2025 (7) TMI 1469 - AT - Customs

Penalty under s.114(iii) set aside for CHA; employee penalty upheld and reduced for fraudulent export under s.113

Penalty under s.114(iii) Customs Act, 1962 imposed on CHA was set aside as the department failed to proceed under CHA Regulations, which are distinct from ... Levy of penalty u/s 114(iii) of the Customs Act, 1962 on CHA as well as on its employees - export of highly overvalued “pins of general” use by declaring these as cycle parts (i.e. Cotter Pins) - DRI is a proper officer to issue SCN or not - HELD THAT:- Hon’ble Apex Court in it’s review order COMMISSIONER OF CUSTOMS VERSUS M/S CANON INDIA PVT. LTD. [2024 (11) TMI 391 - SUPREME COURT (LB)] has held that DRI officer is a proper officer to issue the SCN. Thus, the basic objection of Learned Advocate is not correct. It is further observed that the learned Adjudicating Authority in para-10.6.8 of the impugned order quotes para 23 of the SCN which alleges that “Shri Arjun has acted in his individual capacity and conspired with Shri Brijesh and Shri Afzal to export the said pins of general use by declaring the same as Cycle Parts-Cotter Pins and overvaluing the same with an intention to avail higher export benefit in the form of duty drawback for which he was paid hefty amount.” - for violation of CHA Regulations, the CHA should have been proceeded against under the very same regulations which are independent of the provisions of the Customs Act. This apparently has not been done for reasons best known to the department. M/s. Seaways Shipping Limited are not liable for penalty under Section 114 (iii) of the Customs Act, 1962 and accordingly, set aside the said penalty imposed on the CHA. Levy of penalty on employee - HELD THAT:- The records show that both the exporting firms were not in existence at the given/ declared address. Shri KVM Arjun has neither retracted his statements dt.26.08.2009 nor sought for any cross examination of the witnesses. Therefore, his statements becomes admission of guilt and establishes his connivance with Shri Afzal Gadhiali in the said Act of fraudulent export rendering the goods liable to confiscation under Section 113 of the Customs Act, 1962. The arguments taken by, Shri KVM Arjun that he was looking after the work of account, finance and liasoning with clients as an employee of the CHA firm are not convincing in the light of evidences relied upon by the department and therefore, he is liable to penalty under Section 114(iii) of the Customs Act, 1962. Considering quantum of undue benefits availed by Shri KVM Arjun out of the alleged fraudulent exports, penalty imposed on him under the said Section is on higher side which should have been commensurate to the offence. Accordingly, the penalty on Shri KVM Arjun is reduced from Rs.75 Lakhs to Rs.15 Lakhs under Section 114 (iii) of the Customs Act, 1962. The impugned order is modified to the extent of setting aside penalty imposed on M/s. Seaways Shipping Limited and reducing the penalty on Shri KVM Arjun, AGM Finance of the CHA to Rs.15 Lakhs. Appeal disposed off. ISSUES: Whether the Director of Revenue Intelligence (DRI) officers are 'proper officers' authorized to issue show cause notices under the Customs Act, 1962 in export-related investigations.Whether penalty under Section 114(iii) of the Customs Act, 1962 is leviable on a Custom House Agent (CHA) and its employee for acts or omissions that render goods liable to confiscation under Section 113.Whether failure by a CHA to obtain explicit authorization from exporters or to exercise due diligence in verifying exporter identity constitutes an offence attracting penalty under Section 114(iii) of the Customs Act, 1962.Whether penalty under Section 114(iii) can be imposed on an employee of a CHA who is alleged to have abetted fraudulent export practices without direct evidence of his involvement in the export transactions.Whether violations of Custom House Agent Licensing Regulations (CHALR), 2004 should be proceeded against under those regulations independently or under Section 114(iii) of the Customs Act, 1962.The appropriate quantum of penalty under Section 114(iii) of the Customs Act, 1962 in cases involving fraudulent export declarations and duty drawback claims. RULINGS / HOLDINGS: The DRI officer is a 'proper officer' authorized to issue show cause notices under the Customs Act, 1962, as held by the Hon'ble Apex Court in its review order; thus, the objection to the DRI's authority is rejected.Penalty under Section 114(iii) of the Customs Act, 1962 is leviable only on a person who 'does or omits to do any act which act or omission would render such goods liable to such confiscation under Section 113, or abets the doing or omission of such act.'The CHA firm was exonerated from penalty under Section 114(iii) as the adjudicating authority found no sustainable charge of abetment or failure to comply with regulations that would render goods liable to confiscation; penalty under Section 114(iii) cannot be imposed for violations of CHALR without separate proceedings under those regulations.Penalty under Section 114(iii) was upheld against the employee of the CHA who admitted receiving amounts over and above CHA fees and involvement in facilitating fraudulent export declarations, thereby abetting acts rendering goods liable to confiscation under Section 113.The penalty imposed on the CHA employee was reduced from Rs. 75 Lakhs to Rs. 15 Lakhs, considering the quantum of undue benefit and proportionality of penalty. RATIONALE: The Court applied the statutory framework of the Customs Act, 1962, particularly Sections 50, 113, and 114(iii), and relevant Custom House Agent Licensing Regulations, 2004.The Court relied on authoritative precedent including the Supreme Court's review order affirming the DRI's authority as a proper officer for issuing show cause notices in export cases.The Court distinguished between violations of CHALR and offences attracting penalty under Section 114(iii), holding that regulatory breaches should be dealt with under the CHALR independently and not by invoking Section 114(iii) absent acts rendering goods liable to confiscation.The Court emphasized that penalty under Section 114(iii) requires proof of act or omission rendering goods liable to confiscation or abetment thereof, and mere knowledge or association without evidence is insufficient.The Court accepted admissions made in statements recorded during investigation as sufficient evidence of abetment in fraudulent export declarations, thus justifying penalty against the CHA employee.The Court exercised discretion to reduce the penalty amount to ensure proportionality and fairness, reflecting the scale of undue benefit derived from the offence.