Legal principle

Unless and until the licensing authority (DGFT) cancels a duty exemption scrip such as a DFRC, Customs/DRI cannot deny the benefit of the exemption notification or demand the duty foregone on an allegation of misrepresentation—it is for the licensing authority alone to take steps to cancel the scrip.

Court decision

The court allowed the petitions: DGFT alone is the competent authority to cancel a DFRC under Section 9 of the FTDR Act, 1992, and no provision of the Customs Act empowers Customs to cancel it; following Titan Medical Systems, in the absence of cancellation of the DFRC, DRI was not competent to issue show cause notices raising demand of duty waived at the time of import. The impugned show cause notices were set aside qua the petitioner, with consequential relief; other issues were left open.

Facts

The petitioner, a manufacturer-exporter of bicycle parts, exported goods during 2004-05 under the Duty Free Replenishment Certificate (DFRC) scheme. DRI searched its business and residential premises on 15.09.2005, seized documents, computers and laptops, recorded statements, and formed the opinion that the petitioner had used Hot Rolled (HR) sheet as input while obtaining DFRCs for Cold Rolled Closed Annealed (CRCA). Although DGFT issued policy circulars/letters clarifying flexibility in utilization of HR sheets and CRCA, DRI issued show cause notices dated 29.09.2007 and 27.05.2008 to the petitioner and the importer-users of the DFRCs demanding duty foregone with interest and penalty. Rs. 30,00,000/- was recovered during investigation, and after proceedings before the Supreme Court the writ petitions were restored and decided by this common order.

Key provisions

• Section 28AAA, Customs Act, 1962 — Recovery of duties in certain cases
• Section 9, The Foreign Trade (Development and Regulation) Act, 1992 — Issue, suspension and cancellation of licence.