Arijit Pasayat, J.— These appeals by the Revenue are directed against the common judgment passed by the Customs, Excise and Gold (Control) Appellate Tribunal, West Regional Bench, Mumbai (in short “CEGAT”). By the impugned judgment CEGAT set aside the imposition of duty, redemption fine, interest and penalty levied under the Customs Act, 1962 (in short “the Act”) levied/imposed on Respondent 1 M/s Essar Oil Limited (hereinafter referred to as “the assessee”), its officers (Respondents 2 to 4) and officials of the Customs Department (Respondents 5 to 7).
2. Background facts as projected by the appellant are as follows:
Sometime during 1997 Respondent 1 imported plants and machineries worth Rs 600 crores for its refinery project. These imported goods were stored in private bonded warehouses, one of which is closed. The licences for the warehouses were valid up to 24-11-1999. General bond of Rs 120 crores was executed by Respondent 1 under Section 59(2) of the Act to secure payment of customs duty. Between 18-2-1999 and 23-2-1999 Respondent 1 submitted 84 ex-bond bills of entry which were assessed to customs duty at the prevalent rate and corresponding TR-6 challans for payment of duty were handed over to the assessee.
3. On 24-2-1999 Respondent 1 assessee wrote to ICICI Ltd. stating that there was possibility of imposition of duty on refinery goods and requested them to immediately release funds to avoid project cost overrun. On the same day inter-office memo was issued by Shri S.R Aggarwal (Respondent 2) to Shri P.R Ashok (Respondent 3) stating that ICICI Ltd. had indicated their desire to disburse a sum of Rs 100 crores so that the countervailing duty (in short “CVD”) amount be paid before pronouncement of the Union Budget, 1999. The memo pointed out that the necessary documentation was in process and remittance of the funds by telegraphic transfer to State Bank of India (SB), Jamnagar would be done immediately thereafter. Respondent 3 was requested to complete the paperwork with Customs Authorities.
4. On 25-2-1999 Respondent 3 wrote a letter to the Superintendent of Central Excise Bonded Warehouse, Jamnagar, requesting him to pass necessary order for “out of charge” for the goods concerned. This letter is of considerable importance in the present dispute. This letter has to be considered along with letter of same date (i.e 25-2-1999) written by Respondent 3 to the Assistant Chief Accounts Officer (Excise and Customs), Rajkot. The controversy in the present matter basically revolved round this document. In the first letter reference was made to the challans issued for payment of duty on the bonded goods and the original acknowledgement of the Assistant Chief Accounts Officer towards payment of customs duty with applicable interest. The details of goods with relevant challans were also enclosed. The payment was made by Cheque No. 1175298 dated 25-2-1999 for Rs 60,03,85,603 in favour of the Assistant Chief Accounts Officer, SBECNC in line with Trade Notice No. 73/85, copy of which was enclosed. It was indicated that action was being taken as per direction of the Assistant Commissioner (Technical) at Rajkot. It was further indicated that the payment had to be made at Rajkot office due to banks strike. In the letter dated 25-2-1999 addressed to the Assistant Chief Accounts Officer, Excise and Customs, Rajkot, it was indicated that due to bank's strike on that day they were depositing the customs duty on the goods at the regular bank. Therefore, they had enclosed Cheque No. 1175298 dated 25-2-1999. A declaration was made that Respondent 1 had “sufficient bank balance” in its account in State Bank of Saurashtra, Jamnagar on whom the cheque was drawn and same shall be honoured and cleared by the bankers “as and when presented by the office concerned”. On 25-2-1999 the application was endorsed for acceptance by the Assistant Commissioner and was accepted and processed. Consequently, the warehousing licence was cancelled on the strength of the cheque payment though the goods were not physically removed from the warehouse.
5. After the bank's strike was over, the cheque was deposited for collection at Rajkot, on 27-2-1999. On the same day at the close of office hour the rate of customs duty was enhanced from nil basic duty to 5% on the Union Budget.
6. On 1-3-1999 Respondent 1 wrote to his bank that they were arranging for transfer of funds from Mumbai by 2-3-1999. As the funds were not received in the revenue accounts, Respondent 1's banker at Jamnagar prepared an inter-office memo advising the appellant's bank at Rajkot that the cheque issued by Respondent 1 had been returned unpaid. However, the memo was not sent to the bank, as Respondent 1 wrote several letters to their banks at Jamnagar requesting that cheque be withheld till funds were arranged by them. On 16-3-1999 finally Respondent 1 arranged funds to cover the cheque amount which was honoured and credited to the Government's account on 17-3-1999.
