2025 (10) TMI 629 - AT - Customs

Three ?50 lakh penalties under ss.112(a)(i), 112(b)(i) and 114AA set aside for no nexus or mala fide

CESTAT (Kolkata) - AT allowed the appeal and set aside three penalties of Rs.50,00,000 each under ss.112(a)(i), 112(b)(i) and 114AA, holding the appellant ... Levy of penalty u/s 112(a)(i), 112(b)(i) and 114AA of the Customs Act, 1962 - mis-declaration in connivance with customs officers - unscrupulous activity of importing high value counterfeit items/contraband items in the guise of household goods - reliability of statements of appellant and other co-noticees, which holds no evidentiary value - Appellant is the importer or the mastermind to whom the importer had allegedly lent its IEC - Beneficial Owner of the consignment - HELD THAT:- It is found that the documentary evidence categorically indicates that the appellant and his mother had resigned from the said directorship w.e.f. 01st March 2017, even though the said application was submitted on 23rd October. The appointment of another person by name “Tso Siu Ho”, as Director w.e.f. 01st March 2017, clearly indicates that during the relevant period when the imports took place, the appellant was neither responsible nor associated with the state of affairs of the overseas supplier. In this context, it is also noted that it is an admitted position in the impugned order itself that the invoices and packing lists were signed by Mr. Hertman Kong on behalf of the overseas supplier, who was not authorized by the appellant. Thus, in view of the above, it is found that the appellant had no nexus with such alleged imports whatsoever. Accordingly, no mala fide can be attributed to the appellant for the alleged mis-declaration in the impugned consignments. The next allegation of the Revenue is that the overseas supplier had no FOREX Account and as such the remittances towards the alleged imports were being received by the appellant through channels other than banking channels. In this regard, it is observed that the appellant and his mother were not Directors of the overseas supplier when the alleged import took place. Thus, there are merit in the submission of the appellant that he was completely unaware of the affairs of the company for the said period. Hence, it is opined that non-receipt of proceeds through formal banking channels cannot be attributed to the appellant in absence of any corroborative evidence - the allegation of receipt of remittance through other than banking channels under the directorship of the appellant is totally based on assumptions and presumptions and the said claim of the Revenue is not supported by any evidence - the appellant cannot be implicated in the offence. The alleged act of mis-declaration has happened in a foreign territory for which the appellant, who acted as a freight forwarder in India, has been penalised. It is pertinent to observe that the penal provisions of Sections 112(a), 112(b) and 114AA of the Customs Act, 1962 cannot be made applicable for an activity said to have happened in a foreign territory. Thus, prima facie, the penalties imposed on the appellant are liable to be set aside on this ground itself - penalties of Rs.50,00,000/- each imposed on the appellant under Sections 112(a)(i), 112(b)(i) and 114AA of the Customs Act, 1962, are not sustainable and hence the same is set aside. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether penalties under Sections 112(a), 112(b) and 114AA of the Customs Act, 1962 can be sustained against a person who acted only as a freight forwarder for the impugned consignments. 2. Whether statements recorded during investigation (including retracted statements) and reliance thereon by the adjudicating authority are admissible and sufficient to impose penalties where procedural safeguards under Section 138B and opportunity of cross-examination have not been complied with. 3. Whether resignation from directorship and contemporaneous documentary evidence showing change of directors disentitle the appellant from being treated as having control or nexus with the overseas supplier, and whether allegations of receipt of remittances through non-banking channels can be attributed without corroborative evidence. 4. Whether penalties under Sections 112(a), 112(b) and 114AA are mutually exclusive or otherwise susceptible of concurrent application to the same facts, and whether Section 114AA applies to import transactions. 5. Whether imposition of penalties is disproportionate in quantum relative to the appellant's role vis-à-vis the alleged mastermind/primary offender and inconsistent with the principle of proportionality. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainment of penalties (Sections 112(a), 112(b), 114AA) against a freight forwarder Legal framework: Sections 112(a) and 112(b) penalize abetment and knowledge/reasonable cause to believe that goods are liable to confiscation; Section 114AA penalizes knowingly/ intentionally making or using false documents for purposes of the Customs Act (contextually tied to claiming export benefits). Precedent treatment: Tribunal decisions cited indicate penalties under Sections 112 and 114AA require mens rea/malafide and cannot be imposed on mere peripheral service providers absent evidence of active connivance. Interpretation and reasoning: The Court examined documentary and testimonial material and found the appellant's role was limited to freight forwarding (collecting delivery orders, issuing delivery orders to consignee). Statements of the alleged importer accept lending of IEC to others and attribute importation to other persons. Documentary resignations and appointment of another director effective before the relevant exports establish lack of control over the overseas supplier during the relevant period. No evidence showed the appellant procured, shipped, imported, cleared goods, or stood to gain beyond freight charges; no communications with customs or conspirators were shown. The alleged mis-declaration occurred in foreign territory, and the penal provisions cannot be applied insofar as they seek to punish acts occurring entirely outside the statutory domain without evidence connecting the accused to wrongful acts in India. Ratio vs. Obiter: Ratio - Penalties under Sections 112(a), 112(b) and 114AA are unsustainable against a person whose role is limited to freight forwarding absent evidential demonstration of mens rea, active assistance, or nexus with mis-declaration; documentary proof of resignation and change of director effective before shipments is decisive. Obiter - Observations that acts occurring in foreign territory are prima facie outside scope for applying the cited penal provisions. Conclusions: Penalties under Sections 112(a), 112(b) and 114AA set aside as not sustainable on facts where appellant was only a freight forwarder, had no nexus with procurement/importation, and no evidence of culpable intent or benefit beyond freight charges. Issue 2: Admissibility and evidentiary