2025 (8) TMI 1159 - HC - Customs

Orders under ss.112(a) and 114AA set aside for lack of reasons; remanded for de novo adjudication and hearing

The HC set aside penalty orders under ss.112(a) and 114AA Customs Act for failing to assign reasons and for breach of natural justice, noting adjudicating ... Levy of penalties u/s 112(a) and section 114AA of the Customs Act, 1962 - filing six Bills of Entries in the year 2017 for one importer - jurisdiction of DRI authority to issue SCN - reopening of assessment in absence of challenging the assessment orders - failure to consider any of the submissions made by the petitioner - violation of principles of natural justice - HELD THAT:- It is a trite law that for imposition of penalty reasons are required to be assigned by the respondent adjudicating authority and only recording that “I find that these noticees are accomplices of the Beneficial Owners and in spite of being aware of the wrong doings actively took part in the fraudulent Import which resulted in short levy of the Customs Duty. Therefore, it is agreed with the proposal of the SCN for Imposition of penalty on these Noticees under the provisions of Sections 112 (a) and 114AA of the Customs Act, 1962” is not sufficient. This Court in case of Vadilal Gases ltd. [2015 (10) TMI 1845 - GUJARAT HIGH COURT] has held that 'giving sufficient reasons to demonstrate that the relevant factors having considered objectively is a primary requirement to be satisfied by a judicial or quasi judicial authority. The requirement of reasons has been considered to be virtually a component of human rights. Under the circumstances, the impugned orders, which suffer from the basic infirmity of being non-reasoned orders inasmuch as both, the adjudicating authority as well as the Appellate Commissioner have failed to consider the relevant factors and the submissions advanced by the petitioner, cannot be sustained.' In view of settled legal position and considering the undisputed fact that respondent No. 2 has failed to assigned any reason for levy of penalty upon the petitioner under section 112(a) and 114AA of the Customs Act, without expressing any opinion on the merits of the matter, the matter is remanded back to the respondent No. 2 to pass a fresh de novo order so far as case of the petitioner is concerned after giving an opportunity of hearing and considering the submissions which are made and which may be made by the petitioner at the time of hearing. Such exercise shall be completed within a period of 12 weeks from the date of receipt of a copy of this order. Petition disposed off by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether the adjudicating authority's imposition of penalty under Sections 112(a) and 114AA of the Customs Act is vitiated for want of reasons and thereby violates principles of natural justice. 2. Whether the adjudicating authority had jurisdiction to adjudicate and impose penalty where the show cause notice was issued by the Directorate of Revenue Intelligence (DRI). 3. Whether the adjudicating authority's failure to record and/or consider the petitioner's oral and written submissions at personal hearing renders the order non-reasoned and unsustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Requirement of Reasons; Natural Justice and Validity of Penalty Order Legal framework: Administrative and quasi-judicial authorities are required to record reasons when exercising discretion, especially when imposing penalties; the duty to give reasons flows from the broader doctrine of fairness and principles of natural justice. Precedent Treatment: The Court relied on established authorities which hold that non-reasoned orders that fail to address relevant submissions are infirm - exemplified by prior High Court authority articulating that reasons are indispensable to show objective consideration of relevant factors. Interpretation and reasoning: The impugned order's recording that the noticees 'are accomplices' and a conclusory agreement with the SCN's proposal was held to be insufficient. The Court examined the impugned order and noted that although the petitioner's written submissions were reproduced in a paragraph, the adjudicating authority did not deal with or traverse those submissions while arriving at the penalty. Mere conclusory statements without analysis of submissions and factual reasoning do not meet the requirement to demonstrate that relevant factors were objectively considered. Ratio vs. Obiter: Ratio - An adjudicating authority must assign adequate reasons addressing the submissions and material facts before imposing penalty; absence of such reasons vitiates the order as contrary to principles of natural justice. (This is the operative holding applied to remit the matter.) Conclusions: The penalty order as to the petitioner is non-reasoned and in gross violation of principles of natural justice; it must be set aside insofar as it relates to the petitioner and the matter remitted for de novo adjudication after affording a proper hearing and consideration of submissions. Issue 2 - Jurisdiction to Adjudicate Where Show Cause Notice Issued by DRI Legal framework: Jurisdictional competence of an adjudicating authority depends on statutory schemes and judicial interpretation of inter-departmental initiation of proceedings; constitutional writ jurisdiction can be invoked to challenge jurisdictional defects. Precedent Treatment: The petition initially relied upon a Supreme Court decision suggesting limits on jurisdiction where DRI issues a show cause notice; however, a subsequent clarification in review proceedings by the apex forum altered that position to recognise adjudicatory jurisdiction of the adjudicating authority even where the show cause notice originates from DRI. Interpretation and reasoning: The Court recorded the parties' submissions on jurisdiction but observed that the earlier contention based on the apex court's decision was subsequently clarified by the apex forum in review proceedings to the effect that the adjudicating authority would have jurisdiction. Given that clarification, the Court did not rest its decision on a finding of lack of jurisdiction and proceeded to decide the petition on the ground of non-reasoned order. Ratio vs. Obiter: Obiter (procedural treatment) - The Court did not finally decide a standalone jurisdictional defect against the adjudicating authority because of subsequent authoritative clarification; instead, the jurisdictional plea was rendered academically addressed and did not underpin the remand. Conclusions: No positive relief was granted on the jurisdictional objection in view of the subsequent authoritative clarification; the question of jurisdiction was not the basis for quashing the order and thus was not adjudicated substantively in favour of the petitioner. Issue 3 - Recording and Consideration of Personal Hearing and Submissions Legal framework: Principles of natural justice require that an opportunity to be heard be granted and that the adjudicating authority record and consider oral and written submissions; adequate recording in the reasons is part of fair decision-making. Precedent Treatment: Courts have held that where personal hearing has occurred and written submissions are placed on record, the adjudicating authority must refer to and deal with them in the reasons supporting its decision; failure to do so renders the order non-reasoned. Interpretation and reasoning: The impugned order contained an apparent inconsistency - the adjudicator's narration of personal hearings set out appearances for certain noticees but omitted reference to the petitioner's personal hearing despite contemporaneous personal hearing records showing appearance and reiteration of submissions. Further, although the adjudicator reproduced the petitioner's written submissions in a paragraph, the order did not engage with or refute those submissions when imposing penalty, instead relying on an omnibus conclusion. This omission undermined the requirement to demonstrate that submissions were considered. Ratio vs. Obiter: Ratio - Failure to record consideration of oral and written submissions, and failure to set out reasons addressing them, amounts to a breach of the principles of natural justice and necessitates remand for de novo adjudication. Conclusions: The impugned order's failure to record and deal with the petitioner's personal hearing and submissions contributed materially to its non-reasoned character; the matter is remitted for fresh adjudication with express directions to grant hearing and to record and reason the decision. Relief and Direction Without expressing any view on merits, the Court remanded the petitioner's case for a fresh de novo adjudication by the adjudicating authority, directing that an opportunity of hearing be afforded and that the authority consider and record reasons addressing the petitioner's submissions within twelve weeks from receipt of the order.