Duty has to be demanded in accordance with law and not on the basis of equity or on moral consideration
This weekend edition of DDT consists of only case laws.
Here is a classic case of how only Revenue can really mess up its own Act.
Somebody is charged with manipulating export documents and thereby obtaining higher duty entitlement licences which were sold and the buyer of the licence imported duty free.
What should the department do? They asked the exporter to pay duty on the imports made by the purchaser of the licence. Naturally the Tribunal held that duty is to be demanded from the importer and not the one who sold the licence. Revenue went to the High Court with some academic questions and got a big banging. Revenue is lost; prestige is lost; case is lost and the whole world is told that you don’t know your own laws and you don’t know how to protect your revenue. Isn’t Revenue too serious a matter to be left to these officers?
What the Tribunal said:
JE, Mumbai applied for and obtained 12 advance licences and DEEC books. These documents conferred upon it the right to import polyester filament yarn, dyes and bronze powder, subject to these being utilised in the manufacture of polyester filament, the specified quantity of which were to be exported, or as replenishment used to make the exported product. JE manipulated documents such as test reports and invoices to show that it had exported fabrics of weight and length considerably greater than what actually was exported. In accordance with the provisions of the Policy, where the export obligation has been fulfilled, the import licence can be transferred. These licences were utilised by various persons to import the goods specified therein without payment of duty in terms of Notification 204/92. On their importation, the importers claimed, and were granted the benefit of exemption.
Investigations made by the department subsequent to the import, revealed the fact that much of what had been claimed to be exported was not exported at all. These resulted in the notice to JE and many others similarly. The notices demanded duty on the imported goods on the actual importer of the goods, the purchaser of the transferred licences. They also demanded duty from the exporter, in this case JE. Penalties were proposed on its importers and exporters among others.
In his order, the Commissioner said that since JE reaped in the benefit of the sale of the import licences it must bear the consequence after the malpractices have been detected.
The Tribunal observed, “Now this is a very fine concept in terms of equity. In those terms it is only fair that it is those persons who have borne the benefit who should bear the consequence. However, the Commissioner, and we are concerned, not with the equity but with the application of law the recovery of duty must be in accordance with the provisions of the law. The provision for recovery of such duty is Section 28 of the Act. This section provides for recovery of duty non-levied, short-levied or erroneously refunded “from the person chargeable with duty”. Such a person “chargeable with duty” would be the importer in the case of import duty and the exporter in the case of export duty. The definition of the term “importer” under Section 2(26) is wide enough not to recover only to the person who causes the import of the goods but to any owner or the person holding himself out to be the importer at any time between their importation and their clearance for home consumption.
During the investigation a sum of Rs. 1.01 crores had been deposited by JE, of which Rs. 89 lakhs has been appropriated towards the duty and penalty. The Commissioner in his order has directed refund of the remaining amount (Rs. 12 lakhs). The counsel for the appellant says that then it has not been paid. In addition to the consequential relief flowing out of this order, we direct refund of the amount ordered by the Commissioner.
Did Revenue grant the Refund? Are you joking? Revenue is not about giving refunds! Revenue filed a reference application before the High Court and a stay petition before the CESTAT.
The CESTAT observed,
We have seen the text of the advice given by the Ministry of Law to the referring Commissioner in which the order of the Tribunal has been termed as “absurd”. We are pained at this irreverent and irresponsible remark. The Law on this subject is so well established that it should be known even to the Ministry of Law. We do not wish to express any further views on these unfortunate ulterances of that Ministry.
We would however refer to another portion in the said advice. It has been brought out that inspite of the detection of the frauds way back in 1995. The Customs authorities held their hands. They did not arrest the wrong doers and possibly did not put them under detention. It is indeed surprising after 7 years, the revenue is making a great show of indignation and injured innocence; and is filing an application for not returning the money which was collected without any authority of law.
The entire manner in which the Commissioner proceeded in stating his position has left us with a deep sense of anguish. We do not see any reason to accede to his request, but would, in terms of the authority vested in us under Rule 41 of the CEGAT (Procedure) Rules, direct the said Commissioner to refund the amounts due to the appellants.
Did Revenue pay the refund?
No, but they deposited the money in the High Court and filed a ROM before the Tribunal which was dismissed.
In the Reference to the High Court Revenue asked three questions:-
1. Whether exports made by manipulating and forging the documents and creating false records and exporting items other than that declared in the shipping bill are liable for confiscation?
2. Whether the licence obtained by manipulation and forging the documents for creating false record so that the requirement of the DEEC scheme is fulfilled, is valid and legal?
3. Whether the licence holder or the transferee of the licence obtained by manipulation and forging documents are entitled to import validly, illegally and exempted from payment of duty?
The High Court found all these questions irrelevant as
1.The Commissioner had not confiscated any goods and even the Commissioner had accepted that the transferee of the licence cannot be touched.
2.Validity of the licence has to be determined by DGFT and not Customs.
3.Regarding the eligibility of the transferee, it is settled that he is not bound by the fraud of the transferor.
In the mean time, they (importer) filed a writ petition in the High Court asking for refund of the money paid by them. And they won.
All because of Revenue’s incompetence – As the Tribunal said, the revenue is making a great show of indignation and injured innocence; - after colossal incompetence.
Revenue is sure that somebody has manipulated and obtained duty free licence fraudulently, which they sold to somebody who imported goods duty free. But they could not do anything, because they did not know how to implement the law and they thought that equity, morals and helplessness could replace provisions of the Statute.