2025 (9) TMI 963 - AT - Customs

Penalty under s.112(b) set aside where importer neither owner nor transporter; goods lawfully imported, no IPR violation

CESTAT (Allahabad) allowed the appeal and set aside a Rs.3,00,000 penalty imposed under s.112(b) of the Customs Act, 1962. The tribunal found the ... Levy of penalty u/s 112(b) of the Customs Act, 1962 - concealment of foreign origin goods - It is the case of the Appellant that the seizure had been made at a place inside Indian Territory and the seized goods are mixed up - HELD THAT:- In the instant case, the goods are not covered under Section 123 of the Customs Act, 1962 nor are notified under Section 11 ibid. The Appellant is neither the owner of the goods nor was in anyway concerned with its transportation etc., and therefore no penalty under Section 112(b) of the Customs Act, 1962 is imposable on the Appellant. I find from the records that the Appellant is a regular importer and had imported substantial quantity of Garments from Bangladesh, which is subjected to statutory physical examination by the proper officers of Customs. It is also on record that the Appellant did not claim ownership of the goods in view of the fact that on sale, the ownership of the goods stood transferred to the buyer. The sale had taken place under proper invoice supported with GST returns and lawful possession of the foreign garments had been duly explained by producing Bills of Entry for the relevant period. It was open to the Customs Authority at the Port to invoke provisions of the Intellectual Property Rights [IPR] (Imported goods) and Enforcement Rules, 2007. The goods were cleared by the Customs on examination as per norms and no violation of IPR was noticed. It is found that the facts of the present case are squarely covered by the decision of the Tribunal in the case of Sukumar Mondal vs. Collector of Customs (Prev.) [1989 (11) TMI 178 - CEGAT, CALCUTTA] where it was held that 'But paradoxically the imposition of penalty of Rs. 500/- on each of the appellants is without reference to even Section 112, not to talk of sub-section (a) or sub-section (b) thereof. However, in this discussion as he had referred to them as the persons concerned within the ambit of the meaning of Section 112(b) of the Customs Act, 1962 the absence of reference to these provisions while imposing penalty on them does not, on that score vitiate the order.' The penalty of Rs.3,00,000/- imposed under Section 112(b) of the Customs Act, 1962 is set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 112(b) of the Customs Act can be imposed on an importer who, prior to seizure, sold the imported goods and thereby transferred ownership to a buyer who was in possession when the goods were seized. 2. Whether the Department discharged the burden of establishing that seized garments were of smuggled/illicit origin where (a) the seized consignment was a mixed load containing both domestic and foreign-origin garments, (b) goods lacked distinctive markings tying specific pieces to the importer's Bills of Entry, and (c) goods had been cleared for home consumption at the port. 3. Whether the presence of foreign-origin markings on some garments in a mixed consignment justifies confiscation of the entire consignment and shifting the onus onto the person claiming lawful possession to prove licit origin. 4. Whether settled legal principles (including prior Tribunal jurisprudence) require application to relieve a person from penalty where ownership and lawful clearance for home consumption have been shown and no specific statutory notification (e.g., Section 123/Chapter IVA) renders the goods proscribed. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability for penalty under Section 112(b) after sale and transfer of ownership Legal framework: Section 112(b) penalises persons who 'sold, purchased or in any other manner dealt with' goods which they knew or had reason to believe were liable to confiscation. Sub-section 26 of Section 2 defines 'importer' and related liabilities. Goods cleared for home consumption are treated as domestically available unless special statutory provisions apply. Precedent treatment: The Tribunal relied on earlier decisions (including Sukumar Mondal) that where ownership has passed and goods have been cleared on importation, mere fact of foreign origin does not automatically attract penalty against a prior importer who has lawfully sold the goods. Interpretation and reasoning: The Court examined documentary proof of legitimate importation (Bills of Entry) and the invoiced sale supported by GST returns. The Appellant had sold the goods in the ordinary course of business before seizure; the buyer collected and transported the consignment. There was no evidence that the Appellant retained ownership or was involved in transportation or concealment at the time of seizure. The Court further noted the absence of any allegation that goods sold by the Appellant bore the contested brand markings or were misdeclared at import. Given lawful clearance at the port and evidence of sale, the attributes required to render the seller a person 'dealing with' goods he knew to be liable to confiscation were not established. Ratio vs. Obiter: Ratio - penalty under Section 112(b) cannot be imposed on an importer who has lawfully imported goods for home consumption and subsequently sold and transferred ownership where there is no evidence he knew or had reason to believe the goods were liable to confiscation. Obiter - observations about practices of goods collection and packing by carriers. Conclusion: Penalty under Section 112(b) was not imposable on the importer-seller; penalty set