By TIOL News Service

NEW DELHI, OCT 10, 2017: THE appellants have been permitted to operate Duty Free Shops (DFS) at IGI airport (T2) New Delhi in arrival as well as departure areas since March 2007.

As per the licenses issued, the appellants were permitted to import goods such as liquor, chocolates, cigarettes, etc. duty free, to be sold only to International passengers arriving or departing from / to foreign destinations. They were required to collect the sale proceeds in foreign exchange and were also required to maintain various records as prescribed. In particular, every sale was required to be recorded and details of passenger name, passport number, flight number and other relevant details were required to be recorded and sale vouchers to be issued. The procedure required to be followed for operation of DFS were prescribed by customs vide public notice no. 5/2006.

SCNs were issued to the appellant demanding Customs duty alleging that they have made sales of liquor from the stock of duty free imports in contravention of various conditions imposed. A small portion of the demand also relates to certain shortages found by customs authorities during stock taking.

The Customs duty demands were confirmed along with imposition of penalties and redemption fine.

In appeal before the CESTAT, the appellant inter alia submitted -

i) The IGI airport was undergoing a major renovation at the relevant time, as a result of which there were numerous changes in the locations of appellant's DFS. As a consequence, serious problems were experienced in the working of software used for recording sales and also in the CCTV recording system. These factors prevented the management of the appellant from detecting various malpractices engaged in by the some of their rogue employees during the relevant period.

ii) Even though the appellant had given proper training to its employees and had given them strict instructions regarding the procedure of sales, several irregularities were noticed against employees who had violated the prescribed conditions in the sale of liquor. However, a total of 66 employees were terminated and appellant company were not aware of the illegal sales being made clandestinely by the rogue employees for their personal benefit.

iii) All the three show cause notices dated 01.04.2009, 02.07.2010 and 26.03.2012 are related to the very same period - 27.03.2007 to 08.10.2008. It is well settled legal position that more than one show cause notices cannot be issued for the same period.

iv) DFS is located beyond the customs frontier of India and, therefore, goods sold by a DFS must be considered to have been sold before the goods cross the Customs frontiers of India and are thereby imported to India. Accordingly, no duty demand can be made against appellant who was a DFSbut it has to be effected on the passenger who is the importer and hence liable to pay customs duty.

v) It is well settled legal position that where customs violation have been committed by employees without the knowledge of the employer, then all demands for duty and penalty are to be raised against the delinquent employee and not the employer.

The AR justified the impugned orders and pleaded that the same be upheld in toto.

The Bench inter alia observed -

+ All the employees of M/s. Alpha admitted to the fact that M/s. Alpha were violating the conditions of PBWL by selling the goods regularly to domestic passengers and other persons who were not international passengers at the relevant time. Further, it emerged that M/s. Alpha were issuing fake sale bills without details or with false passenger details from the DFS and thereby concealed and suppressed the facts that imported duty free liquor were being unlawfully removed from private bonded warehouse license (PBWL) in the guise of sale to international passengers.

+ The details of the passengers whose names appeared on the bills and purported to have travelled by various flights as indicated in the various bills were taken up for verification with the concerned airlines as well as from FRRO New Delhi.

+ Examination revealed that no travels were made by passengers named in the number of entries appearing in the sales record of the appellant. Those entries were false. Entire enquiry revealed falsity of record and evasion of custom duty made by the appellant.

+ A very important fact that was also discovered by investigation was that the false transaction of aforesaid nature were corroborated by falsification of record and receipt of sale proceeds in US$ from undisclosed sources and such currency deposited with M/s Thomas Cook which prima facie appears to be hawala transaction and needs further investigation by Central Economic Intelligence Bureau.

+ Evidence gathered clearly suggested the goods found short have been removed from the customs bonded warehouses in contravention of section 71 of the Customs Act.

+ Investigation revealed that the appellant has issued bills without mentioning requisite details like passenger name, passport number, nationality, flight number, etc and in a large number of sale bills, it was noticed that the appellant has issued such bills in the name of one Mr. Manish with passport number A-1425369. The same name and passport number appeared in as much as 60 sale bills said to have travelled from various flights on the same day. Many other passport numbers found in the bills including the above number were found to be not genuine upon enquiring from Regional Passport Office in Delhi.

+ As a result of enquiries made to various airlines as well as FRRO, the names of passengers who have not travelled but whose name has appeared on these bills have been identified and duty demand worked out in respect of sale of goods to those passengers have been identified and duty demand has been raised.

+ The settled position of law is that once a SCN has been issued for a certain period on certain set of facts, then on the same set of facts another SCN cannot be issued invoking the extended period of limitation on the plea of suppression of facts. In the present case, the show cause notices have been issued on an entirely different ground and entirely different circumstances.

+ Show cause notice dated 02.07.2010 has been issued on the basis of recovery of documents and statements recorded and were based on the allegations of falsification of the records. The show cause notice dated 26.03.2012 has been issued on entirely different ground and was issued on the ground that the appellant sold bottle of liquor unauthorisedly to domestic passengers and not to international passengers.

+ The investigation into the affairs of the appellant has categorically showed that the appellant has violated with impunity, the conditions of the issue of PBWL and Public Notice number 5/2006 which he is required to comply in the operation of DFS.

+ It stands established that goods have been cleared by way of sale in contravention of the conditions imposed on the appellant.

+ The demand for customs duty in respect of such goods cleared in violation of the conditions have been raised in terms of section 72 (1)(a) of the Act which provides for payment of customs duty chargeable on such goods removed in contravention of the conditions of the warehousing bond, along with interest and penalties. The provisions of section 72 are different from section 11(A) of the Central Excise Act. Section 72 pertains to the warehousing goods for which the bond is executed under section 79 and there is no time limit for the recovery of such dues.

Vicarious liability:

++ The investigation has revealed that through the action of the employees of M/s. Alpha, liquor has been sold to unauthorised passengers in clear violation of the terms of the bond executed. The acts of the employees have been done in their official capacity and are binding on the employer who cannot escape the vicarious responsibility. The duty free imported liquor, which had been warehoused, was found to be removed in contravention of the warehousing bonds. Consequently, the customs duty is required to be paid in terms of section 72(1)(a).

++ The goods cleared are also liable for confiscation. But, since the goods were not seized by the department, no redemption fine can be imposed. However, the appellant will be liable for levy of penalties. The various employees of M/s. Alpha are also liable for penalty under section 117.

Concluding that the Bench finds no reasons to interfere with the orders in original , the same were upheld and the appeals were rejected.

(See 2017-TIOL-3651-CESTAT-DEL)