Penalty under Section 112(a) cut for rough granite imports, but confiscation upheld as prohibited goods under Section 111(d)

CESTAT Chennai partly allowed the appeal of a 100% EOU against penalty under Section 112(a) of the Customs Act for importing rough granite blocks without filing Bills of Entry under Section 46. The Tribunal held that restricted goods under the EXIM/Foreign Trade Policy qualify as "prohibited goods" for purposes of Section 111(d) once attached conditions are not complied with, affirming the legal basis for confiscation and penalty. However, noting absence of mala fides and that the goods were abandoned, it found the penalty of Rs. 4,00,000 disproportionate and reduced it to Rs. 1,00,000, maintaining liability but granting partial relief.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether import of rough granite blocks by a 100% Export Oriented Unit, without a specific licence where such goods are "restricted" under the Foreign Trade Policy, renders the goods "prohibited" for the purposes of Section 111(d) of the Customs Act and Section 23(2) thereof.

1.2 Whether an importer can claim abandonment / relinquishment of title to uncleared imported goods under Section 23(2) of the Customs Act when the import is in violation of restrictions under the Foreign Trade Policy and no valid import licence has been produced.

1.3 Whether penalty under Section 112(a) of the Customs Act is imposable, and if so, to what quantum, where restricted goods have been imported without licence, remained uncleared, and were abandoned, having regard to the absence of mala fides and reliance on precedents where penalty was held not imposable in cases of abandonment.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Nature of the goods: "restricted" versus "prohibited" and effect on confiscation

Legal framework

2.1 The judgment refers to: (a) Section 111(d) of the Customs Act, 1962, empowering confiscation of "prohibited" goods; (b) Para 6.2(b) of the relevant Foreign Trade Policy permitting EOUs to import goods without payment of duty, provided they are not "prohibited" items; (c) Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992, which deems all goods that are prohibited, restricted or regulated for import/export to be "prohibited" goods under Section 11 of the Customs Act.

2.2 The Tribunal relies on case law: (a) a Supreme Court decision holding that "prohibition" covers "restriction" whether complete or partial and that restricted goods under EXIM/Foreign Trade Policy are "prohibited goods" for purposes of the relevant enactments; (b) decisions following this view, including one by the Tribunal.

Interpretation and reasoning

2.3 The Tribunal examines whether, for a 100% Export Oriented Unit, the expression "prohibited" in the Policy and Section 111(d) of the Customs Act excludes "restricted" goods. It holds that "prohibition" is not confined to an absolute ban but extends to goods subject to any conditions or restrictions.

2.4 By reference to the cited Supreme Court judgment and subsequent authorities, it reasons that restricted goods under the Foreign Trade Policy are treated as "prohibited goods" for purposes of the Customs Act when the conditions of import (such as licence) are not complied with.

2.5 The Tribunal notes that the rough granite blocks were "restricted" items under the then Foreign Trade Policy requiring specific import licence/authorisation. The appellant failed to produce any such licence or to clear the goods under the proper 100% EOU scheme by executing the requisite bond or producing procurement certificate.

2.6 It concludes that, once the condition (licence) for import of restricted goods is not complied with, those goods become "prohibited" goods for enforcement under the Customs Act. The status of the importer as a 100% EOU does not, by itself, cure the absence of a required licence or regularisation under the EOU scheme.

Conclusions

2.7 The rough granite blocks, being "restricted" under the Foreign Trade Policy and imported without satisfying the prescribed licensing conditions, are to be treated as "prohibited" goods for the purposes of Section 111(d) of the Customs Act.

2.8 Confiscation under Section 111(d) is attracted in such circumstances, notwithstanding the importer's 100% EOU status.

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Issue 2 - Entitlement to abandon / relinquish goods under Section 23(2) in case of invalid / restricted imports

Legal framework

2.9 The Tribunal considers Section 23(2) of the Customs Act, 1962, which permits an importer to relinquish title to the goods before clearance for home consumption or warehousing, subject to conditions. It also notes that the custodian issued notices under Section 48 of the Customs Act due to non-clearance, and that the appellant had failed to file Bills of Entry under Section 46.

