2025 (7) TMI 1014 - AT - Customs

High sea seller's penalty under Section 112(a) reduced to ₹1 lakh for defective pre-shipment inspection certificate on metal scrap imports

CESTAT Chennai reduced penalty imposed u/s 112(a) of CA, 1962 on high sea seller for importing metal scrap from Mauritius with fabricated pre-shipment ... Levy of penalty u/s 112(a) of CA, 1962 - import of metal scrap from Mauritius purchased on high sea sale basis - pre-shipment inspection Certificate appeared to be non-genuine and appeared to have been fabricated for the purpose of clearance of goods in India - HELD THAT:- The whole process of certification of the scrap container by a DGFT approved inspection agency was occasioned by war / radioactive material including live bombs being found in the scrap being imported into the country. The presence of such materials causes a serious threat to the life and limb of the people and the production of a defective certificate cannot be taken as a technical or venal or mere lapse of procedure. In the case of Competent Authority Vs. Barangore Jute Factory [2005 (11) TMI 490 - SUPREME COURT], it has been held by the Hon'ble Apex Court that where statute requires an act to be done in a particular manner, the act has to be done in that manner alone. It is found that a notice was issue to the appellant in his capacity as the High Sea Seller who procured the defective PSIC. Valuation of the goods is a part of assessment and payment of duty, which does not concern the appellant, who is not the importer. This averment of the appellant is all the more surprising in as much as in his submissions he has stated that the Commissioner of Customs, (Appeal), Chennai has allowed the appeal of the importer vide Order in Appeal dated. 04.04.2013 for the same issue! The value of the goods as determined therein has hence crystalised. Hence there is no infirmity in the Commissioner Appeals not taking up the issue of valuation in an appeal filed by the High Sea Seller, and the appeal on this ground fails. A penalty of Rs 01 lakh (one lakh) would suffice. The impugned order is modified accordingly - appeal disposed off. The core legal questions considered in this appeal include: (1) Whether the pre-shipment inspection certificate (PSIC) issued by M/s Worldwide Inspection Services Pvt. Ltd., an agency not authorized by the Directorate General of Foreign Trade (DGFT) at Mauritius, is valid for clearance of imported metal scrap; (2) Whether the appellant's procurement and submission of such a PSIC amounts to a violation attracting penalty under Section 112(a) of the Customs Act, 1962; (3) Whether the procedural lapse in producing a defective or fabricated PSIC can be excused if the imported goods are found free of prohibited items upon physical examination; (4) The scope and applicability of penalty provisions under Section 112(a) vis-`a-vis the appellant's status as a company; and (5) Whether the issue of valuation of goods is within the scope of the present appeal filed by the appellant as a high sea seller.Regarding the validity of the PSIC, the legal framework is governed by the Handbook of Procedures and Foreign Trade Policy issued by DGFT, which mandates that PSICs must be issued by authorized inspection agencies at the port of origin. The Tribunal examined the factual matrix revealing that the certificates submitted were issued by M/s Worldwide Inspection Services Pvt. Ltd., a Delhi-based agency not authorized to issue PSICs for goods originating from Mauritius. The certificates purportedly reflected inspections conducted by an individual, J.T. Mathews, based in South Africa, with inspection durations exceeding feasible limits within a single day, raising serious doubts on their authenticity. Further, discrepancies in dates of invoices, bills of lading, and inspection certificates undermined the credibility of the documentation. The Tribunal found these facts indicative of fabrication or at least gross irregularity in the issuance of PSICs.The Court relied on precedents emphasizing strict compliance with statutory procedural requirements. It cited the Supreme Court's rulings that when a statute requires an act to be done in a particular manner, it must be done accordingly, and failure to do so cannot be lightly condoned, especially where public safety is concerned. The presence of war or radioactive material in scrap imports had necessitated the stringent requirement of PSICs. The Tribunal held that producing a defective or fabricated PSIC is not a mere procedural lapse but a serious violation that jeopardizes the core purpose of the procedure, which is to prevent import of hazardous materials.In addressing the appellant's contention that the procedural infraction should be excused because the goods were physically inspected in India and found free of prohibited items, the Tribunal distinguished the cited case laws as factually inapposite. It held that the absence of prohibited goods upon inspection does not absolve the appellant from liability for producing a non-genuine PSIC. The illegality in the process itself is sufficient to attract penalty, though it may influence the quantum of penalty imposed. The appellant's argument that the inspection agency's shortcomings should not be attributed to it was rejected, as the appellant, being the high sea seller, procured and submitted the defective certificates and thus bore responsibility.On the issue of penalty under Section 112(a), the appellant argued that since the term 'person' is not defined under the Customs Act, penalty for abetment cannot be imposed on a company. The Tribunal referred to the General Clauses Act, 1897, which defines 'person' to include companies and associations, thereby negating the appellant's argument. The penalty provisions were thus held applicable to the appellant as a corporate entity.Regarding the valuation dispute, the appellant claimed that reassessment of value was beyond the scope of the show cause notice and the appeal. The Tribunal observed that valuation is part of assessment and duty payment, which does not concern the appellant as a high sea seller but rather the importer. It noted that the Commissioner of Customs (Appeals) had already adjudicated the valuation issue in a separate appeal involving the importer, which had attained finality. Therefore, the Tribunal declined to entertain the valuation issue in the present appeal.The Tribunal also considered a recent final order involving the same appellant, which upheld the penalty for similar violations but reduced the quantum of redemption fine and penalty given the 100% physical examination of goods and the appellant bearing the costs of inspection and delay. Applying the principle of proportionality, the Tribunal modified the penalty to Rs. 1,00,000/- while affirming the findings of violation.In conclusion, the Tribunal held that the production of a fabricated or non-genuine PSIC issued by an unauthorized agency constitutes a serious violation under the Customs Act and Foreign Trade Policy. The procedural requirements for import clearance must be strictly complied with, especially in cases involving potentially hazardous goods. The appellant's arguments regarding procedural technicalities, absence of prohibited goods upon inspection, and agency responsibility were rejected. The penalty provisions under Section 112(a) apply to companies as persons. The valuation issue was rightly excluded from the present appeal. The penalty imposed was upheld but moderated to a reasonable amount considering the circumstances.Crucial legal reasoning preserved verbatim includes:'The occurrence of events itself points to the illegality which would have been evident to any prudent man. Such a certificate should not have been produced before the customs authorities.''Where statute requires an act to be done in a particular manner, the act has to be done in that manner alone.''The PSICs obtained... are all fabricated and made out without actually carrying out any inspections... the appellant has produced an Inspection Certificate which is non-genuine and is trying to mislead the Department.''The definition being an inclusive one the averment of the appellant is hence without merit.''The decisions relied by the Ld. Counsel for appellant show that courts have been lenient to set aside the redemption fine and penalties... Taking into consideration that the goods have been subjected to 100% examination... we reduce the redemption fine to Rs.1,00,000/- and the penalty is reduced to Rs.50,000/-.'