Holding

The forged SILs constitute fraud, which extends the limitation period, and the revenue’s demand for duty, interest, penalty and confiscation is upheld.

Summary

The Commissioner of Customs confirmed duty, interest, penalty and confiscation liability on nine consignments of gold and silver imported by M/s Aafloat Textiles (I) Pvt. Ltd. under Special Import Licences (SIL) that were later discovered to be forged. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) cancelled the demands, holding that the limitation period could not be extended because the importer’s knowledge of the forgery was not proved. On appeal, the Supreme Court held that the forged SILs constituted fraud, which vitiates the transaction and extends the limitation period, making the revenue’s demand valid. The Court explained the legal meaning of fraud, its effect on statutory provisions, and emphasized the buyer’s duty to inquire (caveat emptor) about the genuineness of licences. Consequently, the appeal was allowed and the revenue’s demand reinstated.

Issues considered

Whether the use of forged Special Import Licences amounts to fraud sufficient to extend the limitation period under the Customs Act.
Whether the importer’s knowledge of the forgery is required to impose duty, interest, penalty and confiscation.
Whether the limitation period should be reckoned from the date of discovery of the forgery.
Whether the CESTAT erred in deciding the matter solely on limitation without examining the fraud aspect.

Legislation cited

Customs Act, 1962s. 111(d), s. 111(o), s. 114A, s. 28, s. 28AB
Indian Contract Act, 1872s. 17

Subjects

Customs ActSpecial Import Licencefraudlimitation periodduty evasionconfiscationcaveat emptorCESTATforged documentsappeal

Judgment

[2009] 2 S.C.R. 490

A COMMNR. OF CUSTOMS (PREVENTIVE)
V.
M/S AAFLOAT TEXTILES (I) PVT.LTD. AND ORS.
Civil Apepal No. 2447 of 2007
FEBRUARY 16, 2009
B
(DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
SHARMA, JJ.)
~
Customs Act, 1962: ..
c Ss.28, 28AB, 111(d) and (o), 114A- Notification No.1171
94-cus. Dated 27.4.1997 - Special Import Licence (SIL)
allegedly purchased by importer from brokers for clearance
of gold and silver, found forged - Not valid for the
consignments - Exemption under the Notification denied -
Duty demand and interest as well as penalty- Levy of- Upheld
D .._
by Commissioner,... Cancelled by Tribunal- On appeal, Held:
SILs were not genuine and were forged - Fraud was involved ••
and that was .sufficient to extend the period of limitation.
The Commissioner of Customs confirmed the duty
E demand on 9 consignments of gold and silver imported
by the Respondent company along with interest. The
benefit ()f exemption in terms of Notification dated
27 .4.1997 was denied and liability to goods to confiscation
was upheld. The case of the department that the Special ,I..

F Import Licence (SIL) purchased by the importer from
brokers for clearance of gold and silver was forged and
therefore was not valid for the consignments in question.
On appeal, the tribunal held that the appeal could be
disposed of only on the ground of limitation withou_t going
G into the meri1s of the matter. The Tribunal observed that there
was no evidence to show that the importer had knowledge
_i"
about the Sil being non-genuine and that the period of
limitation should not be reckoned from the date of discovery
of the forging. Accordingly, the demands including the
H 490
COMMNR. OF CUSTOMS (PREVENTIVE) V. MIS AAFLOAT 491
TEXTILES (I) PVT.LTD. AND ORS.

