2025 (10) TMI 553 - AT - Customs

Penalty under Section 114A set aside and Section 112(b) penalty dismissed for bona fide mistake in duty claim

M/s. Hind High Vacuum Company Pvt. Ltd., Sri Vidyadhar Kamath Vice President Versus The Commissioner of Customs, Bangalore

CESTAT held that the appellant wrongly claimed benefit under Notification No.36/1996-Cus. Sl. No.10 but, given the amendment effective April 2015 and the ... Levy of penalty u/s 114A and 112(b) of CA, 1962 - Wrongful availment of benefit of N/N.36/1996-Cus. dated 23.07.1996 as amended - goods imported by claiming exemption from payment of additional customs duty under Section 3 of Customs Tariff Act, 1975 - Payment of differential duty was willful or not - HELD THAT:- Undisputedly the appellant had wrongly claimed benefit under Sl. No.10 of the N/N. 36/1996-Cus. dated 23.7.1996 which has been amended by N/N. 29/2015-Cus. Dated 30.04.2015 even though they are not eligible to the benefit of the said Notification being a contractor who supply material to the Government departments. The bill of Entry relates to period soon after the amendment has been brought into force, therefore, there is merit in the contention of the learned advocate for the appellant that the availment of benefit of Notification No. 36/1996-Cus. dated 23.7.1996 under Sl. No.10, even though their case falls under Sl. No.10A inserted in the said Notification with effect from April 2015, was bona fide mistake on their part. On realisation, the differential duty was paid with interest, the balance amount of interest of Rs.1,099/- was a calculation mistake which they agreed to discharge. In these circumstances, we do not find that the appellant had misstated or mis-declared in the Bill of Entry to the department or suppressed any fact in claiming the benefit of the said Notification. Hence, imposition of penalty under Section 114A is not warranted. Since no other penal provision has been invoked proposing imposition of penalty, the penalty under Section 114A cannot be sustained, accordingly, penalty is set aside. The imposition of penalty under Section 112(b) of the Customs Act, 1962 on Vice President is also unwarranted. The impugned order is modified and the appeal filed by the appellant-company is partly allowed to the extent of setting aside penalty under Section 114A and appeal filed by Vice President is allowed - Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether imposition of penalty under Section 114A of the Customs Act, 1962 is sustainable where differential duty and interest were voluntarily paid after an apparent bona fide mis-application of a customs exemption notification. 2. Whether personal penalty under Section 112(b) of the Customs Act, 1962 on a corporate officer is sustainable for the same conduct. 3. Whether the goods are liable to confiscation or extended period of limitation under Section 28(4) can be invoked given the factual matrix (voluntary payment and disclosure prior to show-cause notice). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Penalty under Section 114A: Legal framework Section 114A permits imposition of penalty for wrongful claims/acts in relation to customs, where there is mis-statement, mis-declaration or suppression attracting penal consequences. Relief from penalty is considered where there is no deliberate suppression or wilful mis-statement and where factual circumstances show bona fide error and corrective action. Issue 1 - Precedent Treatment The Court considered precedents (as relied on by the appellants) that distinguish bona fide errors in classification/exemption claims from deliberate evasion, recognising that mere interpretation disputes or inadvertent mis-claims do not automatically attract penal consequences if corrective steps are timely taken. Precedents cited were treated as supportive of the principle that voluntary payment and absence of suppression militate against penalty. Issue 1 - Interpretation and reasoning The Court found undisputed facts: (a) appellants wrongly claimed exemption under an earlier serial entry of the notification though their imports fell under a different serial entry after amendment; (b) differential duty and substantial interest were paid voluntarily and notified to the department before issuance of the show-cause notice; and (c) only a small balance of interest resulted from a calculation mistake which appellants agreed to discharge. Given those facts, the Court reasoned that the claim of exemption was a bona fide mistake arising soon after the notification amendment and amounted to an interpretative error rather than deliberate suppression or mis-statement in the bill of entry. The