2025 (10) TMI 74 - HC - Customs

Freight forwarder penalized for arranging illegal export with forged documents; Rs.10 lakh fine upheld, s.114AA penalty refused

Commissioner Of Customs Export Versus Mayank Gupta

HC held the freight forwarder-found to have arranged airline space, issued an airway bill in the name of a non-existent firm, used forged export documents ... Levy of penalty u/s 114AA of the Customs Act, 1962 on freight forwarder - illegal export of ‘Red Sanders’ which is stated to have been received by the Customs Department - Airway bill was booked in the name of forged name - baggage declaration - HELD THAT:- It is found that the freight forwarder is the third and final forwarder who issued airway bill in the name of non-existing firm for non available goods. He was final forwarder who was involved in arranging for arranging space in airlines for export without obtaining KYC of main exporter. He issued an airway bill in the name of non-existed M/s Sikki Auto Pvt. Ltd. He used and caused to be used forged documents related to export of prohibited goods. Considering the role played by freight forwarder, this Court is of the opinion that a penalty of Rs. 10 lakh, which has already been imposed and has been upheld by the Court, would be sufficient penalty. Further penalty under Section 114AA of the Customs Act, 1962 would entail five times the value of goods being imposed upon the Respondent. This Court is of the opinion that the penalty under Section 114AA of the Act has been rightly not beein imposed on the Respondent - Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a freight forwarder who issues airway bills in the name of a non-existent exporter and uses forged export documentation can be subjected to penalty under Section 114AA of the Customs Act, 1962. 2. Whether, having regard to the factual role of the freight forwarder (final forwarder arranging space, not obtaining KYC of main exporter, issuance of airway bills in name of a fictitious firm), imposition of the enhanced penalty under Section 114AA (equivalent to five times the value of goods) is warranted or whether a lesser penalty is appropriate. 3. Whether the legal question(s) concerning the scope and application of Section 114AA raised by the appeal can be decided in the present proceedings or should be left open for determination in an appropriate proceeding. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability under Section 114AA for use of forged export documents by a freight forwarder Legal framework: Section 114AA of the Customs Act provides for imposition of penalty where persons 'use or cause to be used' forged documents or knowingly facilitate export of prohibited goods; liability attaches to those who abet, facilitate or are party to use of false documents in exports. Precedent treatment: The Court considered an earlier, related appeal against the same tribunal judgment and noted the tribunal's findings as to the role of various intermediaries; the prior appellate outcome (rejection of a similar appeal) was relied upon for consistency but no express overruling or extension of precedent was undertaken. Interpretation and reasoning: The Court accepted the factual findings recorded by the adjudicating authority and the tribunal that the forwarder under challenge (i) was the third and final forwarder who issued airway bills in the name of a non-existent firm, (ii) arranged space in airlines without obtaining KYC of the main exporter, and (iii) caused forged documents to be used for export of a CITES-protected commodity. Those facts, in law, ordinarily engage liability under Section 114AA because they demonstrate use or causing to be used of forged documentation and facilitation of prohibited export. Ratio vs. Obiter: The Court's acceptance that the described conduct falls within the ambit of Section 114AA is ratio insofar as it underpins the assessment of culpability; however, the Court did not impose the enhanced statutory penalty in respect of that provision on the facts, rendering the application of Section 114AA to the particular respondent a mixed finding of law applied to fact. Conclusions: The Court recognised that the freight forwarder's actions were of the kind contemplated by Section 114AA (use/causing to be used forged documents and arranging export without proper KYC), but refrained from imposing the enhanced statutory penalty under that Section on the present facts (see Issues 2 and 3 for reasons). Issue 2 - Appropriateness and proportionality of penalty under Section 114AA given the limited role of the freight forwarder Legal framework: Section 114AA prescribes a penalty (expressed in the judgment as potentially five times the value of the goods) that is multiplicative of the value of the prohibited goods; adjudicatory authorities retain discretion to determine quantum in light of role and culpability. Precedent treatment: The tribunal and the adjudicating authority pursued differential treatment of various intermediaries based on the degree of their involvement; the Court followed that approach of calibrating penalty to the role played rather than automatically imposing the maximum statutory multiplicative penalty in every case. Interpretation and reasoning: The Court examined the factual matrix and the degree of involvement of the respondent as 'limited' and principally that of a final forwarder who arranged space and issued airway bills as part of a chain driven by others (brokers, freight forwarders, alleged forgers). On that basis the Court concluded that the imposition of the already imposed fixed penalty of Rs. 10 lakh (imposed under Section 114 in the adjudication and upheld) is adequate to meet culpability and deterrence objectives. The Court reasoned that imposing the Section 114AA multiplicative penalty would be disproportionate to the respondent's limited role and the factual circumstances, and therefore the tribunal's rejection of Revenue's prayer for imposition of further Section 114AA penalty was correctly upheld. Ratio vs. Obiter: The holding that proportionality and the limited role can justify denial of the Section 114AA multiplicative penalty (and upholding the lesser penalty) is ratio with respect to penalty quantum for the respondent in this case. Observations about general principles of proportionality and calibration of penalty are authoritative as applied to these facts; broader doctrinal statements not essential to the outcome are obiter. Conclusions: A fixed monetary penalty already imposed and sustained by the Court suffices where the respondent's role is limited; imposition of the higher Section 114AA penalty (multiplicative of goods' value) was rightly refused on these facts as disproportionate. Issue 3 - Scope for determination of broader legal questions on Section 114AA and leave to consider same later Legal framework: Appellate courts may decide points of law if necessary for disposal; alternatively they may decline to determine novel or broad questions of law where the appeal can be disposed on narrower factual or discretionary grounds, leaving wider legal questions to appropriate proceedings. Precedent treatment: The Court noted a prior appeal arising out of the same tribunal judgment had been dismissed, indicating consistency in outcomes; nevertheless, the Court refrained from pronouncing on broader unresolved legal questions in the present appeal. Interpretation and reasoning: Having disposed of the appeal on the basis that the existing Rs. 10 lakh penalty adequately addresses culpability given the respondent's limited role, the Court declined to decide the wider question(s) of law concerning the scope and application of Section 114AA beyond the needs of this record. The Court expressly left those question(s) open for consideration in an appropriate proceeding. Ratio vs. Obiter: The decision to leave the broader legal question(s) open is ratio to the disposition of this appeal (i.e., not necessary for outcome) and therefore constitutes a deliberate judicial choice to withhold a general legal pronouncement; any ancillary comments about Section 114AA's reach are obiter. Conclusions: The appeal is dismissed in respect of the Revenue's prayer for imposition of further Section 114AA penalty on the respondent; the Court upholds the lesser penalty imposed for the respondent's limited role and leaves unresolved broader legal questions about Section 114AA to be adjudicated in an appropriate forum.