Mens rea is essential for customs penalty, and retracted statements without corroboration cannot sustain an excessive sanction.

Penalty under Section 112(b) of the Customs Act requires proof of conscious knowledge or mens rea, and retracted statements without independent corroboration are insufficient. On the facts described, the absence of reliable recovery evidence, defects in the panchnama, and no proof that the appellants knowingly dealt with smuggled rough diamonds meant the penalty could not be sustained in the heavy original quantum. The confiscation remained undisturbed, but the Tribunal treated the appellants' role as limited and reduced the penalty to a proportionate level of Rs. 1,00,000 each.

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Issues: (i) Whether penalty under Section 112(b) of the Customs Act, 1962 was sustainable on the facts proved against the appellants; (ii) Whether the quantum of penalty required reduction having regard to the appellants' role and the evidence on record.

Issue (i): Whether penalty under Section 112(b) of the Customs Act, 1962 was sustainable on the facts proved against the appellants.

Analysis: The evidence relied upon by the Revenue consisted mainly of the appellants' statements, which were retracted at the first available opportunity, and there was no independent corroboration showing that the rough diamonds were smuggled into India by the appellants or that they knowingly dealt with goods liable to confiscation. The absence of reliable recovery evidence, the deficiencies in the panchnama, and the lack of proof of conscious knowledge or mens rea were material in assessing liability under Section 112(b).

Conclusion: Penalty under Section 112(b) was not justified in the heavy quantum originally imposed, and liability could not be sustained to that extent on the evidence available.

Issue (ii): Whether the quantum of penalty required reduction having regard to the appellants' role and the evidence on record.

Analysis: The Tribunal had earlier directed re-quantification of penalty by reference to the appellants' role. On reconsideration, the Tribunal found the role attributable to the appellants to be limited, the confiscation of the goods having already attained finality, and the penalty imposed to be excessive in the peculiar facts of the case. While complete deletion of penalty was not granted, the penalty was required to be brought to a level commensurate with the proved involvement.

Conclusion: The penalty was reduced to Rs. 1,00,000 each on the appellants.

Final Conclusion: The confiscation was maintained, but the penalty was substantially reduced, resulting in partial relief to the appellants.

Ratio Decidendi: Penalty under Section 112(b) of the Customs Act, 1962 requires proof of conscious knowledge or mens rea and cannot rest merely on retracted statements without independent corroboration; where the role proved is limited, the penalty must be proportionate to that role.

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