Section 28AAA Customs Act applies post-DGFT ab initio scrip cancellation for wilful misdeclaration; duty recoverable from issuer when third party utilises; employee penalty set aside if company penalised and admission voluntary.

BINU TAMTA:

1. Challenge in the present appeals is to the confirmation of the show cause notice issued under the provisions of Section 28AAA of the Customs Act, 1962, The Act for having fraudulently obtained three Service Export from India Scrips, SEIS by falsely declaring the services exported as „Management Consulting Services‟ under Central Product Classification, CPC 86503 though in fact, the services rendered were „Information Technology and IT – Enabled Services‟ classifiable under Division 84 of the UN–CPC.

2. The factual matrix of the case is that the appellant is a wholly owned subsidiary of M/s. Metric Stream, Inc, USA and is engaged in the business of providing „Information Technology Software Services‟/‟IT Enabled Services‟ related to „Computer Programming‟, „Consultancy and related Services‟ in terms of the Master Service Agreement with its parent company. The appellant had filed an application under Service Export from Indian Scheme with respect to „Marketing Support Services‟ provided to the parent company. Based on the investigations by DRI, it appeared that the IT services provided by the appellant were not eligible for SEIS benefit in terms of Trade Notice No.4/2018. During the course of investigation, statement of Shri Rajesh Shetty, Chief Financial Officer of the appellant was recorded under Section 108 of the Act, wherein he admitted that they were not eligible for SEIS benefits in respect of „Marketing Support Services‟ provided by their company and accordingly, voluntarily made payment of SEIS duty vide challan dated July 11, 2019 along with applicable interest. As the scrips were freely transferable in terms of the Foreign Trade Policy read with sub-clause 2(5) of Notification No.25/2015-Cus dated April 8, 2015, the appellant had transferred the SEIS scrips issued to them through M/s. FTS India Pvt. Ltd., Mumbai to M/s. MMTC PAMP India Pvt. Ltd., Gurugram, Haryana, who utilized these SEIS scripts for payment of duties against imports made by them during the period 2015-2016, 2016-2017 and 2017-2018.

3. On the basis of the investigation, the Dy. Director General of Foreign Trade, DGFT, Bengaluru issued show cause notice dated August 11, 2020 to the appellant for cancellation of licences/scrips and penalty thereof. Vide order dated March 26, 2021, Addl. DGFT, Bengaluru cancelled 3 SEIS scrips issued to the appellant.

4. Subsequently, show cause notice dated December 9, 2021 was issued by DRI under the provisions of Section 28sAAA of the Act as the appellant had mis-declared their exported services in ANF-3B Form and fraudulently obtained SEIS scrips and subsequently transferred or sold the scrips to MMTC, who utilized the same for their imports. In view thereof, the duty amounting to Rs.2,05,06,646/- was demanded along with interest and penalty under Section 112(a), 114AB and 114AA. Also proposed confiscation of the goods under Section 111(m) and 111(o) of the Act. On adjudication, the ld. Commissioner held that the appellant deliberately and wilfully mis-represented the nature of the services rendered to their foreign parent company before DGFT and obtained SEIS scrips, to which they were not entitled to and therefore, they were liable to pay duty equal to the amount of scrips utilized in terms of the provisions of Se