Relief for India Cements: CESTAT Holds Innocent Buyers Cannot Be Denied DEPB Scrip Benefits for Fraudulently Obtained Licences Unless Cancelled by DGFT [Read Order]

The Chennai Bench of the Customs, Excise, andService Tax Appellate Tribunal (CESTAT) ruled that DEPB scrip benefits cannot be denied to innocent transferee importers if the licences, though fraudulently obtained by the original holder, were validly issued by the DGFT and not cancelled at the time of imports.

India Cements Ltd. and Seshasayee Paper and Boards Ltd., the appellants, had purchased DEPB licences from the market and used them to import goods. Investigations revealed that the original licence holder, CEEAN Commerce Pvt. Ltd., had obtained these licences fraudulently by filing false export documents.

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The Commissioner of Customs confirmed duty demands with interest and imposed penalties under Section 114A of the Customs Act, 1962, holding that the appellants were not entitled to the benefit of such licences. Aggrieved, the appellants filed appeals before the Tribunal.

The appellants’ counsel argued that the DGFT had validly issued the licences and were not cancelled at the time of imports. They submitted that innocent purchasers who bought licences in good faith could not be penalised.

They distinguished between fake or forged licences, which are void ab initio, and licences fraudulently obtained but validly issued, which remain effective until cancelled by the competent authority. They also argued that the demand was time-barred and penalties were not sustainable.

The revenue’s counsel countered that since the licences were obtained by fraud, the appellants could not claim benefits. She relied on judgments such as Munjal Showa Ltd. and Farida Prime Tannery to support the view that fraud vitiates everything and that the benefit of duty exemption could not be extended in such cases.

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The two-member bench comprising M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member) observed that a distinction must be drawn between fake or forged licences, which were never issued by DGFT and are void from the outset, and licences obtained by misrepresentation but issued by DGFT, which remain valid until cancelled.

The tribunal explained that the Principle “fraud vitiates everything” does not apply against innocent transferee importers for valid, uncancelled licences. It pointed out that unless the DGFT cancels such licences, Customs authorities cannot deny their validity.

Based on these findings, the tribunal set aside the impugned order and allowed the appeals filed by India Cements Ltd. and Seshasayee Paper and Boards Ltd. The demands of duty, interest, and penalties were quashed, and the appellants were held eligible for consequential relief as per law.

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