2025 (10) TMI 1284 - AT - Customs

Appeals allowed; penalties under s.114(iii)/114AA and Rs30 lakh redemption fine quashed; confiscation under s.115(2) set aside

Shailesh M Mehta, Rajendra Bhanushali, Vijay Sanghvi, VS Marine Services, KB Shipping & Company Versus Commissioner of Customs-Jamnagar (Prev), Gujarat

CESTAT AHMEDABAD-AT allowed the appeals, set aside the adjudicating order and the Commissioner's confirmation. The tribunal found no evidence that the ... Levy of penalties - Reduction in the amount of penalty imposed upon the appellants - illegal supply of 20 KL of diesel oil to a Pakistan going foreign flag vessel - deliberate violation of Section 50 and 51 of the Customs Act, 1962 - no shipping bill was filed for export of goods and no permission was sought for loading of goods for export - HELD THAT:- It is pertinent to mention here that there is no evidence on record that Shri Rajendra Bhagwanjibhai Bhanushali, partner of M/s. Raja Petroleum was duly informed that 20KL of diesel oil has to be procured so that it can be supplied to the ship “MT CANTA” in violation of provisions of Customs Act, 1962. Therefore, penalty has been wrongly imposed by the Adjudicating Authority on the appellant Shri Rajendra Bhagwanjibhai Bhanushali, partner of M/s. Raja Petroleum and has been wrongly confirmed by learned Commissioner through the impugned order. The penalty under Section 114(iii) can be imposed upon a person who in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under Section 113 or abets the doing or omission of such act. Appellant Shri Rajendra Bhagwanjibhai Bhanushali was not having any knowledge that by his actions he will be rendering the goods liable to confiscation under Section 113 hence no penalty could be imposed upon him - From the material available on record it also comes out that Shri Musa Ibrahim Modi boarded the tug ‘Alliance’ from Sikka Port as ‘Master’ and he obtained port clearance from Customs House Sikka, from Sikka to Porbandar port and completed the supply of diesel, grinder with discs and welding rods to vessel MT Canta on high seas and returned to Porbandar from which he again obtained Port Clearance for a voyage from Porbandar port to Sikka port. It is pertinent to mention here that Shri Musa Ibrahim Modi neither filed ‘Manifest’ nor ‘shipping bills’ with Customs for the aforesaid supplies. From the above facts, it appears that Shri Musa Ibrahim Modi, who was the ‘Master’ of the tug at the relevant time, was bound by law to have filed ‘Manifest’ and shipping bills with Customs House Sikka for the above mentioned supply but he failed to do so. Whether penalty under Section 114 (iii) has been rightly imposed upon Partner in the firm M/s. K. B. Shipping Co. & M/s. V. S. Marine Service? - HELD THAT:- From the material available on the record it comes out that the conduct of Shri Vijay Sanghvi, Partner of M/s. K. B. Shipping Company was bonafide and he was not aware of the fact that Shri Musa Ibrahim Modi has not filed Manifest and Shipping Bills with the Customs Authorities and without the permission of the Customs Shri Musa supplied the bunker fuel and other spare parts to the Foreign going vessel ‘MT Canta’. Therefore, penalty imposed upon Shri Vijay Sanghvi under Section 114 (iii) is also not sustainable and is liable to be set aside. Whether penalty under Section 114 (iii) and 114 AA has been rightly imposed upon Shri Shailesh Mansukhlal Mehta, Partner of M/s. K. B. Shipping Company? - HELD THAT:- It appears that Shri Shailesh Mehta and Shri Vijay Kantilal Sanghvi had no prior knowledge regarding the fact that the goods would be transported by Shri Musa or Shri Tarun Patel by using their tug, without filing the shipping bills and the tug would sail from the port of Sikka under the cover of ‘No Dues Certificate’ issued by GMB showing the tug in ballast. Neither Shri Vijay Kantilal Sanghvi nor Shri Shailesh Mansukhlal Mehta filed any applications before the Port Authorities or Customs Authorities in connection with obtaining “Port Clearance Certificate”. In fact, the applications were filed by Shri Tarun Patel an employee of M/s. K. B. Shipping & Co. Shri Tarun Patel had prepared the alleged erroneous applications before the “Port Authorities” for obtaining ‘No Dues Certificate’ and before the Customs Authorities for obtaining the “Port Clearance Certificate” but, Shri Tarun Patel has been given a clean chit by the department and no notice was issued to him. Even in the show cause notice, no allegation has been made regarding collusion between any of the partners of M/s. K. B. Shipping & Co. or M/s. V. S. Marine Services and Shri Tarun Patel. Therefore, when the person who had actually prepared the application for obtaining ‘No Dues Certificate’ and “Port Clearance Certificate” has not been found guilty and no allegation has been made by the department regarding collusion between him and the partners of the