IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CUSAP No.1 of 2011 (O&M) Date of decision: 2.2.2011 M/s Friends Trading Co. -----Appellant. Vs. The Union of India and others. -----Respondents. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Mohan Jayakar, Advocate with Mr. Karan Adik, Advocate for the appellant. --- ADARSH KUMAR GOEL, J. 1. This appeal has been filed by the assessee under Section 130 of the Customs Act, 1962 (for short, “the Act”) against the order dated 8.10.2010 in Customs Appeal No.576/2006 passed by the Customs, Excise and Service Tax Appellate Tribunal, Principal Bench at New Delhi claiming following substantial questions of law:- “A. Whether a concurrent Bench of the CESTAT (the 2nd Respondent) could take a differing view on an issue which was same as involved in the other Judgements of the concurrent Bench? B. Whether an order of the full Bench of the Tribunal was binding on a two member Bench of the Tribunal wherein the law involved was the same and whether a CUSAP No.1 of 2011 two member Bench could have ignored the binding judgments of the Full/Larger Bench of the Tribunal? C. Whether the 2nd Respondent ought to have followed the law as laid down by the Hon’ble Supreme Court and the various High Courts in the various cases having identical issues involved, as cited therein? D. Whether a License obtained on the basis of fabricated documents was merely voidable and was good till avoided as held in the case of East India Commercial Co. Ltd. Vs. Collector of Customs (AIR 1962 SC 1893)? E. Whether the import of goods under the License or the availment of credit under the DEPB Scrip by the Transferee of the License/DEPB Scrip prior to cancellation of such License/DEPB Scrip by the appropriate authority, could be held to be illegal or improper? F. Whether the provisions of proviso (2) Sub-Section (1) of Section 28 of the Customs Act, 1962, could at all be invoked when there was no collusion or willful mis- statement or suppression of facts by the importer and consequently whether the demand for duty could be made against such importer in respect of a credit, availed of by him, under a DEPB Scrip which was valid and validly enforced at the time when the goods were imported? G. Whether an order of cancellation of a DEPB Scrip could operate retrospectively so as to render the imports effected earlier than the date of cancellation of the DEPB Scrip, illegal or contrary to law? H. Whether an extended period of Limitation could at all be invoked when there is a finding as recorded by the 2nd Respondent themselves, that the Appellants were 2 CUSAP No.1 of 2011 not involved in fraud/collusion or willful suppression/ mis-statement while they purchased the DEPB Scrip from the open market and for a valuable consideration? I. Whether the 2nd Respondent has ignored Section 28 of the Custom Act, 1962, by remaining silent upon the same in the final order, and by allowing the extended period of Limitation to work against the Appellants, especially since the 2nd Respondent had themselves in an interim order, granted an unconditional stay to the Appellants based on Section 28 wherein it was recorded that “Extended period for issue of SCN to recover duty is available under proviso to Section 28 only in exceptional circumstances mentioned in the proviso itself?” 2. The appellant imported goods and filed Bill of Entry dated 24.11.2000. It availed exemption from payment of Customs Duty under notification dated 7.4.1997 under Section 25 of the Customs Act, 1962 against DEPB Scrip dated 14.11.2000. Finding that the said Scrip was procured fraudulently by the predecessor of the appellant, Scrip obtained by the appellant was held to be void ab initio. Accordingly, demand of duty was raised against the appellant vide Order-in-Original dated 4.10.2005. The said order was affirmed in appeal and has been further affirmed on second appeal by the Tribunal. The Tribunal rejected the contention that on the date of cancellation of DEPB Scrip i.e. 2.1.2003, the appellant having already taken the benefit, the same could not be withdrawn. Further contention that limitation 3 CUSAP No.1 of 2011 for taking action under Section 28 of the Act had expired and the extended limitation under the proviso could not be invoked in absence of misstatement or suppression being attributed to the appellant was also rejected. The Tribunal followed the judgment of this Court in the case of the assessee itself in respect of different DEPB Scrips in Friends Trading Co. and Another v. Union of India 2010 (254) ELT 652, which in turn refers to earlier judgment of this Court dated 1.9.2007 in CUSAP No.27 of 2008 M/s Munjal Showa Limited v. Commissioner of Customs and Central Excise (Delhi (IV), Faridabad). 3. We have heard learned counsel for the appellant. 