DFIA License purchased by Bonafide Importer from Fraudulent License Holder is Voidable at the option of Issuing Authority: CESTAT quashes order of Confiscation and Demand of Customs Duty

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata has held that the Duty-Free Import Authorization (DFIA) License purchased by the Bonafide Importer from Fraudulent License Holder which is not cancelled at the time of Import is Voidable at the option of the Issuing Authority.

The CESTAT quashed the Order of confiscation and demand of customs duty passed by the Commissioner of Customs (Port), Kolkata citing the absence of Fraud, Forgery or Misrepresentation on the part of the importer.

The case revolved around the utilisation of DFIA licenses by various importers from a fraudulent license holder named Maa Jawala Enterprises who are engaged in deceptive practices by misdeclaring the description, quantity and value of the goods during export.

It was found that Maa Jawala Enterprises had fraudulently obtained 18 DFIA licenses for betel nut powder exports and 13 of these licenses were then sold to different importers including M/s. Wadhwani Commodities Trading, Mr. Chandra Prakash Wadhwani, Shri Mahendra Kumar Modi, Shri Chandan Shah, Shri Soumen Das, Shri Siyanda Goel, M/s. Perfect Cardamom & Spices Marketing Company Limited, M/s. Shree Shyam Trader and M/s. Bajrang Expo.

Four export consignments, comprising 20 containers, were intercepted at the Haldia dock complex, which were seen transported to Malaysia under the DFIA scheme. The declared goods were “Processed Betel Nut (Supari) Powder”, but upon physical examination, only 188 MT of goods in 3760 HDPE woven sacks were found, which is significantly less than the declared 400 MT in 8000 bags. The goods were found to be dust/waste from a gutkha and panmasala factory, rendering them practically worthless.

Subsequently, the export consignments were seized under Section 110 of the Customs Act, 1962.

Show Cause Notice (SCN) was issued to the appellants alleging that they were not entitled to claim duty exemption on the imports made against the fraudulently obtained DFIA licenses. The appellants were also accused of collusion and wilful misstatement to defraud the revenue.

The appellant exporters, represented by Shri Prakash Sah and Shri Arijit Chakraborty argued that they were bonafide purchasers of the licenses, having acquired them from Maa Jawala Enterprises after thorough verification and legitimate payment procedures through recognised banking channels.

The appellants claimed that the case was not about fake or forged licenses but rather centered on mis-declarations in the shipping bill during the export process.

The respondent Revenue, Commissioner of Customs (Port), Kolkata represented by Shri S Chakraborty reiterated the findings.

The CESTAT highlighted that the licenses used for import were indeed valid at the time of import and noted that these licenses had also been made transferable by the Directorate General of Foreign Trade (DGFT) following due verification.

The bench clarified that the appellants were found to have acted in bonafide belief and good faith and had no knowledge of any fraud or misrepresentation by the original license holder.

The two-member bench consisting of Mr. Ashok Jindal (Judicial Member) and Mr. K. Anpazhakan (Technical Member) concluded that the licenses were only voidable and not void, meaning they could be used until cancelled by the issuing authority.

The CESTAT also highlighted that the licenses were revoked long after the imports had been made by the appellants.

The bench clarified that the licenses obtained are voidable, allowing them to be utilised until formally invalidated by the concerned authorities. However, the bench made it clear that the licenses in question shall not be forged.

In result, the confiscation order and the demand of customs duty along with interest and penalty imposed on the appellants were deemed invalid, as the licenses used for import were confirmed to be valid and properly made transferable by the DGFT. Consequently, all penalties imposed on the appellants were also set aside.

This bench clarified the validity and applicability of licenses acquired from fraudulent license holders by bonafide importers. It reinforced that the importers acting in good faith are not liable to pay penalties and duty in cases where the elements of fraud, forgery or misrepresentation are not present.

To Read the full text of the Order CLICK HERE
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