2025 (7) TMI 231 - AT - Customs

Freight forwarders face penalties under Section 114AA and 114(iii) for abetting illegal export and overvaluation schemes

CESTAT Kolkata upheld penalties under Customs Act, 1962 against freight forwarders for abetting illegal export and overvaluation to claim undue drawback. ... Levy of penalties u/s 114(iii) and 114AA of the Customs Act, 1962 - Penalty on freight forwarder for abetment - overvaluation to earn undue drawback - illegal export - HELD THAT:- The penalty under Section 114AA of the Customs Act is not imposable on the appellant no. 1 as the appellant was not involved with the goods in question. With regard to the penalty imposed under Section 114(iii) of the Act, it is a fact that at the time the statement of the appellant was recorded, it had been stated by the appellant that he had sent the containers for loading the subject goods and one Shri Ajay Sarawogi alias Vicky, another appellant before us, was present, to whom the containers had reported. Thus, we find that the goods were attempted to be illegally exported by the exporter with the connivance of the appellant no. 1. In these circumstances, penalty under Section 114(iii) of the Act is rightly imposable on the appellant no. 1. In view of this, the penalty imposed on the appellant no. 1 under Section 114(iii) of the Act is confirmed and the penalty imposed on him under Section 114AA of the Act is dropped. Penalties imposed on the appellant no. 2 - HELD THAT:- It is an admitted fact that the appellant no. 1 was aware of the activity of the exporter, who was the key person of the syndicate. It has been found that the appellant no. 2 was watching all the activities through WhatsApp messages, for illegal export of the goods in question. In these circumstances, the penalties under Sections 114AA and 114(iii) of the Act have been rightly imposed on the appellant no. 2 - there are no merit in the appeal filed by the appellant no. 2 and accordingly, the penalties imposed on him are confirmed. Appeal disposed off. The core legal questions considered by the Tribunal in these appeals were:1. Whether penalties under Section 114(iii) and Section 114AA of the Customs Act, 1962 were rightly imposed on the appellants for alleged involvement in the export of inferior quality goods with overvaluation to claim undue drawback.2. Whether the Show Cause Notice issued complied with the procedural requirements, particularly with respect to specifying the grounds and penalties under Section 114AA so as to afford a fair opportunity to the appellants.3. Whether the appellants, acting as freight forwarder and alleged conspirator respectively, had knowledge of or actively participated in the fraudulent export scheme, thereby attracting penalties under the relevant provisions of the Customs Act.4. The evidentiary sufficiency and legal basis for imposing penalties on the appellants, including the reliance on WhatsApp messages and statements made during investigation.Issue-wise Detailed Analysis:1. Validity of Penalty under Section 114AA on Appellant No. 1Legal Framework and Precedents: Section 114AA of the Customs Act imposes penalties for certain contraventions related to export and import. Section 127 mandates that the Show Cause Notice must clearly specify all intended penalties and legal provisions to afford a fair hearing.Court's Interpretation and Reasoning: The appellant contended that the Show Cause Notice did not specify the grounds for penalty under Section 114AA, violating the procedural requirement under Section 127. The Tribunal agreed that the penalty under Section 114AA was not imposable on appellant no. 1, as he was not directly involved with the goods in question and the notice lacked adequate explanation for this penalty.Application of Law to Facts: Since the appellant no. 1 was engaged solely as a freight forwarder without authority over the classification, valuation, or drawback claims, and no evidence showed his involvement with the goods themselves, the penalty under Section 114AA was held to be invalid.Conclusion: Penalty under Section 114AA imposed on appellant no. 1 was set aside.2. Imposition of Penalty under Section 114(iii) on Appellant No. 1Legal Framework and Precedents: Section 114(iii) penalizes any person who assists or aids in import or export in contravention of the Customs Act, including knowingly facilitating misclassification or undervaluation.Court's Interpretation and Reasoning: The appellant argued absence of any evidence that he knowingly misled customs officials or altered documents. However, the Tribunal noted that during the appellant's statement, he admitted sending containers for loading the subject goods and that appellant no. 2 was present when containers reported. This indicated connivance in the illegal export.Key Evidence and Findings: The statement of appellant no. 1 acknowledging involvement in the logistics of the goods' export and presence of appellant no. 2 at the relevant time was critical.Application of Law to Facts: The Tribunal found that appellant no. 1's role was not limited to mere forwarding but involved assisting in the illegal export, satisfying the requirements for penalty under Section 114(iii).Treatment of Competing Arguments: The appellant's claim that he was merely a freight forwarder with no role in valuation or classification was rejected based on his own admission and the nature of his involvement.Conclusion: Penalty under Section 114(iii) was rightly imposed on appellant no. 1 and confirmed.3. Imposition of Penalties under Sections 114(iii) and 114AA on Appellant No. 2Legal Framework and Precedents: Similar to appellant no. 1, Section 114(iii) and 114AA penalties require proof of knowledge or involvement in contravention of the Customs Act.Court's Interpretation and Reasoning: The appellant no. 2 contended that the only basis for penalty was unexplained WhatsApp messages and that no direct evidence or statements from the exporter or key syndicate members implicated him. The Tribunal, however, found that appellant no. 2 was aware of the illegal export activities through WhatsApp communications and was watching the activities, implying knowledge and tacit participation.Key Evidence and Findings: The WhatsApp messages and the admitted presence of appellant no. 2 during the export activities were taken as evidence of his nexus with the fraudulent export scheme.Application of Law to Facts: The Tribunal held that mere presumption or suspicion is insufficient, but in this case, the evidence of communication and observation of activities established a sufficient link to impose penalties.Treatment of Competing Arguments: The appellant's reliance on absence of direct statements from the exporter or syndicate members was rejected, as the Tribunal found the circumstantial evidence and investigative findings adequate.Conclusion: Penalties under Sections 114(iii) and 114AA were rightly imposed on appellant no. 2 and upheld.4. Procedural Fairness and Evidentiary SufficiencyLegal Framework: Principles of natural justice and statutory requirements under Section 127 of the Customs Act require clear specification of allegations and penalties in Show Cause Notices to enable effective defense.Court's Interpretation and Reasoning: The Tribunal found that the Show Cause Notice was deficient in specifying penalties under Section 114AA for appellant no. 1, but otherwise complied with procedural norms. The evidence, including statements and electronic communications, was deemed sufficient to support penalties on both appellants under Section 114(iii).Conclusion: Procedural requirements were met except for the noted deficiency regarding Section 114AA on appellant no. 1; evidence was sufficient to uphold penalties where confirmed.Significant Holdings:'Penalty under Section 114AA of the Customs Act is not imposable on the appellant no. 1 as the appellant was not involved with the goods in question.''The goods were attempted to be illegally exported by the exporter with the connivance of the appellant no. 1. In these circumstances, penalty under Section 114(iii) of the Act is rightly imposable on the appellant no. 1.''It has been found that the appellant no. 2 was watching all the activities through WhatsApp messages, for illegal export of the goods in question. In these circumstances, the penalties under Sections 114AA and 114(iii) of the Act have been rightly imposed on the appellant no. 2.'Core principles established include the necessity for clear specification of penalties in Show Cause Notices under Section 127, the imposition of penalty under Section 114(iii) on persons who knowingly assist or facilitate illegal export even if not directly handling goods, and the acceptance of electronic communications such as WhatsApp messages as credible evidence of involvement or knowledge.Final determinations were that the penalty under Section 114AA on appellant no. 1 was set aside, while penalties under Section 114(iii) on appellant no. 1 and both penalties under Sections 114(iii) and 114AA on appellant no. 2 were confirmed, leading to dismissal of the appeals accordingly.