firm, then it was not proper to initiate action against Shri Shailesh Mansukhlal Mehta and Shri Vijay Kantilal Sanghvi. Whether penalty upon M/s. K. B. Shipping & Co. has been rightly imposed or otherwise? - HELD THAT:- It is pertinent to mention here that Shri Musa Ibrahim Modi, who was the Master of the tug at the relevant time, stated in his statement that “he had taken only port clearance from Customs House Sikka for Porbandar Port. Shri Tarun Patel, Supervisor of M/s. K. B. Shipping was there when port clearance was taken from Customs House Sikka. He did not take any other permission from Customs House Sikka for supplying diesel oil, welding rods, grinder and disks to the vessel “MV Canta”. He also did not inform Custom House, Sikka or Custom House, Porbandar about the above supplies to ship “MV Canta” - From the statement made by Shri Musa and from the perusal of the records, it is clear that in the whole episode, Shri Musa Ibrahim Modi, the “Master of the tug” at the relevant time and Shri Tarun Patel, Supervisor of M/s. K. B. Shipping & Co. played key roles in the whole episode. Shri Tarun Patel obtained port clearance but did not take any other permission from Customs House Sikka for supplying diesel oil, welding rods, grinders and disks to the vessel “MV Canta”. They did not inform Customs House Sikka or Customs House Probandar about the above supplies to ship “MV Canta”. Therefore, in these Circumstances, no liability can be fastened on Shri Shailesh Mehta or Shri Vijay Kantilal Sanghvi or their firm M/s. K. B. Shipping & Co., Jamnagar. Whether the actual owner of the tug ‘Alliance’ M/s. V. S. Marine Services, Jamnagar is responsible for the irregularities and illegalities and whether penalty has been rightly imposed upon them? - HELD THAT:- In this context, it is pertinent to mention here that at the relevant time, the tug ‘Alliance’ was at the disposal of M/s. K. B. Shipping & Co. and their employees. It was not under the control of M/s. V. S. Marine Services. Therefore, no conclusion can be drawn that M/s. V. S. Marine Services had committed any act or omitted to do any act or abated any such act which rendered the goods liable to confiscation under Section 113 of Customs Act, 1962. It also appears that the partners of M/s. V. S. Marine Services had no prior knowledge regarding the aberrations on the part of Shri Musa or Shri Tarun Patel and therefore M/s. V. S. Services cannot be held responsible for the above mentioned irregularities and illegalities and no liability can be fastened upon it and no penalty can be imposed upon it under Section 114 (iii) of Customs Act, 1962. Confiscation under Section 115 (2) of the Customs Act, 1962 - HELD THAT:- In the present case, the Adjudicating Authority has come to the conclusion that the tug ‘Alliance’ was under the operational control of M/s. K. B. Shipping & Co. at the material time and therefore, M/s. V. S. Marine Services cannot be held liable for irregularities and illegalities and the tug ‘Alliance’ cannot be held liable to confiscation under Section 115 (2) of the Customs Act, 1962. Considering the facts that the owners of the tug ‘Alliance’ M/s. V. S. Marine Services were not in the knowledge of the above mentioned irregularities and illegalities and there was no connivance on their part to illegally supply bunker fuel to vessel “MV Canta”, therefore, imposition of redemption fine of Rs. 30,00,000/- on the appellant M/s. V. S. Marine Services is not sustainable. In view of above observations and discussion, the learned Commissioner has erred in upholding the Order-in-Original passed by learned Adjudicating Authority and the impugned order is not sustainable and liable to be set-aside and the appeals are liable to be allowed. The impugned order dated 19/20 August, 2015 passed by learned Commissioner is set-aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether goods supplied to a foreign-bound vessel on the high seas without filing shipping bills and without Customs permission are liable to confiscation under Section 113(f) and (g) of the Customs Act, 1962 (interaction with Sections 50 and 51). 2. Whether a conveyance (tug) used to effect such supply is liable to confiscation under Section 115(2), and whether redemption fine under Section 125 is sustainable where the title owner disclaims operational control, knowledge or connivance. 3. Whether partners/owners and associated firms can be penalised under Section 114(iii) and Section 114AA for acts or omissions of the master or employees (knowledge, connivance, agency and operational control required for liability). 4. Whether a seller/retailer of fuel can be penalised under Section 114(iii) of the Customs Act where there is no evidence that the seller knew the sale would render the goods liable to confiscation under Section 113. 