Interpretation and reasoning

2.10 The appellant contended that, as a 100% EOU, it could import restricted goods (only prohibited goods being barred) and that the department wrongly rejected its request for abandonment under Section 23(2), arguing that the rough granite blocks were not "prohibited" goods. The Tribunal rejects this premise, having already held that non-compliant restricted goods are to be treated as "prohibited".

2.11 The Tribunal observes that abandonment under Section 23(2) is not an automatic facility. It is conditional upon the import itself being otherwise valid, i.e., in accordance with law. If the import violates statutory restrictions or lacks the necessary licence/authorisation, simple relinquishment cannot regularise such illegality.

2.12 The Tribunal notes that the appellant's explanations are internally inconsistent: on one hand it claims no consent for shipment, while on the other it attributes abandonment to escalated costs due to delay and increased charges. This contradiction undermines the assertion that the goods were shipped without its consent.

2.13 The Tribunal further observes that it is not the appellant's case that it was disinterested in the goods per se; rather, it would have cleared the goods but for escalation in cost of importation. No evidence was produced to show that the appellant had not requested shipment from the supplier.

2.14 It endorses the Original Authority's view that, since the goods are restricted and the appellant has not produced any licence or complied with EOU scheme requirements for clearance, the importer cannot claim relinquishment as a matter of right to avoid the consequences of an invalid import.

Conclusions

2.15 Abandonment / relinquishment under Section 23(2) is not available in a case where import of restricted goods is effected without requisite licence or without compliance with the conditions of the EOU scheme; the import is not "valid" in law, and the goods stand as prohibited for enforcement purposes.

2.16 The department was justified in rejecting the request for abandonment and in proceeding with confiscation and penalty.

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Issue 3 - Imposition and quantum of penalty under Section 112(a) where restricted goods are abandoned

Legal framework

2.17 The Tribunal considers Section 112(a) of the Customs Act, 1962, which provides for imposition of penalty on persons who, in relation to any goods liable to confiscation, do or omit to do any act rendering the goods so liable.

2.18 The appellant relied on decisions where penalty was held not imposable where imported goods were abandoned under Section 23(2), namely Peirce Leslie India Ltd., Sewa Rax & Bros., and Garima Trade Services Ltd.

Interpretation and reasoning

2.19 The Tribunal notes that, in the precedents cited by the appellant, the ratio was that penalty is not imposable where goods are validly abandoned under Section 23(2). It examines their applicability to the present facts and finds them distinguishable.

2.20 The Tribunal stresses that, in the instant case, the allegation pertains to an attempt to import restricted goods without complying with the requisite licensing or EOU scheme conditions. The goods were "restricted" and, in the absence of compliance, became prohibited for Customs purposes. They were not being cleared under the bona fide EOU scheme for manufacture.

2.21 It holds that where there is an attempt to import restricted goods contrary to policy and statutory conditions, penalty under Section 112(a) is imposable even if the importer subsequently abandons the goods before clearance, since abandonment does not efface or cure the earlier contravention.

2.22 However, the Tribunal evaluates the degree of culpability. It records that no mala fides can be attributed to the conduct of the appellant on the material before it. The abandonment was linked primarily to escalation of costs rather than a deliberate attempt to smuggle or otherwise evade policy in a clandestine manner.

2.23 On that basis, the Tribunal finds that the quantum of penalty of Rs. 4,00,000/- imposed by the lower authorities is disproportionate to the value of the goods abandoned and to the nature of the contravention.

Conclusions

2.24 Penalty under Section 112(a) is legally sustainable in principle in the given facts, despite abandonment of the goods, as the import was of restricted (treated as prohibited) goods without fulfilment of legal conditions.

2.25 Considering the absence of mala fides and the disproportionality of the original penalty, the Tribunal reduces the penalty from Rs. 4,00,000/- to Rs. 1,00,000/- under Section 112(a) of the Customs Act and modifies the impugned order accordingly.

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