CESTAT Mumbai Protects Importers Using Transferable Duty Scrips

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 05.02.2026

CESTAT Mumbai Protects Importers Using Transferable Duty Scrips

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai, recently delivered a significant judgment in a series of appeals concerning the validity of duty credit scrips/licenses obtained fraudulently by original license holders and their subsequent impact on bona fide transferees. ​ This decision, encapsulated in Final Order No. ​ A/85228-85240/2026, has far-reaching implications for importers and the customs framework in India.

Background of the Case

The appellants in these cases had imported goods using transferable Duty Credit Scrips/Licenses such as Duty Entitlement Passbook Scheme (DEPB) and Duty-Free Import Authorization (DFIA). ​ These scrips/licenses were purchased from original license holders for valuable consideration and were valid at the time of import. ​ However, the competent licensing authorities later canceled these scrips/licenses, citing that the original license holders had obtained them fraudulently by submitting forged export documents. ​

Following the cancellation, the customs authorities issued Show Cause Notices (SCNs) to the importers (transferees of the scrips/licenses), demanding duty under Section 28(1) of the Customs Act, 1962. ​ The SCNs also proposed confiscation of goods under Section 111(m) and (o) and the imposition of penalties under Sections 114A/112 of the Customs Act, 1962. ​

The appellants contested the SCNs, arguing that the scrips/licenses were valid at the time of import and clearance of goods. ​ They contended that the subsequent cancellation of the scrips/licenses should not affect their prior importation activities, as they were bona fide transferees who had purchased the licenses without knowledge of any fraud. ​

Key Issue for Consideration

The primary issue before the Tribunal was whether goods imported by bona fide transferees under valid Duty Credit Scrips/Licenses could be denied duty exemption due to the subsequent cancellation of the scrips/licenses on the grounds of fraud committed by the original license holders. ​

Tribunal’s Observations and Decision ​

The Tribunal examined the case records and heard arguments from both sides. ​ It noted that the Government of India issues export incentive schemes, such as DEPB and DFIA, to encourage exports and earn foreign exchange. ​ These scrips/licenses are transferable and can be used by importers to import goods duty-free. ​

The Tribunal emphasized that as long as the scrips/licenses were valid and issued by the competent licensing authority at the time of import, the subsequent cancellation due to fraud by the original license holder should not affect the bona fide transferee. ​ The Tribunal clarified that a license obtained by fraud is not void ab initio but merely voidable. ​ Therefore, if the transferee purchased the license in good faith without knowledge of the fraud, they should not be penalized for the actions of the original license holder. ​

The Tribunal referred to previous judgments, including the case of Apar Industries Limited vs. Commissioner of Customs (Export Promotion), Mumbai, which established that a license obtained by fraud is not void ab initio and remains valid until canceled. ​ It also distinguished cases where licenses were forged or fake, stating that in such instances, the exemption would not be available as the documents were never valid in the first place. ​

Final Verdict

After thorough deliberation, the Tribunal concluded that the impugned orders confirming the demands against the appellants lacked merit. ​ It held that the goods imported by the appellants were not liable for confiscation under Section 111 of the Customs Act, and the penalties imposed under Section 112 were not sustainable. ​ Consequently, the Tribunal set aside the impugned orders and allowed the appeals in favor of the appellants. ​

Implications of the Judgment

This landmark decision has significant implications for importers and the customs framework in India:

1. Protection for Bona Fide Transferees: The judgment reinforces the principle that bona fide transferees of valid duty credit scrips/licenses cannot be penalized for fraudulent actions committed by the original license holders. ​
2. Clarity on Fraudulent Licenses: The Tribunal has drawn a clear distinction between licenses obtained through fraud (which are voidable) and forged or fake licenses (which are void ab initio). ​ This distinction is crucial for importers relying on transferable licenses for duty-free imports. ​
3. Encouragement for Trade: By upholding the validity of licenses at the time of import, the judgment supports the government’s objective of promoting exports and facilitating international trade. ​
4. Legal Precedent: The decision sets a precedent for similar cases, providing clarity and consistency in the interpretation of customs laws related to duty credit scrips/licenses.

Conclusion

The CESTAT’s decision in these appeals is a significant development in the realm of customs law. It underscores the importance of protecting bona fide importers who rely on valid licenses for their transactions while ensuring that fraudulent activities by original license holders are addressed appropriately. ​ This judgment not only provides relief to the appellants but also serves as a guiding principle for future cases involving duty credit scrips/licenses and fraudulent practices. ​ Importers and legal practitioners should take note of this decision to better understand their rights and obligations under the Customs Act, 1962.

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Source: CESTAT Mumbai

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