CESTAT Mumbai Rules Importer Entitled To DEPB Benefit Despite Subsequent Cancellation Of Scrips

The Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal has held that Saguna Poultry Farm Ltd. cannot be denied duty exemption on imports made using DEPB scrips that were valid at the time of use, even if those scrips were cancelled later. DEPB (Duty Entitlement Pass Book) scrips are transferable licences issued to exporters that can be used to pay customs duty on imports.

“The scrips were valid when they were utilized by the appellant. Subsequent cancellation would have no impact.”

A bench of President Justice Dilip Gupta and Technical Member P. Anjani Kumar set aside the order of the Commissioner (Appeals) and allowed the company's appeal.

The dispute arose after Saguna Poultry Farm purchased DEPB licences through banking channels and used them to file two Bills of Entry dated February 26, 2011 and March 19, 2011.

A show cause notice issued on March 6, 2014 alleged that the licences had been fraudulently obtained by the original holder and were later cancelled, making the importer liable for duty, interest, and penalty.

It was not the case of the department that the DEPB scrips were forged or not genuine, but that they had been issued on the basis of fraudulent documents.

The Additional Commissioner denied the benefit of the scrips, and this was upheld by the Commissioner (Appeals), who relied on the Punjab and Haryana High Court's ruling in Friends Trading Co.

Before the tribunal, the importer drew a distinction between forged licences and those actually issued by the Directorate General of Foreign Trade but later cancelled because of fraud by the original holder.

The bench found merit in this. It said that once a licence has been issued by the competent authority and remains valid at the time of import, the exemption cannot be denied simply because the licence is cancelled at a later stage.

That reasoning also undercut the reliance placed by the Commissioner (Appeals) on Friends Trading Co. The Tribunal noted that the precedent dealt with forged scrips, unlike the present case, where the scrips were genuinely issued.

With that, the appellate order could not stand. The Tribunal set it aside and allowed the appeal.

For Appellant: Advocate Akhilesh Kangsia with Apoorva Parihar,

For Respondent: Deepak Sharma, Authorized Representative for the Respondent