5. Whether denial of opportunity for cross-examination or alleged non-speaking nature of adjudication vitiates the order (principles of natural justice/material consideration). ISSUE-WISE DETAILED ANALYSIS Issue 1: Confiscation of exported goods under Sections 113(f) and (g) read with Sections 50 & 51 - Legal framework Legal framework: Sections 50 and 51 mandate entry (shipping bill/manifest) and permission/clearance for export; Section 113(f) covers goods loaded/attempted to be loaded in contravention of s.33/34 (loading rules); Section 113(g) covers goods loaded/attempted to be loaded on a conveyance destined outside India without permission of the proper officer. Precedent treatment: No judicial precedents are invoked in the order-text; Tribunal applies statutory text to facts. Interpretation and reasoning: The Tribunal found that diesel and spare parts were supplied to a foreign-bound vessel in the high seas without filing manifest/shipping bills and without Customs permission; those acts squarely fall within Section 113(f)/(g) as they were loaded/attempted to be water-borne without required permission/entry. The Master admitted awareness that such supply without Customs permission was unlawful and admitted the omission. Ratio vs. Obiter: Ratio - goods supplied without prescribed export formalities and without permission attract confiscation under Sections 113(f) and (g). Obiter - none material beyond direct application. Conclusion: Confiscation of the diesel oil, grinder and welding rods under Sections 113(f) and (g) is upheld on the proved facts. Issue 2: Liability of the conveyance under Section 115(2) and validity of redemption fine Legal framework: Section 115(2) makes any conveyance used in smuggling or carriage of smuggled goods liable to confiscation unless the owner proves it was so used without his knowledge or connivance; Section 125 allows redemption on payment of fine in lieu of confiscation. Precedent treatment: Not cited; Tribunal applies statutory burden allocation (owner to prove absence of knowledge/connivance) against factual findings on operational control. Interpretation and reasoning: The Adjudicating Authority initially confiscated the tug and imposed a redemption fine on the owner. Tribunal notes the Adjudicating Authority itself found the tug was under the operational control of the previous owner/lessor (operational control at the time of transaction) and that the titled owner did not exercise control nor had knowledge/connivance. Given that finding, the owner successfully establishes lack of knowledge/connivance and absence of control, defeating Section 115(2) confiscation. Imposition of redemption fine on that basis was contrary to the Adjudicating Authority's own finding and thus unsustainable. Ratio vs. Obiter: Ratio - where the fact-finding establishes that a conveyance was under the operational control of another and the title owner proves absence of knowledge/connivance, Section 115(2) confiscation (and related redemption fine) is not sustainable. Obiter - observations on operational control as determinative factor in Section 115(2) assessments. Conclusion: Confiscation/redemption fine imposed on the tug's owner under Section 115(2)/125 is set aside for lack of knowledge/connivance and absence of operational control. Issue 3: Penalty under Sections 114(iii) and 114AA for partners/owners/associated firms - knowledge, connivance and agency Legal framework: Section 114(iii) penalises any person who, in relation to goods, does or omits an act rendering goods liable to confiscation under Section 113 or who abets such act/omission; Section 114AA addresses penalty on persons failing to discharge specific obligations (as charged here) - both require mens rea/culpable act/omission or abetment. Precedent treatment: No precedents relied upon; Tribunal analyses statements and documentary record to assess knowledge/intent/operational role. Interpretation and reasoning: The Tribunal examined recorded statements and documentary material. Key findings: (a) the Master admitted he supplied goods without permission and did not file manifest/shipping bills; (b) employees (supervisor who prepared port/clearance applications) and the Master played primary operational roles; (c) certain partners/firm representatives expressly denied knowledge, had not filed Customs/Port applications, and were found to have entrusted procedural tasks to an employee who prepared the applications incorrectly; (d) one partner was physically absent at the material time. The Tribunal concluded that mere ownership/partnership or past title does not, without proof of knowledge/connivance or active participation/abetment, justify imposition of penalty under Section 114(iii) or Section 114AA. Specific penalties were therefore unsustainable where no evidence showed the partner/firm had requisite knowledge or had abetted omissions (cross-reference to Issue 2 on operational control). Ratio vs. Obiter: Ratio - imposition of Section 114(iii) / 114AA penalties