2025 (7) TMI 1787 - HC - Customs

Importer not liable under Section 147(2) Customs Act for agent's wrongful acts with bona fide proof of payment

The Commissioner of Customs (Air), Chennai Versus M/s. Hetero Drugs Ltd., Shri K. Rami Reddy, Customs, Excise and Service Tax Appellate Tribunal

The HC held that the importer cannot be held liable under Section 147(2) of the Customs Act for the wrongful acts of their agent when the importer has ... Recovery of customs duty u/s 28 of CA, 1962 or section 147 of CA, 1962 - existence of Statutory provision under Section 147 of Customs Act 1962, which commands duty liability on the importer if there is a failure of his statutory obligation - defering of adjudication proceedings till the completion of the investigations by the CBI - liability of principal for acts of agents - HELD THAT:- As per the statements of the employees and wife of the agent D.Ramesh, the said agent has indulged in wrongful activities. The Tribunal has taken note of the fact that in the show cause notice issued by the Appellant, the aforesaid statements regarding the malafide acts of the agent are also recorded. Therefore the appellant is not right in imposing demand against the respondents 1 and 2 for the malafide acts of their agent by invoking Section 147(2) of Customs Act. More specifically, when the importer/respondents 1 & 2 have shown their bonafide by producing the demand drafts issued for payments in favour of the appellant, the respondents 1 and 2 cannot be held liable. All the substantial questions of law raised by the appellant are only on factual aspects. In the absence of any substantial question of law raised in the Appeals, except the factual aspects, which is in favour of the respondents, there are no reason to interfere with the order passed by the Customs Excise & Service Tax Appellate Tribunal, South Zonal Bench, Bangalore - appeal dismissed. ISSUES: Whether a demand to recover customs duty can be made only under Section 28 of the Customs Act, 1962 and not under Section 147 of the Customs Act, 1962, when Section 147 commands duty liability on the importer for failure of statutory obligation.Whether the liability of a principal (importer) extends to malafide acts committed by an agent (Custom House Agent) under Section 147(2) and (3) of the Customs Act, 1962.Whether the principal is liable for wrongful acts of the agent when the agent substitutes goods or forges documents, and such acts are not authorized under the Customs Act.Whether payment of duty by delivery of demand drafts to the agent discharges the importer's liability under the Customs Act, 1962 and the Negotiable Instruments Act, 1881.Whether the Tribunal was correct in deferring adjudication proceedings pending investigation by the CBI.Whether the reliance on precedent cases, particularly Pilmen Agents Pvt. Ltd., is appropriate despite factual differences.Whether the demand and penalty can be sustained against the importer when duty amounts were paid and credited to the Revenue's accounts. RULINGS / HOLDINGS: The Court held that 'a demand to recover customs duty can be made only under Section 28 and not under Section 147' of the Customs Act, 1962, affirming the Tribunal's reasoning on this point.The liability of the principal for acts committed by the agent is limited to 'bona fide acts committed by the agent and not for the malafide acts committed by the agent or Customs House Officers,' as per Sections 147(1), (2), and (3) of the Customs Act, 1962.Acts such as substitution of goods and forging of Bills of Entry by the agent are 'not acts which an importer was expected to do under the Customs Act,' and thus the importer cannot be held liable for such malafide acts committed by the agent.The Court found that payment of duty by the importer through demand drafts in favour of the Commissioner of Customs, as confirmed by bank letters, constitutes valid payment and discharges the importer's liability.The Tribunal's decision to defer adjudication proceedings until completion of CBI investigations was held to be proper in the circumstances.The reliance on Pilmen Agents Pvt. Ltd. and other case law was upheld as legally sound despite factual differences, affirming the principle that the importer is not liable for the agent's willful default or negligence.Since no duty demand was made out against the appellants and the amounts were paid and credited to the Revenue, the Court held that 'they are not liable for any penalty under the Customs Act, 1962.' RATIONALE: The Court applied the statutory framework of the Customs Act, 1962, particularly Sections 28 and 147, which delineate the respective liabilities of importers and their agents.Section 147(1) permits agents to act on behalf of importers, but Section 147(2) provides that acts done by agents are presumed to be with the importer's knowledge unless proven otherwise, and Section 147(3) confers importer status on agents but limits liability based on willfulness or negligence.The Court emphasized that wrongful acts such as substitution of goods or forging documents are outside the scope of authorized acts by agents under the Customs Act and do not bind the importer.Precedents including Pilmen Agents Pvt. Ltd., K.M. Mohamed Ghouse & Co., and Commissioner of Customs, Cochin v. Trivandrum Rubber Works Ltd. were cited to support the principle that principals are not liable for malafide acts of agents.The Court recognized that the payment of customs duty must be made to the Revenue and that mere handing over of demand drafts to the agent, when confirmed credited to the Revenue's account, satisfies the importer's payment obligation.The decision to defer proceedings pending investigation was supported to prevent premature adjudication and ensure fairness, following Tribunal precedent.No dissent or doctrinal shift was indicated; the judgment reaffirmed settled principles regarding importer-agent liability and the statutory scheme for duty recovery and penalty imposition under the Customs Act.