Penalty under Section 114AA cannot be imposed for mis-declaration made to DGFT for EPCG license proceedings

The CESTAT NEW DELHI held that penalty under Section 114AA of the Customs Act cannot be imposed for mis-declaration made to DGFT for EPCG license, as such declaration is not a proceeding under the Customs Act but under Foreign Trade Policy. The tribunal clarified that "liable to penalty" means discretionary imposition, not mandatory, and requires judicial exercise of discretion. The appellant's penalty was set aside since the alleged mis-declaration of machinery's manufacturing year was made in Foreign Trade proceedings, not Customs proceedings, falling outside Section 114AA's scope.

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Issues Involved:

1. Jurisdiction of the Commissioner of Customs (Preventive) Jodhpur in issuing the Show Cause Notice.
2. Imposition of personal penalty under Section 114AA of the Customs Act on the appellant.
3. Alleged mis-declaration by manufacturers including the appellant in obtaining EPCG licenses.
4. Discretion of the adjudicating authority in imposing penalties under the Customs Act.

Detailed Analysis:

1. Jurisdiction of the Commissioner of Customs:

The jurisdiction of the Commissioner of Customs (Preventive) Jodhpur, who issued the Show Cause Notice (SCN), was initially in question. The Tribunal had remanded the matters to the Commissioner pending a final decision by the Supreme Court on jurisdiction, as seen in the case of Mangli Impex Limited vs. Union of India. However, the Supreme Court eventually decided in favor of the Revenue, setting aside the Mangli Impex judgment, thereby resolving the jurisdiction issue.

2. Imposition of Personal Penalty under Section 114AA:

The appellant challenged the personal penalty imposed under Section 114AA of the Customs Act, which pertains to penalties for using false or incorrect material. The Tribunal analyzed the language of Section 114AA, noting that it requires a person to knowingly or intentionally make a false declaration in the transaction of business under the Customs Act. The Tribunal emphasized that the section states a person "shall be liable to a penalty," which implies discretion in imposing penalties. The adjudicating authority must exercise this discretion judicially and not arbitrarily.

3. Alleged Mis-declaration in Obtaining EPCG Licenses:

The department alleged that manufacturers, including the appellant, mis-declared the year of manufacture of machinery in applications to the Directorate General of Foreign Trade (DGFT) to obtain licenses under the EPCG scheme. This mis-declaration was not under the Customs Act but under the Foreign Trade Policy. The Tribunal noted that even if the case against M/s. Nimbark Textile Mills is decided adversely, the appellant cannot be penalized under Section 114AA of the Customs Act, as the alleged mis-declaration was not in any proceeding under the Customs Act.

4. Discretion of the Adjudicating Authority:

The Tribunal highlighted the discretion vested in the adjudicating authority under the Customs Act to decide whether to impose penalties. The expression "liable to penalty" indicates that penalties may be imposed, and the authority must exercise discretion judicially. The Tribunal found that the Commissioner did not exercise this discretion regarding the appellant, as the specific acts or omissions leading to the conclusion of a false declaration were not indicated, nor was the appellant's knowledge and intent specifically addressed.

Conclusion:

The Tribunal concluded that the impugned order imposing a penalty on the appellant under Section 114AA of the Customs Act could not be sustained. The alleged mis-declaration was not in a proceeding under the Customs Act, and the Commissioner failed to exercise discretion judicially. Consequently, the appeal was allowed, and the penalty imposed on the appellant was set aside, entitling the appellant to consequential relief.

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