2025 (11) TMI 1652 - AT - Customs

Penalties under Sections 114 and 114AA quashed for lack of mens rea; discretion on redemption fine upheld

CESTAT Chennai set aside penalties imposed on the Customs Broker under Sections 114 and 114AA of the Customs Act for alleged abetment of misdeclaration by ... Levy of penalties u/s 114 and Section 114AA of the Customs Act, 1962 - Omissions and commissions as CHA allowed their employee to provide CHA Services (Customs Broker) - Misdeclaration of export goods, which were liable for Confiscation - Non-imposition of redemption fine on the goods imported availing the benefit of applicable notifications - HELD THAT:- In the instant case, neither the SCN nor the impugned order discusses as to how the appellants have abetted Laxmi Fabrics in the alleged mis declaration of goods in the shipping bills. None of the statements available in the Appeal records implicate the appellants in any manner with respect to the said mis declaration of goods. There are no admission of the appellants or representatives of the appellants that they were aware of any such misdeclaration by Laxmi Fabrics. There is no evidence let in by the Department of any intentional act or omission on the part of the appellants in relation to the goods that have been confiscated or held liable to confiscation. However, this is not to say that the conduct of the appellants is beyond reproach. But such conduct merits to be dealt with under the provisions of the CHA regulations prevailing for the relevant period that are applicable to a Customs House Agent or its employee as a holder of ‘G’ card, i.e. CHALR Rules 2004. It cannot be that the appellants are liable to be visited with penalties under the Customs Act, and yet are not being proceeded against under the applicable CHA Regulations - Nothing has also been brought to our notice which would indicate that the appellants had been proceeded against under the CHA regulations since then. Therefore, considering the above facts, on preponderance of probabilities, it is opined that the penalties imposed on the appellants under Section 114 are unsustainable and are liable to be set aside. It is only a person who deliberately and consciously, aware that the declaration, statement or document is false or incorrect in any material particular, thereafter makes, signs or uses, or causes it to be made signed or used, who can then be said to be knowingly or intentionally performing the said acts so as to be made liable for penalty under Section 114AA. The requirement of mens-rea is explicit on a plain reading of the provision and hence the burden of proof, that the person is liable for penalty under Section 114AA, rests heavily on the Department - the Department has not discharged this burden in the instant case. The imposition of penalty on the appellants under Section 114A fails on this aspect too - Furthermore, although the appellants have been imposed with a penalty under Section 114AA, it is surprised to notice a complete absence of a finding that the appellants are liable for penalty under Section 114AA, in the impugned order in original. Imposition of penalty under Section 114AA without rendering a specific finding in this regard is indicative of a non-application of mind and penalties thus imposed are wholly untenable on this count too - the penalties imposed on the appellants herein under Section 114A and 114AA by the adjudicating authority, as stated in the impugned order in original, cannot be sustained and are liable to be set aside. Whether the Adjudicating Authority has erred in not imposing redemption fine on the goods imported availing the benefit of applicable notifications and as detailed in Annexure E to the SCN, on the ground that the goods are physically unavailable? - HELD THAT:- It is evident that the scheme of Section 125 shows that it is in respect of any goods the confiscation of which is authorised, and it is upon such confiscation, that the adjudicator gives an option to the owner of the goods, or in case the owner is not known the person from whose possession or custody such goods have been seized, the option to pay a fine in lieu of confiscation. That is to say, Section 125(1) makes it imperative that confiscation precedes the giving of option to pay fine in lieu of confiscation. Furthermore, the proviso to Section 125(1) stipulates that the fine to be paid in lieu of confiscation shall not exceed the market price of the goods confiscated less in the case of imported goods the duty chargeable thereon - on a perusal of chapter XIV of the Customs Act, it becomes evident that it specifies certain penalties in personam, as can be seen from personal penalties imposed under Section 112, 114 and other provisions imposed on ‘any person’, ‘person in charge’ etc, enforceable against the person concerned. Whereas, confiscation of improperly