2024 (12) TMI 1370 - AT - Customs

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 ... Levy of personal penalty u/s 114AA of the Customs Act, 1962 - Jurisdiction of the Commissioner of Customs (Preventive) Jodhpur in issuing the SCN - what is the meaning of the expression ‘liable to penalty’? - HELD THAT:- The term ‘liable’ could either mean that one is responsible by law to do something or that one is likely to experience something undesirable. If one is liable to pay interest, for instance, it means one has an obligation to pay interest. However, if one is liable to penalty, it can only mean that one may be penalised. Thus, as per Section 114AA of the Customs Act, one who knowingly makes, signs, uses or causes to be made, signed or used a false declaration may be penalised. Nothing in this section says that such a person shall be penalised. The expression ‘liable to’ is used in several sections of the Customs Act and its scope was interpreted in the context of confiscation by the Delhi High Court in Jain Exports (P) Ltd. vs. Union of India & Others [1988 (5) TMI 50 - SUPREME COURT]. The High Court held that not only does the adjudicating authority have the discretion to decide whether or not to confiscate goods which are liable to confiscation, but it has to exercise this discretion judicially and not arbitrarily. The meaning of the expression ‘shall be liable to’ confiscation or penalty in the Customs Act is that a penalty may be imposed on the person who falls under the section or, as the case may be, the goods which fall under the section may be confiscated. The adjudicating authority not only has the discretion but also an obligation to judiciously exercise it and decide whether to impose penalty or not or, as the case may be, confiscate or not confiscate the goods. The mis-declaration of the year of manufacture of the capital goods was discovered only on investigation. Since the EPCG licence was obtained through mis-declaration, the machinery so imported was not eligible for exemption from duty and therefore, duty is recoverable along with interest and penalties - The allegation is that in the application made to the DGFT for EPCG scheme [under the Foreign Trade (Development & Regulation) Act, 1992 read with the Foreign Trade Policy 2009-2014], the manufacturers had mis-declared the year of manufacture of the machinery to be imported. Insofar as M/s. Nimbark Textile Mills of which the appellant is the proprietor is concerned, this matter is before the Commissioner to decide in the remand proceedings. Even if the case is decided against M/s. Nimbark Textile Mills, the appellant herein can still not be penalised under Section 114AA of the Customs Act because this section renders one liable to penalty only in case of mis-declaration with knowledge or intent in any proceeding under the Customs Act which is not even the allegation. Any mis-declaration before DGFT to obtain a licence is not a declaration in a proceeding under the Customs Act but a proceeding under Foreign Trade Policy framed under the Foreign Trade (Development & Regulation) Act, 1992. The impugned order cannot be sustained insofar as the penalty imposed on the appellant under section 114AA of the Customs Act is concerned - Appeal allowed. 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.