CESTAT Rules, ADG DRI Does Not Have Power To Declare DEPB Scripts Issued By DGFT Null And Void
Sangeetha Prathap
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Additional Director General of the Directorate of Revenue Intelligence (ADG, DRI) has no authority to declare Duty Entitlement Pass Book (DEPB) scrips issued by the Directorate General of Foreign Trade (DGFT) as null and void. The Tribunal ruled that neither the DRI nor the Commissioner of Customs can override or invalidate the scrips issued by the competent licensing authority under the Foreign Trade (Development and Regulation) Act, 1992.
The bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) was dealing with a batch of 21 appeals arising from a common order passed by the Commissioner of Customs, Air Cargo Complex, New Delhi. The Commissioner had accepted the DRI’s stance that several exporters—M/s J. Minakshi International, M/s JAY ESS International, and M/s Kanishka International—had filed false declarations, obtained drawback and DEPB scrips fraudulently, and that the scrips were therefore ab initio void. Importers who used these scrips, along with certain bank officials and a Chartered Accountant, were subjected to duty demands and penalties.
According to the DRI, the exporters had procured goods from the open market but falsely declared them as goods manufactured without availing CENVAT credit to claim higher All Industry Rate drawback. It was further alleged that the exporters deposited foreign currency in their accounts using multiple Currency Declaration Forms and secured Bank Realisation Certificates (BRCs) on the strength of such deposits. Based on these findings, the DRI concluded that the DEPB scrips were obtained fraudulently and were void from inception.
The Tribunal examined the legality of this conclusion and noted that DEPB scrips were issued by DGFT, not by the DRI or the Commissioner. Emphasizing that the Customs Act does not empower customs officers to nullify or negate the validity of scrips issued under the Foreign Trade Policy, the Tribunal held that “nothing in the Customs Act gives either the ADG DRI or the Commissioner of Customs or any other Customs Officer the power to declare the DEPB scrips issued by the DGFT null and void.” It observed that even if the DGFT issued the scrips on the basis of misrepresentation, these scrips are merely voidable at the instance of the DGFT and not void in the hands of the transferee. For this reason, the Tribunal held that the DRI could only have referred their findings to DGFT for appropriate action but could not themselves invalidate the licences.
CESTAT relied on its earlier decision in Apar Industries Ltd. v. Commissioner of Customs (Export Promotion), Mumbai, where it was held that duties cannot be demanded from importers who have used scrips validly issued by the DGFT, even if the scrips were later found to have been obtained by fraud. The emphasis in that case, echoed by the present bench, was that a scrip valid on the date of import confers entitlement to duty exemption, and such entitlement cannot be retrospectively disturbed by customs authorities.
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On the Commissioner’s reliance on section 125(2) of the Customs Act to demand duty from importers, the Tribunal held that this provision does not authorize any independent duty demand. It observed that no goods had been seized or confiscated, nor was any redemption fine imposed; hence section 125(2) had no application. The correct provision for demanding duty is section 28, and any demand under section 125(2) was therefore without authority of law.
CESTAT also rejected the penalties imposed on the importers under section 112. The Tribunal found no basis to conclude that the imported goods were liable for confiscation under section 111. The goods were neither prohibited nor imported in violation of any condition of exemption. Since the importers had purchased the scrips in good faith and customs officers themselves had accepted them during assessment, there was no material to establish any contravention warranting confiscation or penalty.
Regarding the BRCs, the Tribunal held that the DRI and the Commissioner acted without jurisdiction in holding the certificates invalid. It clarified that BRCs are issued under guidelines framed by the Reserve Bank of India under FEMA, and only RBI has the authority to examine their correctness. The Tribunal stated that the DRI could have sent its findings to the RBI for further action, but could not adjudicate upon the validity of the certificates themselves.
Consequently, the Tribunal set aside the penalties imposed under section 114(i) on the five bank officials and on the Chartered Accountant. It noted that the goods had already been exported, and goods already exported cannot be subjected to confiscation under section 113. Since penalties under section 114 are linked to acts or omissions rendering goods liable to confiscation, they could not be sustained once confiscation itself was legally untenable.
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In conclusion, the Tribunal allowed all 21 appeals. It held that the DEPB scrips issued by DGFT could not have been declared null and void by the DRI or the Commissioner, and all consequential demands and penalties based on such findings stood vitiated. The impugned order was set aside to the extent it concerned the appellants, and they were held entitled to consequential relief.
Appearance
Counsel for Appellant/ Assessee: Shri B.L. Narasimhan, Shri Anurag Kapur, Ms. Rubel Bareja, Shri Arun Goyal, Ms. Bharti Badesra, Shri Shivleen Pasricha, Shri Krishnendu, Shri B. Bhushan, Ms. Nidhi Gupta, Shri Shubham Singh, Shri R.M. Saxena, Shri B.L. Garg, Shri Anil Kumar and Ms. Shreya Dahiya
Counsel for Respondent/ Department: Girijesh Kumar
Cause Title: Pankaj Chordia v. The Commissioner of Customs, Cargo Complex
Case No: Customs Appeal No. 50453 Of 2023
Coram: Justice Dilip Gupta (President), P.V. Subba Rao (Technical Member)
