Bombay High Court Orders Refund in FPS License Fraud Case

The Bombay High Court, while directing the refund to the petitioner-exporter, noted that the customs department has failed to investigate allegations of fraudulent re-registration of the Focus Product Scheme (FPS) license.

“It is also clear that no investigation has been conducted and SIIB(X), JNCH has only adopted a shortcut approach without investigating to trace the full truth. This method is unacceptable and has to be degraded. The Additional Commissioner of Customs has also accepted that, in view of the incomplete investigation and lack of proper evidence, it is not justified to confirm charges against the petitioner. Additional Commissioner of Customs has stated that he is not authorized to cause any further investigation and no conclusive decision can be taken for or against the party, and he is constrained to not alter the original order. We find this conclusion rather strange, and it is this conclusion with which the petitioner is upset,” the bench of Justice K.R. Shriram and Justice Jitendra Jain remarked.

The petitioner is engaged in the export of agricultural commodities, products, and spices from various ports in India. The petitioner is a three-star export house recognized by the Government of India and has been allotted Import Export Code (IEC) No. 0700012770.

Under the Focus Product Scheme (FPS) implemented by the Directorate General of Foreign Trade (DGFT) under the Foreign Trade (Development and Regulation) Act, 1992 and Rules made thereunder and under Chapter 3 of the Foreign Trade Policy, a person, upon export of goods and upon realization of the foreign exchange, as an incentive for exports, is entitled to receive duty credit scrips. These scrips can be utilized to discharge customs duty payable on imports. These scrips are commonly referred to as FPS licenses and are freely transferable. There are no restrictions.

Against the exports made by petitioner during the year 2014, DGFT issued to petitioner FPS license dated 24th September 2014 for a value of Rs. 20,65,447. As the FPS license was freely transferable, the petitioner sold the FPS license to one M/s. Ashish Enterprises, Mumbai.

M/s. Ashish Enterprises, Mumbai, registered the FPS license at Chennai Port on or about 30th September 2014. The M/s. Ashish Enterprises sold it to one M/s. R.K. Exports, Mumbai, and finally the FPS license was utilized for the purpose of customs duty payment at Nhava Sheva Port by one Mitashi Edutainment Pvt. Ltd. against two Bills of Entry.

The department realized that the FPS license was fraudulently re-registered at Nhava Sheva Port on or about 26th December 2014 in the name of the petitioner. It also came to be known to the Revenue that the FPS license was misutilized at ICD Tughlakabad via Bills of Entry No. 7892759 dated 5th January 2015 and 8311586 dated 16th February 2015 filed by one M/s. City Graphics and one M/s. GFC Weld House, respectively, through Customs Broking. In response to summons issued under Section 108, the petitioner submitted details in respect of obtaining the said FPS license and its sale to M/s. Ashish Enterprises, Mumbai. A representative of the petitioner also appeared before the department, and his statement under Section 108 was recorded. Petitioner’s representative, one Paresh Gadhvi, denied any role of the petitioner in the fraudulent re-registration of the said FPS license and its excess utilization/misutilisation. This has been admitted in the orders passed by the department/respondent. At the same time, when petitioner realized in September 2017 or thereabout that an alert was placed on its IEC, which resulted in its export shipments being held up at various ports, petitioner approached the office of the Revenue.

The petitioner was orally told to pay the customs duty along with interest and a mandatory penalty of 15%. Finding no other alternative, as its shipments were held up, the petitioner wrote a letter after paying a total amount of Rs. 29,73,352 on 13th September 2017. Of this, Rs. 20,65,153 was towards customs duty, and interest was Rs. 9,08,194. It is the department’s case that the petitioner, by its letter dated September 14, 2017, admitted to paying the amount of Rs. 29,73,352 and also waived any show cause notice. Petitioner, according to respondents, was ready to pay the mandatory penalty of 15% also.

The amounts were paid since its shipments were held up at various ports, and, therefore, as recorded in the show cause notice, since September 27, 2017, the petitioner has been addressing various communications for a refund of the amount paid, stating that the amount was paid under protest. Petitioner is seeking refund of not only the customs duty and interest but is also seeking refund that it paid towards the mandatory penalty. Petitioner is claiming refund of a total amount of Rs. 32,83,126.

The alert on the petitioner’s IEC was removed. The adjudicating authority decided to adopt a shortcut approach. The adjudicating authority did not consider any of the submissions of petitioner or deal with any submissions made by petitioner during the personal hearing but passed a non-speaking order simply saying that recovery has been made from petitioner and, therefore, nothing further has to be done. The adjudicating authority does not even give a finding against petitioner but simply relies on provisions of Section 28AAA of the Act to hold petitioner liable to pay the customs duty along with interest for excess utilization or misutilization of the FPS license. The adjudicating authority also recorded that the petitioner has paid the amounts. Thereafter, it has only reproduced Sections 28(4), 28(5), and 28(6) and straightaway passed the order without any discussion.

The adjudicating authority directed the duty amount and the interest amount paid to be appropriated in accordance with Section 28AAA(1) and Section 28AAA(2), respectively, and the penalty amount in accordance with Section 28(6). The adjudicating authority does not discuss anywhere how Section 28AAA is applicable to petitioner and how the amounts could be appropriated under Section 28(6) when petitioner’s stand consistently has been that it was paid under protest.

As per Section 28AAA of the Customs Act, 1962, it will not be applicable to the petitioner’s as the department has accepted the fact that the petitioner had sold the FPS license to M/s. Ashish Enterprises, who sold it to M/s. R.K. Exports, who then sold the same to Mitashi Entertainment Pvt. Ltd. Nowhere is it alleged that the petitioner has obtained any FPS license by means of collusion or willful suppression of facts.

The court directed the customs department to investigate how a forged scrip was registered at JNCH and how a re-registered license was used by two importers in ICD Tughlakabad.

The court allowed the petition and directed the department to refund the amount of Rs. 32,83,126 to the petitioner together with applicable interest from 1st October 2017 till payment in accordance with law, and this amount shall be paid to the account registered with the department within four weeks of this order being lodged with the department. At the time of refunding, the petitioner shall give a bond or indemnity as required by the department in accordance with law.