imported goods etc under Section 111, confiscation of goods attempted to be improperly exported etc under Section 113, being enforceable against the goods, tantamount to a penalty in rem. When we examine the scheme of the Act, it is also pertinent to note that subsection (2) of Section 23 of the Customs Act permits the owner of any imported goods to relinquish his title to the goods at any time before an order for clearance of the goods for home consumption under Section 47 or an order for permitting the deposit of the goods in a warehouse under Section 60 has been made and upon such relinquishment, he shall not be liable to pay the duty thereon. The fine in lieu of confiscation which may be imposed on the owners, does fall to be determined in the discretion of the said officer adjudging confiscation. In doing so, he will undoubtedly have to take into account all relevant and material circumstances, that he notices, including the extenuating factors on which the owners may rely. Thus, such an exercise, when done judiciously, ought not to be lightly interfered with and the discretion so exercised, is liable to be left undisturbed. It is found that admittedly in the instant case, in so far as the goods at Annexure E to the SCN are concerned, they are not physically available nor is their present state or their ownership stated in the SCN or in the Order in Original. That apart, it is also admitted that the Deputy Director General of Foreign Trade vide letter dated 08.02.2013 has provided copies of all advance authorisations issued to Laxmi Fabrics and furnished statements regarding details of Advance Authorisations where Laxmi Fabrics has not completed the export obligation and where EODC has not been issued. If at all these goods have been cleared under a bond or under any bank guarantee, at the time of import, there is absolutely no evidence of such bond being live and/or the bank guarantee in vogue, so as to be tenably enforced. There is also nothing forthcoming in the SCN or in the impugned OIO asserting that these goods at Annexure E of the SCN have not already been accounted against the EODC that has been granted - it is not found that the discretion exercised by the adjudicating authority upon noticing that the goods are not physically available, in refraining from confiscating the said goods and in not imposing a redemption fine, either arbitrary, or inappropriate, so as to warrant any interference. The impugned order in original to the extent it imposes penalties on the appellants herein cannot be sustained and is liable to be set aside to that extent - Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the imposition of penalties on the customs broker and its employee under Section 114 and Section 114AA of the Customs Act, 1962, in relation to misdeclaration of export goods by the exporter, was legally sustainable. (2) Whether redemption fine under Section 125 of the Customs Act, 1962, could or ought to have been imposed on past imports covered by advance authorisations, where the goods were not physically available and no subsisting bond/bank guarantee or effective control over the goods existed. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of penalties under Section 114 and Section 114AA of the Customs Act, 1962 Legal framework (1) Section 114 provides for personal penalty on any person who, in relation to any goods, does or omits to do any act, or abets such act/omission, which renders such goods liable to confiscation under Section 113; it is a penalty in personam, distinct from confiscation (penalty in rem), as recognised by the Supreme Court in interpreting the Customs Act. (2) Abetment, though not defined in the Customs Act, is to be understood as in Section 107 of the Indian Penal Code (and corresponding provisions in Bharatiya Nyaya Sanhita), requiring 'intentional' aiding; mere facilitation without mens rea is insufficient. (3) Section 114AA requires that a person 'knowingly or intentionally' makes, signs, uses or causes to be made, signed or used any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of the Act; it is a penal provision with an express mens rea requirement, and the burden lies on the Department. Interpretation and reasoning - Section 114 (4) The Court held that Section 114, being a personal penal provision, requires the Department to prove, by satisfactory evidence, (i) a specific act or omission by the person in relation to the goods liable to confiscation, or (ii) abetment of such act/omission, and (iii) the presence of mens rea. (5) On facts, neither the show cause notice nor the order-in-original set out how the customs broker or its employee had abetted the exporter's misdeclaration; no statement or material on record implicated them in intentional misdeclaration of the export goods. (6) There was no admission or evidence that the appellants knew of