The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a customs duty demand of ₹6.04 lakh raised against importer, holding that a bona fide importer who purchased transferable Duty Free Import Authorisation (DFIA) licences cannot be saddled with duty liability when the licences were never cancelled and the allegations against the original exporter had already failed before the Tribunal.
The Bench of Justice P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) allowed the appeal and ruled that the extended period of limitation under Section 28(4) of the Customs Act, 1962 had been invoked without any justification. Consequently quashed the impugned order and granted consequential relief to the importer.
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The dispute arose from investigations conducted by the Directorate of Revenue Intelligence (DRI) into alleged misuse of the DFIA scheme by several exporters, including Pan Parag India Ltd., Kothari Products Ltd., Kothari Food and Fragrances, and Shiv Shakthi Agri Foods Ltd. The investigation alleged that these exporters had failed to disclose the technical characteristics, quality and specifications of essential oils used in the manufacture of pan masala and gutkha while claiming DFIA benefits under the Foreign Trade Policy.
The Customs Department issued show cause notices to several importers who had subsequently utilised transferable DFIA licences originally issued to those exporters. Karnataka Aromas was one such importer. The Department demanded ₹6,04,511, representing customs duty allegedly forgone through the use of the DFIA licences, along with applicable interest under Sections 28AA and 28AB of the Customs Act. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the order, prompting the importer to approach the Tribunal.
Roshil Nichani, the Counsel on behalf of the assessee argued that the very foundation of the Department’s case had collapsed because the Delhi Bench of the CESTAT had, in Pan Parag India Ltd. & Others, held that the Revenue failed to establish that the exported goods differed in quality, technical characteristics or specifications from those declared by the exporter. The Tribunal in that case had also found that Customs proceedings were unsustainable where the Directorate General of Foreign Trade (DGFT) had already dealt with the matter.
The importer further relied upon an earlier decision of the Chennai Bench in Indras Agencies Pvt. Ltd., involving substantially similar facts and the same exporter, where the Tribunal had held that duty demands invoking the extended limitation period against bona fide purchasers of transferable DFIA licences were not sustainable.
The Tribunal observed that the Delhi Bench had already dropped the demand against the exporter and noted that the DGFT had imposed only penalties without cancelling the DFIA licences. Since the licences themselves remained valid, the Tribunal held that the importer could not be accused of participating in any fraudulent scheme merely because it had utilised transferable licences lawfully available in the market.
The Bench concluded that the allegations against Karnataka Aromas remained unproved and that there was no material to establish fraud or suppression on the part of the importer.
According to the Tribunal, in the absence of evidence linking the importer to any fraudulent conduct and with the licences continuing to remain valid, the Customs Department had no basis to invoke the extended limitation period under Section 28(4) of the Customs Act.
The Tribunal held that the Department had failed to justify invocation of the extended period of limitation. It observed that both on merits and on limitation, the charge against the importer could not survive. Consequently, the impugned order was set aside and the appeal was allowed with consequential benefits in accordance with law.
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