2025 (9) TMI 265 - AT - Customs

Section 125 proviso caps penalty to market price less duty; firm fined Rs.8,291 and partner absolved

CESTAT Mumbai - AT reduced redemption fine and penalty, holding Section 125 proviso caps the fine at market price less duty (Rs. 8,291). The Pr. ... Quantum of redempton fine and penalty u/s 112(a) of the Customs Act 1962 - imposition of much higher value as redemption fine and penalty - redemption fine can exceed market price less duty, of confiscated imported goods or not - HELD THAT:- This appeal is to be kept restricted on discussion on the merit of the quantum of redemption fine and penalty and imposition of penalty on both firm and its partner. Needless to say that importer and exporter are related parties and the amount shown as transaction value is unbelievably high and therefore, knowledge of the importer as being party to such transaction can’t just be ruled out. However, Section 125 second proviso has clearly provided further that such fine shall not exceed the market price of the goods confiscated, less in the case of imported goods the duty chargeable thereon. The market price of the goods was determined by the Department as ₹8,291/- and therefore, such fine should not be more than this value, for which the observation of Pr. Commissioner in his order that unless quantum of fine is levied on the declared value, Appellant would not get punished adequately for being an economic offender, is unsustainable. In respect of penalty of ₹5,00,000/- and ₹2,00,000/- both on the Appellant firm and its partner, there is a clear findings of learned Pr. Commissioner that both firm and partner had conspired and attempted to defraud the exchequer with wrongful remittance of ₹2,00,000/- that could have impacted our national economy, for which proposal for higher penalty of ₹5,00,000/- and ₹2,00,000/- respectively were confirmed - imposition of such higher amount as penalty is not at all justified, which is also required to be restricted to the value of goods namely i.e. ₹8291/- at the maximum. On whom such penalty is to be imposed? - HELD THAT:- Though contradictory decisions are cited by the adversaries on this issue, it would go without saying that no such provision to impose simultaneous penalty is available in Customs Act and bringing Section 135(i)(a) of the Customs Act, that is meant for criminal prosecution, in an adjudication proceeding under Section 112(a) of the Act, the Pr. Commissioner in his order can’t be said to have sanctioned of the law to impose double penalty. Admittedly, under the Partnership Act, for each act of the firm, each of the partners are supposed to be made liable as it the act has been committed by each of them but there is no justification to penalise one of the partners for the Act of the firm only because he is a relation of the exporter and had apparently dealt with the matter. The order passed by the Pr. Commissioner of Customs-II, Airport Special Cargo, Mumbai is modified in restricting the penalty to ₹8,291/- on the Appellant firm under Section 125 of Customs Act, 1962 alongwith a fine of ₹8,291/- under Section 112(a) of the Customs Act to be paid by it to the Respondent-Department within two months of receipt of this order. Appellant Sanjay K. Saha is absolved of its liability, that is fastened on the Appellant partnership firm. Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether a redemption fine under Section 125 of the Customs Act can exceed the market price of confiscated imported goods (less duty) as per the proviso to Section 125. 2. Whether penalty under Section 112(a) of the Customs Act (adjudicatory penalty) can exceed the market value of the goods and whether such penalty may be imposed simultaneously on a firm and on an individual partner for the same act. 3. Whether absence of actual remittance or realised loss to the exchequer and absence of proved mala fide intention/knowledge negate or limit imposition of redemption fine and/or penalty. 4. Whether findings of related-party transactions and an alleged design to launder value justify imposition of enhanced redemption fine and higher penalties in an adjudication under the Customs Act, or whether such economic offences fall outside the domain of the adjudicating officer. 5. Whether reliance on provisions directed at criminal prosecution (e.g., provisions analogous to Section 135(i)(a)) can support imposition of additional or cumulative penalties in an adjudication under Section 112(a). ISSUE-WISE DETAILED ANALYSIS Issue 1: Redemption fine - statutory ceiling and application of proviso to Section 125 Legal framework: The proviso to Section 125 limits the redemption fine to not exceed the market price of the confiscated goods, less duty chargeable on imported goods. Precedent treatment: Earlier judicial considerations cited by parties addressed circumstances of wrongful importation, related parties and quantum of fine; the Tribunal's prior remand noted submissions on quantum but did not create a binding deviation from the statutory proviso. Interpretation and reasoning: The Court construed the proviso to Section 125 strictly - where the Department determines market price (here Rs.8,291), the redemption fine cannot exceed that market price (less duty). The adjudicator's view that a higher fine is justified to punish an economic offender is insufficient to override the statutory ceiling. The fact that declared transactional value was much higher does not permit a fine greater than the market price fixed by the Department under the proviso. Ratio vs. Obiter: Ratio - statutory proviso is a binding ceiling on redemption fine; the adjudicator cannot lawfully impose a fine exceeding the market price determined. Conclusion: The redemption fine was restricted to the market value of the goods (Rs.8,291), and the higher fine previously imposed was