Nippon Bearing Pvt. Ltd. vs Commissioner of Customs (Export)

These appeals were argued together and are being disposed of by this common order. The facts in Customs Appeal No. 52/2012 are referred to. These appeals question the order passed by the 2014 (303) ELT 454

In the submission of Mr. Jain, learned counsel appearing for the Appellants, these appeals raise a substantial question of law and particularly as formulated by the appellants.

Mr. Jain submits that some reference to the facts would be necessary to appreciate his argument. It is submitted that the Advance Licence No. 03014593 was issued on 22nd November, 1996 in favour of M/s. Amrit Laxmi Machine Works against its past export of textile machinery. The overall value of the licence was set out and the Licencee was permitted import of 248 pieces of bearings of specified specifications. It is stated that there are 4 amendments made to the licence and the validity period was extended up to 21st May, 1999. In February, 1999 one Mr. Vakaria introduced Mr. Manharlal Vohra and Mr. Ashwin Mehta to the licence holder i.e. M/s. Amrit Laxmi Machine Works following which an Memorandum of Understanding (MoU) was executed between Mr. Ahwin Mehta and the licence holder M/s. Amrit Laxmi Machine Works. It was agreed that if the licence is made transferable by the Licencing Authority and the said Authority amends the licence to cover the bearings generally instead of those with particular specifications, then, they are interested in purchasing the said licence at an agreed premium. Thereafter, the licence and other documents were handed over to. Mr. Vohra and Mr. Mehta for engaging a Consultant. The Consultant was, thus, engaged for applying to the Licensing Authority and for carrying out the requisite amendments in the Licence. On account of the efforts made by the Consultant, the Licensing Authority substituted the list of bearings which could be imported under the licence. It also provided that an individual CIF value restriction shown against each import item stood deleted. Thereafter, a reference is made to the consignments and which were imported by M/s. Amrit Laxmi Machine Works.

Mr. Jain submits that in September, 1999 the original copy of the Licence was misplaced by Mr. Mehta who also lodged the First Information Report to that effect with the Police Station. At that stage, another licence consultant was engaged for obtaining duplicate copy of the Licence, so also, for obtaining permission for transferability thereof. It is in these circumstances that on 13th October, 1999 an application for enhancement of the value of the Licence was made by M/s. Amrit Laxmi Machine Works. A duplicate licence was issued on 22nd November, 1999 by the Director General of Foreign Trade. Along with the licence, a list of items which could be imported was also issued on 8th December, 1999. The submission is that this list included 4248 pieces of bearings of diameter 10 mm and above. The licence was also revalidated upto 21st November, 1999 with transferability and the CIF value of the licence was also increased. Thus, imports were effected by different importers under cover of 15 Bills of Entry and those Bills of Entry were filed prior to suspension of the Licence and the goods were also cleared. Therefore, this was not a case where the show cause notice could have been issued or if issued, could have been proceeded further. The Adjudicating Authority was, therefore, in complete error in proceeding to adjudicate the show cause notice and imposing penalty, so also, confirming the demand.

Mr. Jain would submit that a substantial question of law is that there was no case of forgery. The delay in completing formalities of transferring the Licence and prior thereto, endorsing transferability thereon, would not make the import contrary to law attracting any duty leave alone any penalty. The imports were made prior to cancellation. The issuance of licence and it being lost and duplicate being issued with endorsement of transferability, would go to show that this is not a case of import against a forged licence so as to nullify the entire deal and transaction. Our attention is invited to paragraphs 6.20 and 6.21 of the order of the Tribunal and it is submitted that the new findings going beyond the show cause notice have been rendered. The precise submission is, therefore, that a substantial question of law would arise inasmuch as the Tribunal was not entitled to make out entirely a new case by going beyond the show cause notice and adjudication thereof.

It is then submitted that a substantial question of law would arise inasmuch as the Authority and the Tribunal have failed to understand the concept of invalidation of the licence and nullification of imported transaction. Mr. Jain submits that the licence which has been obtained by misrepresentation or fraud is not void, but is voidable and is valid till it is suspended or cancelled. In these circumstances that it is submitted that these appeals raise a substantial question of law.

On the other hand, it is submitted by Mr. Rao, learned counsel appearing for the Respondent/Revenue that these appeals do not raise any substantial question of law. There are clear findings of fact and which cannot be said to be vitiated. It is submitted that a substantial question of law as projected does not arise at all. The appellants were never taken by surprise nor there is any substance in the plea that the Tribunal has travelled beyond the show cause notice and made out a new case for the Revenue. It is submitted that all allegations which are part of the show cause notice were known to the appellants and they were aware of the case that they have to meet. This is not a matter where the licence was said to be subsisting. In fact the dates and events, as have unfolded, would go to show that a systematic fraud has been perpetrated on the Revenue and which affects a larger public interest. The design was to import the goods into India when the original Licencees were not interested in pursuing their case for renewal or revalidation. Taking advantage of such licence holders and by offering them some benefits, the parties like the appellants in connivance and in collusion have hatched a conspiracy to cheat the Revenue. That has been unearthed by the Authorities. Therefore, this is not a case where any error of law or perversity is committed warranting admission of these appeals. The appeals, therefore, be dismissed.

