2011 (2) TMI 679 - AT - Customs

Tribunal upholds penalties for shipping agents involved in export fraud scheme. Appeal rejected.

The tribunal upheld the penalty imposed on the shipping agents, including the Appellant, for their involvement in a fraudulent export scheme. The judgment ... Fraudulent drawback claim - liability for penalty as abettor under Section 114 of the Customs Act - confiscation of export goods for export contrary to prohibitions - prima facie evidentiary character of bill of lading under Hague Rules Article III - mens rea in civil penalty proceedingsFraudulent drawback claim - liability for penalty as abettor under Section 114 of the Customs Act - confiscation of export goods for export contrary to prohibitions - Whether the shipping agent is liable to penalty under Section 114 of the Customs Act for issuing Bills of Lading with false dates which facilitated a fraudulent drawback claim and export contrary to prohibitions. - HELD THAT: - The adjudicatory record and the findings of the appellate bench establish that the shipping agent issued Bills of Lading with dates much later than the actual dates of receipt, a practice used to facilitate negotiation of documents and fraudulent settlement of export proceeds under the State Credit Scheme, thereby enabling a false claim of drawback. The exports were found to have been made contrary to prohibitions (rendering the goods liable to confiscation) and the shipping agent's conduct materially assisted the exporter in perpetrating the fraud. The absence of a specific Customs Act provision prescribing a Bill of Lading date does not immunize an agent who issues such documents fraudulently; the agent can be visited with penalty as an abettor under Section 114 because the wrongful act rendered the goods liable to confiscation under the Customs law. On this basis the charge against the appellant is held to be substantiated and the appeal in respect of penalty is rejected. [Paras 6, 8, 9, 15, 16]Penalty under Section 114 sustained against the shipping agent for issuing Bills of Lading with false dates that facilitated fraudulent drawback and export contrary to prohibitions; appeal rejected.Prima facie evidentiary character of bill of lading under Hague Rules Article III - Whether reliance on Clause 3 of Article III of the Hague Rules absolves the shipping agent from liability for issuing Bills of Lading showing the date of issue rather than the date of receipt of goods. - HELD THAT: - The Court held that Clause 3 (issue of bill of lading on demand) cannot be interpreted to permit the showing of a Bill of Lading date that does not reflect the date of receipt. Clause 4 makes a bill of lading prima facie evidence of receipt by the carrier, which necessarily includes the date of receipt; issuing bills after the goods had left custody is prima facie fraudulent. The appellant's submission that bills were issued only when demanded by the exporter does not excuse issuance of dates that misrepresent receipt and facilitate fraud. [Paras 11, 12]Argument based on Hague Rules rejected; Bills of Lading cannot validly be dated so as to misrepresent date of receipt and thereby facilitate fraud.Mens rea in civil penalty proceedings - Whether mens rea of the shipping agent was proved to impose penalty in these civil proceedings. - HELD THAT: - The Court observed that the scheme of events demonstrates a fraudulent design to defraud the government and obtain undue drawback; fraud itself indicates mens rea. Further, civil penalty proceedings do not require the criminal standard of proof. Given the findings that the bills were manipulated to assist the fraudulent settlement of export proceeds, the requisite mental element for imposition of penalty is satisfied. [Paras 14, 16]Mens rea for imposition of civil penalty held to be established on the facts; no relief to appellant.Natural justice - supply of relied upon documents - Whether the Show Cause Notice/adjudication violated principles of natural justice by not supplying relied-upon documents to the appellant. - HELD THAT: - This contention was not shown to have been argued before the adjudicating authority. The appellate record (Order-in-Original summary of submissions) indicates that no such ground was raised below; therefore the contention cannot be entertained at the appellate stage. The Court found no merit in the plea of non-supply of documents on the materials before it. [Paras 13]Claim of violation of natural justice for non-supply of documents rejected as not raised below and without merit on the record.Final Conclusion: The appeal is dismissed: the penalty imposed on the shipping agent under Section 114 of the Customs Act is upheld because issuance of Bills of Lading with false dates was held to have facilitated a fraudulent drawback claim and exports contrary to prohibitions; the Hague Rules defence, natural justice objection and contention on mens rea are rejected. Issues Involved:Fraudulent export scheme involving shipping agents; Violation of Customs Act by shipping agents; Allegations of fraudulent export proceeds realization; Penalty imposition on shipping agents.Analysis:1. Fraudulent Export Scheme:The case involves a fraudulent export scheme where certain exporters defrauded the government by availing fraudulent drawbacks to the tune of Rs. 20.6 crores. The investigation revealed that the consignees in Russia did not exist, goods did not reach Russia, and there were mis-declarations in export documents. The shipping agents, including the Appellant, were alleged to have facilitated this fraud by manipulating dates on Bills of Lading to show fraudulent realization of export proceeds.2. Violation of Customs Act:The Customs Act provisions were invoked against the shipping agents for their role in the fraudulent scheme. The shipping agents were accused of contravening provisions related to realization of foreign exchange, leading to penalties under Sections 113(d), 113(i), and 114 of the Customs Act. The Appellant challenged the penalty imposed, arguing that they did not violate any law as shipping agents.3. Allegations of Fraudulent Export Proceeds Realization:The investigation highlighted that export proceeds were settled through a 'State Credit Scheme' instead of remittance of freely convertible foreign exchange. The shipping agents were accused of facilitating fraudulent receipt of export proceeds by falsely indicating dates on Bills of Lading, allowing the exporters to claim fraudulent drawbacks.4. Penalty Imposition on Shipping Agents:The Appellant contested the penalty imposed under Section 114 of the Customs Act. They argued that they issued Bills of Lading only upon the shipper's demand and followed the Hague Conventions, which mandate issuing Bills of Lading upon request. However, the tribunal found the Appellant's actions prima facie fraudulent as the Bills of Lading were issued after the delivery of goods abroad, indicating fraudulent practices.In conclusion, the tribunal rejected the Appeal, upholding the penalty imposed on the shipping agents, including the Appellant, for their involvement in the fraudulent export scheme. The judgment emphasized the fraudulent nature of the actions taken by the shipping agents, which facilitated the main fraudster in perpetrating the fraud, leading to the substantiation of charges against them.