requires proof that the accused did or omitted an act rendering goods liable to confiscation, or abetted it, with knowledge/connivance; ownership or past title and commercial linkage are insufficient alone. Obiter - emphasis on role of employees/supervisors and the necessity to examine who actually prepared and submitted false or misleading documents. Conclusion: Penalties under Section 114(iii) and 114AA on partners/associated firms were not sustainable where record showed lack of prior knowledge, absence at material time, delegation of port/customs formalities to employees, and no evidence of connivance or abetment; such penalties are set aside. Issue 4: Penalty on fuel supplier under Section 114(iii) Legal framework: Section 114(iii) requires that the person's act/omission render goods liable to confiscation or abet such act. Precedent treatment: None invoked. Interpretation and reasoning: The Tribunal found no evidence that the fuel supplier knew the diesel would be exported in violation of Customs law. Even systemic breaches of other regulations (sale limits under other statutes) do not, without proof of knowledge that sale would render goods liable to confiscation under Section 113, attract Section 114(iii). The mere fact of selling 20KL through multiple invoices, or rule violations under other statutes, cannot be equated with culpability under the Customs Act absent knowledge of illegal export. Ratio vs. Obiter: Ratio - imposition of Customs Act penalties on a seller requires evidence of knowledge that the transaction would result in the goods being exported in contravention of Customs law; breaches of other statutory regimes are not substitutive proof. Obiter - caution against conflating regulatory breaches under different statutes with mens rea under Customs law. Conclusion: Penalty under Section 114(iii) on the fuel supplier was wrongly imposed and is set aside. Issue 5: Natural justice - right to cross-examination and sufficiency of reasoning Legal framework: Principles of natural justice require opportunity to confront and cross-examine witnesses where their evidence is material; adjudicatory orders must be speaking to issues raised. Precedent treatment: No precedents cited; Tribunal assesses the record of requests for cross-examination and material impact. Interpretation and reasoning: The appellants contended denial of cross-examination on key witnesses rendered the adjudication non-speaking and violative of natural justice. The Tribunal noted requests for cross-examination were made to elicit sequence and content of events (e.g., to test which applications/documents were filed and whose omissions led to misstatements). However, Tribunal's judgment resolves the central factual questions on the basis of recorded statements and documentary record, and its conclusions on liability and penalties turn on absence of knowledge/connivance and operational control. The Tribunal did not find reversible prejudice requiring remand on natural justice grounds in respect of the successful challenges to penalties where absence of culpability was demonstrated in the record; it set aside penalties on merits and on probative deficiencies. Ratio vs. Obiter: Ratio - failure to permit cross-examination can vitiate an order if prejudice is shown; where material admits no reasonable prospect of changing outcome, the Tribunal may adjudicate on the record. Obiter - observations on the role of cross-examination appear but are not determinative beyond the facts. Conclusion: Although requests for cross-examination were rejected at earlier stage, the Tribunal's factual findings and lack of evidence of knowledge/connivance rendered those procedural complaints non-determinative of the final outcome; penalties were set aside on substantive deficiencies in proof. Cross-references and operative conclusions 1. Findings on operational control and lack of knowledge/connivance (Issues 2 & 3) are central and interlinked: proof that a conveyance was under operational control of another and that owners/partners lacked knowledge negates both conveyance confiscation and partner/firm penalties. 2. Confiscation of the goods themselves under Section 113(f)/(g) stands on admitted supply without filing shipping bill/manifest and without permission (Issue 1), distinct from penalties on third persons (Issues 2-4) which require independent proof of knowledge or abetment. 3. Where the record fails to show that a supplier or partner knew the sale would render goods confiscable, Section 114(iii) penalties cannot be sustained (Issues 3-4). Final operative outcome: Goods confiscation under Section 113(f)/(g) is supported by the record; however, confiscation/redemption fine of the conveyance and penalties under Sections 114(iii)/114AA imposed on certain partners/owners/firm(s) and on the fuel supplier are set aside for lack of evidence of knowledge, connivance, operational control or abetment.