4. With reference to proposed questions of law A to E, it was submitted that benefit taken on the basis of fabricated document, which is cancelled subsequently, could not be withdrawn since benefit was taken prior to the date of such cancellation. For this proposition, reliance has been placed on following judgments of the Hon’ble Supreme Court:- i) East India Commercial Company limited v. Collector 1983 (13) ELT 1342 (SC)=AIR 1962SC 1893; ii) Collector of Customs, Bombay v. Sneha Sales Corporation 2000 (121) ELT 577 (SC) and iii) Sampat Raj Dugar 1992(58) ELT 163(SC). 5. With reference to proposed questions F to I, it was submitted that proviso to Section 28 could be invoked only if there was collusion, misstatement or willful suppression of facts by the 4 CUSAP No.1 of 2011 appellant. Fraud by the predecessor of the appellant could not be taken into account for invoking the said proviso. Reliance has been placed on judgments of the Hon’ble Supreme Court in Aban Loyd Chiles Offshore Ltd. and others v. Commissioner of Customs, Maharashtra (2006) 6 SCC 482, Collector of Central Excise v. H.M.M. Limited 1995 (76) ELT 497 (SC) and Commssioner of Customs, Amritsar v. Ajay Kumar and Company (2009) 15 SCC 98 and judgments of this Court in Commissioner of Customs, Amritsar v. Vallabh Design Products (2007) 219 ELT 73, Commissioner of Customs v. Leader Valves Ltd. (2007) 218 ELT 349. 6. We are unable to accept the submission. Considering identical issue, as raised by way of questions A to E, it was observed by this Court in M/s Munjal Showa Limited, as under:- “11. In East India Commercial Company Ltd. (supra), infringement of licence was alleged in importer selling the goods to third party and in obtaining the licence by misrepresentation. The majority held that a licence obtained by misrepresentation was not non est so as to consider the goods imported without licence to be liable to confiscation. The specified authority did not cancel the licence till its term expired. The goods were imported under a valid licence. 12. We do not find any applicability of the above judgment to the facts of the present case. In the present case, DEPB Scrip’s were forged, which has been admitted even by the appellant before the Tribunal. Benefit of a forged document cannot be allowed to be retained. The judgment relied upon 5 CUSAP No.1 of 2011 does not in any manner lay down that benefit of a forged document could be allowed to be retained. The principle laid down in the judgment relied upon which has been followed in other judgments cannot, thus, apply to the case of the present nature where benefit has been taken on the basis of a forged document. 13. In Sneha Sales Corporation (supra), import licence was cancelled after the import and following the judgment in East India Commercial Company (supra), it was held that on the date of clearance of goods, the licence was not non est. Both the judgments deal with the confiscation and not with the payment of duty. In Sampat Raj Dugar (supra) also the situation was identical as in East India Commercial Company (supra). xx xx xx xx xx 16. On the other hand, a Division Bench of this Court in Golden Tools International v. Joint DGFT, Ludhiana 2006(199) ELT 213 after referring to the judgments of the Hon’ble Supreme Court in S.P.Chengalvaraya Naidu v. Jagannath, AIR 1994 SC 853 and Commissioner of Customs v. Essar Oil Ltd. (2004) 11 SCC 364 observed:- “12. We are of the view that both the petitions are bereft of any merit. The entire claim of the petitioners was based on falsehood. It is not in dispute that furnishing of bank certificate of exports and realisation of export proceeds was a pre-requisite for issue of DEPB. Admittedly, the bank certificates furnished were fabricated documents. The observations of the former Lord Chief Justice of England, Sir Edward Coke, more than three centuries ago, that “fraud avoids all judicial acts, ecclesiastical or temporal”, noticed by the Supreme Court in S.P. Chengalvaraya Naidu v. Jagannath, AIR 1994 SC 853, are apt for the instant case. The Apex Court has also observed that an act of deliberate deception with the design of securing something by taking unfair advantage of another is a “fraud”. “Fraud” is a cheating intended to get an advantage. A person whose case is based on falsehood has no right to seek 6 CUSAP No.1 of 2011 relief in equity. Recently in Commissioner of Customs v. Essar Oil Ltd., (2004) 11 SCC 364, their Lordships of the Supreme Court have observed that it is a fraud in law if a party makes representations, which he knows to be false, and injury enures therefrom although the motive from which the representations proceeded may not have been bad. Therefore, at the outset, we reject the stand of the petitioners that since the goods were in fact, exported, and the proceeds were realised, no contumacious conduct could be attributed to them and perhaps it was a misadventure on the part of their representatives. It does not matter whether the forged certificates were furnished by the petitioners or their representatives. What is material is that representations were made to the Directorate of Foreign Trade either by them or on their behalf; the Joint Director of Foreign Trade acted on these representations and issued the DEPBs. The petitioners were fully aware that remittances had not been received, through the bankers whose certificates had been furnished. It clearly shows the fraudulent motive. Being the ultimate beneficiaries of the DEPBs, they cannot be heard to say that they are innocent. 