Importers cannot evade customs liability for forged duty scrips by claiming to be bona fide purchasers, rules Delhi High Court

The batch comprised six Customs Appeals challenging orders of the Customs, Excise and Service Tax Appellate Tribunal and 41 writ petitions challenging Orders-in-Original passed by the Commissioner of Customs, ICD, Tughlakabad.

The proceedings arose from alleged large-scale evasion of customs duty between 2011 and 2015 through forged, manipulated, inflated, exhausted or fictitious transferable duty-credit scrips issued under schemes including DFIA, FPS, FMS, VKGUY and DEPB.

Show-cause notices were consequently issued proposing recovery of short-paid duty and interest, confiscation of goods, and penalties under Sections 112(b)(ii), 114A and 114AA of the Customs Act, 1962.

The importers contended that the original scrips, Bills of Entry and related documents were not supplied, that the alleged manipulation was confined to the Customs-controlled EDI system, and that cross-examination of Customs officers was wrongly denied.

The record also contained admissions that the importers had not independently verified the genuineness, validity or available balance of the scrips and had relied on their customs broker.

Whether an importer who has used forged, fabricated or manipulated transferable scrips can avoid liability by claiming to be a bona fide purchaser or by relying on the principle of caveat emptor?

Whether the non-production of the original scrips and allied documents, together with the denial of cross-examination of Customs officers, vitiated the adjudication for breach of natural justice or caused demonstrable prejudice?

Whether penalties under Sections 112(b) and 114A of the Customs Act, 1962 were legally sustainable where the importer claimed absence of actual knowledge of the manipulation?

Whether the connected writ petitions ought to be dismissed for failure to pursue the statutory appellate remedy, or could be disposed of on the basis of the findings in the Customs Appeals?

The Court applied Sections 28(4), 28AA, 46(4), 111(d), 111(o), 112(b), 114A, 114AA and 147 of the Customs Act, 1962: an importer is responsible for truthful declarations in the Bill of Entry, duty short-paid through fraud or suppression may be recovered within the extended limitation period, and acts of an authorised customs agent are presumed to have been done with the importer’s knowledge and consent unless the contrary is proved.

Sections 182, 186 and 226 of the Indian Contract Act, 1872 establish the relationship of agency and attribute acts performed within an agent’s authority to the principal.

Although Section 41 of the Transfer of Property Act, 1882 directly concerns transfers by an ostensible owner of immovable property, its underlying requirements of good faith, reasonable care and verification were applied analogically to the bona fide-purchaser claim; the Court relied on Hardev Singh v. Gurmail Singh, (2007) 2 SCC 404, for those requirements.

The maxim nemo dat quod non habet prevents transfer of an entitlement greater than that lawfully possessed, while caveat emptor requires a purchaser of transferable licences to undertake reasonable enquiries; the Court relied on Commissioner of Customs (Preventive) v. Aafloat Textiles India Pvt. Ltd., (2009) 11 SCC 18.

On evidentiary matters, Section 119 of the Bharatiya Sakshya Adhiniyam, 2023 was invoked regarding discretionary presumptions and adverse inference, with reliance on Pandurang Jivaji Apte v. Ramchandra Gangadhar Ashtekar, (1981) 4 SCC 569, that non-production of a document does not automatically warrant an adverse inference where the relevant facts are otherwise independently established.

Natural justice requires proof of actual prejudice, and denial of cross-examination is not by itself fatal.

The Court held that Sharafat Hussain was not an unrelated intermediary but an authorised representative entrusted with customs-clearance documents, preparation and processing of Bills of Entry, communication of duty liability and utilisation of scrips.

Under Section 147 of the Customs Act and the law of agency, his acts within the scope of that authority were attributable to the importers.

The importers had obtained the direct benefit of the manipulated scrips but had not verified their genuineness, DGFT entitlement, available balance or the authority of the entity undertaking clearance.

Accordingly, the genuine origin of a scrip did not validate an inflated entitlement recorded in the EDI system, and the importers could not claim bona fide-purchaser protection or rely on caveat emptor.

The Court further found that the Department’s case did not depend exclusively on the physical production of the original scrips.

DGFT records, EDI/ICES data, electronic transaction trails, the investigation into the modus operandi, and statements under Section 108 independently established the manipulation and short payment.

The importers’ own admissions showed that they had never undertaken the verification they claimed was denied to them; hence, they failed to demonstrate actual prejudice from non-production of documents or denial of cross-examination.

As to penalties, the Court reasoned that the absence of proof that the importers personally manipulated the EDI records did not eliminate the statutory consequences of filing Bills of Entry containing incorrect declarations and obtaining a duty benefit through invalid entitlements.

Since Section 114A applied, the statutory bar against a separate penalty under Section 112 operated; therefore, the Section 114A penalty was sustained but the separate Section 112(b) penalty was set aside.

The adjudication was not vitiated by non-production of the original scrips or denial of cross-examination because no demonstrable prejudice was established and the Department had produced substantial independent evidence.

Penalties under Section 114A of the Customs Act, 1962 were upheld, while the separate penalties under Section 112 were set aside.

The Court disposed of the Customs Appeals and connected writ petitions.

The same findings and directions were directed to apply mutatis mutandis to the connected writ petitions, and all pending applications were closed.