The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld the recovery of customs duty forgone against exporters involved in fraudulently obtaining FPS scrips.
The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) has observed that beyond any shadow of doubt, section 28 of the Customs Act was not and is not a legal provision to recover duties foregone from the persons to whom any instruments (such as FPS scrips) are issued.
The appellant/assessee has challenged the demands of duty foregone have been confirmed in the impugned order under section 28.
The department submitted that the appellant exporters had, by mis-representation, obtained FPS scrips from the DGFT and transferred them to others and others imported goods using these scrips. Since the scrips were obtained through mis-representation and in violation of various provisions of the Foreign Trade Policy, the duty foregone, i.e., the duty which the transferees of the scrips would have paid but which they had not by using the scrips is ordered to be recovered under section 28 from the appellant exporters.
Read More: No Service Tax On Reimbursable Expenses Incurred By Customs House Agent On Behalf Of Clients: CESTAT
It is a matter of record that the FPS scrips were issued by the DGFT office in Amritsar. Investigations by the Customs authorities revealed several mis-representations regarding the exports based on which the FPS scrips were issued. These were communicated to the DGFT and there was a letter from DGFT Amritsar that action is being taken. However, there is nothing on record that the FPS scrips have been cancelled ab initio by DGFT. The Commissioner of Customs has no power or authority under the FTP to either issue or to modify or cancel FPS scrips.
Section 28 provides for recovery of duty not levied, not paid, short levied or short paid from the person responsible to pay the duty, i.e., the importer. A notice to recover it can be issued within a normal period of one year or an extended period of five years if the non levy, short levy, etc. is due to fraud, mis-representation or suppression of facts by the person responsible to pay the duty or his agent.
The persons responsible to pay the duty are the importers and not the exporters whose scrips they used. Of course, it is an anamolous situation if the exporter obtains scrips by fraud or mis- representation and transfers them for a consideration and the importer uses them instead of paying duty. Once the fraud is discovered, the liability to pay duty will be on the importer and not on the exporter who had actually committed the fraud or misrepresentation.
To fill this lacuna, section 28AAA was introduced in 2012 to enable recovery of such duty from the exporter.
Section 28AAA relates to recovery of duties in certain cases where an instrument issued to a person has been obtained by him by means of collusion; or wilful misstatement; or suppression of facts.
The note was issued by the Finance Minister when introducing the Finance Bill 2012 explains its purpose. The provisions of the Customs Act enable recovery of duty not-levied, or short-levied by reason of collusion, or willful misstatement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter. Certain cases have been detected relating to utilisation of instruments, such as duty credit scrips, where the instrument was obtained by means of collusion or wilful mis-statement or suppression of facts by the person to whom the instrument was issued or his agent or employee and not by the importer who utilised it. A new section 28AAA is being inserted to provide for recovery of duties, from the person to whom the instrument was issued without prejudice to any action that may be taken against the importer.
The tribunal held that the demand of duties foregone under section 28 from exporter-appellants, including the interest on such duties, cannot be sustained and needs to be set aside. The penalties imposed under section 114A which are linked to demands of duty under section 28 also cannot be sustained and need to be set aside.
Case Title: Smt. Vishakha Arora Versus Commissioner Of Customs- -New Delhi(Icd Tkd)
Case No.: Customs Appeal No. 50468 Of 2021
Date: 09/09/2024
Counsel For Appellant: None
Counsel For Respondent: S K Rahman
