2025 (7) TMI 1726 - AT - Customs

Penalty under Section 114(iii) waived for CHA as export authorization and procedures were properly followed

Mr. K.S. Murugan Versus Commissioner of Customs (Preventive) Trichy Commissionerate

The CESTAT Chennai allowed the appeal of the CHA against penalty under Section 114(iii) of the Customs Act, 1962 for alleged failure to verify exporter ... Penalty on CHA u/s 114(iii) of the Customs Act, 1962 - failure to verify credentials of the exporter - failure to verify declaration to Shipping Bill - without obtaining written authorization from the exporter, the documents for export of the goods are processed - HELD THAT:- It is seen that apart from alleging vaguely that the CHA had not obtained exporter’s authorization, investigation could not prove any lapse on the part of the Appellant as the goods being exported under draw back were examined by the officers who allowed the export. No fault could be found with the CHA’s conduct. Further, at the relevant time, there was no proforma prescribed for obtaining the authorization of the exporter and the exporter in this case obtained exporter’s signature on the Shipping Bills which have to be treated as sufficient compliance of obtaining authorization. The Tribunal Mumbai in the case of Somaiya Shipping Clearing Private Limited Vs. Commissioner of Central Excise, Mumbai [2005 (12) TMI 151 - CESTAT, MUMBAI] had held that penalty under Section 114 of the Customs Act not imposable on the ground that the CHA failed to file authorization of the export. Further, jurisdictional Madras High Court has supported the Tribunal’s finding in the case of Commissioner of Customs, Chennai Exports Vs. I. Sahaya Edin Prabhu [2015 (1) TMI 1032 - MADRAS HIGH COURT] that allegation set out in the Show Cause Notice was related to alleged failure of discharge of functions as CHA for which provisions are available in the Custom House Agents Licensing Regulations would be sufficient and penalty under Section 114 of the Customs Act, 1962 was unwarranted. As the Appellant CHA has obtained authorization of the exporter and carried out the verification before filing the documents to the exporter, the penalty imposed is ordered to be set aside. Appeal allowed. ISSUES: Whether the penalty imposed under Section 114(iii) of the Customs Act, 1962 on the Customs House Agent (CHA) for failure to obtain written authorization from the exporter and for not verifying the correctness of the Shipping Bill declarations is justified.Whether the CHA's role and responsibility extend beyond the clearance of goods and issuance of Let Export Orders under the Customs Act and Customs House Agents Licensing Regulations (CHALR).Whether the absence of a prescribed proforma for exporter authorization affects the validity of penalty under Section 114 of the Customs Act.Whether the penalty under Section 114 of the Customs Act is appropriate for alleged failure to discharge functions as a CHA, or whether such failure is governed exclusively by the CHALR. RULINGS / HOLDINGS: The penalty under Section 114(iii) of the Customs Act, 1962 imposed on the CHA was not justified as the CHA had obtained the exporter's signature on the Shipping Bills, which is to be treated as 'sufficient compliance of obtaining authorization.'The CHA's role ceases after the goods have been cleared out of customs charge and handed over to the shipping agency, as held in the Tribunal decision that 'the duty of the CHA ceases after the goods have been cleared out of customs charge and handed over to the shipping agency.'Since there was no proforma prescribed at the relevant time for obtaining written authorization from the exporter, penalty under Section 114 of the Customs Act for failure to file authorization is not imposable, relying on the Tribunal Mumbai's holding that 'penalty under Section 114 of Customs Act, 1962, not imposable on ground that CHA failed to file Authorization.'Failure to discharge functions as a CHA is governed by the Customs House Agents Licensing Regulations and not by penalty under Section 114 of the Customs Act, 1962, as affirmed by the Madras High Court that 'penalties are provided in the Customs House Agents Licensing Regulations. Therefore, imposition of penalty under Section 114(i) of the Customs Act is unwarranted.'In light of similar facts where penalties were set aside against another CHA, the penalty imposed on the appellant CHA is liable to be set aside following principles of natural justice and consistent judicial precedent. RATIONALE: The Court applied statutory provisions under Section 114(iii), Section 113(i), and Section 75(1) of the Customs Act, 1962, along with Rules 16 and 16A of the Customs and Central Excise Duty Drawback Rules, 1995.Judicial precedents from various Customs Appellate Tribunals and High Courts were extensively relied upon, including decisions that clarify the scope of CHA's duties and the nature of authorization required from exporters.The Court emphasized that the Customs House Agents Licensing Regulations provide a separate mechanism for penalizing failure to discharge CHA functions, thereby limiting the applicability of Section 114 penalties to active misconduct or fraud.The Court recognized that the CHA had performed due diligence by verifying IEC and bank details and that the exported goods were examined and cleared by Customs officers, negating allegations of complicity in misdeclaration.The absence of a prescribed form for authorization and the acceptance of exporter's signature on Shipping Bills as sufficient compliance represents a doctrinal interpretation limiting the scope of CHA liability under Section 114.The Court noted the principle of natural justice and consistency with prior rulings where penalties on similarly situated CHAs were set aside, reinforcing the decision to quash the penalty in the present case.