7. Investigations were carried out by various governmental agencies and Respondents 2 to 4 were arrested on 6-5-1999. Their bail application was rejected by the Magistrate concerned. On 17-5-1999 the Gujarat High Court granted bail to them on the unconditional undertaking by their counsel appearing before the High Court that the amount of enhanced customs duty will be paid in three instalments by 31-7-1999. On 22-8-1999 a show-cause notice was issued to Respondent 1 assessee proposing to levy duty on the imported goods under Section 15(1)(c) of the Act. It was alleged that fraud was practised by Respondent 1 in connivance with the other respondents and an attempt was made to defraud the Revenue and evade duty. Reference was made to the background facts as highlighted above. It was also pointed out that Mr J.K Singh, Director of Respondent 1 Company stated that there was no requisition for imported goods in February 1999. Statement of Respondent 2 recorded on 5-5-1999 showed that funds were expected to be arranged, Respondent 1 decided to make payment by cheque. Respondent 2 admitted that discussions were held with ICICI Ltd. on 3-2-1999. Funds were not provided by the said financial institution and ultimately the funds were arranged from Punjab National Bank. Statements of Nitin Bhatt and P.R Ashok i.e Respondents 4 and 3 respectively were recorded which, inter alia, indicated that Respondent 1 wanted to avoid any adverse impact of the budget. Investigation further revealed that sufficient fund was not there in Respondent 1's account till the evening of 24-2-1999. False declaration was made regarding sufficiency of funds on 25-2-1999. Investigation also revealed that one of the departmental officials i.e Respondent 6 A.K Thaker had manipulated dates and instead of the actual date of 26-2-1999, he had indicated that the action was taken on 25-2-1999. Statement of Shri L. Ghosh, Chief Manager of State Bank of Saurashtra at Jamnagar indicated that the cheque as issued by Respondent 1 was intended to be returned to the clearing bank at Rajkot and telephonic information to this effect was given to the Chief Manager of the bank at Rajkot. A written notice was prepared. The same was not sent at the request of Respondent 1 and contrary to the established practice and procedure of the bank and governing regulations cheque was not dishonoured. The instructions of State Bank of Saurashtra Manual, inter alia, provide and require that non-payment of clean demand bill must be advised to the purchasing office and advice must be sent by telegram. The advice is to be sent not later than the close of the day following the presentation of the bill. A departure was made in the present case. The bank concerned was requested not to dishonour the cheque. As late as on 3-3-1999 oral information was given to customs officials about non-availability of funds. Thereafter on several dates the assessee requested the banks to delay action at their ends. The trade notice referring to which letter was written to accept cheque was not applicable to the bank's strike as the same was a prenotified strike and was for two days.
8. Statement of Mr Rak Hashiya, of State Bank of Saurashtra, Rajkot was to the effect that normal procedure was to return the cheque on the day it is presented if the funds were not there. His further statement was to the effect that he had advised N.C Goplani that the cheque may be retained for two to three days only after both the Customs Authorities and Respondent 1 give consent letter, failing which the cheque was to be returned. He was informed on 5-3-1999 that there was no written consent of the Customs Authorities. The show-cause notice referred to the correspondence between Respondent 1 and the bankers. It was alleged that the undertaking in the letter of Respondent 1 dated 25-2-1994 clearly shows fraudulent attempt to misuse the bona fide facilities given in terms of trade notice as Respondent 1 was fully aware that they had not received the funds at Jamnagar. After referring to the various aspects the investigating authority came to conclude that the duty rate in February 1999 was effectively nil and hence any variation could only be upwards. Though no funds were transferred to the respondent's bank in the evening of 24-2-1999, a letter was issued containing clear mention about availability of funds. The accusations in essence were that there was deliberate misdeclaration to ensure evasion from rate changes. Since the rate of duty was enhanced prior to encashment of cheque, there was liability to pay enhanced rate of duty. The clearance of goods was effected without payment of appropriate duty. There was no requirement of the imported goods by Respondent 1 which created a fiction of deemed duty payment and deemed removal, with the full knowledge that there was non-availability of funds. There was no scope of clearance in terms of Section 68 in the absence of duty being paid. The cancellation of warehousing licence was obtained by fraud as duty had not been deposited. Hence duty payable is covered under Section 15(1)(c) of the Act. Action was taken against the customs officials i.e Respondents 5 to 7 for their alleged abetment in the action and the act of collusion as established by manipulation of records. They had done or omitted to do acts which acts or omissions rendered the goods liable for confiscation. Accordingly, Respondent 1 was required to show cause as to why goods removed contrary to terms of the permission for such removal should not be confiscated under Section 111(j), and since goods were removed on cancellation of licence based on false declaration without payment of duty at the rate prevalent on 17-3-1999, duty shall not be demanded and it was proposed in addition, to levy penalty on Respondents 2 to 7 and interest on Respondent 1.