17. In The Commissioner of Customs, Commissionerate, The Mall, Amritsar v. M/s. Parker Industries, Jalandhar (2007(207) ELT 658, a Division Bench of this Court after referring to judgment of the Hon’ble Supreme Court in Delhi Development Authority v. Skipper Construction Company (P) Limited, AIR 1996 SC 2005 observed:- “In Delhi Development Authority v. Skipper Construction Company ()P) Limited, AIR 1996 SC 2005, the Hon'ble Supreme Court considered the concept of resulting trust and equity. It was held that where a person earned properties by smuggling or other illegal activities, all such properties whether standing in his name or in the name of his relations or associates will be forfeited to the State. Though, the question herein is not of forfeiture of property illegally acquired but on parity, a person committing fraud is required to restore the benefits taken and cannot be heard to say that since the benefit was 7 CUSAP No.1 of 2011 transferred to an innocent person and since an innocent person cannot be punished, such a person should also be exonerated.” 18. .......Even as per scheme of exemption, exemption was subject to export proceedings being realised within six months, which in the present case, were never realised.....” 19. It is settled principle of common law that a purchaser steps into the shoes of the seller and does not acquire better title than the seller. This principle has also been recognized under Section 27 of the Sales of Goods Act, 1932. 20. The charge of duty is on the goods under Section 12 of the Act unless a case of exemption is made out, irrespective of intention of any person.” xx xx xx xx xx 24. For the purpose of duty, the Tribunal has clearly held that the documents being forged, the appellant could not be allowed to take advantage of exemption. The Tribunal noticed that the firm with whom the appellant entered into the transaction was not traceable. The appellant itself had come to the conclusion that the documents were forged. In these circumstances, if further opportunity has been given to the appellant on its own asking and for its own benefit, we do not find any error in the course adopted by the Tribunal so as to give rise to substantial question of law sought to be raised.” 7. As regards the issue raised by way of questions F to I, in Show Cause Notice, it was stated as under:- 13. The extended period of five years is invocable under proviso to Section 28(1) of the Customs Act, 1962 as the DEPB Scrip was obtained fraudulently by the Exporter by forging/substituting the Export 8 CUSAP No.1 of 2011 documents and by making mis-representation/ mis- statement before the Licensing Authority. But for the DEPB Scrip obtained fraudulently the importer would not have been able to import the goods duty free under Notification No.34/97-Cus dated 7.4.1997. Moreover, in terms of Hon’ble Supreme Court Judgment in the case of Commissioner of Customs Vs. Candid Enterprises 2001 (130) ELT 404 (SC) fraud nullifies everything and limitation does not apply.” In the Order-in-original, on the issue of limitation, it was observed:- “From the forgoing, it is evident that DEPB Scrip was got issued to M/s JAS Knitwears by mis-declaring the export goods in order to avail higher export incentives. The same DEPB Scrip was ab-initio cancelled by the licensing authority. In this context, I find that similar issues can up for consideration before the Hon’ble Tribunal in the case of ICI India Ltd. Vs. Commissioner of Customs, Calcutta cited as 2003 (151) DLT 336 (Tri-Del). After considering the facts of that case and the case law on the subject, the Hon’ble Tribunal observed that “Fake document is ab-initio unlawful and void such document cannot give rise to any right or benefit in law”. It was also held that “No benefit could accrue to their holder and no credit of duty could be taken on them-Denial of benefit of Notification No.34/97-CUS upheld”. The Tribunal disposed off the appeal by affirming the confiscation of duty demand along with the interest under Section 28 AA of the Act and affirmed the order of confiscation 9 CUSAP No.1 of 2011 of goods