the misdeclaration or intentionally participated in it; the record did not show any positive act or deliberate omission on their part directed at enabling the misdeclaration. (7) The Court observed that any dereliction by the customs broker or its G-card holder employee was more appropriately triable under the applicable Customs House Agent/Customs Broker Regulations (CHALR, 2004), not by way of penal action under Section 114 in the absence of proof of guilty intent; there was no indication that CHA-regulation proceedings were initiated. (8) On a preponderance of probabilities, the Department had not discharged the burden of proving intentional involvement or abetment, and therefore the preconditions for penalty under Section 114 were not met. Conclusion - Section 114 (9) The penalties imposed on the customs broker and its employee under Section 114 of the Customs Act, 1962, were held to be unsustainable and were set aside. Interpretation and reasoning - Section 114AA (10) The Court analysed Section 114AA and held that, for its valid invocation, the notice and adjudication must clearly specify:   (a) the particular act alleged (making, signing, using, or causing to be made/signed/used),   (b) whether it concerns a declaration, statement or document,   (c) in what manner it is false or incorrect in any material particular, and   (d) how such act was done 'knowingly or intentionally.' (11) Given that Section 114AA permits very high penalties (up to five times the value of goods), the Court held that a cryptic allegation of 'omissions and commissions' without detailing the specific conduct, the particular document/declaration, and the material falsity cannot satisfy the mandatory requirements of notice and proof under this penal provision. (12) In the present case, the show cause notice did not articulate which specific declarations/documents were allegedly made, signed, used, or caused to be used by the appellants; nor did it specify the particular falsity or incorrectness attributable to them, or the precise nature of their role within the statutory verbs of Section 114AA. (13) The Department also failed to prove that the appellants deliberately and consciously acted with knowledge that any declaration, statement or document was false or materially incorrect; the required mens rea was not established on evidence. (14) Additionally, the order-in-original, while imposing penalties under Section 114AA, contained no specific reasoning or finding justifying liability under this section, indicating non-application of mind. Conclusion - Section 114AA (15) For want of proper notice, proof of mens rea, and a reasoned finding, the penalties imposed on the appellants under Section 114AA were held to be legally untenable and were set aside. (16) Overall, the Court concluded that the penalties imposed on the customs broker and its employee under both Section 114 and Section 114AA of the Customs Act, 1962, could not be sustained. Issue 2 - Non-imposition of redemption fine under Section 125 on past imports not physically available Legal framework (17) Chapter XIV of the Customs Act deals with confiscation and penalties; Section 125 alone provides the statutory mechanism for 'fine in lieu of confiscation.' (18) Under Section 125(1):   (a) whenever confiscation of any goods is authorised, the adjudicating officer may, in the case of prohibited goods, and shall, in the case of other goods, give to the owner (or, if owner not known, the person from whose possession/custody they were seized) an option to pay fine in lieu of confiscation;   (b) the fine cannot exceed the market price of the goods confiscated, less duty chargeable thereon (for imported goods). (19) Confiscation under Sections 111/113 is a penalty in rem; personal penalties under Sections 112, 114, etc., are penalties in personam; once confiscated, title in goods vests absolutely in the Central Government under Section 126. (20) The Court reviewed binding precedent of the Supreme Court and High Courts, including Mohan Meakin, Jagdish Cancer & Research Centre, Elephanta Oil, Mansi Impex, Fortis Hospital, Navayuga Engineering, Gillette India, Raja Impex, and Finesse Creation, as well as Tribunal Larger Bench decisions such as Shiv Kripa Ispat and Bhagyanagar Metals, on the scheme and prerequisites of Section 125. Interpretation and reasoning - requirement of confiscation, physical availability and valuation (21) The Court held that, by the structure of Section 125, confiscation must precede the giving of an option to pay fine in lieu of confiscation; the section operates 'whenever confiscation of any goods is authorised' and links fine to the 'goods confiscated.' (22) The proviso to Section 125(1) caps fine with reference to 'market price of the goods confiscated'; the Supreme Court in Mansi Impex and other cases has held that determination of market