Introduction

In a significant judgment dated August 27, 2025, the Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, in Pankaj Chordia & Ors. v. Commissioner of Customs (Final Order Nos. 51218-51238/2025), set aside the Order-in-Original (OIO) dated October 18, 2022, issued by the Commissioner of Customs, Air Cargo Complex (Export), New Delhi. The OIO had confirmed proposals from a Show Cause Notice (SCN) issued by the Directorate of Revenue Intelligence (DRI) in 2008, demanding customs duties from importers under Section 125(2) of the Customs Act, 1962, and imposing penalties on bank officers, a chartered accountant, and importers under Sections 112 and 114(i).

The Tribunal's decision underscores the limits of authority for customs officers and DRI in overriding decisions of other statutory bodies like the Directorate General of Foreign Trade (DGFT) and the Reserve Bank of India (RBI). It reaffirms that Duty Entitlement Pass Book (DEPB) scrips issued by DGFT cannot be unilaterally declared void ab initio by customs authorities, and clarifies the scope of duty demands and penalties under the Customs Act. This ruling draws heavily from precedents like Apar Industries Ltd. v. Commissioner of Customs (2025) and emphasizes procedural fairness, jurisdictional boundaries, and the principle that fraud renders instruments voidable, not void.

Factual Background of the Case

The case originated from DRI intelligence in 2008 alleging misuse of export promotion schemes (drawback and DEPB) by three exporters: M/s J. Minakshi International, M/s JAY ESS International, and M/s J. Kanishka International. DRI claimed the exporters filed false declarations under CBEC Circular No. 54/2001 (for higher All Industry Rate drawback on garments) and obtained fraudulent Bank Realization Certificates (BRCs) by depositing foreign currency via duplicate Currency Declaration Forms (CDFs) in violation of Foreign Exchange Management Act (FEMA) and RBI regulations.

DEPB scrips issued by DGFT based on these exports were sold to 15 importers, who used them to clear goods duty-free. DRI's SCN proposed: recovery of drawback (not appealed here), invalidation of DEPB scrips as ab initio void, duty demands on importers under Section 125(2), and penalties on all parties. The Commissioner upheld these in the Order-In-Original.

The appellants included five bank officers (from Centurion Bank), one chartered accountant, and 15 importers, challenging the OIO on grounds of lack of jurisdiction, misapplication of provisions, and absence of evidence.

Key Legal Issues and Tribunal's Analysis

The Tribunal framed various issues, resolving them by interpreting core provisions of the Customs Act, 1962, alongside the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), FEMA, and RBI regulations. The decision sets clear precedents on jurisdictional overreach and statutory interpretation.

1. Validity of DEPB Scrips Issued by DGFT (Sections 111, 112, and FTDR Act)

The central issue was whether DRI/Commissioner could declare DEPB scrips void ab initio due to alleged fraud by exporters. The Tribunal held no, emphasizing:

1. Jurisdictional Limits under FTDR Act and Customs Act: DEPB scrips are issued by DGFT under the FTDR Act and Foreign Trade Policy (FTP). Neither the Customs Act nor FTDR Act empowers DRI or customs officers to nullify DGFT-issued scrips. Only DGFT has appellate/revisionary authority over its decisions . The Tribunal noted: "Nothing in the Customs Act gives either the ADG DRI or the Commissioner of Customs the power to declare the DEPB scrips issued by DGFT null and void."
2. Voidable vs. Void Principle: Relying on Apar Industries Ltd. (Customs Appeal No. 594/2004, decided May 13, 2025), the Tribunal clarified that scrips obtained by fraud/misrepresentation are voidable (cancellable by DGFT), not void ab initio. DGFT never cancelled these scrips. The court distinguished:
3. Valid scrips (even if fraudulently obtained) remain effective until cancelled.
4. Forged/fake scrips (not issued by DGFT) are void.
5. Post-import cancellation does not retroactively invalidate duty exemptions if scrips were valid at import (Para 19, quoting Apar: "A licence/scrip obtained by fraud is not void ab-initio and is merely voidable").