9. The Commissioner framed six issues. They are as follows:
(i) Whether duty could be treated to have been paid on 25-2-1999 (the date of presentation of the cheques by M/s EOL) in the facts and circumstances of the case.
(ii) The date for determination of rate of duty, and whether the warehouse licence could be treated as cancelled as detailed in the impugned show-cause notice.
(iii) Whether the charge of evasion of duty by mala fide intent of wilful misdeclaration, suppression of facts with an intent to evade the payment of duty, etc. as alleged in the show-cause notice is established.
(iv) Whether the goods are liable to confiscation under Section 111(j) of the Customs Act, 1962.
(v) To determine the appropriate penal clause invocable, whether penalty against the noticee M/s EOL is leviable under Section 114-A or Sections 112(a)/(b) of the Customs Act, 1962.
(vi) The extent of involvement of the individual persons vis-à-vis evidence on record to sustain the charge of collusion on the part of the employees of notice viz. M/s EOL and the officers of the department as detailed in the show-cause notice.
10. After considering show-cause reply filed by Respondent 1, the Commissioner, Customs House, Kandla (in short “the Commissioner”) confirmed the demand of duty and also directed confiscation of goods and imposition of penalty. It is to be noted that Respondent 1, inter alia, contended that there was no certainty that the rate of duty will be enhanced and that they acted under a bona fide belief that the funds would be available on 25-2-1999. They also claimed bona fide error of judgment and lack of collusion with officers. The stand was not accepted by the Commissioner. Appeals were filed before CEGAT by the present respondent.
11. So far as Issue (i) is concerned, the Commissioner held that the duty could not be treated as paid on 25-2-1999 in view of the misdeclaration about availability of funds. The fact that funds were not available was not disclosed till 3-3-1999, even though the respondents concerned had definite and specific knowledge. The Commissioner relied upon banks' specific instructions regarding return of cheques in case of non-availability of funds. Reference was made to the cheque dishonour memo which was prepared but not issued due to request of the assessee. It was concluded that had the assessee correctly disclosed the facts, the application dated 25-2-1999 would not have been accepted.
12. CEGAT on Issue (i) observed that the Commissioner failed to notice about non-applicability of trade notice. It was held that there was finding recorded that facility of cheque payment was not available because of false declaration. It was concluded that duty was paid on 25-2-1999 since payment of cheque relates back to the presentation and the cheque was not dishonoured.
13. With regard to Issue (ii), it was observed by the Commissioner that cancellation of warehousing licence was obtained by fraud. Reference was made to the undertaking given before the High Court accepting liability to pay duty. Consequently it was held that there was no cancellation under Section 68. Therefore, provisions of Section 15(1)(c) were applicable.
14. CEGAT held that as duty shall be treated to have been paid on 25-2-1999, requirements of Section 68 were complied with and, therefore, Section 15(1)(b) and not Section 15(1)(c) was applicable.
15. As regards Issue (iii), the Commissioner held that charge of evasion of duty by mala fide intent, wilful misdeclaration, suppression of facts was clearly established.
16. CEGAT held that there was no wilful misdeclaration, no evasion or short-levy. The declaration was held to have been made under bona fide belief.
17. Answering Issue (iv), the Commissioner held that goods were liable for confiscation under Section 111(j) as deemed removal was contrary to the permission and fraudulent intention was clearly established. However, redemption fine of Rs 20 crores was imposed.
18. CEGAT held that there could not be any confiscation as goods had been cleared under permission.
19. As regards applicability of Section 114-A, under Issue (v), it was held that the said provision was not invocable. However, penalty of Rs 10 crores was imposed under Section 112(b).