"t- penalty imposed were cancelled by the Tribunal. Hence A
the appeal by the Revenue.
Allowing the appeal, the Court
HELD: 1.1 "Fraud" means an intention to deceive;
whether it is from any expectation of advantage to the B
party himself or from the ill will towards the other is
immaterial. The expression "fraud" involves two elements,
-1 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 c
and it will include and 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 cause loss
or detriment to the deceived. Even in those rare cases
.... D
where there is a benefit or advantage to the deceiver, but
.;I
no corresponding loss to the deceived, the second
condition is satisfied. [Para 9) [ 496-H; 497-A, BJ
1.2 A "fraud" is an act of deliberate deception with
the design of securing something by taking unfair E
advantage of another. It is a deception in order to gain by
another's loss. It is a cheating intended to get an
'i advantage. [Para 10] [497-0, E]
~
1.3 Fraud and deception are synonymous. Although.
in a given case a deception may not amount to fraud, F
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. [Para 11] [497-G, H; 498-A]
G
- 1.4 It was for the buyer to establish that he had no
...... knowledge about the genuineness or otherwise of the SIL
in question. [Para 19] [501-G, H]
Dr. Vim/a v. Delhi Administration 1963 Supp. 2 SCR
585; Indian Bank v. Satyam Febres (India) Pvt. Ltd. 1996 H
492 SUPREME COURT REPORTS [2009] 2 S.C.R.

A (5) sec 550; S. p Changalvaraya Naidu V. Jagannath ....
1994 (1) SCC 1; Ram Chandra Singh v. Savitri Devi and
Ors. 2003 (8) SCC 319; Shrisht Dhawan (Smt.) v. Mis.
Shaw Brothers, 1992 (1) SCC 534; Roshan Deen v. Preeti
Lal 2002 (1) SCC 100; Ram Preeti Yadav v. UP Board
B of High School and Intermediate Education 2003 (8)
SCC 311 ; Ashok Leyland Ltd. v. State of TN. and Another
2004 (3) SCC 1; Gowrishankar v. Joshi Amba Shankar
t-
Family Trust 1996 (3) SCC 31 O; State of Andhra Pradesh .
and Anr. v. T Suryachandr Rao 2005 (5) SCALE 621
and Bhaurao Oagdu Paralkar v. State of Maharashtra "
c
and Ors. 2005 (7) sec 605 - relied on.
Derry and Ors. v. Peek (1886-90) All ER 1; Khawaja v. ..
-
'
. Secretary of State for Home Deptt. (1983) 1 All ER 765;
Wallis v. Russell (1902) 21 R 585, 615; Bottomley v.
D Bannister, (1932) 1 KB 458; Ward v. Hobbs, 4 App Cas
;;_
13 and Lazarus Estate Ltd. v. Beasley (1956) 1 QB' 702
- referred to.
2. Whether the buyer had made any enquiry as to
the genuineness of the license is within his special
E knowledge. He has to establish that he made enquiry and
took requisite precautions to find out about the
genuineness of the SIL which he was purchasing. If he
has not done that consequences have to follow. These
>-
aspects do not appear to have been considered by the
F CESTAT in coming to the abrupt conclusion that even if
one or all the respondents had knowledge that the SIL
was forged or fake that was not sufficient to hold that there
was no omission or commission on his part so as to
render silver or gold liable for confiscation. SILs were not
G genuine documents and were forged. Since fraud was
_l. ~
involved, in the eye of law such documents had no·
existence. Since the documents have been established
to be forged or fake, obviously fraud was involved and
that was sufficient to extend the period of limitation.[Paras
H 27; 28] [503-C, D, E]
COMMNR. OF CUSTOMS (PREVENTIVE) V. M/S AAFLOAT 493
TEXTILES (I) PVT.LTD. AND ORS.
,.... Advanced Law Lexicon by P Ramanatha Aiyar, 3rd Edn. A
2005 page 721; William R. Anson: Principles of the Law of
Contract 245 (Arthur L Corbin Ed.3d. Am. ed.1919) and "Let
a purchaser beware; who ought not to be ignorant that he is
purchasing the rights of another. Hob. 99; Broom; Co., Litl. 102
a: 3 Taunt. 439 - referred to. B
Case Law Reference
~
_,J 1963 Supp. 2 SCR 585 relied on Para 9
1996 (5) sec 550 relied on Para 9
c
1994 (1) sec 1 relied on Para 10
2003 (8) sec 319 relied on Para 11
1992 (1) sec 534 relied on Para 12
(1886-90) All ER 1 referred to Para 12 D
)