With the assistance of the learned counsel appearing for the parties, we have perused the impugned orders and some of the documents to which our attention has been invited. The Authorities have concurrently held that the MoU dated 12th February, 1999 shows that the Licence Holder was to receive approximately 32% of the value plus sales tax from the users of the licence. The licence holder received Rs. 50,000/- as advance in April, 1999. Further payments were made by adjustments in the books of account. It was then discovered during investigation that in May, 1999 in order to make the Licence transferable and to cause imports, Mr. Mehta used to issue letters to the office of the Director General of Foreign Trade, Mumbai for obtaining signatures of Mr. N.K. Brahmachari, who was associated with the licence holder firm. After signature, the same were returned to Mr. Mehta for submission to the Director General of Foreign trade. It is in these circumstances that on 18th August, 1999 an agreement was signed by M/s. Ankit International with M/s. Amrit Laxmi Machine Works for sale of the advance licence wherein the balance value available for importation was Rs. 17,03,052/-. Mr. Mehta lodged the First Information Report on 25th September, 1999 with the Police reporting loss of the original advance licence No. 030014593 dated 22nd November, 1996 along with DEEC book and at that stage, the licence had not been made transferable. The Authorities noted that the application in that behalf was made on 27th November, 1999. In the meanwhile, Mr. Mehta sent a draft letter to the Licence Holder M/s. Amrit Laxmi Machine Works addressed to the Joint Director General of Foreign Trade for issuance of a duplicate licence. That draft letter is dated 27th September, 1999 and it was submitted to the office of the Joint Director General of Foreign Trade after obtaining the signature of the licence holder. There was letter dated 18th November, 1999 from the office of the Director General of Foreign Trade and in response thereto, M/s. Amrit Laxmi Machine Works vide letter dated 29th November, 1999 informed about payment particulars of duty and CVD along with interest. However; all said payments were made by Mr. Mehta and Mr. Vora. The duplicate licence in lieu of the original licence and valid upto 21st May, 1999, was issued on 22nd November, 1999 and revalidated upto 21st November, 1999. Thus, the duty payment challans as directed by the Director General of Foreign Trade were after these dates. These facts have been noted in both orders and hence, the Authorities concurrently found that this was not a case where against a valid and subsisting licence that the imports were effected. This was a case where investigations revealed that the licence issued in the year 1996 was operative for a term, which was already over. In the garb of its loss being reported, an application was made for issuance of a duplicate licence. The parties were fully aware that the term of licence expired in May, 1999, yet the licence was made transferable after issuance of its duplicate. Then, it was transferred to M/s. Ankit International in December, 1999 and to be precise on 14th December, 1999. M/s. Ankit International apart from utilizing part of the licence for imports, also transferred the balance in the name of M/s. Nippon Bearings Pvt. Ltd., M/s. Shalin Enterprises, M/s. Hiral Overseas, M/s. Naman Enterprises and M/s. Devanti Enterprises. It is in these circumstances that we see no substance in the contention that the Tribunal failed to take note of the fact that the validity expired after the date of shipment. It is not the date of bill of lading, but shipment and it is prior to 24th December, 1999 that Mr. Jain would urge that the Tribunal erred in law in recording the findings adverse to the appellants. If on the date of import a valid licence is on record, then, this is not the case of forgery, is the submission of Mr. Jain.

We are not impressed by this argument and for the simple reason that the Tribunal has found that the original licence in the name of M/s. Amrit Laxmi Machine Works was valid up to 21th May, 1999. If the same was stated to be lost in September, 1999, the application for issuance of duplicate licence was made only in October, 1999. Pertinently, a duplicate licence was issued in November, 1999 in the name of original licence holder. In other words, when the Bills of Entry were filed on 19th August, 1999, there was no valid licence in the names of importer. There was no application for transferability made on 19th August, 1999 nor the licence was made transferable. Therefore, in respect of the Bills of Entry filed on 19th August, 1999 the question of extending benefits under the exemption notification does not arise. Similarly, in respect of 10 Bills of Entry filed on 28th December, 1999 the duplicate licence with transferability stood suspended on 24th December, 1999. Thus, there was no valid licence in the names of original importer on 28th December, 1999. As regards, the Bills of Entry filed on 15th and 20th December, 1999, the duplicate licence was issued on 22nd December, 1999 and the endorsement thereon clearly shows that the validity of the licence was at the best till May, 1999 or November, 1999. Thus, taking into account the grace period of validity the licence could have been valid up to the end of November, 1999. Hence, the finding of fact that in respect of all imports made there was no valid licence in favour of the importers at the time of importation and therefore, the denial of benefit of exemption notification, was rightly upheld.

