2025 (11) TMI 19 - AT - Customs

Penalty under Section 114A CA 1962 applies to duty or interest, not both, interest exempt from penalty

CESTAT (Allahabad) - AT affirmed the impugned order and dismissed the revenue appeal, holding that penalty under Section 114A of the CA, 1962 cannot be ... Non-imposition of penalty on the interest amount under Section 114A of CA, 1962 - Revenue placed reliance on CBEC Circular No.61/2002– CUS dated 20.09.2002 clarifying that penalty under Section 114A of the Act should be equivalent to duty and interest both - HELD THAT:- The submissions of the Revenueis not agreed upon in view of the decision of the Karnataka High Court in Sony Sales Corporation [2021 (3) TMI 174 - KARNATAKA HIGH COURT] interpreting the provisions of Section 114A to say that the expression used is “or” and not “and” which is not interchangeable. The principle of law settled by the Hon’ble Karnataka High Court and subsequently followed by the Tribunal in the case of Commissioner of Customs, Noida Versus M/s Titra Trading Pvt. Ltd [2025 (3) TMI 441 - CESTAT ALLAHABAD] is clearly applicable to the facts of the present case and hence I do not find any infirmity in the impugned order to the extent challenged in revenue appeal and the same is hereby affirmed. The appeal filed by the Revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 114A of the Customs Act, 1962 is leviable on interest in addition to duty where duty and interest have both been determined. 2. Whether the clarification in CBEC Circular No.61/2002-CUS (interpreting penalty under Section 114A to cover both duty and interest) can be applied where the statutory language of Section 114A uses the disjunctive 'or'. 3. Ancillary: Whether the view of a higher court interpreting Section 114A as disjunctive (duty or interest) is binding on the Tribunal and applicable to the facts where confiscation, demand of duty and imposition of other penalties under Sections 111(m), 111(o), 28(4), 28AA, 114AA and 125 have been made. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Whether Section 114A applies to interest as well as duty when both are determined Legal framework: Section 114A prescribes penalty 'equal to the duty or interest, as the case may be' where specified contraventions occur. The impugned adjudication imposed penalty under Section 114A equal to duty but did not impose penalty on the interest component. Precedent Treatment: The Tribunal relied on a decision of a High Court interpreting Section 114A to treat the expression 'or' as disjunctive (i.e., penalty is equal to duty or equal to interest depending on which the person is liable for). The Tribunal also noted its own consistent view in prior orders following the same legal position. Interpretation and reasoning: The Court applied ordinary and established principles of statutory interpretation: the plain language of Section 114A uses 'or' and 'as the case may be', indicating two separate scenarios - one where a person is liable to pay duty and another where a person is liable to pay interest only. The Court reasoned that the disjunctive conjunction cannot be converted into a conjunctive one by administrative clarification. The statutory text thus supports levy of penalty corresponding to the particular monetary liability (duty or interest) for which the person is liable in a given case, not both together. Ratio vs. Obiter: Ratio - The court's holding that 'or' in Section 114A is disjunctive and mandates penalty equal to either duty or interest (as applicable) is central to the decision and constitutes the ratio applied to the appeal. Observations rejecting administrative circulars inconsistent with plain statutory language are integral to the ratio. Any broader commentary on policy or consequences is obiter. Conclusion: The Court affirmed the adjudication's approach of imposing penalty under Section 114A only on the duty amount and not on the interest, holding that Section 114A does not permit imposition of penalty on both duty and interest simultaneously. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Legality and applicability of CBEC Circular interpreting Section 114A to cover both duty and interest Legal framework: Administrative circulars may clarify statutory provisions but cannot override or be contrary to plain statutory language. Section 114A's wording governs interpretation. Precedent Treatment: The Court referred to authority holding that a departmental clarification cannot be read to contradict an unambiguous statutory provision. The Tribunal's own precedents applying the disjunctive reading were noted as binding in the absence of contrary challenge on record. Interpretation and reasoning: The Court rejected the Revenue's reliance on the CBEC Circular, finding it inconsistent with the plain language of Section 114A. The Court emphasized that where the statute's language is clear, an administrative clarification cannot alter its meaning; consequently, the circular cannot be used to convert 'or' into 'and'. Ratio vs. Obiter: Ratio - The conclusion that the CBEC Circular cannot prevail over the unambiguous statutory text of Section 114A is part of the operative reasoning. Remarks about the circular's insufficiency in law are not mere obiter. Conclusion: The CBEC Circular cannot be applied to impose penalty on both duty and interest where the statutory language of Section 114A is disjunctive; reliance on the circular does not warrant reversal of the adjudicating authority's order. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Binding force of higher-court interpretation and its application to facts involving confiscation, duty demand and other penalties Legal framework: Tribunals are bound by authoritative interpretations of statute by higher courts and should follow such precedents where applicable. The matter before the Court involved confiscation under Sections 111(m) and 111(o), demand of customs duty under Section 28(4) read with Section 28AA, imposition of redemption fine under Section 125, and penalties under Sections 112, 114A and 114AA. Precedent Treatment: The Tribunal followed the High Court's interpretation that Section 114A is disjunctive. The Tribunal also relied on its own prior decision consistent with that approach. Interpretation and reasoning: Given the higher court's clear ruling on the meaning of 'or' in Section 114A and the Tribunal's prior adherence to the same view, the Court held that the adjudicating authority's decision to impose Section 114A penalty only on duty (and not interest) is in conformity with law. The Tribunal observed that there was no material showing any successful challenge to its prior similar decision. Ratio vs. Obiter: Ratio - The application of binding precedent to deny imposition of Section 114A penalty on interest in cases where duty-penalty was imposed is part of the ratio. Comments about the absence of a challenge to prior Tribunal orders are explanatory. Conclusion: The Tribunal affirmed the impugned order in respect of Section 114A, holding that the higher-court interpretation is applicable and binding; consequently, the Revenue's appeal challenging non-imposition of Section 114A penalty on interest was dismissed. CONCLUSIONS (cross-references) 1. The expression 'or' in Section 114A is to be read disjunctively; penalty under Section 114A is equal to duty or equal to interest depending on which liability is attracted, and not both concurrently (see Issues 1-3 above). 2. A departmental circular that seeks to construe Section 114A as permitting penalty on both duty and interest cannot override the plain statutory language and is not applicable where the statute is unambiguous (cross-reference to Issue 2). 3. In light of binding judicial interpretation, the adjudicating authority's decision to impose Section 114A penalty only on the duty component is legally sustainable; the Revenue's challenge to include interest within Section 114A penalty is dismissed (cross-reference to Issues 1 and 3).