2019 (9) TMI 1308 - AT - Customs

Penalty Overturned due to Lack of Evidence in Customs Act Case

The Tribunal set aside penalties imposed on various appellants, including M/s Shakti Jewellers Pvt. Ltd. and individuals, due to lack of evidence linking ... Knowledge or reason to believe as an essential element for imposition of penalty under Sections 112 and 114 of the Customs Act - evidentiary value of statements recorded during investigation when witnesses are not produced for examination in chief and cross examination - non applicability of penal consequences in absence of positive evidence attributing specific role or mens rea - territorial jurisdiction of the Customs Act and lack of territorial reach over foreign entities without a place of business in India - claim of ownership and right to re export where consignee has not filed bill of entry - interpretation of 'or' in Section 114A of the Customs Act - 'or' to be given its ordinary meaning and not read as 'and' except in peculiar circumstancesKnowledge or reason to believe as an essential element for imposition of penalty under Sections 112 and 114 of the Customs Act - non applicability of penal consequences in absence of positive evidence attributing specific role or mens rea - Penalty imposed on M/s Shakti Jewellers Pvt. Ltd. under Sections 112 and 114 set aside - HELD THAT: - The Tribunal found that the Commissioner's finding rested primarily on fax messages allegedly sent from the appellant's fax number and on statements recorded during investigation. There is no independent documentary evidence linking the jewellery supplied by M/s Shakti Jewellers to the fulfilment of the SEZ units' export obligation, nor any finding that the appellant had knowledge or reason to believe the goods would be misused. Sections 112 and 114 require proof that the person knew or had reason to believe that the goods were liable to confiscation; mere supply of locally manufactured jewellery, without evidence of culpable knowledge or act/omission rendering goods liable to confiscation, is insufficient to attract penalty. The adjudicating authority also failed to deal with appellant's defence that the fax could have been sent by others. For these reasons penalties imposed on M/s Shakti Jewellers were held unjustified and set aside. [Paras 8, 9, 10]Penalties under Sections 112 and 114 imposed on M/s Shakti Jewellers Pvt. Ltd. are set aside.Knowledge or reason to believe as an essential element for imposition of penalty under Sections 112 and 114 of the Customs Act - non applicability of penal consequences in absence of positive evidence attributing specific role or mens rea - Penalty imposed on Shri Bharat Jamnadas Jagda (as director and proprietor) set aside and seized currency to be refunded - HELD THAT: - The Tribunal applied the same reasoning as in respect of M/s Shakti Jewellers. There is no evidence demonstrating Shri Bharat Jamnadas Jagda's knowledge that goods would be misused by the SEZ units; his alleged role as carrier/receiver and delivery for consideration does not, without more, establish offence under Sections 112/114. Further, earlier proceedings concerning seizures from his premises had resulted in deposit of duty, interest and 25% penalty and had been held concluded by the Tribunal in an earlier order, making fresh penalty on the same set of facts impermissible. On these bases the penalties imposed on him were set aside and the confiscated Indian currency directed to be refunded. [Paras 11, 12]Penalties on Shri Bharat Jamnadas Jagda under Sections 112 and 114 are set aside; seized currency to be refunded.Evidentiary value of statements recorded during investigation when witnesses are not produced for examination in chief and cross examination - non applicability of penal consequences in absence of positive evidence attributing specific role or mens rea - claim of ownership and right to re export where consignee has not filed bill of entry - Penalties on M/s Mahesh & Co. Pte. Ltd. and Shri Mahesh Kumar under Sections 112, 114 and 114AA set aside; order directing re export of specified consignment allowed - HELD THAT: - The Tribunal held that the Revenue's case against the Singapore company rested largely on untested statements and lacked independent corroboration. Statements not subjected to cross examination cannot be the sole foundation for penal liability; further, there was no evidence that Customs had found any discrepancy at import/export assessments. Separately, M/s Mahesh & Co., being a company incorporated in Singapore with no place of business in India, could not be penalised absent an explanation of territorial jurisdiction. On the question of the consignment sent under the airway bill of 5 February 2009, since the consignee (M/s Vee Ess) did not file bill of entry, ownership remained with the sender and the Tribunal directed customs to allow re export within two months. Consequentially, penalties on both the company and Shri Mahesh Kumar were set aside. [Paras 13, 18, 21, 23]Penalties under Sections 112, 114 and 114AA on M/s Mahesh & Co. Pte. Ltd. and Shri Mahesh Kumar are set aside; re export of the specified consignment ordered.Proceedings concluded where duty, interest and 25% penalty have been paid and earlier tribunal order bars fresh