20. The Commissioner held that Respondents 2 to 7 were involved in the fraud, in answering Issue (vi). They were held liable to penalty under Section 112(a).
21. CEGAT set aside the penalties holding that Respondents 2 to 7 had not committed any breach.
22. So far as Issue (iii) is concerned, the operative portion of the order of the Commissioner was to the effect that the goods valued at Rs 599,26,00,046 were to be confiscated under Section 111(j) of the Act as the imported goods except goods worth Rs 73.93 crores were covered by corporate guarantee. Redemption fine of Rs 20 crores in lieu of confiscation was imposed. Total demand of Rs 96,26,91.711 was confirmed under Section 28(1) proviso of the Act as also in terms of statement made on behalf of Respondent 1 before the Gujarat High Court on 17-5-1999. The duty was worked out on the basis of computation in the show-cause notice. Penalty of rupees ten crores was imposed on Respondent 1 under Section 112(b) of the Act. Penalty of rupees one crore was levied on Respondent 2 under Section 112(a). Penalty of Rs 25 lakhs and Rs 10 lakhs was imposed on Respondents 3 and 4 respectively under Section 112(a) of the Act. Penalty of Rs 5 lakhs was imposed on Shri A.C Sharma, Deputy Commissioner of Central Excise. Rs 50,000 and Rs 25,000 were imposed as penalty respectively on customs officials i.e S.P Chaudhuri and Shri K.N Thakar under Section 112(a) of the Act. Recovery of interest leviable under Section 17(2) and Section 28-AB of the Act was directed. Direction was given that deposits made towards duty were to be adjusted against duty and interest liability as determined. As noted above appeals were filed before CEGAT by the present respondents. Their basic stand was that Section 15(1)(c) had no application and it was Section 15(1)(b) of the Act which applied. It was submitted that when the cheque had been cleared and honoured, payment had to be treated to have been made on the date on which the cheque was handed over to the authority. There was no fraudulent intention involved. Respondent 1 and its officials acted bona fide on the assurance given by ICICI Ltd. Negotiations for funds were going on since long. Therefore, the order of the Commissioner is not tenable.
23. The Revenue supported the order of the Commissioner. As noted above CEGAT held that the Commissioner had not recorded any finding regarding non-applicability of the trade notice. There was no finding recorded by the Commissioner that the cheque payment facility was not available because of false declaration. The Commissioner only decided the issue as to what constitutes the date of payment. Since the cheque was honoured it was to be held that date of payment was on 25-2-1999 though, in fact, it was cleared on 17-3-1999. Requirements of Section 58 were complied with and, therefore, Section 15(1)(b) was applicable and not Section 15(1)(c) as held by the Commissioner. There was no wilful misdeclaration and the declaration about availability of funds was made under bona fide belief. The direction regarding confiscation was set aside. The penalties on Respondent 1 and its officials and the customs officials were set aside. It is to be noted that the Tribunal referred to Rules 79 and 80 of the Central Treasury Rules (in short “the Treasury Rules”) to conclude that when the cheque is honoured is the date on which cheque was received by the authorities concerned and is the date of payment.
24. In support of the appeals learned Additional Solicitor General submitted that the Tribunal has lightly brushed aside the various points which had been taken note of by the Commissioner. Whether the date to be reckoned is the date of receipt of cheque by the department though it is cleared subsequently is really of no consequence in view of the fact that fraudulent misdeclaration was made about availability of funds, with the clear knowledge that funds were not available. Any act based on fraud vitiates the entire action taken. CEGAT also failed to notice that the intention of Respondent 1 and its officials is clearly borne out from the fact that they managed to obtain declaration from Respondent 6 as if the documents were cleared on 25-2-1999, when the statements of the witnesses concerned clearly show that it was done on 26-2-1999. The proved manipulation of records further strengthened the department's view. It was pointed out that relevant factual aspects placed by the department before CEGAT had not been considered. On the other hand it recorded some findings which were based on conjectures and/or surmises. The effect of fraudulent action and the misdeclaration were not considered. On the contrary it was observed that there was no misdeclaration and a bona fide mistake had been committed because of the assurance given by the financial institutions for providing funds. The established position is of manipulation of records to show as if action was taken on 25-2-1999, when in reality the action was taken on 26-2-1999. It not only kept out of consideration the fact that without sufficient funds cheque was given to the customs officials, but also gave a clean chit to the officials on purported ground of absence of practice prevailing in the division. It was argued that the Tribunal's judgment suffers from non-consideration of relevant materials, consideration of irrelevant materials and recording of findings contrary to the materials on record both on issue of fact and law.
