2025 (4) TMI 75 - AT - Customs

Motorcycle Buyer Faces Reduced Penalty Under Section 112(b) of Customs Act for Inadequate Due Diligence in Import Verification

The Tribunal partially allowed an appeal regarding a penalty under section 112(b) of the Customs Act, 1962, reducing it from Rs.25,000 to Rs.10,000. The ... Levy of penalty u/s 112(b) of the Customs Act, 1962 on the appellant - confiscation of imported motorcycle - smuggled goods or not - reasons to believe - HELD THAT:- In this case, admittedly the appellant has purchased the motorcycle from one Mr. Ali Raza under the cover of temporary registration issued by Maharashtra RTA and subsequently, Mr. Ali Raza also got the vehicle permanently registered with Telangana RTA for which the appellant had to pay an additional amount of Rs.50,000/-. Therefore, the argument that they had acted bonafide has some force. However, it is found that it is not that they have purchased it for own use but in fact, they subsequently sold and at that time on selling also, they did not exercise due diligence. The penalty has been imposed for their dealing with imported/smuggled motorcycle and therefore, it is obvious that he has acquired possession and was also engaged in selling of the said motorcycle. Appellant had a reason to believe that the said motorcycle was liable for confiscation or not - HELD THAT:- In the given factual matrix, it does not appear that the appellant has exercised due diligence to the extent required to be exercised by a purchaser of an imported motorcycle and to that extent he has definitely failed. Accordingly, there are no infirmity in the impugned order passed by the Commissioner (Appeals) upholding the imposition of penalty under section 112(b) of the Customs Act, 1962 on the appellant. However, penalty of Rs.25,000/- is not proportionate to the offence committed by the appellant inasmuch as there was also a proposal to impose penalty, both under section 112 as well as under section 114AA, in the SCN against the appellant. However, on adjudication, the penalty has been imposed only under section 112. In other words, the provision of section 114AA was not found tenable in the factual matrix by the Adjudicating Authority, which, obviously, indicates that the appellant had not knowingly or intentionally made, signed or used any declaration, statement or document etc., which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act. This is the mitigating factor. Therefore, in view of the same, the penalty of Rs.10,000/- under section 112(b) is more than justified. Conclusion - The appellant failed to exercise the required level of due diligence when purchasing and selling the imported motorcycle. Consequently, the penalty u/s 112(b) is justified. Appeal allowed partly. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is whether the penalty imposed on the appellant under section 112(b) of the Customs Act, 1962, is sustainable. The core legal questions revolve around the appellant's knowledge or reason to believe that the motorcycle was liable for confiscation and whether the appellant exercised due diligence in the transaction involving the imported motorcycle.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework in question is section 112(b) of the Customs Act, 1962, which deals with penalties for improper importation of goods. The section imposes penalties on individuals who acquire possession of, or are in any way concerned in carrying, removing, depositing, harboring, keeping, concealing, selling, or purchasing any goods which they know or have reason to believe are liable to confiscation under the Act.Court's Interpretation and ReasoningThe Tribunal examined whether the appellant had knowledge or reason to believe that the motorcycle was liable for confiscation. The appellant argued that he acted in good faith, purchasing the motorcycle from Mr. Ali Raza with valid temporary registration documents and later facilitating permanent registration. The Tribunal noted that the appellant's subsequent sale of the motorcycle without exercising due diligence weakened his claim of bona fide intent.Key Evidence and FindingsThe evidence indicated that the appellant purchased the motorcycle from Mr. Ali Raza, who remains untraceable. The transaction was conducted in cash, leaving no financial trail, and the appellant failed to provide sufficient details about the seller. These factors contributed to the Tribunal's finding that the appellant did not exercise the necessary due diligence expected in such transactions.Application of Law to FactsThe Tribunal applied section 112(b) to the facts, considering the appellant's actions and the nature of the transaction. The lack of due diligence in purchasing and subsequently selling the motorcycle was critical in determining the appellant's liability under the Customs Act.Treatment of Competing ArgumentsThe appellant's argument of good faith was countered by the respondent's assertion that the appellant's actions demonstrated a lack of due diligence. The Tribunal found the appellant's argument unconvincing, given the nature of the transaction and the absence of any attempt to verify the legitimacy of the motorcycle's importation.ConclusionsThe Tribunal concluded that the appellant failed to exercise the required level of due diligence when purchasing and selling the imported motorcycle. Consequently, the penalty under section 112(b) was justified, although the Tribunal found the original penalty amount disproportionate to the appellant's actions.SIGNIFICANT HOLDINGSThe Tribunal modified the penalty imposed on the appellant, reducing it from Rs.25,000/- to Rs.10,000/-. This decision was based on the finding that the appellant did not knowingly or intentionally engage in fraudulent activities, as indicated by the absence of a penalty under section 114AA. The Tribunal emphasized the importance of due diligence in transactions involving imported goods, particularly when dealing with high-value items like motorcycles.The Tribunal's final determination was to partially allow the appeal, modifying the penalty to reflect the appellant's level of culpability while acknowledging the mitigating factors present in the case.