voluntary payment and prior disclosure were decisive indicia against imposition of penal consequences under Section 114A. Issue 1 - Ratio vs. Obiter Ratio: Where a claimant, in good faith, misapplies an exemption immediately after an amendment, promptly discloses the mistake to the department and voluntarily pays the differential duty and interest prior to issuance of a show-cause notice, imposition of penalty under Section 114A is not warranted for lack of mis-statement, mis-declaration or suppression. Obiter: References to other decisions concerning extended limitation or confiscation were considered illustrative but not essential to the penalty holding. Issue 1 - Conclusion The Court set aside the penalty under Section 114A, concluding that the factual combination of bona fide error, voluntary payment with prior intimation, and absence of suppression precluded penal liability under Section 114A. Issue 2 - Personal penalty under Section 112(b) on a corporate officer: Legal framework Section 112(b) permits imposition of penalty on an officer or agent of a corporate importer where the act attracting penalty is attributable to that person and is of a nature warranting penalty (e.g., mis-statement, suppression, or wilful contravention). Issue 2 - Precedent Treatment Precedents distinguish cases where officer-level penalties are imposed for deliberate or culpable acts from those where corporate errors stem from bona fide misinterpretation corrected promptly. The Court treated cited authorities as supporting the proposition that personal penalties cannot be sustained where the underlying act lacks culpability. Issue 2 - Interpretation and reasoning Applying the same factual findings as for Section 114A, the Court concluded there was no evidence of wilful mis-statement or suppression by the corporate officer. The voluntariness of payment and prior disclosure negated culpability. Therefore, the basis for imposing Section 112(b) penalty on the Vice President was absent. Issue 2 - Ratio vs. Obiter Ratio: Personal penalty under Section 112(b) cannot be sustained where the impugned conduct is a bona fide interpretative error, promptly disclosed and corrected by voluntary payment, so that mens rea or culpable conduct is not established. No separate penalty provision was otherwise invoked to support personal liability. Issue 2 - Conclusion The Court set aside the penalty under Section 112(b) imposed on the corporate officer for the same reasons the Section 114A penalty was vacated. Issue 3 - Confiscation and extended limitation under Section 28(4): Legal framework Confiscation and invocation of extended limitation require specific legal thresholds (e.g., deliberate evasion, concealment) and procedural triggers. Section 28(4) extends limitation where prescribed circumstances (such as suppression or mis-declaration involving fraud or collusion) are proved. Issue 3 - Precedent Treatment Authorities relied upon by the appellants indicate that where there is voluntary disclosure and payment before issuance of enforcement action, the extended period or confiscation is not invokable absent evidence of fraud/suppression. The Court treated these decisions as persuasive on the narrow facts. Issue 3 - Interpretation and reasoning The Court observed that appellants did not contest the differential duty or interest and had disclosed and paid prior to show-cause notice. On these facts, there was no basis to treat the imports as confiscable or to extend limitation under Section 28(4), because the requisite elements of deliberate concealment or fraud were not established. Issue 3 - Ratio vs. Obiter Obiter/Ratio: While the Court did not need to make an expansive ruling on confiscation or limitation, it indicated that absent suppression or fraud, voluntary correction precludes invocation of confiscation or extended limitation. This functions as a guiding principle rather than an expansive precedent on all contexts. Issue 3 - Conclusion No confiscation order was warranted and extended limitation under Section 28(4) was not invoked; the factual matrix negated those penal remedies. Cross-references and Interrelation The conclusions on Section 114A and Section 112(b) are interrelated and flow from the same primary findings: (a) the exemption claim was a bona fide interpretative mistake occurring soon after a notification amendment; (b) the appellants promptly disclosed and voluntarily paid differential duty and interest before issuance of a show-cause notice; and (c) there was no evidence of mis-statement, suppression, fraud or wilful conduct. These factors collectively precluded imposition of penalties and confiscation/extended limitation.