Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation
Date: 27.04.2026
CESTAT Mumbai Ruled on DEPB License Validity and Duty Exemption
This Short Article has been prepared & written by Advocate Ravi Shekhar Jha-Delhi High Court, New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email idΒ intelconsul@gmail.com . Β
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Mumbai recently delivered a significant judgment in the case of M/s Saguna Poultry Farm Ltd. (now M/s Saguna Foods Pvt. Ltd.) versus the Commissioner of Customs, JNCH, Nhava Sheva. This case revolved around the eligibility and validity of Duty Entitlement Pass Book (DEPB) licenses, their impact on customs duty exemption, and the correct valuation of import/export goods. The outcome clarifies the legal position for importers who purchase DEPB licenses in good faith, even if those licenses were originally obtained through fraudulent means by the seller.
Background of the Case
Saguna Poultry Farm Ltd. purchased DEPB licenses from a third party, M/s Thakur Impex, using proper banking channels. These licenses were used for duty-free import of goods, with two Bills of Entry filed in early 2011. However, investigations revealed that the original licensee had obtained the DEPB scrips using fraudulent documents, leading to their cancellation by the Directorate General of Foreign Trade (DGFT).
A show cause notice was issued to Saguna Poultry Farm, alleging that since the DEPB scrips were fraudulently obtained and subsequently cancelled, the company was not entitled to customs duty exemption and was liable for additional duty, interest, and penalty.
Key Legal Issues
- Validity of DEPB Licenses at the Time of Import:
- Whether Saguna Poultry Farm could claim duty exemption using DEPB licenses that were valid at the time of import but later cancelled due to fraud by the original licensee.
- Liability for Duty, Interest, and Penalty:
- Whether the importer, who purchased the licenses in good faith, should be penalized for fraud committed by the seller.
- Extended Period of Demand:
- Whether customs authorities could invoke an extended period for demanding duty, given there was no misdeclaration or fraud by the importer.
Tribunalβs Findings and Reasoning
Distinction Between Genuine and Forged Scrips
The Tribunal emphasized the distinction between:
- Genuine scrips issued by DGFT (even if obtained by fraud):Β If the license was valid and issued by the authority, the exemption cannot be denied to the importer who used it during its validity, even if it was later cancelled.
- Forged or fake scrips not issued by DGFT:Β If the scrips were never issued by the authority and were forged, exemption is not available.
Relevant Precedents
The Tribunal relied on previous decisions, including:
- Apar Industries Ltd. vs. Commissioner of Customs (Export Promotion), Mumbai:Β Established that importers using validly issued licenses are entitled to exemption, even if the license was later cancelled due to fraud by the original holder.
- Borax Morarji Ltd. vs. Commissioner of Customs (Export Promotion), Mumbai:Β Reinforced the principle that subsequent cancellation does not affect imports made when the license was valid.
Tribunalβs Conclusion
- The DEPB licenses used by Saguna Poultry Farm were validly issued by DGFT and not forged.
- The company purchased the licenses in good faith and used them while they were valid.
- Subsequent cancellation of the licenses does not retroactively invalidate the imports or the exemption claimed.
- The Tribunal set aside the order of the Commissioner (Appeals), allowing the appeal and confirming that Saguna Poultry Farm is entitled to duty exemption.
Implications for Importers and Exporters
- Good Faith Purchasers Protected:Β Importers who purchase validly issued DEPB licenses through proper channels are protected, even if the original licensee committed fraud.
- Customs Duty Exemption:Β Duty exemption cannot be denied if the license was valid at the time of import, regardless of later cancellation.
- No Penalty for Innocent Importers:Β Penalties and extended demand periods are not justified if the importer did not commit fraud or misdeclaration.
Conclusion
The Saguna Poultry Farm CESTAT Mumbai case sets a clear precedent for the treatment of DEPB licenses and customs duty exemption. It reinforces the principle that importers acting in good faith, using validly issued licenses, should not be penalized for fraud committed by others.Β This judgment provides clarity and security for businesses engaged in import/export activities under Indiaβs export incentive schemes.
Source: CESTAT Mumbai
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