Customs duty liability from CHA misappropriation: importers relieved where bona fide demand drafts were misused; demand set aside

Liability for short-levied customs duty arising from a clearing agent's substitution and misappropriation was examined; the article explains that where importers bona fide tendered demand drafts in the Collector's name but the CHA misappropriated funds, the culpability for non-payment rests with the CHA and not the importer, and consequent demands and penalties on the importers do not survive. The reasoning stresses deemed payment by tender of demand drafts, misappropriation by the CHA, and the ineffectiveness of forged or diverted bonded procedures to fasten duty or penalties on a bona fide importer.

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Issues: Whether the demand of customs duty and penalties confirmed against the importer arising from substituted/fake goods and alleged short payment of duty by their Customs House Agent (CHA) are sustainable, and whether the importer is liable when it had furnished demand drafts in favour of the Collector of Customs through the CHA.

Analysis: The facts decided on the record show substitution of imported goods by the CHA and alleged misuse/misappropriation of demand drafts deposited by the importer. The Tribunal applied prior decisions holding that a demand draft or cheque tendered for payment is to be treated as payment on the date of tender, and that where non-payment arises from the wrongful acts of the CHA the CHA may attract liability under Section 147 while the importer who tendered bona fide payment is protected. The Tribunal compared the evidence of bank instruments and prior Tribunal rulings which interpret the date of payment and the status of CHA as importer in cases of misuse, and found that the adjudicating authority had not addressed the CHA's misfeasance or the fact of tendered demand drafts. The Tribunal concluded that the impugned demand and penalties rest on the CHA's actions and ongeries rather than on any wilful evasion by the importer.

Conclusion: The demand of duty and penalties confirmed against the importer are not sustainable and are set aside; the appeals are allowed in favour of the importer.

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