The liability of the original DEPB holder for fraudulently obtaining and transferring DEPBs, and the consequences for the transferee, as established by the court.

1. This order will dispose of Custom Act Appeal Nos. 1 to 5 of 2006, as common questions of facts and law are involved between the same parties. Facts have been noticed from Custom Act Appeal No. 1 of 2006.

2. This appeal has been preferred by the revenue against the order dated 7-2-2005 passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (for short, #24;the Tribunal#25;) in C/Stay 2921-2925/04-NB(S) in A. No. C/638-42/04-NB(S), proposing following questions of law :-

#28;(i Whether the CESTAT is justified in applying ratio of the law laid down by the Bombay High Court in the case of Taparia Overseas (P) Limited v. UOI reported as 2003 (161) E.L.T. 47 (Bom.) for granting relief upon penalty, to original DEPB holder who committed fraud without distinguishing the fact that in the case of Taparia Overseas Hon#25;ble Bombay High Court decided the matter in respect of beneficiary of the DEPB i.e., to whom forged DEPB was transferred by the original DEPB holder? (ii) Whether the CESTAT is justified in allowing same treatment to the committee of the fraud and beneficiary of the DEPB who purchased it in bona fide manner? (ii ) Whether the CESTAT is justified in absolving the Respondents i.e., original holder of the DEPB, who obtained it by fraudulent means and then transferred it, holding that the licences were valid at the time of import ignoring the fact that the penalty was imposed in fitness to mala fide acts of the respondents? (iv Is it not that the CESTAT order is not speaking in nature? The order has been passed at the stage of hearing the stay application, without discussing merits of the case of the Revenue as brought forward in the show cause notice and discussed in the Order-in-Original, on the basis of facts of the case?

3. Case of the revenue is that the assessee forged Bank Certificate of Exports and Realization (BCE&R) with a view to avail benefits under Duty Entitlement Pass Books (DEPB) under which an exporter is entitled to duty exemption. When the fraud committed came to light, the Joint Director General of Foreign Trade (JDGFT) cancelled the DEPBs issued in favour of the respondent vide order dated 16-1-2002.The assessee transferred one of the DEPBs to M/s. Shiraj International Company, Amritsar, who effected imports on that basis. Though, proceedings were initiated against M/s. Shiraj International Company, but no penalty was imposed as their plea that they were bona fide transferee of DEPBs for consideration, without notice of any allegation of fraud, was accepted. Finding recorded by the adjudicating authority in its order dated 28-4-2004 is as under :-

#28;However, I find nothing on record to infer that M/s. Shiraj International Co. Amritsar had purchased the freely transferable DEPB scrip otherwise than in a bona fide manner and utilized the same towards debit/exemption of duty and there is nothing to suggest of his having colluded with the exporter who obtained the DEPB scrips by fraudulent manner. Therefore, I do not hold them liable to penal action under Section 112 of the Customs Act, 1962#29;

4. However, duty was directed to be recovered and penalty was imposed on the respondent-assessee.

5. On appeal to the Tribunal accepted the plea of the assessee that since penalty was not imposed on the importer for importing goods against invalid DEPBs, no penalty could be imposed on the assessee-respondent and that the licence was valid till cancellation.

6. Learned Counsel for the revenue submitted that the Tribunal was in error in treating the case of the respondent, who was guilty of forging BCE&R and thereby illegally securing DEPB, which was transferred to M/s. Shiraj International Company Limited which led to illegal import at par with M/s. Shiraj International Company (transferee of the DEPB). The transferee may be acting bona fide without notice of the fraud and may not be liable to penalty but the respondent who committed the fraud could not be treated at par and is liable