Penalty under Section 114A mandatory when duty determined under Section 28 for suppression or wilful mis-declaration

CESTAT Chennai held that penalty u/s 114A of CA 1962 is mandatory when duty is determined u/s 28 due to suppression of facts or wilful mis-declaration. The importer misused Advance Authorisation Scheme, importing raw silk yarn duty-free and diverting to local market. The tribunal found penalty under Section 114A is statutory and automatic with no discretion for assessing officer. Citing SC precedent in Dharmendra Textile Processors, CESTAT modified the order to impose penalty equal to duty determined, allowing revenue's appeal.

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The core legal question considered by the Tribunal is whether the penalty under section 114A of the Customs Act, 1962 (CA 1962) ought to have been imposed on the importer despite the imposition of penalty under section 112(a) and confirmation of duty demand under section 28(8) of the CA 1962, given the finding of willful suppression of facts and misdeclaration by the importer.

The issue arises from the fact that the Commissioner of Customs confirmed the duty demand of Rs.1,03,78,016/- on goods imported duty-free under the Advance Authorisation Scheme but diverted to the local market, holding the importer liable for duty under section 28(8). However, the Commissioner refrained from imposing penalty under section 114A, instead imposing penalty under section 112(a), reasoning that it would meet the ends of justice.

Section 114A of the CA 1962 mandates a penalty equal to the duty or interest determined under section 28(8) where duty has been short-levied or not levied due to collusion, willful mis-statement, or suppression of facts. The penalty is automatic and mandatory, with no discretion to reduce or waive it. The section further provides for a reduced penalty if the duty and interest are paid within thirty days of the order.

The Tribunal's detailed analysis begins with a review of the statutory language of section 114A. The phrase "shall also be liable to pay a penalty equal to the duty or interest so determined" indicates a mandatory imposition of penalty where the conditions of willful mis-statement or suppression of facts are established. The Tribunal emphasized that the penalty under section 114A is a statutory penalty, designed primarily as a deterrent to prevent dishonest advantage or unjust gain through evasion of customs duty.

The Tribunal noted that the Commissioner's decision to impose penalty under section 112(a) instead of section 114A was erroneous because section 114A expressly provides that where any penalty has been levied under this section, no penalty shall be levied under sections 112 or 114, but the converse does not apply. The mandatory nature of penalty under section 114A means that it cannot be replaced or substituted by penalty under other sections once the conditions for its imposition are met.

In support of this interpretation, the Tribunal relied on authoritative precedents, including the Supreme Court's ruling in the case of UOI Vs Dharmendra Textile Processors, which held that where a statute prescribes a fixed penalty with the term "shall be leviable," the adjudicating authority has no discretion regarding the quantum or imposition of penalty. The Tribunal also referred to the Supreme Court decision in UOI Vs Rajasthan Weaving and Spinning Mills and the Tribunal decision in Akash Fabrics Vs Commissioner of Customs, which reinforce the principle that mandatory penalties under section 114A must be imposed where the facts warrant.

Regarding the facts, the Tribunal observed that the importer had misused the Advance Authorisation Scheme by importing raw silk yarn duty-free and diverting it to the local market, thereby evading customs duty. Intelligence and investigation revealed willful suppression of facts and misdeclaration, including false declarations about manufacturing facilities and collusion with High Sea Sellers and Customs House Agents to evade duty. The duty demand was confirmed under section 28(8), which applies where suppression or misdeclaration is established.

The Tribunal found no merit in the Commissioner's rationale that penalty under section 112(a) would suffice. It concluded that the penalty under section 114A is mandatory and must be imposed in cases of willful suppression or misdeclaration resulting in duty evasion. The absence of any appeal or cross-objection by the importer further supported the imposition of the mandatory penalty.

In applying the law to the facts, the Tribunal modified the impugned order to impose penalty under section 114A equal to the duty determined under section 28(8) on the importer. This penalty is in addition to the confirmed duty demand and interest, reflecting the statutory mandate for deterrence against customs duty evasion.

The Tribunal's significant holding includes the following verbatim legal reasoning:

"From the language of the said Section, it is seen that the penalty leviable under the said provision is a statutory penalty. The phrase used is 'shall also be liable to pay a penalty equal to the duty or interest so determined'. The moment it is found that a person who by reason of collusion or any wilful mis-statement or suppression of facts is liable to pay the duty or interest as determined under sub-section (8) of section 28, he shall also be liable to pay a penalty. The penalty is automatic, and deterrence is the main theme of object behind the imposition of the said penalty so that the parties committing a blame worthy act are deterred from securing a dishonest advantage or perpetuating an unjust gain. Further, there is no discretion with the assessing officer either to levy or not to levy and/or to levy any penalty lesser than what is prescribed/mentioned in Section 28(8)."

And:

"The Hon'ble Supreme Court in the case of UOI Vs Dharmendra Textile Processors [2008 (231) ELT-3], after referring to the decision of the Apex Court in the case of Chairman, SEBI Vs Shriram Mutual Fund & Anr [2006(5) SCC 361], observed that when the term used in the section is 'shall be leviable,' the adjudicating authority will have no discretion regarding quantum of penalty, as fixed penalty has been prescribed in the law."

The core principles established are:

• Penalty under section 114A of the CA 1962 is mandatory and automatic upon confirmation of duty demand under section 28(8) arising from willful mis-statement or suppression of facts.
• The adjudicating authority has no discretion to waive or reduce the penalty under section 114A once the conditions are met.
• Penalty under section 114A cannot be substituted or replaced by penalty under other sections such as section 112(a).
• The purpose of section 114A penalty is deterrence against collusion and dishonest evasion of customs duty.
• Where the duty or interest is paid within thirty days of the order, a reduced penalty of 25% is available.

On the final determination, the Tribunal allowed the department's appeal and modified the impugned order to impose penalty under section 114A equal to the duty determined under section 28(8) on the importer. The appeal was disposed accordingly.

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