penalty - non applicability of penal consequences in absence of positive evidence attributing specific role or mens rea - Penalties on Shri Mukesh Mahesh Kumar Kothari and Shri Mahesh Kumar Moolchand Kothari under Section 112 set aside - HELD THAT: - The Tribunal noted that the impugned penalties relate to matters in respect of which earlier proceedings had resulted in deposit of duty, interest and 25% penalty and the Tribunal previously held that proceedings were concluded. Consequently, fresh imposition of penalties on the same facts could not be sustained. Moreover, the Revenue's case depended on untested statements and lacked positive evidence of knowledge or involvement. [Paras 25]Penalties imposed on the two appellants under Section 112 are set aside.Evidentiary value of statements recorded during investigation when witnesses are not produced for examination in chief and cross examination - knowledge or reason to believe as an essential element for imposition of penalty under Sections 112 and 114 of the Customs Act - Penalties on employees (Mohd. Irfan Munshi, Jaison Simon Panakkal, Rajesh Ratanlal Pacheria) under Section 112 set aside - HELD THAT: - Huge penalties were imposed merely because the appellants were employees of an entity alleged to have facilitated movement of goods. The adjudicating authority failed to attribute any specific role or mens rea to each employee. Where statements relied upon by Revenue have not been tested by examination in chief or cross examination, they cannot constitute independent evidence to impose penalty. In absence of proof of knowledge or intentional aiding/abetting, imposition of penalties was mechanical and unsustainable. [Paras 26, 28, 30, 31]Penalties imposed on the three employees under Section 112 are set aside.Evidentiary value of statements recorded during investigation when witnesses are not produced for examination in chief and cross examination - Statements of co noticees recorded during investigation, not produced for examination in chief and cross examination, cannot be relied upon as evidence to impose penalties - HELD THAT: - Relying on Supreme Court and High Court precedents, the Tribunal held that depriving an assessee of the opportunity to cross examine witnesses whose statements are relied upon is a breach of natural justice; such statements, when untested, lose their evidentiary value. The Tribunal observed that the adjudicating authority merely reproduced untested statements and reached penal conclusions without independent corroboration or enabling cross examination, which requires exclusion of such material from consideration. With that exclusion, Revenue's case collapsed. [Paras 18, 27, 28]Untested statements relied upon by Revenue are to be excluded from evidence; penalties based solely on such statements cannot be sustained.Territorial jurisdiction of the Customs Act and lack of territorial reach over foreign entities without a place of business in India - Adjudicatory authority lacked basis to penalise a foreign company having no permanent establishment in India (M/s Mahesh & Co. Pte. Ltd.) - HELD THAT: - The Tribunal observed that the Customs Act extends to the territory of India and the adjudicating authority did not explain how it exercised jurisdiction over a Singapore company with no place of business in India. Precedents were relied upon to the effect that penal consequences cannot be imposed without demonstrating territorial nexus or establishment; consequently penalties on the foreign company could not be upheld. [Paras 21]Penalties on the foreign company were set aside for lack of territorial jurisdictional basis and absence of explanatory findings by the adjudicating authority.Claim of ownership and right to re export where consignee has not filed bill of entry - Sender's right to re export upheld where consignee did not clear consignment by filing bill of entry - HELD THAT: - In respect of the consignment sent under Airway Bill dated 05.02.2009, the Tribunal recorded that the consignee (M/s Vee Ess) did not file bill of entry; accordingly ownership remained with the sender under customs law. The invoice showed goods were sent for job work and ownership continued with the exporter. The Tribunal directed Customs to permit re export within two months. [Paras 23]Re export of the specified consignment ordered; sender's claim acknowledged.Interpretation of 'or' in Section 114A of the Customs Act - 'or' to be given its ordinary meaning and not read as 'and' except in peculiar circumstances - Revenue's appeal challenging the Adjudicating Authority's application of Section 114A rejected; 'or' in Section 114A is to be read in its ordinary sense - HELD THAT: - The Tribunal examined Section 114A and held that the provision makes a person liable to penalty equal to the duty or interest so determined where the person is liable to pay duty or interest. The conjunction 'or' is unambiguous in the statutory text and need not be read as 'and' unless peculiar facts require it; Revenue's reliance on selective precedents and Ministry of Law clarifications did not justify reading 'or' as 'and' in the present statutory context. Accordingly the Revenue's appeal was rejected. [Paras 32, 33, 34, 35]Revenue's contention to read 'or' as 'and' in Section 