Comet Overseas Pvt. Ltd. v. Union of India

Form J(2)








              In The High Court at Calcutta


                        Special Jurisdiction


                          (Original Side)





     Coram: THE HON’BLE JUSTICE RAJARSHI BHARADWAJ,


                           And


              THE HON’BLE JUSTICE SUDIP DEB








                                       Reserved on        : 02.09.2026.


                                       Pronounced on : 15.09.2026





                            CUSTA 7 of 2016











     Comet Overseas Pvt. Ltd.                                ...Appellant





                                      -Vs-





     Union of India                                         ...Respondent








     Present:-





                  Mr. Agnibesh Sengupta, Adv.


                  Mr. Sanjay Baid, Adv.


                                                        …for the appellant





                   Mr. Uday Shankar Bhattacharya, Adv.


                                        ….. for the Customs Authority





Rajarshi Bharadwaj, J:


1.    The instant appeal, preferred under the Customs Act, 1962, is directed





against the order dated 22.12.2015 passed by the Customs, Excise and Service


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Tax Appellate Tribunal ("CESTAT"), whereby the Learned Tribunal partly allowed





the appellant's appeal against the Order-in-Original dated 28.02.2014, setting





aside the penalty of Rs.10,00,000/- imposed under Section 112 of the Customs





Act, 1962, but affirming the demand of duty of Rs.22,87,654.95/- with interest





and the redemption fine of Rs.15,00,000/- imposed under Section 125 of the





said Act. The appeal was admitted by this Court on 19.09.2019.





2.    The appellant, M/s. Comet Overseas Pvt. Ltd., is engaged in export-import





bulk commodity trading and is a subsequent purchaser and transferee of DFIA





Licence No. 0210100847 dated 16.05.2007. The said licence was one of 23 Duty





Free Import Authorisation licences obtained by M/s. Gemini Overseas Ltd. from





the Director General of Foreign Trade during 2007-08 and 2008-09, under





Notification No. 40/2006-Cus dated 01.05.2006, for duty-free import of





Mulberry Raw Silk of any grade, Dupion Silk Yarn, and Reeled Tassar Yarn. Of





the 23 licences, 3 were endorsed transferable by the Regional Authority upon





certification of fulfilment of export obligation by Gemini Overseas; Licence No.





0210100847 was one such licence, and was purchased by the appellant for





Rs.14,51,795/-, paid through proper banking channels, through Customs





House Agent M/s. S.K. Saha & Co.





3.    Acting on the said licence, the appellant imported Mulberry Raw Silk Yarn





duty-free vide Bill of Entry No. 437910 dated 22.10.2008 at Kolkata Port, the





assessable value being Rs.74,03,414.08/- and the duty foregone being





Rs. 22,87,654.95/-.





4.    Subsequently, intelligence gathered by the Directorate of Revenue





Intelligence indicated that Gemini Overseas had, for the purpose of discharging


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its export obligation, exported fabric made of Noil Yarn while falsely declaring





the same as Natural Silk Fabric predominantly of Mulberry Raw Silk.





Consignments were intercepted at N.S. Dock, Kolkata on 12-13.11.2008 and at





the factory of Eastern Silk Industries Ltd., Falta SEZ, on 15.11.2008; test





reports of the Central Silk Board on samples drawn from both interceptions





confirmed the fabric to be Noil Yarn mixed with cotton. By letter dated





02.01.2009, Gemini Overseas admitted that the description of goods in its





export documents was incorrect, that it stood to avail benefits not due to it, and





expressed willingness to pay the duty foregone on utilisation of the three





transferable licences, including the licence in question.





5.    A Show Cause Notice dated 11.05.2012 was thereafter issued jointly to





the appellant, Gemini Overseas Ltd., Sri Shyam Sundar Lath (Director, Gemini





Overseas) and Shri Shyam Sundar Shah (CMD, Eastern Silk Industries Ltd.),





calling upon them to show cause why duty of Rs.22,87,654.95/- should not be





recovered under the erstwhile proviso to Section 28(1) read with Section 28(4) of





the Customs Act, 1962, with interest; why the goods should not be confiscated





under Section 111(o); and why penalty should not be imposed under Section





112. It is significant, and a matter placed on the record before this Court, that





the Show Cause Notice, insofar as it concerns the appellant specifically





contains no allegation of collusion, wilful mis-statement, or suppression of facts





on the part of the appellant.





