Duty Demand on DFIA Imports Set Aside: CESTAT Rules Extended Limitation Cannot Apply to Bona Fide Transferee [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), set aside a duty demand raised by invoking the extended limitation period under the Customs Act, 1962, holding that a bona fide transferee of Duty-Free Import Authorisation (DFIA) licences cannot be saddled with liability when the alleged misrepresentation pertains only to the original exporter.

Indras Agencies Pvt. Ltd., the appellant, had imported three consignments of patchouli oil during 2012-2013 using two DFIA licences originally issued to Pan Parag India Ltd., Kanpur for export of pan masala and gutkha. These licences had been validly transferred to the appellant, and Customs officers had verified them at the time of import before permitting clearance.

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Subsequently, investigations were launched into various exporters, including Pan Parag India Ltd., alleging irregular exports and non-disclosure of technical characteristics of essential oils used in export products. Based on these allegations, the Directorate General of Foreign Trade (DGFT) issued a Show Cause Notice proposing cancellation of the licences ab initio.

Treating the licences as having been obtained through wilful suppression by the exporter, the department issued a Show Cause Notice (SCN) to the appellant demanding ₹25,12,280 in duty, plus interest under Section 28 of the Customs Act, 1962, by invoking the extended limitation period. The Adjudicating Authority confirmed the demand, and the Commissioner (Appeals) upheld the order. The appellant then approached the Tribunal.

Represented by Advocate K. T. K. Priyadarshini, the appellant, argued that there was no allegation nor any evidence of misrepresentation, suppression or collusion on their part and they had purchased the DFIA licences in good faith in accordance with law.. It was contended that any subsequent proceedings by DGFT against the exporter cannot retrospectively invalidate imports made against licences that were unquestionably valid on the dates of use.

Since the extended limitation under Section 28(4) of the Customs Act, 1962, can be invoked only when the importer has indulged in collusion, wilful misstatement or suppression. Since the SCN issued to the appellant did not allege any such conduct, invocation of the extended period was legally untenable.

Represented by Anandalakshmi Ganeshram, the department argued that investigations by the Directorate of Revenue Intelligence had revealed that several DFIA licences, including those issued to Pan Parag India Ltd., were obtained by suppressing essential details regarding the inputs used in the manufacture of exported goods. It was submitted that DGFT had already initiated proceedings to cancel such licences ab initio and that, therefore, duty foregone on imports made by the appellant required recovery under Section 28 of the Customs Act, 1962.

The bench of Judicial Member, Ajayan T. V. and Technical Member, M. Ajit Kumar observed that the SCN issued to the appellant consisted of allegations of misrepresentation and suppression pertained solely to the exporter who originally obtained the DFIA licences. The Tribunal noted that there was no allegation whatsoever that the appellant had committed any wilful misstatement, suppression, or collusion.

The Bench in the light of Section 28(4) of the Customs Act, 1962, permits invocation of the extended five-year period only when such conduct is attributed to the person from whom the duty is sought to be recovered. Thus, the foundational condition for invoking the extended limitation period was absent.

Since there was no evidence to show that the DFIA licences had been cancelled ab initio or that the appellant had any knowledge of alleged defects in the licences. Therefore, the licences were valid and subsisting on the dates they were used for import.

Further, the Tribunal drew a clear distinction between licences that are forged and licences that are validly issued but later found to have been obtained through misrepresentation. A forged licence is void ab initio and cannot confer any title, whereas a validly issued licence is at best voidable and remains operative until cancelled.

Applying this principle, the Bench held that the appellant, having purchased and used validly issued DFIA licences, acquired good title to the licences and could not be treated as a party to any alleged misconduct by the exporter. The CESTAT therefore set aside the order and allowed the appeal with consequential relief.

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