25. In response, Mr Dushyant Dave, learned Senior Counsel appearing for Respondent 1 submitted that the declaration, if any, made about availability of funds was really not relevant in view of the Act, more particularly, Sections 17, 46, 58 and 55. With reference to sub-section (2) of Section 47 it was submitted that consequences for non-payment under Section 46 were laid down. Section 72 deals with the situation when the importer is unable to pay and consequentially interest becomes chargeable. This made the position clear that the only consequence of non-payment of duty in time is levy of interest.
26. The show-cause notice itself indicated that the goods were removed on 25-2-1999. There was no wilful misdeclaration. There was a special procedure available when the banks were on strike. Rule 79(1)(b) of the Treasury Rules clearly indicates the date which is to be reckoned for ascertaining the date on which amount is treated to be paid. The misdeclaration aspect is relevant only for the purpose of Section 28 and for considering whether extended period of limitation applies. That issue is not relevant in the present case and the only issue is whether Section 15(1)(b) or Section 15(1)(c) is applicable. A factual finding has been arrived at by CEGAT to hold that there was no wilful misdeclaration.
27. Residually it was submitted that for any unintentional breach penalty is not to be levied. The view of the Tribunal is a possible view and, therefore, no interference is called for. Similar arguments were advanced by Respondents 2 to 4 and the Customs Authorities (Respondents 5 to 7). It was submitted that there was no question of any abetment and/or collusion.
28. The submissions need careful consideration. It is to be noted that the plea that in view of special statutory prescriptions reference to the trade notice was unnecessary does not appear to have been pleaded or considered by CEGAT which proceeded only to determine the issue as to on which date the payment shall be reckoned to have been made. The entire case of the Revenue was built around the alleged fraudulent acts of Respondent 1 and its officials and the customs officials. According to the Revenue it was clearly a case where the declaration was done with fraudulent intention, with planned design to evade duty. Several aspects were highlighted to show that Respondent 1 and its officials were acting with fraudulent intention. The Tribunal did not even consider the effect of those acts.
29. By “fraud” is meant an intention to deceive; whether it is from any expectation of advantage to the party himself or from ill will towards the other is immaterial. The expression “fraud” involves two elements, deceit and injury to the person deceived. Injury is something other than economic loss, that is, deprivation of property, whether movable or immovable, or of money and it will include any harm whatever caused to any person in body, mind, reputation or such others. In short, it is a non-economic or non-pecuniary loss. A benefit or advantage to the deceiver, will almost always call loss or detriment to the deceived. Even in those rare cases where there is a benefit or advantage to the deceiver, but no corresponding loss to the deceived, the second condition is satisfied. [See Vimla (Dr.) v. Delhi Admn. 1963 Supp (2) SCR 585, (1963) 2 Cri LJ 434 and Indian Bank v. Satyam Fibres (India) (P) Ltd. (1996) 5 SCC 550]
30. A “fraud” is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another's loss. It is a cheating intended to get an advantage. (See S.P Chengalvaraya Naidu v. Jagannath (1994) 1 SCC 1.)
31. “Fraud” as is well known vitiates every solemn act. Fraud and justice never dwell together. Fraud is a conduct either by letter or words, which includes the other person or authority to take a definite determinative stand as a response to the conduct of the former either by words or letter. It is also well settled that misrepresentation itself amounts to fraud. Indeed, innocent misrepresentation may also give reason to claim relief against fraud. A fraudulent misrepresentation is called deceit and consists in leading a man into damage by wilfully or recklessly causing him to believe and act on falsehood. It is a fraud in law if a party makes representations, which he knows to be false, and injury enures therefrom although the motive from which the representations proceeded may not have been bad. An act of fraud on court is always viewed seriously. A collusion or conspiracy with a view to deprive the rights of the others in relation to a property would render the transaction void ab initio. Fraud and deception are synonymous. Although in a given case a deception may not amount to fraud, fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata. (See Ram Chandra Singh v. Savitri Devi (2003) 8 SCC 319.)