6.    The Order-in-Original dated 28.02.2014 confirmed the duty demand, the





redemption fine of Rs.15,00,000/- under Section 125, and a penalty of





Rs.10,00,000/- under Section 112. On appeal, CESTAT, by the impugned order


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dated 22.12.2015, set aside the penalty on the finding that the appellant had no





knowledge of the nature of the goods used and exported by Gemini





Overseas/Eastern Silk Industries, but upheld the demand of duty, interest, and





the redemption fine. It is undisputed that the DFIA licence in question has not,





on the record before this Court, been cancelled by the DGFT or the Regional





Authority to date.





7.    This Court, at the stage of admission on 19.09.2019, framed one





substantial question of law for consideration, which is reproduced verbatim:





"Whether a bona fide purchaser of duty-free import licence for value can be





required to pay duty, interest and redemption fine in respect of his import, when





he has no notice of any irregularity on the part of the exporter who had obtained





such licence and the licence is not cancelled by the authorities?" No question





relating to limitation was framed at the admission stage, nor was any such





question sought to be framed by the appellant at that stage.





8.    Learned Counsel appearing for the appellant submits that the DFIA





licence was validly issued by the DGFT, and that any fraud or mis-declaration





occurred subsequently, at the stage of certification of fulfilment of export





obligation by Gemini Overseas — an event distinct from and subsequent to





issuance. Relying on East India Commercial Co. Ltd., Calcutta v. Collector





of Customs, Calcutta [1962 AIR 1893; 1983 (13) E.L.T. 1342 (S.C.)] and





Collector of Customs, Bombay v. Sneha Sales Corporation [2000 (121)





E.L.T. 577 (S.C.)], counsel submits that a licence obtained by fraud is at best





voidable, not void, remains good and effective until avoided in the manner





prescribed by law, and — since the licence has, on this record, never been


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cancelled by the issuing authority — remained a valid and subsisting





instrument at the time of import.





9.    Learned Counsel for the appellant further submits, relying on Taparia





Overseas (P) Ltd. v. Union of India [2003 (161) E.L.T. 47 (Bom.), SLP





dismissed], that a transferee who purchases a duty-free licence for valuable





consideration, through proper banking channels, without notice of any fraud on





the part of the original licence-holder, is protected from being fastened with





duty, interest, and redemption fine liability, and that the maxim "fraud vitiates





everything" does not extend to defeat the rights of such an innocent transferee





for value.





10.   Learned Counsel for the appellant submits that the Show Cause Notice,





insofar as it concerns the appellant contains no allegation of collusion, wilful





mis-statement, or suppression of facts by the appellant, which is the statutory





precondition under the proviso to Section 28(1)/28(4) of the Customs Act, 1962,





as it stood at the relevant time, for invocation of the extended period of





limitation; in the absence of such allegation or finding against the appellant





specifically, the extended period could not validly have been invoked against it.





11.   Learned Counsel for the appellant submits that Tata Iron and Steel Co.





Ltd. v. Commissioner of Customs, Mumbai [2015 (319) E.L.T. 546 (S.C.)],





relied upon by the Revenue for the proposition that extended limitation may





operate against a transferee for suppression committed by the original licence-





holder, is a bare, short-form order rather than a reasoned judgment, discloses





no discernible ratio decidendi, and does not make clear whether it even involved


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a bona fide transferee for value; it ought not, therefore, to be treated as laying





down a binding proposition on the facts of the present case.





12.   Learned Counsel for the appellant submits that ICI India Ltd. v.





Commissioner of Customs (Port), Calcutta [2005 (184) E.L.T. 339 (Cal.), SLP





dismissed] and Munjal Showa Ltd. v. Commissioner of Customs & Central





Excise (Delhi-IV) [2022 (382) E.L.T. 145 (S.C.)], both relied upon by the





Revenue,     are   factually   distinguishable,    since    both     concerned     DEPB





scrips/licences found to be forged and never issued by the competent authority





at all — non-est instruments ab initio — whereas the DFIA licence here was





genuinely issued by the DGFT and validly endorsed transferable by the Regional





Authority; further, unlike a forged scrip whose status could have been verified





on the DGFT portal, no verification available to the appellant could have





revealed the fraud alleged to have occurred at the export-obligation stage.





13.   Learned Counsel for the appellant submits, in opposition to the Revenue's





threshold objection, that the question of limitation is a legitimate ground open





to be urged in support of the appeal notwithstanding that no separate question





was framed on it at admission, since it bears directly upon the validity of the





very demand which the framed question puts in issue.





