2025 (10) TMI 336 - AT - Customs

Penalty under s.158 Customs Act quashed for bona fide procedural lapse over sub-rule 3, r.6 (returns)

M/s Paramount Surgimed Limited Versus Commissioner of Customs, Jaipur-1

CESTAT allowed the appeal and set aside penalty proceedings under s.158 Customs Act, 1962 for breach of sub-rule 3, r.6 of the Customs (Import of Goods at ... Levy of penalty as per Section 158 of the Customs Act, 1962 - contravention of sub-rule 3 of Rule 6 of Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 - quarterly returns for the was not submitted in time to the competent authority - returns did not contain all requisite particulars - HELD THAT:- The object of penalties are to ensure that the tax payees should fulfill their legal duties by discouraging tax evasion and non-compliance. The Hon’ble Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] has held that penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law and was guilty of conduct concamacious or dishonest or acted in conscious disregard of its obligation. The hon’ble Court further held that even if a minimum penalty is prescribed the authority competent to impose penalty will be justified in refusing to invoke penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from the bona fide belief that the offender is not liable to act in the manner prescribed by the statue. Thus, on the same analogy, it is held that the appellant is not liable for any penal action and so the penal proceedings initiated in the show cause notice merits to be dropped. It is held that the bona fide procedural lapse has wrongly been dealt with as the act of such contravention which invites the penalty. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether imposition of penalty under Section 158 of the Customs Act for failure to comply with sub-rule (3) of Rule 6 of the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 is justified where quarterly returns were filed late and with procedural deficiencies. 2. Whether procedural non-compliance (late filing; omission of unit's name, seal and signature of the concerned authority) amounts to fraud, gross and willful neglect, or intent to evade revenue so as to attract penal consequences under the taxing statute. 3. What legal standard and principles govern exercise of penal power under tax statutes in cases of technical, bona fide or venial breaches of procedural conditions attached to exemption notifications. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of invoking Section 158 for late filing and defective quarterly returns Legal framework: Sub-rule (3) of Rule 6 of the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 requires an importer availing exemption notification benefits to submit a quarterly return, in the prescribed form, to the Deputy Commissioner or Assistant Commissioner of Customs having jurisdiction over the premises, by the tenth day of the following quarter. Section 158 of the Customs Act authorises imposition of penalty for contraventions of conditions of exemption notifications and related rules. Precedent treatment: The Tribunal relied on settled principles that contraventions of conditions attached to exemption notifications may attract penalties, but such penal power is to be exercised in accordance with established tests distinguishing culpable conduct from mere procedural lapses. Interpretation and reasoning: The returns in question were admittedly filed but not before the competent Customs authority (they were filed before a CGST office), and were filed after the stipulated due dates; some returns also lacked unit's name, seal and authorised signature. The Tribunal treated these facts as establishing a procedural lapse rather than substantive breach. The Court analyzed whether the failure went beyond procedure to constitute conduct punishable under Section 158. Ratio vs. Obiter: Ratio - Late filing and filing before a non-competent authority, plus omissions in prescribed particulars, do not automatically justify penalty under Section 158 where there is no fraud, gross and willful neglect or intent to evade revenue. Obiter - Observations on the sufficiency of certificates issued by non-Customs authorities as evidence of compliance. Conclusion: Invoking Section 158 solely on the basis of the recorded procedural deficiencies was not justified; the penal orders were set aside insofar as they punished bona fide procedural lapses. Issue 2 - Whether absence of fraud, gross and willful neglect or intent to evade revenue precludes imposition of penalty Legal framework: Principles applicable to exemption notifications require the assessee to prove entitlement and to comply with prescribed procedure; where contravention is alleged, the burden rests on the assessee to show absence of fraud, gross and willful neglect, and intent to evade revenue to avert penal consequences. Precedent treatment: The Tribunal invoked authoritative judicial principles establishing that penal sanctions under taxing statutes are not to be imposed for technical or venial breaches absent culpable mental state or deliberate wrongdoing. The Tribunal relied on higher court jurisprudence laying down the three-element test (fraud, gross and willful neglect, intent to evade revenue) as decisive in penalty matters arising from non-compliance with exemption conditions. Interpretation and reasoning: The record did not disclose fraud, gross and willful neglect, or any intent to evade revenue. Admissions by the appellant acknowledged late filing but did not admit any dishonest or evasive motive; earlier certificates and subsequent filings demonstrated bona fide attempts to comply. The Tribunal found these facts weighed against treating the breaches as punishable misconduct. Ratio vs. Obiter: Ratio - Absence of the three culpable elements precludes imposition of penalty for procedural non-compliance relating to exemption notifications. Obiter - Remarks on the evidentiary value of administrative communications and timing of filings. Conclusion: The conditions necessary to justify penal action under the taxing provision were not satisfied, and penalty could not be imposed on the facts presented. Issue 3 - Proper approach to penal policy in tax statutes for technical or bona fide breaches Legal framework: Penal provisions in tax statutes are remedial/coercive and aimed at ensuring compliance and preventing evasion; however, exercise of penal discretion must observe the principle that penalties are generally not imposed for technical, venial, or bona fide breaches absent culpable conduct. Precedent treatment: The Tribunal followed established jurisprudence that a revenue authority should refrain from invoking penal consequences where non-compliance arises from bona fide belief, inadvertence, or technical lapses, and that the purpose of penalty is deterrence against deliberate evasion rather than punishment for every procedural infirmity. Interpretation and reasoning: Applying these principles to the facts, the Tribunal concluded that the appellant's failures were procedural and bona fide. The Court emphasized that penal power should be reserved for deliberate defiance, conscious disregard, or dishonest conduct and that minimum penalties should not be mechanically imposed where the breach is venial. Ratio vs. Obiter: Ratio - Authorities must distinguish between deliberate evasion and procedural lapses; the latter do not merit penal sanctions if devoid of culpability. Obiter - Discussion on the broader policy rationale behind tempering penal enforcement in tax administration. Conclusion: The Tribunal held that penalties are not appropriate in the present circumstances and set aside the penalties imposed under Section 158 as having been applied inappropriately to a bona fide procedural lapse. Cross-references See Issue 1 and Issue 2 for overlapping analysis on procedural non-compliance and the three-element test; Issue 3 explains the governing penal policy and public law rationale informing the conclusions reached under Issues 1 and 2.