2016 (12) TMI 700 - AT - Customs

Court Reduces Penalties in Fraudulent Export Case, Emphasizes Due Diligence

The Court found that while the appellants were not directly involved in the fraudulent export of 'Red Sander logs' instead of granite slabs, their ... Levy of penalty for abetting export fraud - imposition of penalty - export of red sanders - Held that: - they have been omitted to take sufficient care by plainly trusting the CHA appointed by them and totally handing over the responsibility of transportation and inspection by Customs at Chennai to the latter. The very same CHA was found to have played a major role in the attempted fraudulent export of red sanders by replacing the granite slabs. Both the Director/Managing Partner have accepted that the export orders have been obtained without knowing the details of the person involved and also the buyers. Hence, while there is not any direct involvement of appellants in the alleged attempted export of red sanders, nonetheless, they cannot go scot-free for their association with the fraudsters even if only by way of omission. - levy of penalty confirmed though reduced - decided partly in favor of appellant. Issues: Attempted export of 'Red Sander logs'; Imposition of penalty on the appellant-company and individuals involved.Analysis:The case involves the attempted export of 'Red Sander logs' in place of granite slabs by replacing them after the Let Export Order was issued. The dispute centers around the responsibility of the appellant company and the individuals regarding the fraudulent export. The appellant's argument is that they were not involved in the export fraud, as they had loaded only granite slabs, and the substitution occurred after the Let Export Order was issued. On the other hand, the respondent contends that the appellant's responsibility as an exporter persists throughout the export process, and they indirectly abetted the fraud by authorizing a Customs House Agent (CHA) without proper knowledge.Upon hearing both sides and reviewing the records, it was found that the granite slabs loaded by the appellant were declared and found as such during examination at the CFS, with a proper let export order issued. There was no direct allegation against the appellant company or its Director/Managing Partner regarding the substitution of granite slabs with red sander logs. However, it was noted that the CHA appointed by the appellants played a significant role in the fraudulent export. The appellants admitted that they obtained export orders without knowing the details of the involved persons and buyers, indicating an omission in due diligence.While the appellants were not directly involved in the fraudulent export, their association with the fraudsters, even if only by omission, warranted the imposition of penalties under Section 114(1) of the Act. Despite this, considering the circumstances and the lack of direct involvement, the penalties were reduced for all three parties involved. The penalties were reduced to Rs. 50,000 for M/s. Solar Granite Exports, and Rs. 25,000 each for Shri Pradeep Kumar Dungarwal and Shri Anil Kumar Dungarwal. The appeals were partially allowed based on this decision.In conclusion, the judgment highlights the importance of due diligence and responsibility in export processes, emphasizing that even indirect association with fraudulent activities can lead to penalties under the law.