14.   Learned Counsel appearing for the respondent submits that the fraud





practised by Gemini Overseas went to the very foundation of the licence — the





false declaration of the nature of goods exported in discharge of the export





obligation — and that, relying on ICI India and Munjal Showa, a duty-free





instrument     tainted   by    fraud,   whether    by      forgery   or   by     material





misrepresentation in procuring the certification necessary for its transferability,


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is rendered incapable in law of conferring exemption on any subsequent holder,





irrespective of that holder's personal innocence.





15.   Learned Counsel for the respondent submits that the absence of formal





cancellation of the licence by the DGFT or the Regional Authority at the time of





import is merely an administrative circumstance reflecting the information





available to those authorities at that time, and cannot operate to validate a





licence subsequently shown to rest on a fraudulent foundation.





16.   Learned Counsel for the respondent submits that the appellant's bona





fides, while relevant to and already given effect to in respect of personal penal





liability, reflected in CESTAT's setting aside of the Section 112 penalty, cannot





operate to resurrect an exemption which the underlying instrument was, on the





Revenue's case, never in law capable of conferring.





17.   Learned Counsel for the respondent submits, relying on Tata Iron and





Steel, that the Department's want of knowledge of Gemini Overseas's fraud at





the time of original clearance is itself sufficient to attract the extended period of





limitation under Section 28, and that the personal innocence of a transferee





does not defeat the Department's entitlement to invoke that provision where the





underlying exemption was procured through fraud further up the chain.





18.   Learned Counsel for the respondent submits, as a threshold objection,





that no substantial question of law touching limitation was framed at the stage





of admission of the appeal, nor did the appellant seek to have any such question





framed at that stage; the scope of a statutory appeal under Section 130 of the





Customs Act, 1962 being ordinarily confined to the question(s) formulated at


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admission, the appellant cannot be permitted to enlarge the scope of the appeal





at the stage of final hearing.





19.   Learned Counsel for the respondent submits, relying on Commissioner of





Customs, Hyderabad v. Pennar Industries Ltd. [2015 (322) E.L.T. 402 (S.C.);





(2015) 10 SCC 581], that an endorsement or amendment to a licence does not





dispense with the requirement of satisfying the conditions of the underlying





exemption notification, and that where those conditions are shown not to have





been fulfilled, duty liability follows notwithstanding the formal existence of the





licence.





20.   Having heard Learned Counsel for the parties and perused the materials





on record, this Court is of the view that the appeal calls for consideration





principally on the footing of the sole substantial question of law framed at





admission, the threshold objection concerning limitation being addressed as a





preliminary matter before that question is reached.





21.   On the threshold objection: it is well settled that an appeal of this nature





is ordinarily confined to the substantial question(s) of law formulated at the





stage of admission, though the Court retains discretion, in an appropriate case,





to frame or permit argument on an additional question where satisfied that one





genuinely arises from the record. In the present case, it is not disputed that no





question touching limitation was framed at admission, and nothing on record





suggests that the appellant made any application, at any stage after admission





and before final hearing, to have such a question additionally framed. In these





circumstances, this Court is not persuaded to treat limitation as an





independent ground available to be urged for the first time at final hearing, and


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declines to determine it as a substantive basis for disposal of this appeal. This





Court records, however, and as a matter bearing on the overall assessment of





the record rather than as a separate finding on limitation, that the Show Cause





Notice, insofar as it concerns the appellant, is silent as to any allegation of





collusion, wilful mis-statement, or suppression of facts against the appellant, a





feature of the record not addressed by the respondent's submission, and one





this Court takes into account in weighing the equities attending the framed





question, without thereby adjudicating limitation as an independent issue.





22.   Turning to the substantial question of law framed at admission, the





resolution of this appeal turns substantially on whether the fraud committed by





Gemini Overseas, at the stage of certifying fulfilment of its export obligation,





rendered DFIA Licence No. 0210100847 void and non-est from inception, as the





respondent contends, or merely voidable, valid and effective until avoided by the





competent authority, as the appellant contends. It is well settled, per the





binding authority of the Supreme Court in East India Commercial Co. Ltd. and





Sneha Sales Corporation, that a licence obtained by fraud or misrepresentation





is not thereby rendered non-est; it remains good and effective in law unless and





until avoided in the manner prescribed. On the present record, it is undisputed





that the licence has, to date, never been cancelled by the DGFT or the Regional





Authority, a fact this Court regards as material and unrebutted, and one which





weighs in favour of treating the licence as having remained a subsisting, valid





instrument at the time of the appellant's import.





