Court holds that a bona fide transferee of a Duty-Free Import Authorisation (DFIA) licence, without knowledge of fraud and where the licence remains valid and uncancelled, cannot be held liable for duty, interest, or redemption fine arising from original exporter's fraud.
In a landmark judgment dated September 15, 2026, the Calcutta High Court (Division Bench comprising Justices Rajarshi Bharadwaj and Sudip Deb) ruled in favor of Comet Overseas Pvt. Ltd., a bona fide purchaser of a Duty-Free Import Authorisation (DFIA) licence, shielding it from liability for duty, interest, and redemption fine arising from fraudulent acts committed by the original licence-holder, Gemini Overseas Ltd.
The case arose from an investigation into misuse of DFIA licences issued under the Customs Act, 1962, and Notification No. 40/2006-Cus dated May 1, 2006, which allowed duty-free imports against export obligations. Gemini Overseas Ltd. had obtained 23 such licences, including Licence No. 0210100847, which was later transferred to Comet Overseas Pvt. Ltd. for a valuable consideration through proper banking channels.
Comet Overseas utilized this licence to import Mulberry Raw Silk Yarn duty-free. However, the Directorate of Revenue Intelligence intercepted consignments exported by Gemini Overseas, revealing that the export obligation was discharged fraudulently by misdeclaring the goods as natural silk fabric, whereas the fabric primarily consisted of Noil Yarn mixed with cotton. Gemini Overseas admitted this misdeclaration and agreed to pay the duty foregone.
The Customs authorities issued a Show Cause Notice against Comet Overseas and others, demanding recovery of customs duty of approximately Rs. 22.87 lakh, interest, redemption fine of Rs. 15 lakh, and penalty of Rs. 10 lakh. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) partially allowed Comet Overseas' appeal by setting aside the penalty but upheld the demand of duty, interest, and redemption fine.
Challenging this, Comet Overseas contended before the Calcutta High Court that it was a bona fide purchaser of the DFIA licence for value, without notice of any fraud by Gemini Overseas, and that the licence had never been cancelled by the issuing authority, thus remaining valid and effective. The Court agreed, relying on binding Supreme Court precedents such as East India Commercial Co. Ltd. v. Collector of Customs and Collector of Customs, Bombay v. Sneha Sales Corporation, which establish that a licence obtained by fraud is voidable and remains valid until it is lawfully avoided or cancelled.
The Court distinguished the case from others involving forged or never-issued licences, noting that the fraudulent act here occurred post-issuance at the certification stage of export obligation, not at the time of licence issuance. It emphasized that the appellant had no knowledge of the fraud, purchased the licence through proper channels, and that the Show Cause Notice did not allege collusion or suppression of facts by the appellant, which is a statutory precondition for invoking extended limitation periods under the Customs Act.
Rejecting the Revenue's reliance on decisions involving forged instruments or non-bona fide purchasers, the Court held that the maxim "fraud vitiates everything" does not extend to defeat the rights of an innocent transferee for value. The Court also declined to entertain limitation as an independent ground since no such question was framed at the admission stage.
Ultimately, the Calcutta High Court allowed the appeal, quashing the demand of duty, interest, and redemption fine against Comet Overseas. The Court upheld the CESTAT's earlier order setting aside the penalty under Section 112, which was not challenged by the Revenue. The judgment provides clarity and protection for bona fide transferees of duty-free licences, balancing the need to combat fraud while safeguarding innocent parties acting in good faith.
Bottom Line:
Duty-Free Import Licence - 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 and where the licence has not been cancelled by the issuing authority, cannot be fastened with liability for duty, interest, and redemption fine arising from fraud committed by a third party.
Statutory provision(s):
Customs Act, 1962 Sections 28(1), 28(4), 111(o), 112, 125; Notification No. 40/2006-Cus (01.05.2006)
Comet Overseas Pvt. Ltd. v. Union of India, (Calcutta)(DB) : Law Finder Doc Id # 2978763
