2023 (7) TMI 1132 - AT - Customs

Tribunal overturns Customs penalty, allows mask export for COVID relief.

M/s. P.J. Johnson & Sons Versus The Commissioner of Customs

The Tribunal ruled in favor of the appellant, setting aside the revocation of permission and penalty imposed under Section 117 of the Customs Act, 1962. ... Revocation of order to operate as ship chandler - levy of penalty u/s 117 of CA - prohibited goods or not - allowing the goods for export - HELD THAT:- It is an admitted fact that 2,00,000 of 3 ply non-woven masks which were loaded on to the Philippines Navy vessel BRP DAVAO Delsur was meant for Philippines Government. The Trade Facility Notice No.17/2019 dated 23.5.2019 clearly laid down the procedures for ship stores which was followed by the appellant by filing a Manual Shipping Bill and clearly mentioning that supply of non-woven 3-fold mask (3 ply) 59 Boxes were being shipped on to the vessel. The appellant has placed all the necessary permissions and records filed and signed by the respective authorities at different stages - it appears that the appellant (Ship Chandler) had not deviated nor violated any of the provisions of the Customs Act, 1962 and there is no allegation in the impugned order of violation of any of the provisions of the Customs Act, 1962. The provisions of Section 89 of CA, clearly state that the Proper Officer i.e., the customs authorities have to determine taking into consideration the size of the vessel or aircraft the number of passengers and crew and the length of the voyage on which the vessel or aircraft, have to determine the quantity that need to be supplied as stores on to the vessel. Hence, it was the duty of the concerned authorities to verify these facts before allowing 2,00,000 of 3 ply non-woven masks having been permitted and loaded on to the Vessel, they cannot now turn around and make the appellant having grossly failed in his duty to intimate the authorities. The Appellant in fact has followed all the procedures and with necessary permissions has loaded the said goods on to the vessel - the impugned order is set aside and the appeal is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether export of 3-ply non-woven masks loaded as ship stores on a foreign naval vessel contravened DGFT export prohibitions and justified revocation of the appellant's ship chandler permission and imposition of penalty. 2. Whether DGFT notifications prohibiting export of specified goods apply to goods classified as ship stores. 3. Whether Section 89 of the Customs Act, 1962 (stores to be free of export duty) placed an obligation on the ship chandler to independently determine/store-quantum or to intimate/seek express permission before export, and whether failure to do so justified revocation and penalty under Section 117. 4. Whether administrative permissions, shipping bill clearance and diplomatic confirmation of consignment destination and purpose negate the alleged breach and liability for penalty. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of export and sanction (revocation/penalty) where masks were exported as ship stores Legal framework: Section 89 (Stores to be free of export duty) permits export of goods required as stores on foreign-going vessels in quantities determined by the proper officer having regard to vessel size, passengers/crew and length of voyage. Section 117 empowers imposition of penalty for contraventions. DGFT notifications may prohibit export of specified goods generally. Precedent Treatment: No precedent was cited or relied upon in the judgment; the Tribunal proceeded on statutory interpretation and facts. Interpretation and reasoning: The Tribunal examined documentary record showing that a Manual Shipping Bill was filed specifying 59 boxes (2,00,000 pieces), permissions were granted by preventive/jurisdictional officers, and a diplomatic communication confirmed the goods were a donation to the receiving State and loaded on the named foreign naval vessel. The Tribunal held these facts demonstrate compliance with prescribed ship-store procedures and that the export was effected under the shipping-store regime. Ratio v. Obiter: The principal ratio is that where goods are legitimately processed and cleared as ship stores with requisite shipping bill and authorisations, the export cannot be treated as a prohibited export for purposes of revocation/penalty without independent administrative determination showing non-compliance by the ship chandler or a contrary finding by the proper officer. Conclusion: The Court concluded the impugned order revoking the ship-chandler permission and imposing penalty was not sustainable on the record; export as ship stores supported by clearance and diplomatic confirmation negated the asserted breach. Issue 2 - Applicability of DGFT export prohibition notifications to ship stores Legal framework: DGFT notifications set prohibitions/conditions on export of specified goods. Customs Act §89 specifically contemplates free export of stores for foreign-going vessels subject to supervision by the proper officer. Precedent Treatment: None cited; Tribunal addressed statutory interplay