23.   The respondent's reliance on ICI India and Munjal Showa for the broader





proposition that "fraud vitiates everything," so as to defeat even an innocent


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transferee's rights, does not squarely engage the factual distinction pressed by





the appellant: both of those decisions concerned instruments, a DEPB scrip and





Transfer Release Advices respectively, found to be forged and never issued by





the competent authority at all, a distinct category from a licence genuinely





issued by the DGFT and validly endorsed transferable by the Regional Authority,





later found to rest on a fraudulent certification by a third party. No decision of





this Court, nor any binding Supreme Court authority placed before it, squarely





addresses this particular factual configuration, a genuinely issued and validly





endorsed instrument subsequently shown to be founded on fraud at the export-





obligation stage, as opposed to a forged instrument. In the absence of authority





directly on point, this Court's resolution of the question necessarily turns on an





extension, by analogy, of the void/voidable principle articulated in East India





Commercial and Sneha Sales, rather than on settled precedent addressing this





precise fact pattern.





24.   On that footing, the appellant's status as a bona fide purchaser for value





without notice assumes significance. It is undisputed that the appellant





purchased the licence for consideration of Rs.14,51,795/- through proper





banking channels, and CESTAT itself found, in setting aside the Section 112





penalty, that the appellant had no knowledge of the nature of the goods used





and exported by Gemini Overseas or Eastern Silk Industries, a finding which





stands unchallenged by the respondent in the present appeal. Applying the





principle recognised in Taparia Overseas, a bona fide transferee for value





without notice of the original fraud stands on a different footing from the party





who perpetrated or was complicit in that fraud, and the general maxim that


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fraud vitiates everything does not, without more, extend to defeat the rights of





such a transferee.





25.   This Court does not consider the respondent's reliance on Pennar





Industries to displace the foregoing analysis. Pennar Industrie (Supra) s





concerned the original importer's own failure to fulfil the conditions of an





exemption notification; it did not involve any question of a subsequent bona fide





transferee's liability, and the general conditionality principle it states that





fulfilment of exemption conditions cannot be dispensed with merely because a





licence formally subsists does not, on its own terms, resolve the distinct





question of whose default is to be visited upon whom where the default was





committed by a third party upstream of an innocent transferee.





26.   Nor does this Court consider Tata Iron and Steel to alter the above





conclusion. As submitted by the appellant, and as this Court accepts on





examination, the reported decision is in the nature of a brief order rather than





an elaborated judgment, and does not disclose with clarity whether the





transferee in that case stood in the same position, a bona fide purchaser for





value without notice, as the appellant here. Its precedential weight on the





present facts is, accordingly, limited, and this Court does not treat it as





displacing the more considered and squarely applicable reasoning in East India





Commercial, Sneha Sales, and Taparia Overseas.





27.   For the foregoing reasons, this Court is of the view that DFIA Licence No.





0210100847, not having been cancelled by the DGFT or the Regional Authority,





and the fraud attributed to Gemini Overseas having arisen at the stage of





certification of export obligation rather than at issuance, must be treated, on


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this record, as voidable rather than void, and as having remained a valid and





subsisting instrument at the time of the appellant's import; and that the





appellant, being an unimpeached bona fide purchaser for value without notice





of the irregularity, cannot be fastened with liability for duty, interest, and





redemption fine arising from the fraud of a third party of which it had no





knowledge.





28.   For the foregoing reasons, this Court answers the substantial question of





law formulated for consideration as follows:





      A bona fide purchaser of a duty-free import licence for value, who had no





      notice of any irregularity on the part of the exporter/original licence-





      holder who obtained the licence, and where the licence has not been





      cancelled   by   the   issuing   authority,   cannot,   on   the   facts   and





      circumstances of the present case, be required to pay duty, interest, and





      redemption fine in respect of an import made using that licence. The





      question is answered in favour of the appellant and against the





      respondent.





29.   In light of the above, the appeal is allowed. The order dated 22.12.2015





passed by CESTAT is set aside insofar as it upholds the demand of duty of





Rs.22,87,654.95/-, interest thereon, and the redemption fine of Rs.15,00,000/-





against the appellant; the said demand, interest, and redemption fine are





quashed. The setting aside of the Section 112 penalty by CESTAT, not having





been assailed by the respondent, remains undisturbed.





30.   There shall be no order as to costs.


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31.   Urgent certified copy of this order, if applied for, be supplied to the parties





upon compliance with requisite formalities.














                                                     (RAJARSHI BHARADWAJ, J)











                                                                    (SUDIP DEB, J)











Kolkata


15.09.2026


PA(BS)