(1983) 1 All ER 765 referred to Para 12
2002 (1) sec 100 relied on Para 14
2003 (8) sec 311 relied on Para 14
E
2004 (3) sec 1 relied on Para 14
., 1996 (3) sec 310 relied on Para 15
A
(1956) 1 QB 702 referred to Para 17
2005 (5) SCALE 621 relied on Para 18 F

2005 (7) sec 605 relied on Para 18
(1902)• 21 R 585, 615 referred to Para 21
(1932) 1 KB 458 referred to Para 25 G
.. ...._
4 App Cas 13 referred to Para 25
CIVILAPPELLATE JURISDICTION: CivilApepal No. 2447
of 2007
H
494 SUPREME COURT REPORTS [2009] 2 S.C.R.

A From the Judgement and Order dated 05.01.2006 of the --t·
Customs Excise Service Tax Appellant Tribunal, West Zonal
Bench at Mumbai in Appeals Nos.CI 997, 998,. 810, 999. 846,
845 of 2002.

B P.V. Shetty, Arvind K. Shukla, S.N. Terdol, P. Narasimhan,
B. Krishna Prasad, B.V. Balaram Das, for the Appellant.
lo-
S. Ganesh, S.K. Bagaria, V.M. Doiphode, Rajesh Kumar, ..
Tarun Gulati, Jaiveer Shergill, Kishore Kunal, Rony John,
Praveen Kumar, M.P. Devnath, Kumar Rajesh Singh, Manish
c Panda, Praveen IS.umar, Himanshu Shekhar, Arunabh
Chowdhury, Arijit Bhaumik, Ruby Singh Ahuja, Anupam Lal Das
for the Petitioner.

The Judgement of the Court was delivered by
D
).,
DR. ARIJIT PASAYAT, J.

1. Challenge in this appeal is to the order passe;d by the
Customs, Excise and Service Tax Appellate Tribunal, West Zonal
E Bench at Mumbai (in short the 'CESTAT'). Challenge before
the CESTAT was to the order of Commissioner of Customs
who confirmed the duty demand of. Rs.6,69,40, 149/- on 9
consignments of gold and silver imported by M/sAafloat Textiles
.).,
'
(India) Ltd. (Formerly known as M/s Akai lmpex Ltd.) under
F Section 28 alongwith appropriate interest under Section 28AB
of the Customs Act, 1962 (in short the 'Act'). The benefit of
exemption in terms of Notification No.117 /94-Cus. Dated
27.4.1997 was denied and liability of the goods to""confiscation
under Section 111 (d) and (o) of the Act was upheld. But since
G the goods were not available, confiscation was not ordered.
~-
Penalty equal to duty amount on the importer under Section 114A
of the Act was imposed and Rs.50 lakhs was imposed on Shri
Mahendra Shah and Rs.25 lakhs each on four other appellants
before the CESTAT.
H
COMMNR. OF CUSTOMS (PREVENTIVE) V. MIS AAFLOAT 495
TEXTILES (I) PVT.LTD. AND ORS. [DR. ARIJIT PASAYAT J.]

