Penalty under Section 112(a)(ii) set aside for lack of mens rea in provisional invoice customs case

CESTAT New Delhi allowed the appeal of the former Head, Logistics against imposition of penalty under section 112(a)(ii) of the Customs Act, 1962. The Tribunal held that this provision requires a conscious attempt to evade customs duty, which was not established merely by non-disclosure that the invoice value at import was provisional. Relying on a Kerala HC decision, CESTAT concluded that the necessary mens rea was absent. Consequently, the penalty imposed by the Principal Commissioner was set aside and the appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether imposition of penalty under section 112(a)(ii) of the Customs Act on the appellant, for non-disclosure of provisional nature of invoice value at the time of import, was legally sustainable in the absence of any conscious attempt to evade customs duty.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Penalty under section 112(a)(ii) of the Customs Act - requirement of conscious attempt to evade duty

2.1.1 Legal framework

2.1.1.1 Section 112(a)(ii) of the Customs Act provides for penalty on any person who, in relation to dutiable goods (other than prohibited goods), does or omits to do any act which renders the goods liable to confiscation under section 111, or abets such act or omission, with the penalty linked to the "duty sought to be evaded".

2.1.1.2 The judgment of the Kerala High Court in O.T. Enasu was relied upon to interpret section 112(a)(ii), holding that the jurisdictional fact for imposition of penalty is that "duty was sought to be evaded", which, being penal in nature, requires strict construction and necessarily involves a conscious, mental element.

2.1.2 Interpretation and reasoning

2.1.2.1 The Principal Commissioner had imposed penalty on the basis that the appellant knew the invoice value at the time of import was provisional and did not disclose this fact to the department, treating such omission as sufficient to attract section 112(a)(ii).

2.1.2.2 The Tribunal held that section 112(a)(ii) presupposes a "conscious exercise" and a "seeking to evade" duty, implying a mental element and intentional attempt to evade, as elucidated in O.T. Enasu.

2.1.2.3 Referring to the connected appeal of the importing company, the Tribunal noted that: (i) dore bars were refined and final gold/silver content was determined later; (ii) in some cases, the final gold content was higher, resulting in short payment of duty; (iii) in many cases, the final gold content was lower, resulting in excess payment of duty; and (iv) substantial refunds of excess customs duty had been sanctioned by the department for other provisionally assessed Bills of Entry.

2.1.2.4 The Tribunal found that, in such a factual matrix where the importer had, in numerous instances, paid excess customs duty and obtained refunds, no motive or wilful suppression could be inferred from non-disclosure of the provisional nature of the invoice, and hence no conscious attempt to evade payment of duty could be attributed.

2.1.2.5 The Tribunal further held that, in the company's case, it had already been concluded that there was no wilful misstatement or suppression so as to invoke the extended period under section 28(4) of the Customs Act, reinforcing the absence of any intent to evade duty.

2.1.3 Conclusions

2.1.3.1 In the absence of evidence that the appellant, by act or omission, had consciously sought to evade customs duty, the essential ingredient for invoking section 112(a)(ii) was not satisfied.

2.1.3.2 Mere omission to disclose that the invoice value was provisional, without proof of intentional evasion or attempt to evade duty, could not sustain a penalty under section 112(a)(ii).

2.1.3.3 The penalty of Rs. 25 lakhs imposed under section 112(a)(ii) of the Customs Act was unsustainable and was set aside; the appeal was allowed.

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