This finding invalidated the SCN's proposal to treat scrips as void, rendering goods non-confiscable under Section 111(d) (not prohibited) or 111(o) (exemption conditions complied with, as scrips were presented validly).

2. Duty Demand under Section 125(2) of the Customs Act

The OIO demanded duties from importers under Section 125(2), treating imports as liable post-DEPB invalidation. The Tribunal quashed this, defining the provision's scope:

1. Section 125: Option for Redemption Fine: This allows an owner to pay a fine in lieu of confiscation (mandatory for non-prohibited goods). Subsection (2) requires payment of "any duty and charges payable" alongside the fine if opting for redemption . Duty is on goods (Section 12), shifting with ownership or confiscation (Section 126 vests confiscated goods in Central Government).
2. Misapplication in the Case: No goods were seized, confiscated, or offered for redemption. Importers had cleared goods for home consumption using valid DEPB scrips. The Tribunal held: "Section 125(2) of the Act is not a section under which duty can be demanded" independently . Proper demand lies under Section 28 (recovery of short-levied duty). Confirmation under 125(2) was "without any authority of law" .
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3. Penalties on Importers under Section 112 of the Customs Act

Penalties were imposed for acts/omissions rendering goods confiscable under Section 111. The Tribunal set them aside:

1. Section 112: Penalty for Confiscable Goods: Imposes penalties for rendering goods liable under Section 111 (up to value of goods or ₹1 lakh).
2. No Liability: Goods were not prohibited (111(d)) nor violated exemption conditions (111(o)), as DEPB scrips were valid when used. Importers purchased scrips in good faith; no evidence of their involvement in exporters' fraud (Para 30, 38). The court emphasized: "There is not an iota of evidence that the importers had violated any conditions of exemption."

4. Validity of BRCs and Penalties on Bank Officers under Section 114(i) of the Customs Act

DRI alleged fraudulent BRCs via CDFs violated FEMA/RBI rules. Penalties on bank officers were for rendering export goods confiscable under Section 113(d)/(i).

1. FEMA and RBI Regulations: BRCs certify export remittances under FEMA's Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations. CDFs (Regulation 6) allow importing foreign currency >$10,000, certified by customs .
2. No Authority to Invalidate BRCs: Tribunal held DRI/Commissioner cannot determine BRC validity—reserved for RBI. Should refer violations to RBI (Para 34-35, 41). Analogies: Police can't invalidate RTA licences; bank managers can't nullify customs clearances .
3. Section 114(i) and 113: Penalty for acts rendering "export goods" (Section 2(19): goods to be taken out of India) confiscable. Exported goods (already out) aren't liable under 113. Remittance is subsequent; can't retroactively confiscate .

5. Penalty on Chartered Accountant under Section 114(i) of the Customs Act

Similarly set aside, as based on invalid BRC findings and non-confiscable goods.

Conclusion and Implications

The Tribunal allowed all 21 appeals, setting aside the OIO with consequential relief. This judgment reinforces jurisdictional sanctity: Customs authorities cannot usurp DGFT's role in invalidating export incentives or RBI's in validating BRCs. It clarifies that fraud makes instruments voidable (not void), protecting bona fide transferees, and limits duty demands to Section 28, not 125(2) without confiscation/redemption.

Legally, it defines:

1. DEPB Scrips (FTDR Act/Customs Act): Voidable only by issuer; valid until cancelled.
2. Duty Demands (Section 125): Tied to redemption; not standalone.
3. Confiscation/Penalties (Sections 111-114): Require actual violation; no retroactive application post-export/import.
4. BRCs (FEMA/RBI): Validity determination by RBI, not customs.

This ruling may deter overreach in export fraud cases, promoting inter-agency coordination and protecting innocent parties in trade chains. It aligns with principles of natural justice and statutory interpretation, potentially influencing similar disputes involving EPCG/advance authorizations.