and its director, CHA firm and its director, licence broker and so on, under Section 112(a) and/or 112(b) of the Customs Act, 1962 and also on those persons who are one way or the other connected with the transactions. Penalty under Section 112(a) is attracted when any person who, in relation to any goods, does or omits to do any act, which act or omission would render such goods liable to confiscation under Section 111 or abets the doing or omission of such an act. Penalty under Section 112(b) is imposed when a person acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing or any in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under Section 111. The penalty imposable in the case of dutiable goods other than prohibited goods is an amount not exceeding the duty sought to be evaded on such goods or Rs. 5,000/- whichever is greater. The penalties imposed on the various persons involved are much less than the ceiling prescribed. Since it is a case of organized racket in advance licensing scheme with an intent to evade huge amount of Customs duty by suppression and fraud, we are of the view that no leniency needs to be shown in the instant case with respect to the quantum of penalty imposed on the appellants. Accordingly, we uphold the penalties imposed on all the appellants under Sections 112(a) and 112(b) of the Customs Act, 1962. The importers (transferees of the licence) in this case very well knew that the original licence issued was a licence with an actual user condition and the same is not transferable. Yet by manipulation and mis-representation, the licence was made transferable and ineligible items were got incorporated in the list of imports. The importers also knew that the licence was valid only upto 21-11-99 as per the endorsement on the duplicate licence issued on 22-11-99. Similarly the original licence holder also knew of the manipulation and mis-representation and he signed all the documents for transferability and modification of items eligible for import. Thus the original licence holder fully well knew of the manipulations and mis-representation being made before the licensing authorities and this he did because he was getting a huge consideration from the buyer of the licence. Thus the connivance of the original licence holder and its director are clearly established. As regards the CHA and its director, the CHA firm has filed the bills of entry in respect of all the importers, who are the transferees of the said licence.

The CHA is the person who has to advise the client to comply with the provisions relating to Customs Act and other import regulations/prohibitions. When there was no valid licence in the name of the importer, how did he allow filing of documents before the customs? A perusal of the licence itself would have made it abundantly clear that the licence was valid only upto 21/11/1999. Yet bills of entry were filed on 19/08/1999,15/12/1999, 20/12/1999 and 28/12/1999 claiming the benefit of duty exemption under advance licensing scheme when no valid licence existed in the name of the importers. It is thus obvious that the CHA remained a silent spectator. Even omission to act is an offence which makes the goods liable to confiscation and hence the CHA firm and its Director are also liable to penalty in the instant case. The role of the licence broker also needs special mention. Even though he represented the matter before the licensing authorities and was not directly involved in the filing of documents before the Customs, the basis for the customs duty exemption is the advance licence. By obtaining the duplicate licence by mis-representation and fraud and manipulation of documents, he was actively involved in the customs duty evasion. He received a huge consideration of Rs. 18 lakhs for his efforts as per the records before us. Therefore his connivance in the entire matter is clearly established and he is liable to penalty and we hold accordingly.

6.28 As regards the liability to confiscation of the goods and consequent penalty, we rely on the decision of the Hon’ble High Court of Madras in Commissioner of Customs vs. CESTAT, Chennai [2009 (240) ELT 166]. The facts involved in that case was the respondent therein imported four consignment of copper scrap totally weighing 86.963 MTs in four containers and availed benefit under notification No. 48/99-Cus dated 29/04/1999 which permitted import duty free under the annual advance licence with actual user condition. The licence was obtained by fraud in as much as the appellant did not have any factory for manufacture of goods as envisaged in the licence. The respondent contested that the goods are not liable to confiscation under section 111(o) as there is no mis-declaration in the import documents and consequently there is no liability to penalty. The adjudicating authority held the goods liable to confiscation and imposed fine and penalty. The same was challenged before the Tribunal which held that the goods are not liable to confiscation under section 111(o) and importer not liable to penalty on the ground that contract was never void and is only voidable. The revenue challenged the matter before the hon’ble High Court and the court held as follows.

“For the purpose of obtaining such licence with actual user condition, it is mandatory that the importer should be a manufacturer-exporter. The importer made a false declaration of being one. Having made such a false declaration and obtained a licence, the importer can not be permitted to now say that the imported material is freely importable under OGL and therefore allowed to be cleared on merit rate. The Tribunal fell in error permitting the clearance of the goods on merit rate. By doing so, the Tribunal has virtually set at naught the very purpose behind issuance of an exemption notification. If the respondent is not an actual user, he would not be entitled to utilize the licence. The licence having been secured by adopting fraudulent method would not confer any right on the importer and as such he can not be allowed to plead any equity. Therefore, we find that the order passed by the Tribunal is not sustainable and liable to be set aside.”

Accordingly the hon’ble high court upheld the confiscation and penalty imposed. In the instant case also, the licence was with an actual user condition and was non-transferable. The goods imported were seized after having been diverted. The notification stipulates use of goods in the product exported. Thus if the goods are imported in violation of the conditions of exemption and the licence issued for the purpose, they are liable to confiscation under section 111(o) of the Customs Act and consequently penalty is also imposable. Thus the ratio of the above judgment of the hon’ble High Court of Madras applies squarely to the facts of the instant case. The said decision of the hon’ble High Court was challenged in the apex court and the hon’ble apex court upheld the order of the hon’ble High Court by dismissing the SLP [2010 (249) ELT A28 (S.C.)] A similar view was held by the hon’ble High Court of Madras in South India Exports vs. Jt. Director of Foreign Trade [2004 (177) ELT 57]. Following the ratio of these decisions, we are of the view that confiscation of imported goods and imposition of fine and penalty in the instant case is fully justified.

7. In sum, we uphold the two orders-in-original dated 31/05/2004 and 29/06/2004 in toto and reject these appeals.

Court	Customs Excise and Service Tax Appellate Tribunal CESTAT Mumbai
Decided On	May-07-2012
Case Number	APPEAL NOS: C/754, 755, 807, 887 to 894/2004 & C/806, 844, 845, 956, 957, 963 to 971/2004 [
Judge	THE HONOURABLE MR. ASHOK JINDAL, MEMBER (JUDICIAL) & THE HONOURABLE MR. P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL)
Appellant	East West Freight Carriers Pvt. Ltd. and Others
Respondent	Commissioner of Customs (import) Mumbai
Advocates:	For the Appellants : Shri J.C Patel, Vipin Kr. Jain, Vishal Agarwal, Durgesh Nadkarni, S.P. Mathew, Manish Panda, Anil Balani and Ms. Purnima Singh, Advocate. For the Respondent : Shri Sanjay Kalra, A

East West Freight Carriers Pvt. Ltd. and Others Vs. Commissioner of Customs (import) Mumbai - Court Judgment