114A is rejected; appeal dismissed.Final Conclusion: The Tribunal allowed the appellants' appeals broadly on grounds that penalties were not supported by independent admissible evidence and that knowledge/reason to believe - an essential element for invoking Sections 112/114 - was not established; untested statements of deponents could not be relied upon; penalties on M/s Shakti Jewellers, Shri Bharat Jamnadas Jagda, M/s Mahesh & Co. Pte. Ltd., Shri Mahesh Kumar, the other named appellants and employees were set aside; re export of the specified consignment was directed; and the Revenue's appeal on the interpretation of Section 114A was rejected. Issues Involved:1. Confiscation of gold jewelry and imposition of penalties.2. Alleged misuse of SEZ scheme by importing gold jewelry under false pretenses.3. Role of various appellants in aiding and abetting the fraudulent activities.4. Legality of penalties imposed under Sections 112, 114, and 114AA of the Customs Act, 1962.5. Right to cross-examination of witnesses.6. Jurisdiction over foreign entities under the Customs Act.7. Return of seized gold jewelry.Issue-wise Detailed Analysis:1. Confiscation of Gold Jewelry and Imposition of Penalties:The Directorate of Revenue Intelligence (DRI) received intelligence about companies misusing the SEZ scheme to import gold jewelry by mis-declaring it as outdated for repair, remaking, and polishing. The imported jewelry was allegedly disposed of in the Indian market, and export obligations were fulfilled using locally made jewelry. The Commissioner of Customs, Noida, imposed penalties on various entities and individuals, including M/s Shakti Jewellers Pvt. Ltd., M/s Mahesh Kumar Moolchand Kothari, and others.2. Alleged Misuse of SEZ Scheme:DRI officers conducted searches and found packages of gold jewelry in the premises of M/s Vee Ess Jewellers Pvt. Ltd. and M/s Ajit Exports. The jewelry was declared as outdated gold for remaking, but it was found to be new and ready for sale. The investigation revealed that the SEZ units were diverting imported jewelry into the domestic market and fulfilling export obligations with locally procured jewelry.3. Role of Various Appellants:- M/s Shakti Jewellers Pvt. Ltd.: Penalty of Rs. 6 crores each under Sections 112 and 114 of the Customs Act. The Revenue's case was based on fax messages found in the SEZ units' premises. The Tribunal found no evidence linking M/s Shakti Jewellers to the fraudulent activities and set aside the penalties.- Shri Bharat Jamnadas Jagda: Director of M/s Shakti Jewellers and Proprietor of M/s Omkar Jewellers. Penalties of Rs. 8 lakhs each under Sections 112 and 114. The Tribunal found no evidence of his involvement in the fraudulent activities and set aside the penalties.- M/s Mahesh & Co. Pte. Ltd. and Shri Mahesh Kumar: Penalties under Sections 112, 114, and 114AA. The Tribunal found no evidence of their involvement in the fraudulent activities and set aside the penalties. The Tribunal also directed the return of seized gold jewelry to M/s Mahesh & Co.- Shri Mukesh Mahesh Kumar Kothari and Shri Mahesh Kumar Moolchand Kothari: Penalties under Section 112. The Tribunal found no evidence of their involvement and set aside the penalties.- Mohd. Irfan Munshi, Shri Jaison Simon Panakkal, and Shri Rajesh Ratanlal Pacheria: Employees of M/s Damasy Retail Jewelers Pvt. Ltd. Penalties under Section 112. The Tribunal found no evidence of their involvement and set aside the penalties.4. Legality of Penalties Imposed Under Sections 112, 114, and 114AA of the Customs Act, 1962:The Tribunal found that the penalties imposed under Sections 112 and 114 require knowledge or reason to believe that the goods were liable to confiscation. The Tribunal found no evidence of such knowledge on the part of the appellants and set aside the penalties.5. Right to Cross-examination of Witnesses:The Tribunal emphasized the importance of cross-examination of witnesses. The statements of various deponents were not tested through cross-examination, making them unreliable. The Tribunal referred to several precedents, including the Supreme Court's decision in Andaman Timber Industries, which held that not allowing cross-examination violates natural justice principles.6. Jurisdiction Over Foreign Entities Under the Customs Act:The Tribunal noted that M/s Mahesh & Co. Pte. Ltd., a company incorporated under Singapore laws, cannot be penalized under the Customs Act, which has territorial jurisdiction only within India. The Tribunal referred to precedents like Relax Safety Industries and Guru Electronics Singapore Pte. Ltd., which support this view.7. Return of Seized Gold Jewelry:The Tribunal directed the Customs Authority to allow the re-export of gold jewelry sent by M/s Mahesh & Co. Pte. Ltd. to M/s Vee Ess Jewellers Pvt. Ltd. since the consignee did not file any bill of entry, and the ownership remained with the appellant.Conclusion:The Tribunal set aside the penalties imposed on various appellants due to the lack of evidence and failure to provide cross-examination of witnesses. The Tribunal also directed the return of seized gold jewelry to M/s Mahesh & Co. Pte. Ltd. The appeal filed by the Revenue was rejected, and all the appeals were allowed with consequential relief to the appellants.