32. “Fraud” and collusion vitiate even the most solemn proceedings in any civilised system of jurisprudence. It is a concept descriptive of human conduct. Michael Levi likens a fraudster to Milton's sorcerer, Comus, who exulted in his ability to “wing me into the easy-hearted man and trap him into snares”. It has been defined as an act of trickery or deceit. In Webster's Third New International Dictionary “fraud” in equity has been defined as an act or omission to act or concealment by which one person obtains an advantage against conscience over another or which equity or public policy forbids as being prejudicial to another. In Black's Legal Dictionary, “fraud” is defined as an intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or surrender a legal right; a false representation of a matter of fact whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury. In Concise Oxford Dictionary, it has been defined as criminal deception, use of false representation to gain unjust advantage; dishonest artifice or trick. According to Halsbury's Laws of England, a representation is deemed to have been false, and therefore a misrepresentation, if it was at the material date false in substance and in fact. Section 17 of the Indian Contract Act, 1872 defines “fraud” as act committed by a party to a contract with intent to deceive another. From dictionary meaning or even otherwise, fraud arises out of deliberate active role of the representator about a fact, which he knows to be untrue yet he succeeds in misleading the representee by making him believe it to be true. The representation to become fraudulent must be of a fact with knowledge that it was false. In a leading English case i.e Derry v. Peek (1886-90) All ER Rep 1, (1889) 14 AC 337 what constitutes “fraud” was described thus (All ER p. 22 B-C):
“[F]raud is proved when it is shown that a false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false.”
But “fraud” in public law is not the same as “fraud” in private law. Nor can the ingredients, which establish “fraud” in commercial transaction, be of assistance in determining fraud in administrative law. It has been aptly observed by Lord Bridge in Khawaja v. Secy. of State for Home Deptt. (1983) 1 All ER 765, 1984 AC 74, (1982) 1 WLR 948 (HL), that it is dangerous to introduce maxims of common law as to effect of fraud while determining fraud in relation to statutory law. “Fraud” in relation to statute must be a colourable transaction to evade the provisions of a statute.
“ ‘If a statute has been passed for some one particular purpose, a court of law will not countenance any attempt which may be made to extend the operation of the Act to something else which is quite foreign to its object and beyond its scope.’ Present-day concept of fraud on statute has veered round abuse of power or mala fide exercise of power. It may arise due to overstepping the limits of power or defeating the provision of statute by adopting subterfuge or the power may be exercised for extraneous or irrelevant considerations. The colour of fraud in public law or administrative law, as it is developing, is assuming different shades. It arises from a deception committed by disclosure of incorrect facts knowingly and deliberately to invoke exercise of power and procure an order from an authority or tribunal. It must result in exercise of jurisdiction which otherwise would not have been exercised. That is misrepresentation must be in relation to the conditions provided in a section on existence or non-existence of which power can be exercised. But non-disclosure of a fact not required by a statute to be disclosed may not amount to fraud. Even in commercial transactions non-disclosure of every fact does not vitiate the agreement. ‘In a contract every person must look for himself and ensures that he acquires the information necessary to avoid bad bargain.’ In public law the duty is not to deceive.” (See Shrisht Dhawan v. Shaw Bros. (1992) 1 SCC 534)
33. In that case it was observed as follows:
“20. Fraud and collusion vitiate even the most solemn proceedings in any civilised system of jurisprudence. It is a concept descriptive of human conduct. Michael Levi likens a fraudster to Milton's sorcerer, Comus, who exulted in his ability to, ‘wing me into the easy-hearted man and trap him into snares’. It has been defined as an act of trickery or deceit. In Webster's Third New International Dictionary fraud in equity has been defined as an act or omission to act or concealment by which one person obtains an advantage against conscience over another or which equity or public policy forbids as being prejudicial to another. In Black's Legal Dictionary, fraud is defined as an intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or surrender a legal right; a false representation of a matter of fact whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury. In Concise Oxford Dictionary, it has been defined as criminal deception, use of false representation to gain unjust advantage; dishonest artifice or trick. According to Halsbury's Laws of England, a representation is deemed to have been false, and therefore a misrepresentation, if it was at the material date false in substance and in fact. Section 17 of the Contract Act defines fraud as act committed by a party to a contract with intent to deceive another. From dictionary meaning or even otherwise fraud arises out of deliberate active role of representator about a fact which he knows to be untrue yet he succeeds in misleading the representee by making him believe it to be true. The representation to become fraudulent must be of fact with knowledge that it was false. In a leading English case Derry v. Peek (1886-90) All ER Rep 1, (1889) 14 AC 337 what constitutes fraud was described thus: (All ER p. 22 B-C)
‘Fraud is proved when it is shown that a false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false.’ ”
34. This aspect of the matter has been considered recently by this Court in Roshan Deen v. Preeti Lal (2002) 1 SCC 100, Ram Preeti Yadav v. U.P Board of High School and Intermediate Education (2003) 8 SCC 311, Ram Chandra Singh case (2003) 8 SCC 319 and Ashok Leyland Ltd. v. State of T.N (2004) 3 SCC 1
35. Suppression of a material document would also amount to a fraud on the court. (See Gowrishankar v. Joshi Amba Shankar Family Trust (1996) 3 SCC 310 and S.P Chengalvaraya Naidu case (1994) 1 SCC 1.)
