Pranav B Prem

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld the demand of customs duty and imposition of penalty on M/s Raja Ram and Company and its partner, Jinender Kumar Jain, ruling that forged Duty Free Scrips used for clearing import consignments were void ab initio. The Tribunal emphasized that “fraud vitiates everything” and that importers cannot escape liability by pleading ignorance of the fraud committed using forged documents.

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The bench comprising Justice Dilip Gupta (President) and Ms. Hemambika R. Priya (Technical Member) dismissed two appeals—one by the importing firm M/s Raja Ram and Company and the other by its partner Jinender Jain—challenging an order passed by the Principal Commissioner of Customs (Import), Inland Container Depot (ICD), Tughlakabad. The impugned order had confirmed customs duty demands under Section 28(4) of the Customs Act, 1962, along with interest and penalties under Sections 114A, 114AA, and 112(b)(ii) of the Act.

Background

Raja Ram and Company, engaged in the import and trading of paper and paper products, had used 16 fraudulent Duty Free Scrips to clear 18 consignments between January 2014 and June 2015. The Directorate of Revenue Intelligence (DRI) and Customs Department uncovered a sophisticated fraud wherein several importers, including the appellant, had used fake or manipulated scrips for duty-free imports.

The investigation revealed that Sharafat Hussain, a “G” Card holder of M/s Kirti Cargo—a customs broker—was at the center of the operation. He, along with one Vinod Kumar Pathror, gained unauthorized access to the Customs EDI system using departmental login credentials. They manipulated scrip data by altering dates, enhancing duty values, and re-registering non-existent or tampered scrips. Sharafat routed payments and documentation through companies he controlled, including Zealous Overseas Pvt. Ltd., Zealous International, Fibertech, and Fiber Exim.

These forged scrips were then used to pay duties on imports by Raja Ram and Company without any verification of authenticity or possession of the original scrips.

Show Cause and Principal Commissioner’s Order

A detailed show cause notice was issued alleging that the firm intentionally used non-existent or manipulated Duty Free Scrips, evading customs duty amounting to ₹65,42,549 on goods valued at over ₹4 crore. It was alleged that the firm misdeclared scrip particulars in their Bills of Entry and that the duty was debited against forged entries in the Customs EDI system, not legitimate DGFT-issued scrips.

The Principal Commissioner found that the importer did not possess the scrips nor did they verify their genuineness, and had instead allowed their customs broker and his associates to determine which scrips were to be used. It was further found that bills for customs clearance were not even raised by M/s Kirti Cargo but by other firms controlled by Sharafat Hussain, which the appellant failed to question.

The Commissioner held that since the scrips were forged and void ab initio, the benefit of duty exemption could not be granted. The importer’s failure to exercise basic diligence amounted to collusion, justifying invocation of the extended limitation period and imposition of penalty.

CESTAT’s Findings and Rationale

CESTAT dismissed the argument that the appellants were unaware of the fraud. It observed that Raja Ram and Company did not physically verify any scrips, never questioned the use of multiple companies by Sharafat Hussain for billing, and essentially outsourced the entire duty payment process to him without oversight. The Tribunal held that this conduct clearly fell short of the standard of care expected from importers and attracted the principle of caveat emptor (buyer beware).

Quoting the Supreme Court's decision in Munjal Showa Ltd. v. CCE and decisions in Nidhi Enterprises [2022 (11) TMI 869- CESTAT New Delhi] and Bimal Paper Pvt. Ltd., the Tribunal reiterated that once it is established that the scrips used are forged or manipulated, they are deemed void ab initio, and the importer is liable to pay customs duty regardless of their claimed non-involvement in the fraud.

The Tribunal emphasized: “The importer cannot be permitted to take the plea that they were not involved in the fraud or forgery, even though the scrips were forged... Fraud vitiates everything, and no benefit can be claimed through an instrument that is null and void at inception.”

The Tribunal also rejected the request for adjournment on the ground that writ petitions involving similar issues were pending before the Delhi High Court. It found no stay order barring adjudication and noted that the pending cases had no bearing on the present appeals.

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Verdict

CESTAT held that both the confirmation of customs duty and imposition of penalties were legally justified. It dismissed both appeals and upheld the order passed by the Principal Commissioner. The Tribunal concluded: “In this view of the matter, the confirmation of customs duty with interest upon Raja Ram and Company and imposition of penalty upon Jinender Jain is justified.”

Appearance

Shri Vijai Kumar, Advocate for the Appellant

Shri Nagendra Yadav, Authorized Representative of the Department

Cause Title: M/s Raja Ram And Company V. Customs Principal Commissioner

Case No: Customs Appeal No. 50242 of 2020

Coram: Justice Dilip Gupta [President], Ms. Hemambika R. Priya [Technical Member]

[Read/Download order]