under Section 111(o) observing that since the DEPB licence was null and void ab-initio, no credit of duty was available to the appellants against those scrips and the paramount condition under the Notification was not fulfilled by the importer and held the appellants liable to pay duty. M/s Friends Trading Co. have also raised the issue of limitation, I find that in the present case, the DEPB Scrip that was used by them towards debit of duty has been cancelled ab-initio by Jt. DGFT, Ludhiana as the same was obtained by forging and mis-declaration. In the light of the Hon’ble Supreme Court Judgment in the case, the Commissioner of Customs Vs. Candid Enterprises, 2001(130) ELT 404 (SC), it is clear that fraud nullifies everything and limitation does not apply. In view of cited case, limitation period doesn’t apply in the present case and duty is recoverable from M/s Friends Trading Co. Majith Mandi, Amritsar.” The Commissioner (Appeals) observed:- “.... I find that this aspect of limitation also stand answered in para 4 of the above judgement (i.e. M/s ICI INDIA LIMITED VS COMMISSIONER OF CUSTOMS (PORT), CALCUTTA reported as 2005 (184) ELT 339 (Cal) referred to above which says that if the document itself having been found to be forged whether there was collusion or fraud on the part of appellants in the issue of DEPB licence/scrips becomes absolutely immaterial and irrelevant since no credit can be derived from a forged DEPB. Therefore, the extended period has rightly been invoked by the adjudicating authority and this view stands 10 CUSAP No.1 of 2011 categorically upheld in light of observation of the Hon’ble High Court in above referred judgement highlighted in its para 4. Therefore, I concur with the view taken by adjudicating authority.” The Tribunal observed as under:- “12. When the Assessee acquired DEPB scrips from market without being an original acquirer, as an abundant caution, to avoid evil consequence of fraudulently obtained scrips, could have safeguarded its interest causing enquiry from JDGFT as to genuineness of the scrips. But that was not done. The appellant failed to acquire no title over the scrips but became beneficiary of ill got scrips. Notificational benefit was availed at the cost of public exchequer which is required to be surrendered for the undue gain made. Bona fides was not established by the appellant failing to cause enquiry from JDGFT. When such bona fide is not established the appellant shall not avail the benefit of the ratio laid down by Hon’ble High Court of Punjab & Haryana in the case of CC V. Leader Valves Ltd.-2007 (218) ELT 349 (P&H) which has been approved by Hon’ble Supreme Court as reported in CC V. Leader Valves Ltd. – 2008(227) ELT A29 (SC).” 8. Learned counsel for the appellant submitted that even where DEPB scrip is forged and obtained fraudulently, resulting in wrongful availment of benefit of import duty and loss to public revenue, extended period of limitation could not be invoked in 11 CUSAP No.1 of 2011 absence of finding of suppression or mis-statement by the importer who is successor of holder of such document. Distinction must be made between a document which is non- existent and fraudulent and a document which has not been genuinely obtained by complying with the requisite conditions. 9. We are unable to accept the submission. Finding recorded by the Tribunal, reproduced above, shows that action of the petitioner was not bonafide. In any case, the proviso is not limited to action of an importer who comes forward to take advantage on the basis of fraudulently obtained or forged DEPB, it also covers action of the predecessor of the importer. Importer who steps into the shoes of seller of forged document does not stand on better footing and cannot be allowed to retain benefit illegally obtained. Taint attaching to the document on the basis of which benefit is taken is not washed of. Fraud or suppression continues if document is not genuine. Any other interpretation will defeat the intendment of the proviso to Section 28 and will enable fraud to be perpetuated without any remedy. Even if case of criminal liability or penality may stand on different footing, purchaser or successor of fraudulently obtained DEPB stands in the same position as his predecessor. If the extended period of limitation could be invoked against the original holder of fraudulent or forged DEPB, the same could be invoked against successor or purchaser. The judgments relied upon on behalf of the petitioner are distinguishable. The matter is covered by view 12 CUSAP No.1 of 2011 taken by this Court earlier which has been followed by the Tribunal. Thus, we are unable to hold that any substantial question of law arises. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE February 02, 2011 ( AJAY KUMAR MITTAL ) ashwani JUDGE 13