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of <h1>Penalty for false or incorrect customs material requires proof of prior knowledge; appeal allowed and penalty set aside</h1> Penalty under section 114AA requires prior knowledge of use of false or incorrect material; the onus to prove such knowledge rests with the department, ... Penalty for knowingly using false or incorrect material - onus on department to prove prior knowledge of falsification - due diligence of customs broker - bonafide belief arising from clerical/typographical error - revocation of suspension of customs broker licence - Misdeclaration of country of origin - HELD THAT:- It is evident that the department has mechanically imposed the said penalty on the appellant since the law provided for a legal provision to do so. Penalty under section 114AA can only be imposed for use of false or incorrect material only when such person knowingly utilizes the said material. Prior knowledge of such falsification is a must to impose such penalty upon the appellant. Since there is no such piece of evidence we find absolutely no justification for imposition of penalty on the appellant in the matter. However, as regards the appellant’s responsibility to ensure due diligence while discharging import-export business it is incumbent upon the appellant so as to ensure the correctness of the information acted upon. We are however of the view that in view of the stated facts and all material particulars (other than that of the number), indicated in the invoice, tallying with that of the Country of Origin Certificate, the case of holding a bonafide belief of a typographical error cannot be absolutely ruled out. Moreover, as all import documents were received by them directly from the importer themselves, the presumption of the mis-match in the invoice number with there being no apparent duty benefit accruing to the importers, the appellant may have justifiable reasons to harbor a bonafide belief and benefit of doubt about the clerical errors in the two numbers would ordinarily come to mind; more so as date, weight, quality and quantity of the goods, description thereof etc. were all found to be tallying completely and as per other import documentation. Furthermore, it is also on record that part consignment of the goods was already offloaded at Sagar Port, even prior to offloading the rest of the cargo at the port of Haldia, with the same set of invoice and other import documentation, including the erroneous/ fraudulent Country of Origin Certificate. Considering the totality of the matter and the fact of the suspension of the CBLR having been revoked even prior to the personal hearing of the matter fixed, we obviously do not find any sound reason for sustaining the penalty imposed on the appellant. However, Customs Broker being an important link in the chain of overseas trade and commerce, it is rightly expected of them to exercise all possible care and due diligence to avoid the perpetuation of fraud. He is required to exercise proper vigil and be alert and abreast of the legal nuances at all times, so as to ensure that the sinister designs of fraudsters do not succeed. Thus, at best we would like to issue a note of caution to the appellant in the matter for exercise of due diligence and being more careful in such transactions in future. The appeal filed is thus allowed in the aforesaid terms and the order of the lower authority is set aside. There will be no penalty imposed on the appellant in the matter. Issues: Whether imposition of penalty under Section 114AA of the Customs Act on the Customs Broker for alleged use of false or incorrect material (misstated country of origin and related documents) was justified.Analysis: The decision examines whether the Revenue established that the Customs Broker had prior knowledge of falsification or knowingly utilised false/incorrect material so as to attract Section 114AA. The framework applied includes the statutory requirement that penalty under Section 114AA requires knowledge of the falsification or conscious use of incorrect material, the burden on the Revenue to prove such mens rea, and the expectation of due diligence by a customs broker in documentary verification as set out in Regulation 10 of the CBLR 2018. The factual matrix considered includes that invoice, weight, quantity, description and other material particulars matched across documents, that key import documents were received from the importer, that a discrepancy in invoice number could be a clerical error, and that the broker's suspension had been revoked prior to hearing. The record did not disclose any evidence of pecuniary benefit, active manipulation by the broker, or any material showing prior knowledge of falsification; the penalty appeared to have been imposed mechanistically without proof of the requisite knowledge.Conclusion: Penalty under Section 114AA was not justified as the Revenue failed to prove that the Customs Broker had prior knowledge of falsification or knowingly used false/incorrect material; appeal allowed, impugned order set aside and no penalty imposed.Ratio Decidendi: Penalty under Section 114AA of the Customs Act can be imposed only where it is established that the person knowingly used false or incorrect material; absence of evidence of prior knowledge or conscious use precludes imposition of the penalty.
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