directly. Interpretation and reasoning: The Tribunal reasoned that goods exported as bona fide ship stores fall within the statutory scheme of Section 89 and thus the applicability of DGFT prohibition notifications is not directly relevant to ship stores cleared under customs procedures unless the customs proper officer determines otherwise. The order under appeal contained no allegation or finding of specific statutory breach other than reference to DGFT notifications and a contested numeric excess. Ratio v. Obiter: Ratio: DGFT prohibitions do not automatically negate the ship-store regime; applicability must be assessed in light of ship-stores statutory provisions and the determination of the proper officer. Obiter: General proposition that export policy and customs store rules must be harmonised in practice. Conclusion: The Tribunal held DGFT notifications were not determinative where the consignment was cleared and documented as ship stores and destined as diplomatic/State donation; therefore the DGFT prohibition was not a valid basis, by itself, for revocation or penalty in the circumstances shown. Issue 3 - Duty of determination under Section 89 and liability of ship chandler for alleged excess quantity Legal framework: Section 89 vests the proper officer with authority to determine permissible quantity of stores having regard to vessel size, passengers/crew and voyage length. Administrative procedure requires verification by customs at relevant stages. Precedent Treatment: No judicial precedents were invoked; Tribunal relied on statutory text and facts. Interpretation and reasoning: The Tribunal emphasized that the statutory duty to determine permissible quantity lies with the proper officer, not the ship chandler. The record showed the shipping bill and related permissions were processed and signed by jurisdictional officers. Absent a contemporaneous finding by the proper officer that the quantity exceeded permissible ship-store needs, the allegation that 2,00,000 pieces exceeded requirements (based on an assumed need of 68,600 masks for 280 persons) could not be imputed solely to the ship chandler as a dereliction of duty. The Tribunal noted that the impugned order did not allege any specific statutory contravention other than a general assertion of excess and failure to intimate authorities. Ratio v. Obiter: Ratio: Where customs authorities have processed and permitted export as ship stores, and no contemporaneous adverse determination regarding quantity is recorded, the ship chandler cannot be held liable for penalty merely on later reassessment of quantities. Obiter: Administrative officers must verify and record determinations concerning permissible quantities under Section 89 at the time of clearance. Conclusion: The Court concluded the appellant was not culpable for failure to intimate or for supplying an excessive quantity when the customs proper officers had processed and allowed the shipment; revocation/penalty on that ground was unsustainable. Issue 4 - Effect of administrative clearances and diplomatic confirmation on alleged contravention Legal framework: Customs clearance documentation (shipping bill, let export order), signed officer endorsements and legitimate destination confirmation (including diplomatic communication) are relevant to establish lawful export under customs and foreign-relations contexts. Precedent Treatment: None cited; treated as evidentiary and administrative law considerations. Interpretation and reasoning: The Tribunal gave weight to contemporaneous administrative acts: filing of Manual Shipping Bill, issuance of Let Export order, daily/weekly pass with vessel name signed by officers, and diplomatic letter confirming loading and donation purpose. These records evidenced authorization and governmental acknowledgment of export purpose/destination, undermining the Revenue's contention that the export was prohibited and that the ship chandler had failed in duties. The Tribunal found no allegation in the impugned order of breach of a specific provision of the Customs Act other than a general reference to Section 89 and DGFT notifications. Ratio v. Obiter: Ratio: Properly documented administrative clearances and authoritative diplomatic confirmation materially negate assertions of unlawful export and are a valid basis to set aside punitive administrative action where no contrary record exists. Obiter: Revenue retains power to investigate and make contemporaneous determinations; however, punitive action requires recorded findings of non-compliance. Conclusion: The Court held that the documentary authorizations and diplomatic confirmation established lawful export as ship stores and warranted setting aside the revocation and penalty. Overall Disposition (consequential conclusion) The Court allowed the appeal, set aside the revocation of permission to operate as a ship chandler and the Rs.4,00,000 penalty, concluding that the export was carried out under ship-store procedures with requisite permissions and diplomatic confirmation, and that the statutory duty to determine permissible quantities rests with the proper officer, which was not discharged in the impugned order.