value of statements recorded during investigation; compliance with Section 138B and right to cross-examine Legal framework: Section 138B (and related provisions) prescribes procedure for recording statements and safeguards; principles require that statements used against a person have requisite procedural compliance and ability to test evidence by cross-examination where relied upon to implicate others. Precedent treatment: Tribunal and High Court authorities cited emphasize that statements obtained without compliance to mandatory procedural requirements or without opportunity for cross-examination lack evidentiary value to convict/penalize another person when those statements are the sole or primary basis. Interpretation and reasoning: The appellant contended relevant statements were relied upon without compliance with Section 138B procedures and without opportunity to cross-examine co-noticees. The Court noted these submissions but its dispositive findings rested on documentary evidence disentitling the appellant from nexus and lack of corroborative evidence of culpability. The judgment recognizes the legal weakness of relying solely on untested investigative statements but did not primarily base the decision on procedural infirmity where other exculpatory evidence existed. Ratio vs. Obiter: Obiter - Procedural non-compliance and denial of cross-examination weaken the evidentiary value of recorded statements; where such statements are sole basis to implicate a person, opportunity to cross-examine is required. Ratio - Not necessary to decide purely on Section 138B non-compliance because independent documentary evidence established lack of nexus and culpability. Conclusions: While non-compliance with Section 138B and denial of cross-examination diminishes reliance on investigative statements, the appeal's allowance was grounded on documentary proof and evidentiary insufficiency rather than solely on procedural lapses; investigative statements without corroboration cannot sustain penalties. Issue 3: Effect of resignations/board changes and attribution of non-bank remittances Legal framework: Liability for acts of an overseas corporate supplier requires proof of continuing control/role; mere past directorship is insufficient absent contemporaneous connection. Allegations of receipt of remittances through non-bank channels require corroborative evidence to attribute receipts to a putative agent. Precedent treatment: Authorities recognize corporate formalities and documentary records (resignations, appointment records, signed invoices by authorized persons) as relevant to infer control or lack thereof; absent corroborative proof, inferences of illicit remittances cannot be imputed. Interpretation and reasoning: The Court evaluated resignation letters effective 01.03.2017 and appointment of a new director effective the same date. The invoices/packing lists were signed by a person not authorized by the appellant. No contrary finding was recorded by adjudicating authority on existence of bank account when appellant was director. Revenue failed to prove receipt of funds by appellant other than freight charges. Therefore, attribution of non-bank remittances to appellant was speculative. Ratio vs. Obiter: Ratio - Documentary evidence of resignation and director appointment effective before shipments breaks the requisite nexus to attribute company actions to the former directors; speculative allegations of non-bank remittances without corroboration do not suffice. Obiter - Emphasis that invoices signed by unauthorized persons supports lack of appellant's involvement. Conclusions: Resignation and board records disentitle the appellant from being treated as controlling the overseas supplier during the relevant period; allegations of non-bank remittances cannot be attributed without corroborative evidence and thus do not sustain penalty. Issue 4: Mutual exclusivity and applicability of Sections 112 and 114AA to imports Legal framework: Statutory text and judicial interpretation limit Section 114AA's prototypical application to fraudulent claim of export benefits; Sections 112(a) and 112(b) address abetment/knowledge relative to confiscation liability. Precedent treatment: Tribunal decisions have held Sections 112(a) and 112(b) require distinct mental elements and may be mutually exclusive in application; Section 114AA has been interpreted predominantly in export contexts and has limited applicability to importation absent clear statutory misapplication. Interpretation and reasoning: The Court observed that Section 114AA traditionally addresses false declarations to secure export benefits and not routine import transactions; imposing Section 114AA on an importer/freight forwarder for alleged mis-declaration in foreign territory is inappropriate. Additionally, absent proof of false declarations made or used by the appellant for purposes of Customs Act, Section 114AA cannot be invoked. The factual record did not show the appellant made, signed, used, or caused false documents for customs purposes. Ratio vs. Obiter: Ratio - Section 114AA is not attracted to the facts of import-side mis-declaration absent evidence of false documents used to claim export benefits; concurrent imposition of Sections 112(a)/112(b) and 114AA is unsustainable where elements of 114AA are not made out. Obiter - Mutual exclusivity arguments were acknowledged but disposal relied on lack of evidence of requisite mens rea and document use. Conclusions: Section 114AA is inapplicable on the facts; penalties under Sections 112(a), 112(b) and 114AA cannot be levied concurrently against a freight forwarder absent distinct proof satisfying each provision's elements. Issue 5: Proportionality and quantum of penalty Legal framework: Penalty jurisprudence requires proportionality - penalty should reflect the nature of the offence, the role of the person, and presence of deliberate or contumacious conduct. Precedent treatment: Authorities emphasize that peripheral actors should not be penalized more severely than principal offenders and that penalties must be commensurate with culpability. Interpretation and reasoning: The Tribunal noted disparity between penalties imposed on alleged mastermind and on the appellant freight forwarder (appellant carrying higher aggregate penalty). Given the appellant's limited role and absence of mens rea or benefit, imposition of aggregate large penalties was disproportionate. The Court relied on proportionality principle and precedents to find such imposition unjustified. Ratio vs. Obiter: Ratio - Penalty quantum must be proportionate to role and culpability; where a peripheral service provider is penalized more heavily than an alleged mastermind without evidentiary basis, such quantum is excessive. Obiter - Comparative penalties between co-accused inform proportionality analysis. Conclusions: The penalty quantum imposed on the appellant is disproportionate; coupled with absence of culpability, the penalties are set aside.