unsustainable. Issue 2: Adjudicatory penalty under Section 112(a) - quantum and multiplicity of penalties on firm and partner Legal framework: Section 112(a) provides for imposition of penalty in adjudication. Partnership law principles make partners liable for firm acts, but the Customs Act contains no express provision authorising simultaneous multiple penalties for the same adjudicatory breach. Precedent treatment: Conflicting decisions were relied upon - decisions allowing penalties on both firm and partner in certain facts, and decisions restraining multiple penalties where not authorised by statute. A Larger Bench decision of the High Court was noted as having persuasive effect where it limited simultaneous penalisation. Interpretation and reasoning: The Tribunal held that there is no provision in the Customs Act authorising imposition of duplicative penalties in an adjudicatory proceeding; invoking penal/criminal provisions applicable to prosecution (such as Section 135(i)(a) analogues) cannot expand the adjudicating officer's power under Section 112(a). While partnership law renders partners liable for firm acts, penalising an individual partner separately in an adjudication (in addition to penalising the firm) requires statutory backing and clear attribution of culpability beyond mere relation or association. Where the record did not justify separate adjudicatory liability for the partner independent of the firm, imposing a separate penalty on the partner was not justified. Ratio vs. Obiter: Ratio - Section 112(a) cannot be used to impose cumulative penalties on both firm and partner absent statutory authority; penalty quantum under Section 112(a) should be proportionate and ordinarily not exceed the market value of goods where that is the relevant measure of loss. Conclusions: Penalty on the firm under Section 112(a) was confined to the market value (Rs.8,291); the partner was absolved of adjudicatory liability imposed by the Commissioner. Issue 3: Effect of absence of actual remittance, realised loss, and proven mala fide intention on imposition of fine/penalty Legal framework: Adjudicatory fines and penalties under the Customs Act are controlled by statutory limits and by principles of mens rea and causation where relevant; economic offences involving foreign exchange remittances may attract criminal or specialised enforcement beyond the adjudicator's remit. Precedent treatment: Authorities cited by the Appellant establish that where importer lacks knowledge and there is no mala fide intention, confiscation, redemption fine or penalty may be inappropriate or mitigated. Conversely, some decisions have sustained penalties where nexus and design to defraud are established. Interpretation and reasoning: The Tribunal acknowledged the finding of related-party nexus and suspicious declared value but emphasised that imposition of enhanced penalties for an economic offence presupposes either actual loss/remittance or a prosecutable offence within the adjudicator's jurisdiction. Here there was no actual remittance/realised loss; an attempt alone, without consummation or clear statutory provision enabling elevated adjudicatory penalty, is insufficient to justify penalties beyond statutory limits. The adjudicating officer cannot usurp roles reserved for criminal/economic enforcement wings. Ratio vs. Obiter: Ratio - absence of actual remittance/realised loss and lack of demonstrated mala fide intent constrain the scope for imposing enhanced adjudicatory penalties; attempts to characterise the conduct as an economic offence do not expand adjudicatory powers. Conclusion: Higher penalties premised on alleged economic offence or attempted loss were not justified in adjudication and had to be limited to the statutory quantum tied to market value. Issue 4: Use of criminal prosecution provisions to justify enhanced adjudicatory penalties Legal framework: Distinction between adjudicatory provisions of the Customs Act and criminal prosecution provisions; each has its own procedure and sanctioning mechanism. Precedent treatment: Authorities relied upon by the Department invoking prosecution-oriented provisions were examined and not accepted as justification for augmenting adjudicatory penalties. Interpretation and reasoning: The Tribunal held that provisions designed for criminal prosecution cannot be transposed into an adjudicatory proceeding to justify additional or cumulative penalties. The adjudicating authority's powers under Section 112(a) must be exercised within statutory confines; invoking prosecution provisions in adjudication constitutes legal overreach. Ratio vs. Obiter: Ratio - criminal prosecution provisions cannot be imported to expand adjudicatory penalties; the adjudicatory authority must confine itself to statutory adjudicatory remedies. Conclusion: The Commissioner's reliance on prosecutorial provisions to validate higher penalties was unsustainable; penalties had to be curtailed to statutory limits in adjudication. Cross-references and final outcome Interrelationship: Issues 1-4 are interlinked - statutory ceiling on redemption fine (Issue 1) and limits on adjudicatory penalties and multiplicity of penalisation (Issue 2) are reinforced by the Court's view that absence of actual loss and improper reliance on criminal provisions (Issues 3-4) preclude enhanced sanctions. Final disposition (ratio of the decision): Redemption fine under Section 125 confined to market price (less duty) determined by Department; adjudicatory penalty under Section 112(a) for the firm limited to the market value of the goods; imposition of separate penalty on an individual partner for the firm's act in the adjudication was unwarranted; reliance on criminal/prosecution provisions does not expand adjudicatory penalty powers. These conclusions are binding as the Court's decision on the merits.