Importer Must Verify Genuineness Of Duty Scrips Used For Customs Clearance, Can't Shift Responsibility To Agent: Delhi High Court

The Delhi High Court has held that an importer, being the ultimate beneficiary of duty benefits, has the responsibility to verify the genuineness of duty credit scrips used for customs clearance.

The Division Bench of Justices Anil Kshetarpal and Shail Jain held that an importer cannot escape liability for forged or manipulated scrips by shifting the blame to its agent.

The Court was dealing with a batch of six customs appeals and 41 writ petitions arising from an investigation into large-scale customs duty evasion through forged and manipulated duty credit scrips used by importers of paper and paper articles between 2011 and 2015.

The investigation revealed that digital records of scrips in the Customs EDI (Electronic Data Interchange) system were manipulated by artificially enhancing their value, reusing scrips whose entitlement had already been exhausted, or using scrips which did not exist in the Directorate General of Foreign Trade records. The importers had utilised these forged and manipulated scrips towards payment of customs duty.

The importers contended that they were unaware of the fraud and that the responsibility lay with their customs clearance agent.

Rejecting the contention, the Court noted that the importer had itself authorised M/s Zealous International, through its proprietor Sharafat Hussain, to undertake customs clearance operations without verifying whether the entity possessed a valid Customs Broker licence.

“Since the fraudulent/forged/manipulated scrips were utilised for clearance of goods imported by the Appellant, the responsibility to verify the genuineness, validity and lawful entitlement of such scrips rested upon the Appellant, being the importer and the ultimate beneficiary of the duty benefit, which it failed to do,” it held.

The Court also held that merely because the instrument was reflected in official records (Customs EDI) does not absolve the beneficiary (Appellant) from undertaking due diligence regarding the underlying entitlement, particularly when such benefit is being claimed for discharge of statutory liabilities.

“the Appellant has failed to establish any verification exercise undertaken by it before relying upon the disputed scrips. There is no material on record to demonstrate that the Appellant verified the genuineness of the scrips from the issuing authority, examined the underlying entitlement granted by the DGFT, or undertook any independent enquiry before availing the duty benefit...the Appellant having failed to make necessary enquiries cannot invoke estoppel to shift the consequences of its own negligence.”

The Court further held that the importers could not claim protection as bona fide purchasers under Section 41 of the Transfer of Property Act, 1882. It observed that the enhanced entitlement reflected in the EDI system had never been validly granted by the competent authority and its transfer could not confer an entitlement greater than what had lawfully been granted.

The principle of nemo dat quod non habet, the Court said, remained applicable to the excess entitlement reflected in the manipulated EDI records.

The Court also upheld the penalty imposed under Section 114A of the Customs Act, 1962. It said,

“penalty under Section 114A of the Act of 1962 does not require that the importer must personally execute such fraudulent act. Where the duty benefit has been obtained by suppression of material facts, wilful misstatement or fraudulent reliance upon an invalid entitlement, the statutory consequences necessarily follow.”

But the Court set aside the separate penalty under Section 112 for improper import of goods. It said,

“The last proviso to Section 114A further manifests the legislative intent that where penalty is imposed under the said provision, no separate penalty shall be leviable under Section 112 or Section 114 of the Act of 1962.”

For Appellant: Mr Kamal Mehta Senior Advocate with Dr Sushil Kumar Gupta and Ms. Anshika Kumari Advs.

For Respondent: Mr. Vikrant Nilesh Goyal, Mr. Inderpreet Singh, Mr. Kunal Dixit, Advs. Mr. Gibran Naushad, SSC.

Case Title: Parveen Kumar Jain v. Principal Commissioner Of Customs (Import) Icd, Tkd, New Delhi and connected matters

Case no.: CUSAA 82/2023 and batch

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