2. Case of the department that the Special Import License A
(in short 'SIL') purchased by the importer from brokers for
clearance of gold and silver was forged and, therefore, was not
valid for the consignments in question.
3. Background facts as emerging from the
8
Commissioner's order are that the office premises of one Mis.
Gazebo and M/s. Mahavir Corporation, were searched by
officers of ORI and copy of SIL No.3536539 dated 6.8.1997
issued to Mis. Track Industries, Kanpur, was recovered. The
Joint Director General of Foreign Trade, Kanpur informed that
no such licence had been issued and that the signature and C
security seal of their Foreign Trade Development Officer l)ad
been forged. The proprietor of Mis Gazebo, Shri R.T. Shah
stated on 19.1.1998 that he had purchased the above bogus
SIL from one Shri Sushil Kumar Lohia who, in turn admitted that
j
the SIL was given to him by one Shri Manoj Kumar Jain and that D
he had obtained several bogus SILs from one Naresh Sheth
and Shri Dinesh Buchasia, whose residential premises were
searched and certain documents were recovered and his
statement was recorded, wherein he stated that he had only
dealt in 7 SI Ls which he bought at low premium from one Rajesh E
Chopra and that the SILs were forged. Shri Shinivas Pannalal
Kalantri, General Manager of the importer company stated that
gold/silver had been imported under SIL during the year 1996-
97 and 1997-98, that one M/s. Lalbhai Trading Co. and two
others were the clearing agents; that Shri Prakash Mohta of F
Finance Department looked after the purchase of Slls. The
Chairman of the importer company stated that he looked after
negotiation and purchase of bullion and sale of bullion; that Shri
Prakash Mohta looked after purchase of licences, clearance of
goods, delivery, payment to supplier etc. and that licence brokers G
through whom SILs were purchased and whom he knew, were
Mr. Pachisia and Mr. Ketan Shah. The statement of Shri Prakash
Mehta, was also recorded in which he confirmed that he was
looking after purchase of Slls for import of bullion and
subsequently selling them in the local market. Shri Mahendra H
496 SUPREME COURT REPORTS [2009] 2 S.C.R.

A Shah stated that he had sold bogus SI Ls to the importer company.
Shri Rasiklal Mehta stated that he and one Atu I Garodia met one
Shri D.R. Gulati in Bombay who told that he could provide bogus
SIL for which he would charge 3% to 4% premium, that Shri
Gulati used to provide bogus SILs and Shri Garodia used to
B sell them in market and give them a premium of 3%.
4. The demand was confirmed under the proviso to Section
28(1) of the Act. The stand of the revenue that since the licenses
were forged and were void, the buyer cannot have better title
than the seller. CESTAT in appeal was of the view that the appeal
C could be disposed only on the ground of limitation without going
into the merits of the matter. It was observed that there was no
evidence to show that the importer had knowledge about the
SIL being non- genuine.
5. It was also stated that the period of limitation is not to be
0
reckoned from the date of discovery of the forgery. Accordingly,
the demands including the penalty imposed were cancelled.
6. In support of the appeal, learned counsel for the appellant
submitted that since the SIL involved was established to be
E forged there was no question of denying the extended period of
limitation. ·
7. Learned counsel for the respondents on the other hand
submitted that the department has not established that the buyer
had knowledge about the forgery. The mens rea being one of
F the ingredients to avail extended period of limitation the CESTAT
was justified in its conclusions.
8. As noted above, the CESTAT has not gone into the
question whether the SIL involved was genuine or not. It was of
G the view that the department has not established that buyer had
knowledge that there was any forgery involved.
9. "fraud" means an intention to deceive; whether it is from
any expectation of advantage to the party himself or from the ill
will towards the other is immaterial. The expression "fraud"
H involves two elements, deceit and injury to the person deceived.
COMMNR. OF CUSTOMS (PREVENTIVE) V. M/S AAFLOAT 497
TEXTILES (I) PVT.LTD. AND ORS. [DR. ARIJIT PASAYAT J.]

Injury is something other than economic loss, that is, deprivation A
of property, whether movable or immovable or of money and it
will include and 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. B
Even in those rare cases where there is a benefit or advantage
to the deceiver, but no corresponding loss to the deceived, the
.ca
second condition is satisfied. (See Dr. Vim la v. Delhi
Administration (1963 Supp. 2 SCR 585) and Indian Bank v.
Satyam Febres (India) Pvt. Ltd. (1996 (5) SCC 550). c
1O. 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.
Changalvaraya Naidu v. Jagannath (1994 (1) SCC 1). D
-j
11. "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 E
settled that misrepresentation itself amounts to fraud. Indeed,
I
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 willfully or
recklessly causing him to believe and act on falsehood. It is a F
fraud in law if a party makes representations, which he knows
to be false, and injury ensues 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 G
•. J 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 H
498 SUPREME COURT REPORTS [2009) 2 S.C.R.