aside. Issue 2 - Adequacy of proof that seized goods were smuggled or illicit in a mixed consignment lacking identifiable linkage to import records Legal framework: Confiscation under Sections 111/119/123 requires adequate proof of illicit importation or of goods being liable to confiscation; goods cleared for home consumption generally lose foreign character. Department must establish prima facie smuggling or link goods to illicit importation to sustain confiscation/penalty. Precedent treatment: The Tribunal applied and cited Sukumar Mondal and related precedents holding that marks of foreign origin on some pieces do not ipso facto convert all mixed goods into smuggled goods, and that mere suspicion without reliable evidence is insufficient. Prior authority rejects shifting burden onto the claimant to prove lawful acquisition absent statutory notification or distinct evidence of smuggling. Interpretation and reasoning: The Court found the seizure occurred inland in domestic territory on a truck carrying garments from multiple suppliers; goods were mixed and not individually marked to correspond with the import documents. Only some pieces bore foreign markings; many items bore no brand or foreign label. The Department did not produce documentary or circumstantial evidence sufficient to establish illicit importation of the specific pieces sold by the appellant. The Court reiterated that marks of foreign origin at best show manufacture abroad, not the route or legality of importation. Where goods have been cleared for home consumption and are not subject to prohibitory notification, confiscation of all items in a mixed load on the basis of markings on some pieces is not justified. Ratio vs. Obiter: Ratio - where consignment is mixed and goods cleared for home consumption, and the Department fails to link seized pieces to illicit importation, confiscation/penalty cannot be sustained; mere foreign labels on some items do not establish smuggling of the whole lot. Obiter - reference to potential application of IPR rules at port and procedural expectations for departmental evidence. Conclusion: Department failed to establish smuggled character of the goods seized from the buyer's truck in relation to the goods sold by the appellant; confiscation/penalty unsupportable on the record. Issue 3 - Burden of proof and impermissible shifting to claimant to prove lawful origin Legal framework: In confiscation/smuggling proceedings, the initial onus lies on the Department to establish, at least prima facie, the illicit character of goods. Absent statutory provisions creating a presumption, the Department must place evidence in the Show Cause Notice and at adjudication stage; procedural fairness requires disclosure of material relied upon. Precedent treatment: The Tribunal's cited authorities disallow placing the burden on the person claiming lawful possession to prove licit origin merely because the Department lacks proof. Prior decisions emphasise that suspicion alone cannot be equated with evidence sufficient to support confiscation/penalty. Interpretation and reasoning: The Court noted deficiencies in proving the chain of illicit importation and that the Show Cause notice and adjudication relied on marks of foreign origin without establishing that all items seized were smuggled. The Department's failure to provide specific linkage and to not negativate the appellant's documentary proof (Bills of Entry, invoices, GST returns) meant the onus could not lawfully be shifted to the appellant to prove lawful origin beyond producing documents already placed on record. Ratio vs. Obiter: Ratio - Department must establish a prima facie case of smuggling; it is impermissible to shift burden to the claimant where the Department's case is inadequate. Obiter - procedural criticisms regarding timing and content of evidence disclosure. Conclusion: Burden was not discharged by the Department and could not be shifted to the appellant; penalty and confiscation could not be sustained. Issue 4 - Effect of goods cleared for home consumption and lack of statutory prohibition (Section 123/Chapter IVA) on enforcement action Legal framework: Goods imported for home consumption and lawfully cleared lose their special foreign character under Customs law; only when goods are notified/proscribed under Section 123 or covered by Chapter IVA can different treatment apply. IPR enforcement is a separate statutory regime actionable at port. Precedent treatment: Tribunal decisions confirm that lawful clearance and absence of prohibitory notification defeat presumptions of smuggling; application of IPR rules at port is the appropriate remedy if rights are infringed, not post-clearance confiscation without proof of illegality. Interpretation and reasoning: The Court emphasised that the imported garments were cleared after examination at the port and were not covered by any prohibition/notification. The appellant had produced Bills of Entry and the goods were reflected in GST returns after sale. There was no evidence of IPR action at port or of any statutory ground under Section 123/Chapter IVA rendering the goods liable to confiscation. Ratio vs. Obiter: Ratio - lawfully cleared goods not covered by prohibitory provisions cannot be treated as smuggled simply because some pieces bear foreign labels; remedies under IPR/port procedures are distinct and were not invoked. Obiter - suggestion that port authorities could have invoked IPR where appropriate. Conclusion: Lawful clearance and absence of statutory notification preclude penal action against the importer-seller on the facts; penalty rescinded and appeal allowed with consequential reliefs.