Authority: High Court at Calcutta (Special Jurisdiction – Original Side)

Order Date: Not stated

Case Overview

  • Parties: Appellant – M/s. Comet Overseas Pvt. Ltd.; Respondent – Customs Authority. Other entities mentioned: Gemini Overseas Ltd., Sri Shyam Sundar Lath (Director, Gemini Overseas), Shri Shyam Sundar Shah (CMD, Eastern Silk Industries Ltd.).
  • Licence Details: DFIA Licence No. 0210100847 dated 16‑05‑2007, purchased by the appellant for Rs.14,51,795 through proper banking channels via Customs House Agent M/s. S.K. Saha & Co. The licence was one of 23 Duty Free Import Authorisation licences issued to Gemini Overseas Ltd. under Notification No. 40/2006‑Cus dated 01‑05‑2006 for duty‑free import of Mulberry Raw Silk, Dupion Silk Yarn, and Reeled Tassar Yarn. It was endorsed transferable by the Regional Authority upon certification of export‑obligation fulfilment.
  • Import: Using the licence, the appellant imported Mulberry Raw Silk Yarn duty‑free vide Bill of Entry No. 437910 dated 22‑10‑2008 at Kolkata Port. Assessable value Rs.74,03,414.08; duty foregone Rs.22,87,654.95.
  • Fraud Discovery: Directorate of Revenue Intelligence found that Gemini Overseas exported fabric made of Noil Yarn while falsely declaring it as Natural Silk Fabric (predominantly Mulberry Raw Silk). Interceptions occurred at N.S. Dock, Kolkata on 12‑13‑11‑2008 and at Eastern Silk Industries Ltd., Falta SEZ on 15‑11‑2008. Central Silk Board test reports confirmed Noil Yarn mixed with cotton. Gemini Overseas admitted on 02‑01‑2009 that export documents were incorrect and expressed willingness to pay duty foregone on the three transferable licences, including the one in question.
  • Show Cause Notice: Issued jointly on 11‑05‑2012 to the appellant, Gemini Overseas Ltd., Sri Shyam Sundar Lath and Shri Shyam Sundar Shah, demanding recovery of duty Rs.22,87,654.95 with interest, confiscation under Section 111(o), and penalty under Section 112. The notice made no allegation of collusion, wilful mis‑statement or suppression against the appellant.
  • CESTAT Proceedings: Original order dated 28‑02‑2014 confirmed duty demand, redemption fine of Rs.15,00,000 (Section 125) and penalty of Rs.10,00,000 (Section 112). CESTAT, by order dated 22‑12‑2015, set aside the penalty (finding appellant had no knowledge of the goods’ nature) but upheld duty, interest and redemption fine.
  • High Court Admission: Appeal admitted on 19‑09‑2019. One substantial question of law framed: Whether a bona‑fide purchaser of a duty‑free import licence for value can be required to pay duty, interest and redemption fine when he had no notice of any irregularity and the licence is not cancelled?
  • Legal Submissions: Appellant relied on East India Commercial Co. Ltd., Collector of Customs, Bombay v. Sneha Sales Corp., Taparia Overseas (P) Ltd. v. Union of India, and argued that a licence obtained by fraud is voidable, not void, and remains effective until cancelled. Respondent argued that fraud at the export‑obligation certification stage vitiates the licence, making it incapable of conferring exemption, and that extended limitation under Section 28 could be invoked.
  • Threshold Objection on Limitation: Respondent sought to raise limitation as an independent ground, but the Court declined, noting no question of limitation was framed at admission and no application was made to introduce it later.

Final Outcome

  • The Court held that the DFIA licence, having never been cancelled by DGFT or the Regional Authority, is voidable rather than void and remained a valid, subsisting instrument at the time of the appellant’s import.
  • As a bona‑fide purchaser for value without notice of the fraud, the appellant cannot be fastened with liability for duty, interest, or redemption fine.
  • The substantial question of law is answered in favour of the appellant.
  • The appeal is allowed. The CESTAT order dated 22‑12‑2015 is set aside insofar as it upholds the demand of duty Rs.22,87,654.95, interest thereon, and redemption fine Rs.15,00,000; these demands are quashed. The setting aside of the Section 112 penalty by CESTAT remains undisturbed.
  • No order as to costs.
  • An urgent certified copy of the order may be supplied upon compliance with formalities.

Topics: Duty‑Free Import Licence, Customs Duty Waiver, Bona Fide Purchaser