Illicitly removed gas cylinders held liable to confiscation under Customs Act Sections 111, 112; redemption fine reduced

CESTAT Ahmedabad - AT upheld the findings of the Adjudicating Authority and Commissioner (Appeals) that 449 gas cylinders illicitly removed from ship-breaking yards, instead of being destroyed in compliance with Gas Cylinder Rules, 2016 and related regulations, were liable to confiscation under Sections 111(d) and 111(j) of the Customs Act, 1962. Consequently, penalty under Section 112(a) and (b) for abetment was also sustained. The Tribunal held there was no violation of natural justice warranting interference with the confiscation or penalty. However, considering the appellant's low-margin business, CESTAT further reduced the redemption fine from Rs. 1,40,000 to Rs. 40,000. The appeal was partly allowed only to this limited extent.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the appellate order was vitiated as a non-speaking and non-reasoned order for failure to deal with the appellant's submissions and cited case law.

1.2 Whether the seized gas cylinders, originating from ships imported for breaking, were liable to confiscation under Sections 111(d) and 111(j) of the Customs Act, 1962, in view of applicable Gas Cylinder Rules and undertakings given by ship breakers.

1.3 Whether imposition of penalty on the appellant under Section 112(b) of the Customs Act, 1962 was justified consequent upon the finding of liability to confiscation under Section 111.

1.4 Whether the quantum of redemption fine imposed in lieu of confiscation of 449 gas cylinders was excessive and liable to further reduction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Nature and sufficiency of the appellate order (alleged non-speaking order)

Interpretation and reasoning: The Tribunal examined the appellate order and noted that the Commissioner (Appeals) had referred to and relied upon the findings in the Order-in-Original, specifically noting (i) the appellant's statement under Section 108 of the Customs Act admitting purchase, source and price of the cylinders, (ii) the finding that such cylinders could not be imported without valid licence and were required to be destroyed/disposed of in accordance with Gas Cylinder Rules and related orders, and (iii) that the cylinders were illicitly removed from ship-breaking yards instead of being destroyed, thereby attracting confiscation under Sections 111(d) and 111(j). The Commissioner (Appeals) further recorded that an undertaking/declaration is required from every ship breaker as to the number of cylinders and an undertaking not to sell or reuse them and to destroy them following the prescribed procedure, and held that non-compliance rendered the goods liable to confiscation and penalty.

Conclusion: The Tribunal rejected the contention that the appellate order was non-speaking or non-reasoned, holding that the Commissioner (Appeals) had considered the relevant facts, legal provisions and findings of the adjudicating authority and had recorded reasons for upholding confiscation and penalty, with modification only of the redemption fine.

Issue 2 - Liability of gas cylinders to confiscation under Sections 111(d) and 111(j) of the Customs Act, 1962

Legal framework (as discussed): The Tribunal proceeded on the basis that: (i) gas cylinders imported along with ships for breaking are governed by the Gas Cylinder Rules and related notifications/orders, which require such cylinders to be scrapped/destroyed and not sold as such or used for refilling; (ii) ship breakers file undertakings with Customs and other authorities to that effect; and (iii) Sections 111(d) and 111(j) of the Customs Act provide for confiscation of goods imported in contravention of restrictions or in breach of conditions of permission for clearance.

Interpretation and reasoning: The Tribunal endorsed the findings that (a) the gas cylinders were "restricted for import" in terms of the Gas Cylinder Rules and therefore required to be destroyed and not sold as such; (b) ship breakers had given undertakings that the cylinders would not be sold or reused and would be destroyed as per prescribed procedure; (c) the seized cylinders were not destroyed but illicitly removed from the ship-breaking yards and sold, contrary to the conditions of import and undertakings; and (d) non-fulfilment of the conditions attached to import rendered the cylinders "prohibited" for the purpose of confiscation. By linking the illicit removal and sale of cylinders, contrary to the stipulated procedure and undertakings, to the statutory provisions, the Tribunal upheld the view that the requirements under Sections 111(d) (contravention of restriction/prohibition) and 111(j) (removal contrary to terms of permission) stood attracted.

The Tribunal did not accept the appellant's contention that the cylinders had no commercial value and therefore were not subject to any restriction or that clearance of the vessels with "out of charge" extinguished further liability. It also did not accept the analogy sought from prior Tribunal precedent regarding fuel in vessels, in view of the specific regulatory regime and undertakings applicable to gas cylinders and the clear obligation to destroy them.

Conclusion: The cylinders were held correctly liable to confiscation under Sections 111(d) and 111(j) of the Customs Act, 1962 due to breach of import-related conditions and non-compliance with the prescribed procedure for destruction, notwithstanding that they were obtained on breaking of ships.

Issue 3 - Justification for penalty under Section 112(b) of the Customs Act, 1962

Interpretation and reasoning: The Tribunal noted the finding that the appellant had admitted in his statement under Section 108 to purchasing cylinders from Alang ship-breaking yards and dealing in such cylinders. Once the goods were held liable to confiscation under Section 111(d) and 111(j), the legal consequence noted by the Tribunal was that penalty under Section 112(a)/(b) could be imposed on any person who, by his act or omission, renders the goods liable to confiscation or abets such act. The Commissioner (Appeals) had specifically affirmed that, in view of the established illicit removal and sale of cylinders contrary to undertakings and statutory rules, penalty under Section 112(b) was rightly imposed on the appellant for his role in dealing with such goods.

Conclusion: The imposition of penalty on the appellant under Section 112(b) was upheld as a lawful consequence of the established liability of the cylinders to confiscation under Section 111.

Issue 4 - Quantum of redemption fine in lieu of confiscation of 449 gas cylinders

Interpretation and reasoning: The Adjudicating Authority had imposed redemption fine of Rs. 3,00,000/- on 449 cylinders, which the Commissioner (Appeals) reduced to Rs. 1,40,000/- taking into account the appellant's circumstances. The Tribunal agreed with the conclusions on confiscation and penalty but considered the appellant's scale of operations, noting that he was engaged in a "very low profile business" operating on a "very thin margin of profit." On this basis, while affirming the legality of confiscation, the Tribunal considered further reduction of redemption fine to be warranted to render the punishment proportionate.

Conclusion: The Tribunal partly allowed the appeal by further reducing the redemption fine from Rs. 1,40,000/- to Rs. 40,000/- in respect of 449 gas cylinders, while maintaining the findings of confiscation and penalty in all other respects.

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