It is in this context that we must appreciate the argument of Mr. Jain based on the judgment in Union of India and another Vs. Sampat Raj Dugar and another, . The whole emphasis of the argument is reliance on this judgment. In this case what the Hon''ble Supreme Court noted was that the second Respondent Ms. Renu Pahilaj was carrying on business in the name and style of "Acquarius" at Delhi. The first respondent before the Supreme Court was an Indian national residing abroad and doing business at Hong Kong in the name and style "Unisilk". The second Respondent obtained an advance import licence on 20th May 1985 for importing raw silk valid for a period of 18 months from the date of its issue. The import licence was granted subject to the condition that raw silk imported should be utilized for manufacturing garments which ought to be exported by the second Respondent. Some time prior to October, 1985, the second Respondent received three consignments, but she did not fulfill the above condition, During October-November, 1985, the first respondent exported certain quantities of raw silk in four lots, deliverable to the second respondent. The requisite documents were sent to the first respondent''s bankers with instruction to deliver the same to the second respondent on receiving the payment. When the said four consignments arrived at Mumbai, the second respondent appeared before the Customs Authorities and claimed the right to take delivery of the goods. By this time, the Customs Authorities had come to know of noncompliance of the above condition with respect to three earlier consignments and also of the alleged misrepresentation made by her while obtaining the advance import licence. Therefore, the proceedings were initiated against the second respondent and two others persons. The first respondent appeared in the said proceedings on his own and was heard. The second respondent failed to make the payment and receive the documents. She took no steps to clear the goods and rather she abandoned them. It is in these circumstances that the first respondent before the Supreme Court urged before the Collector of Customs that the title to the goods has not passed to the second Respondent, that he is still the owner of the goods and that the said goods cannot be confiscated or proceeded against for the violations, if any, committed by the second Respondent. He urged that he was not a party to the misuse of the earlier imports nor was he aware of the alleged fraud practiced by the second Respondent in obtaining the advance import licence. He, therefore, requested that he be permitted to re-export the goods to Hong Kong. While the said proceedings were pending before the Collector of Customs, the advance import licence granted to the second respondent was cancelled by the Competent Authority on 12th May 1986. No orders were passed with respect to the said goods. Thus, the Collector of Customs passed the order on 9th September, 1986 imposing penalty of Rs. 5 lacs on the second respondent. The penalties were also levied on other two persons said to be Associates of the second respondent. The first Respondent''s claim was rejected on the grounds, namely the advance import licence against which the said four consignments were imported has since been cancelled by the competent authority which means that there is no valid import licence for clearance of those goods; and since for re-export of the goods a valid import licence is necessary and because it is not there and also because the second respondent has abandoned the goods, permission for re-export cannot be granted. That is how the first respondent without preferring an appeal, directly challenged this order in the Bombay High Court by way of a Writ Petition and that Writ Petition was allowed and thereafter, the Letters Patent Appeal preferred by the Revenue was dismissed by the Division Bench.

It is in these circumstances that the findings relied upon by Mr. Jain must be noted. The Hon''ble Supreme Court, therefore, in the backdrop of these peculiar findings and conclusions, held that there may be cases where the importer opens a letter of credit and makes some other arrangement ensuring or guaranteeing payment of price of imported goods. In such case, it will be open to the Exporter in case of non-payment of price or abandonment by the importer, to collect the price by invoking such arrangement. In such case, it is obvious, the Exporter will not be allowed to claim the title to and/or to re-export the goods. It is, therefore, necessary that in all such cases, the Authority should issue a notice to the importer and/or his agent before allowing the Exporter to deal with or seek to re-export the goods. Since they were all present before the Collector of Customs as well as before the High Court that the Hon''ble Supreme Court, held in paragraph 21 as under:-

