Proportionate warehouse licence cancellation and limited use of general penalty provisions under customs law

Cancellation of warehouse licences was held unsustainable where genuine insurance policies were available and port NOC was not shown to be a statutory requirement; the order was set aside as excessive and disproportionate to the alleged lapse. Penalty on the Director under Section 117 of the Customs Act, 1962 was also held unsustainable because no specific statutory contravention by the Director was established, and the general penal provision could not be used to cover alleged regulation breaches without an express penal clause. The licences were restored and the personal penalty deleted.

---

---

Issues: (i) Whether cancellation of warehouse licences Nos. 16/2020 and 24/2018 was sustainable in the facts of the case, particularly when genuine insurance policies were available and no legal requirement of port NOC was shown; (ii) Whether penalty imposed on the Director under Section 117 of the Customs Act, 1962 was legally sustainable.

Issue (i): Whether cancellation of warehouse licences Nos. 16/2020 and 24/2018 was sustainable in the facts of the case, particularly when genuine insurance policies were available and no legal requirement of port NOC was shown.

Analysis: The licensing regime under Regulation 6 of the Public-bonded Warehouse Regulations, 2016 read with the relevant CBEC Circular contemplated validity of the licence till surrender or cancellation, and annual renewal was not required, though insurance was to be renewed annually to satisfy solvency conditions. The record showed allegations of fake insurance policies and non-genuine NOCs, but the material also showed that genuine insurance existed for the two licences in question and that port NOCs were not a statutory prerequisite. The cancellation order did not explain why those two licences, for which genuine insurance was available, had to be cancelled when the defect did not bear on the legality of their continuance. The action taken was therefore found to be excessive and not commensurate with the alleged lapse.

Conclusion: Cancellation of licences Nos. 16/2020 and 24/2018 was not sustainable and was set aside.

Issue (ii): Whether penalty imposed on the Director under Section 117 of the Customs Act, 1962 was legally sustainable.

Analysis: Section 117 applies where a person contravenes a provision of the Customs Act, abets such contravention, or fails to comply with a duty imposed by the Act, where no express penalty is elsewhere provided. The record did not bring out a specific contravention by the Director attracting that provision, and the provision itself was held not to extend to every alleged violation of the Regulations in the absence of a specific penal clause. In the absence of an identified statutory breach by the Director, the penalty could not be sustained, and the reference to mens rea did not cure that deficiency.

Conclusion: The penalty imposed on the Director under Section 117 of the Customs Act, 1962 was not sustainable and was set aside.

Final Conclusion: The appeal succeeded in part by restoring the disputed warehouse licences and by deleting the personal penalty, while leaving the remaining cancellation aspect undisturbed only to the extent not specifically interfered with.

Ratio Decidendi: Where the alleged irregularity does not affect a licence that is otherwise supported by genuine compliance material, cancellation must be proportionate and supported by a clear legal basis; and a general penal provision cannot be invoked for rule or regulation breaches unless the statute expressly covers the contravention.

---