36. “Fraud” is a conduct either by letter or words, which induces the other person or authority to take a definite determinative stand as a response to the conduct of the former either by words or letter. Although negligence is not fraud but it can be evidence on fraud; as observed in Ram Preeti Yadav case (2003) 8 SCC 311.
37. In Lazarus Estates Ltd. v. Beasley (1956) 1 QB 702, (1956) 1 All ER 341, (1956) 2 WLR 502 (CA) Lord Denning observed at QB pp. 712 and 713 : (All ER p. 345 C)
“No judgment of a court, no order of a minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything.”
In the same judgment Lord Parker, L.J observed that fraud vitiates all transactions known to the law of however high a degree of solemnity (p. 722).
38. It is not open to Respondent 1 to contend that trade notice is of no consequence when the permission to pay by cheque on outstation bank was given with reference to the trade notice. The effect of the manipulation of records to show as if action was taken on 25-2-1999 and not on 26-2-1999 was also not considered by CEGAT in the proper perspective.
39. Rules 79 and 80 of the Treasury Rules were relied upon overlooking the effect of the Central Government Account (Receipt and Payment) Rules, 1983 (in short “the Receipt Rules”) which clearly stipulate as to the relevant date of receipt. Rule 20 is relevant in this regard. Learned counsel for the respondent referred to Rule 8 of the Central Excise Rules, 2002 (in short “the Central Excise Rules”). It was submitted that a Full Bench of CEGAT considered effect of the said Rule 8 in CCE v. Genus Overseas Electronics Ltd. (2003) 155 ELT 541 (cegat) and held that due date was the date of payment by cheque even if the cheque is encashed later. Rule 8 really operates in a different field altogether. It has nothing to do with date of receipt. It only provides the mode of payment. It does not and cannot wipe out effect of Rule 20 of the Receipt Rules. Otherwise Rule 20 will become dead letter. We need not go into that question in detail because clearly Rules 70 and 80 of the Treasury Rules are not applicable as they are applicable to situations indicated in Rule 1(a) and have no application to the present case.
40. Strong reliance was placed by learned counsel for Respondent 1 on Derry case (1886-90) All ER Rep 1, (1889) 14 AC 337. It was pleaded that Respondent 1 had acted with reasonable belief about availability of fund. Merely because funds were not actually released, it cannot be held to be a misdeclaration. It is to be noted that it has to be factually in each case concluded as to whether fraud is established. It would depend on the facts of each case. In the present case even if Respondent 1's stand is accepted at the most there was an assurance to provide funds. The same by no stretch of imagination, can be equated with funds already available. There is a gulf of difference between assurance to provide financial assistance and in reality providing financial assistance. In the latter case only is there availability of funds.
41. The word “reasonable” signifies “in accordance with reason”. In the ultimate analysis it is a question of fact; whether a particular act is reasonable or not depends on the circumstances in a given situation. It is often said that “an attempt to give a specific meaning to the word ‘reasonable’ is trying to count what is not number and measure what is not space”. The author of Words and Phrases (Permanent Edn.) has quoted from Nice & Schreiber, In re to give a plausible meaning for the said word. He says:
“the expression ‘reasonable’ is a relative term, and the facts of the particular controversy must be considered before the question as to what constitutes reasonable can be determined”.
42. From the factual scenario described it is clear that Respondent 1 was aware that there was no fund available. In fact, from 3-3-1999 it accepted the position that there was no fund available and was asking for time to arrange funds. This according to us clearly indicated a fraudulent motive and the declaration given was certainly misdeclaration. Therefore, CEGAT was not right in its conclusions about inapplicability of Section 15(1)(c) to the facts of the case. The demand of duty and order of confiscation by the Commissioner is clearly sustainable.