A doctrine including res judicata. (See Ram Chandra Singh v.
Savitri Devi and Ors. (2003 (8) SCC 319).
12. "Fraud" and collusion vitiate even the most solemn
proceedings in any civilized system of jurisprudence. It is a
concept descriptive of human conduct. Michael Levi likens a
B fraudster to Milton's sorcerer, Com us, 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
C 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
D 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
E 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
F 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 representator about a fact, which he knows to be untrue
G 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 i.e. Derry and Ors. v. Peek (1886-90) All ER 1 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
H
COMMNR. OF CUSTOMS (PREVENTIVE) V. M/S AAFLOAT 499
TEXTILES (I) PVT.LTD. AND ORS. [DR ARIJIT PASAYAT J.]

made (i) knowingly, or (ii) without belief in its truth, or (iii) A
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. Secretary B
of State for Home Deptt. (1983) 1 All ER 765, that it is dangerous
~
to introduce maxims of common law as to effect of fraud while
,. determining fraud in relation of 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 c
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
.._ D
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 administration law, as it is
developing, is assuming different shades. It arises from a
deception committed by disclosure of incorrect facts knowingly E
and deliberately to invoke exercise of power and procure an
I order from an authority or tribunal. It must result in exercise of
.;., jurisdiction which otherwise would not have been exercised. The
misrepresentation must be in relation to the conditions provided
in a section on existence or non-existence of which the power F
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 G
to avoid bad bargain. In public law the duty is not to deceive.
(See Shrisht Dhawan (Smt.) v. M/s. Shaw Brothers, (1992 (1)
sec 534).
13. In that case it was observed as follows :
H
500 SUPREME COURT REPORTS [2009] 2 S.C.R.

A "Fraud and collusion vitiate even the most solemn
proceedings in any civilized system of jurisprudence. It is
a concept descriptive of human conduct. Michael levi likens
a fraudster to Milton's sorcerer, Com us, who exulted in his
ability to, 'wing me into the easy-hearted man and trap
B 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 obtain~ an ~

advantage against conscience over another or which equity
.
c 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
D ,...
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 offalse representation
E 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
F 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
G making him believe it to be true. The representation to
become fraudulent must be of the fact with knowledge that l,.
it was false. In a leading English case %errv v. Peek [( 1886-
90) ALL ER Rep 1: (1889) 14 A 337 (HL)] what
constitutes fraud was described thus: (All Er p. 22 B-C)
H
COMMNR. OF CUSTOMS (PREVENTIVE) V. M/S AAFLOAT 501
TEXTILES (I) PVT.LTD. AND ORS. [DR. ARIJIT PASAYAT J.]

'Fraud is proved when it is shown that a false A
t representation has been made (i) knowingly, or (ii) without
belief in its truth, or (iii) recklessly, careless whether it be
true or false'."
14. This aspect of the matter has been considered by this
Court in Roshan Deen v. Preeti Lal (2002 (1) SCC 100) Ram 8
Preeti Yadav v. U.P. Board of High School and Intermediate
Education (2003 (8) SCC 311 ), Ram Chandra Sing h's case
l(
(supra) and Ashok Leyland Ltd. v. State of TN. and Another (2004
" (3) sec 1).
c
15. 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.
Chengalvarava Naidu's case (supra).

....,
16. "Fraud" is a conduct either by letter or words, which D
rl. 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's
case (supra). E
17. In Lazarus Estate Ltd. v. Beasley (1956) 1 QB 702,
Lord Denning observed at pages 712 & 713, "No judgment of a
~
Court, no order of a Minister can be allowed to stand if it has
:ii- been obtained by fraud. Fraud unravels everything." In the same
judgment Lord Parker LJ observed that fraud vitiates all F
transactions known to the law of however high a degree of
solemnity. (page 722)
18. These aspects were highlighted in the State of Andhra
Pradesh and Anr. v. T. Suryachandr Rao (2005 (5) SCALE 621)
G
(
and Bhaurao Dagdu Paralkar v. State of Maharashtra and Ors.
~ '\. (2005 (7) sec 605)
19. It was for the buyer to establish that he had no
knowledge about the genuineness or otherwise of the SIL in
question. H
502 SUPREME COURT REPORTS [2009] 2 S.C.R.

