CESTAT sets aside export goods confiscation finding no SCMTR 2018 violations as regulations weren't operational

CESTAT Mumbai allowed the appeal challenging suspension of operations and confiscation of export goods. The tribunal found no violation of SCMTR 2018 Regulations 5 and 10(1)(m) as these regulations were not operational for JNCH Nhava Sheva port on the shipping bill dates (07.01.2022), becoming effective only from 01.12.2024. The tribunal held that filing Export General Manifest is the shipping line's responsibility, not the exporter's, and found no evidence of violations under Customs Act Sections 34, 39, 40, 41, or 113. The confiscation order and penalties were set aside.

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The core legal questions considered by the Tribunal in this appeal are as follows:

(i) Whether the appellants violated Regulations 5 and 10(1)(m) of the Sea Cargo Manifest and Transhipment Regulations, 2018 (SCMTR), and Sections 34, 39, 40, and 41 of the Customs Act, 1962;

(ii) Whether, consequent to the above, the appellants are liable for suspension of their operations under Regulation 11 of SCMTR, 2018;

(iii) Whether the export goods covered under the two shipping bills (S/Bs), for which the Let Export Order (LEO) copy was not submitted before vessel departure, are liable for confiscation under sub-sections (d), (f), and (g) of Section 113 of the Customs Act, 1962, and whether the appellants are liable for penalties under Section 114(iii) of the Customs Act and Regulation 13 of SCMTR, 2018.

Issue-wise Detailed Analysis:

1. Alleged Violation of SCMTR, 2018 (Regulations 5 and 10(1)(m)) and Sections 34, 39, 40, 41 of the Customs Act, 1962

The SCMTR, 2018, notified in 2018 and intended to replace earlier Import and Export Manifest Regulations, imposes obligations on authorised sea carriers to electronically deliver departure manifests and abide by customs laws. Regulation 5 mandates delivery of departure manifests before vessel departure, and Regulation 10(1)(m) requires authorised carriers to comply with all applicable laws and regulations. Regulation 11 provides for suspension of operations for failure to comply.

However, the implementation of SCMTR, 2018, has been phased and subject to transitional provisions under Regulation 15, with extensions granted by the Central Board of Indirect Taxes and Customs (CBIC) due to stakeholder unpreparedness and the COVID-19 pandemic. Notifications and circulars from CBIC extended transitional provisions for various ports, including JNCH Nhava Sheva, where the present case arose, up to 30.11.2024 and further to 31.05.2025, expressly advising customs officers not to impose penalties during this interim period.

The appellants contended they are not 'Authorised Sea Carriers' responsible for filing Export General Manifests (EGMs) but act as agents of Non-Vessel Operating Common Carriers (NVOCCs). The Tribunal noted that the SCMTR provisions, particularly Regulations 5 and 10(1)(m), were not operational at the relevant time (January 2022) for JNCH port, as transitional provisions were still in effect. Consequently, the Tribunal held that the appellants could not be penalised for alleged violations of these regulations at that time.

Regarding Sections 34 and 39 of the Customs Act, which require export goods to be loaded under customs supervision and only after 'entry-outwards' permission is granted, the Tribunal found no dispute that the vessel had obtained entry outwards and loading was supervised by customs officers. Hence, no violation of these provisions occurred.

Section 40 requires the person-in-charge of the conveyance not to permit loading without a duly passed shipping bill or bill of export. The Tribunal clarified that the responsibility to provide the LEO copy to the person-in-charge rests with the exporter, not the shipping agent, and that the appellants could not be held liable for non-submission of the LEO copy before vessel departure.

Section 41 mandates the filing of the departure/export manifest by the person-in-charge of the vessel or any other person specified by the Central Government. The Tribunal observed that the Revenue did not allege non-filing of the EGM for the vessel and that the appellants were not responsible for this filing. Therefore, no violation of Section 41 was established.

Further, the Tribunal examined the customs EDI system's error messages generated due to the LEO date being later than the sailing date, which was the factual basis for the investigation. It was noted that the appellants had taken steps to rectify the error by filing a request for correction, evidencing no willful or negligent violation.

2. Suspension of Operations and Imposition of Penalties under SCMTR, 2018

Regulation 11 of SCMTR empowers the Commissioner of Customs to suspend or revoke registration of authorised carriers for failure to comply with the regulations. However, given the transitional status of SCMTR at the relevant time and CBIC's instructions to avoid penal actions during the interim period, the Tribunal found the suspension order and penalties imposed under Regulation 11 and Regulation 13 unsustainable.

3. Confiscation of Export Goods and Penalties under Sections 113 and 114 of the Customs Act, 1962

Section 113(d), (f), and (g) provide for confiscation of goods attempted to be exported contrary to prohibitions, loaded in contravention of customs provisions, or loaded without proper permission. Section 114(iii) provides for penalties corresponding to such violations.

The Tribunal observed that the essential ingredients for confiscation under these provisions were absent. The vessel had obtained entry outwards, loading was supervised by customs officers, and there was no evidence of prohibited export or loading without permission. The only issue was the non-submission of the LEO copy before vessel sailing, which the Tribunal held did not amount to contravention warranting confiscation or penalties.

4. Treatment of Competing Arguments

The appellants argued that they were not the authorised carriers responsible for filing EGMs and that SCMTR was not yet operational at the port on the relevant date. They relied on CBIC notifications and circulars extending transitional provisions and directing non-imposition of penalties during the interim period. They also cited precedent holding that shipping agents acting as NVOCC agents are not liable for violations related to filing export manifests.

The Revenue relied on the findings in the impugned order, asserting violations of SCMTR and Customs Act provisions. However, the Tribunal found that the Revenue's case did not establish the requisite violations, especially given the transitional status of SCMTR and the procedural safeguards and instructions issued by CBIC.

Conclusions

The Tribunal concluded that:

- The appellants did not violate Regulations 5 and 10(1)(m) of SCMTR, 2018, as the regulations were not operational for JNCH port on the relevant date;

- The appellants did not violate Sections 34, 39, 40, and 41 of the Customs Act, 1962, as loading was supervised, entry outwards was granted, and responsibility for LEO submission rests with the exporter;

- There was no basis for suspension of operations or imposition of penalties under SCMTR, 2018;

- The export goods were not liable for confiscation under Section 113(d), (f), and (g), and penalties under Section 114(iii) were not sustainable;

- The impugned order was contrary to the facts and law and was set aside.

Significant Holdings and Core Principles Established:

The Tribunal emphasized the following principles:

"...the impugned order holding that the Regulations 5 and 10(1)(m) ibid have been violated by the appellants does not stand the scrutiny of law."

"...the appellants cannot be held liable for any failure with respect to compliance with the requirement of Section 40 ibid."

"...the essential ingredients of sub-section (d), (f), (g) such as attempt to export contrary to any prohibition; loading of goods in violation of Section 33, 34; loading of export goods in a vessel without obtaining permission of proper officer of customs is not present in this case."

"...the impugned order invoking the provisions of such SCMTR, which is yet to be implemented on the relevant date... for imposition of suspension of the operation of the appellants and imposition of penalties... does not stand for legal scrutiny."

"...there is no violation of regulations 5, 10(1)(m) of SCMTR, 2018 and legal provisions under Sections 34, 39, 40, 41, 113(d), 113(f), 113(g) ibid, and the findings in the impugned order is contrary to the facts on record."

Accordingly, the Tribunal allowed the appeal, set aside the impugned order dated 06.09.2024, and held that the appellants were not liable for suspension, confiscation, or penalties as imposed.

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