price at the relevant time is a statutory precondition to fixing the quantum of fine. (23) To meaningfully determine market price of the confiscated goods, and to make confiscation effective as a proceeding in rem, the goods must be available and under the control of the Department (by seizure or equivalent legal control such as subsisting bond/guarantee); physical availability is therefore, in practical and legal terms, a necessary prerequisite. (24) The Court noted the consistent line of decisions (including Finesse Creation, Raja Impex, Shiv Kripa Ispat, Bhagyanagar Metals, and a co-ordinate Tribunal bench in Bharath FIH) holding that where goods are not available for confiscation and are not under bond/provisional release, redemption fine cannot be imposed, as there is no question of 'redemption' of non-existent or uncontrolled goods. (25) The exception recognised in Weston Components and similar cases, where goods had been provisionally released under bond/bank guarantee and were deemed constructively available, was held to be confined to such situations and not a general rule permitting fine without availability or control. Interpretation and reasoning - nature of discretion under Section 125 and effect of Navayuga Engineering (26) The Court reiterated that Section 125 confers discretion on the adjudicating authority (for prohibited goods) and a mandatory obligation to offer redemption (for non-prohibited goods), but in both cases the quantum of fine is at the officer's discretion, which must be exercised judicially and with regard to all relevant circumstances, as emphasised by the Supreme Court in Raj Grow Impex. (27) The Court also applied the ratio of Navayuga Engineering that in confiscation proceedings initiated under Section 124, the obligation to pay duty and other charges under Section 125(2) arises only when:   (a) the owner exercises the option to pay fine in lieu of confiscation, and   (b) the Department accepts this option; and that the duty obligation in such a case is distinct from, and later assessed under, Section 28. (28) From this, the Court inferred that where an assessee does not exercise the option to redeem (especially where the goods are not physically available and not under effective control), any notional imposition of redemption fine, and consequential duty/charges under Section 125(2), becomes practically unrecoverable and conceptually superfluous; such an exercise would lack legal utility and enforceability. Application to the facts - past imports under advance authorisations (29) The goods mentioned in Annexure E to the show cause notice, representing past imports under advance authorisations, were admittedly not physically available at the time of adjudication; their current location, condition, or ownership was not established in the show cause notice or order-in-original. (30) Although DGFT had provided details of advance authorisations and non-fulfilment of export obligation/EODC, there was no evidence that:   (a) the specific consignments in Annexure E were covered by any live bond or valid bank guarantee still enforceable by Customs, or   (b) those consignments had not already been adjusted against EODCs issued, or   (c) the Department retained any lien or legal control over the goods analogous to the provisional release/bond situations recognised in Weston Components and similar cases. (31) In the absence of physical availability and any enforceable bond/bank guarantee or other legal control over the Annexure E goods, the statutory preconditions for effective confiscation followed by meaningful redemption under Section 125 were not met. (32) Consequently, the adjudicating authority's decision not to confiscate these goods and not to impose redemption fine, on the ground of non-availability, was a proper exercise of the discretion conferred by Section 125, consistent with the binding judicial precedents and the statutory scheme. (33) The authorities relied upon by the Revenue (Weston Components, Madras Petrochem, Pentafour Solec) were held to be distinguishable, as those cases involved goods released under valid bonds/bank guarantees or situations where constructive control over the goods continued, unlike the present case. Conclusion - redemption fine (34) The Court held that, in the facts of this case, where the imported goods listed in Annexure E were not physically available and were not covered by any subsisting bond or bank guarantee giving Customs effective control, the adjudicating authority rightly refrained from imposing redemption fine under Section 125. (35) The exercise of discretion by the adjudicating authority in not imposing redemption fine was neither arbitrary nor legally erroneous and therefore did not call for interference. (36) The appeal by the Department seeking imposition of redemption fine on such unavailable goods was dismissed.