The next question is whether the import of the said goods was contrary to law in any manner and whether the said goods are liable to be confiscated under the Customs Act. The only provisions relied upon by the appellants are Clauses (d) and (o) in Section 111 of the Customs Act which we have set out hereinabove. In our opinion none of these clause are attracted in the present case. Clause (d) contemplates an import which is contrary to any prohibition imposed either by the Customs Act or any other law for the time being in force. No such prohibition can be pleaded in this case since on the date of the import the said goods were covered by a valid import licence. The subsequent cancellation of licence is of no relevance nor does it retrospectively render the import illegal. East India Commercial Co. Ltd.,Calcutta and Another Vs. The Collector of Customs, Calcutta, Clause (o) contemplates confiscation of goods which are exempted from duty subject to a condition, which condition is not observed by the importer. Occasion for taking action under this clause arises only when the condition is not observed within the period prescribed, if any, or where the period is not so prescribed, within a reasonable period. It, therefore, cannot be said that the said goods were liable to be confiscated on the date of their import under Clause (o). Further, merely because the second respondent had not complied with the condition imposed with respect to three earlier consignments, it may not be possible to presume that it would not be observed even with respect to the four consignments in question. Be that as it may, it is sufficient for the present to notice that so far no action has been taken on that account either under the Customs Act or u/s 4G of the Imports-Exports (Control) Act, 1947. Section 4G of 1947 Act is also conceived to meet such situation, as a reading thereof would disclose. It says that noncompliance with any condition of licence relating to utilisation of such goods renders the said goods liable to confiscation notwithstanding that such goods are mixed up with other goods or material. Even though a period of more than five years has passed by, no action has been taken either under the Customs Act or u/s 4G of Imports-Exports (Control) Act, though the import licence of the second respondent has been cancelled. We must presume in the circumstances that no such action was or is contemplated. In these circumstances the title of the first respondent to the said goods remains free of any cloud.

Therefore, the observations of the Hon''ble Supreme Court must be seen in this backdrop. If it was the case of the Revenue that the first respondent was party to conspiracy or other fraudulent plans sought to be implemented by the second respondent, then, different conclusions would have arisen. In these circumstances that the Hon''ble Supreme Court refused to interfere with the concurrent findings of this Court and dismissed the appeal of the Revenue.

This judgment has been rightly distinguished by the Tribunal in the case before us. The Tribunal, while dealing with the argument that the appellants were entitled for duty exemption as the licence was made transferable, but stood cancelled only on 24th December, 1999 and the imports made prior to this date were eligible for duty exemption, has rightly observed in paragraph 6.21 of the judgment that in this case there was no valid licence in the name of importers. The observations in the case of Sampat Raj Dugar (supra) have also been properly noted by the Tribunal. However, the Tribunal observed that in all these cases there was valid licence in the name of the importers at the time of importation which was subsequently cancelled for the reason that the licence was obtained by fraud or misrepresentation. Before the Tribunal and as noted by us, there was no valid licence in favour of the importers as the licence had expired or was not transferable. In none of the decisions cited before the Tribunal and us, the Hon''ble Supreme Court and this Court held that a licence should be held to be valid after its validity has expired or a licence could be used by a person other than the licence holder when the licence was non-transferable. By taking assistance of the judgment in the case of Sampat Raj Dugar (supra), the appellant before us cannot succeed are the conclusions arrived by the Tribunal.

We do not see how such findings of fact could be said to be vitiated. In fact the Tribunal has noted while imposing penalty on the partners and other persons that the original licence holder knew the manipulation and misrepresentation. He signed all documents for transferability and modification of items eligible for import. He was aware of all this because he was getting a huge consideration from the buyer of the licence. The connivance and collusion of the original licence holder and its Directors is clearly established. The justification for imposing penalty is based on the conclusion that there was no valid licence in the name of the importer. He could not have allowed filing of documents before the Customs Authorities. The licence was valid only up to 21st May 1999, yet the Bills of Entry were filed on 19th August, 1999, 15th December, 1999, 20th December, 1999 and 28th December, 1999 claiming benefits of duty exemption under the advance licensing scheme and particularly when no valid licence existed in the names of importer. This is, therefore, not a case of any minor or technical dereliction or breach of rules. The absence of valid licence in the names of importer and yet attempts being made to evade customs duty are rightly termed as fraud.

We are not impressed by any argument that the appellants were taken by surprise or that the Tribunal has travelled beyond the show cause notice. Each of these aspects that we have referred to, are mentioned in the show cause notice. The allegations are based thereon. The Tribunal found that there is no prejudice as the appellants were throughout aware about the case that they have to meet. The submissions made by Mr. Jain have been made in the proceedings before the Adjudicating Authority and the Tribunal. For all these reasons, we are of the opinion that none of the submissions canvassed raises a substantial question of law. In fact this is an attempt to have the findings and conclusions re-appreciated and reappraised. That is not permissible in our limited jurisdiction.

For the reasons aforenoted, each of these appeals fail and they are dismissed, but without any order as to costs. This order also disposes of the Customs Appeal No. 51/2012 filed by Ashwin Shantilal Mehta, which is not on Board today, as it is agreed, before us that common arguments are made and which pertain to this appeal as well. No costs.