i=
A 20. The maxim caveat emptor is clearly applicable to a )

case of this nature. As per Advanced Law Lexicon by P. ~-
Ramanatha Aiyar, 3rd Edn. 2005 at page 721: Caveat emptor
means "Let the purchaser beware." It is one of the settled
maxims, applying to a purchaser who is bound by actual as well
B as constructive knowledge of any defect in the thing purchased,
which is obvious, or which might have been known by proper
diligence. I'"
21. "Caveat emptor does not mean either in law or in Latin !<:

that the buyer must take chances. It means that the buyer must
.
c take care.'' (See Wallis v. Russell (1902) 21 R 585, 615). .....
'·,•
22. "Caveat emptor is the ordinary rule in contract. A vendor
is under no duty to communicate the existence even of latent
defects in his wares unless by act or implication he represents
such defects not to exist.'' (See William R. Anson, Principles of r-
D
the Law of Contract 245 (Arthur L. Corbin Ed.3d. Am. ed.1919) ,...
Applying the maxim, it was held that it is the bounden duty of the ;i.

purchaser to make all such necessary enquiries and to ascertain ~

all the facts relating to the property to be purchased prior to '
j...
committing in any manner.
E
23. Caveat emptor, qui ignorare non debuit quad jus
alienum emit. A maxim meaning "Let a purchaser beware; who
ought not to be ignorant that he is purchasing ttie rights of
~

another. Hob. 99; Broom; Co., Lit/. 102 a: 3 Taunt. 439.
.l(

F 24. As the maxim applies, with certain specific restrictions,
not only to the quality of, but also to the title to, land which is
sold, the purchaser is generally bound to view the land and to
enquire after and inspect the title-deeds; at his peril if he does [
not.
G
25. Upon a sale of goods the general rule with regard to
their nature or quality is caveat emptor, so that in the absence _,. 1

of fraud, the buyer has no remedy against the seller for any defect
in the goods not covered by some condition or warranty,
expressed or implied. It is beyond all doubt that, by the general
H
COMMNR. OF CUSTOMS (PREVENTIVE) V. M/S MFLOAT 503
TEXTILES (I) PVT.LTD. AND ORS. [DR. ARIJIT PASAYAT J.]

rules of law there is no warranty of quality arising from the bare A
.~
contract of sale of goods, and th~t where there has been no
fraud, a buyer who has not obtained an express warranty, takes
all risk of defect in the goods, unless there are circumstances
beyond the mere fact of sale from which a warranty may be
implied. (Bottomley v. Bannister, [1932] 1 KB 458 : Ward v. B
Hobbs, 4 App Cas 13). (Latin for Lawyers)

,)I
26. No one ought in ignorance to buy that which is the right
of another. The buyer according to the maxim has to be cautious,
as the risk is his and not that of the .seller.
c
27. Whether the buyer had made any enquiry as to the
genuineness of the license within his special knowledge. tie
has to establish that he made enquiry and took requisite
precautions to find out about the genuineness of the SIL which
he was purchasing. If he has not done that consequences have
D
to follow. These aspects do not appear to have been considered
"" by the CESTAT in coming to the abrupt conclusion that even if
one or all the respondents had knowledge that the SIL was forged
or fake that was not sufficient to hold that there was no omission
or commission on his part so as to render silver or gold liable
for confiscation. E

28. As noted above, SILs were not genuine documents
1 and were forged. Since fraud was involved, in the eye of law
7 such documents had no existence. Since the documents have
been established to be forged or fake, obviously fraud was F
involved and that was sufficient to extend the period of limitation.
29. In view of this finding the other issues raised by the
respondent are of academic interest.
30. The appeal is allowed. There shall be no order as to
G
costs.
f~

G.N. Appeal allowed.