43. So far as Respondents 2 to 4 are concerned, the Commissioner's findings were as follows:
(1) Respondent 2 Shri S.R Aggarwal gave instructions from time to time for clearance of all imported goods before pronouncement of the Union Budget, 1999. There was no requisition from Essar Projects Ltd. (in short EPL) or the contractors for such goods. In-charge of Finance portfolio was fully aware of the financial status of the assessee. In spite of his personal knowledge he instructed Respondent 3 (Shri P.R Ashok) to complete the formalities. The intention to defraud is apparent from his fax message dated 24-2-1999 instructing to clear the goods at the current duty rate and not to expose to any change in the budget. His mala fide intent is apparent from the letters addressed by him to the Chief Commissioner and DRI authorities wherein he had significantly suppressed the fact that cheque had been tendered on the basis of a false declaration regarding availability of funds. All along he stuck to the plea that mere late realisation was of no consequence and since cheque was not dishonoured duty at post-budget rates cannot be levied.
(2) Respondent 3 Shri P.R Ashok was fully aware of the fact about non-availability of funds. But he made a false declaration about sufficiency of funds. The cheque was not on a bank at Jamnagar, but at Rajkot. This was a part of a well-planned plan to perpetrate fraud.
(3) Respondent 4 Shri Nitin Bhatt was in charge of customs-clearance-related work. In his letters to the Customs Authorities he clearly stated about availability of funds when moving for cancellation of warehouse licence. He also played active part in ensuring that the bank does not return the cheque.
44. In view of the aforesaid, it was concluded by the Commissioner that in respect of the imported goods the aforesaid three persons have done or omitted to do acts which acts or omissions have rendered such goods liable for confiscation and they had also abetted in acts which they knew or had reasons to believe that the goods are liable to confiscation under Section 111(j) of the Act and rendered themselves liable to action under Section 112(a) of the Act. Accordingly penalties as noted above were levied on Respondents 2, 3 and 4.
45. As regards the departmental officials (Respondents 5 to 7) the Commissioner took note of several factors.
46. As regards Shri S.P Chaudhuri it was noted that notwithstanding specific direction of the Superintendent (Tech.), Jamnagar to the effect that date of cancellation should be taken to be the date of “actual removal of goods from warehouse”, it was concluded that Shri Chaudhuri failed to ensure “actual removal” for the purpose of cancellation of warehouse licence. All the three officers failed to take note that physical removal of approximately 20,000 MT cargo covered under 84 bills of entry from the bonded warehouse could not have been possible in a short span of one day. The officers acted in undue haste and resorted to backdating as accepted by them in their statements. It was noted that the three officers were located far apart from each other. Therefore, processing the files at various stages and/or places on the same day is not practicable. The sequence of processing files confirmed the backdating of documents which was admitted by the officers. The prime responsibility for scrutinising the relevant documents was on Shri A.C Sharma who failed to do that. The other officers committed acts of omission under the overall guidance and supervision of Shri Sharma. The plea for protection under Section 155 of the Act was rejected. Penalty under Section 112(a) in respect of each of the officers was levied.
47. CEGAT did not consider the aberrations highlighted by the Commissioner and in a very cryptic manner dealt with the issues. No plausible reason has been indicated as to why the allegations which are quite serious in nature and the conclusions in relation thereto recorded by the Commissioner were not to be maintained. Only an abrupt conclusion was reached that Shri Thakur and Shri Chaudhuri had absolutely no connection with the acceptance of cheques. There was not even any reference to the allegations regarding accepted backdating or acting contrary to specific directions. Shri Sharma was given a clean chit in view of the finding recorded about the date on which receipt of payment has to be taken. Here again the allegations were not considered in the proper perspective. The findings regarding deemed removal are really inconsequential in the present dispute as the very foundation for removal was based on established fraud. Therefore, it is not necessary in the present dispute to go into the question regarding effect of deemed removal.
48. The manipulative roles of Respondents 2 to 7 have been clearly established. They were clearly active participants in the well-planned deception and fraudulent acts leading to evasion of duty. They had played major roles in the whole game of fraud and deception. There was clearly wilful disregard and deliberate defiance of statutory provisions. Levy of penalty is clearly warranted. Impugned order of CEGAT is set aside and order of the Commissioner is restored.
49. The appeals are allowed with no order as to costs.