2026 (2) TMI 617 - HC - Customs

Import of raw cashew nuts under Advance Authorisation: diversion and record failures attract duty and penalties; mere broker carriage without connivance does not.

Import of raw cashew nuts under Advance Authorisation must comply with the actual user condition and prescribed accounting requirements; diversion of duty ... Diversion of inputs imported - imports raw cashew nuts (RCN) under Advance Authorisation and diverted the imported goods to unauthorised units/agents without requisite permission - Actual User condition for Advance Authorisation - prohibition on transfer of duty free imports except to authorised job worker with prior permission - maintenance of true and proper accounts under Handbook of Procedures - liability for customs duty, interest and confiscation on breach of Advance Authorisation conditions - penalty and mens rea requirement for imposition on customs brokers - Diversion of inputs imported under Advance Authorisation - HELD THAT:- It is admitted that the M/s.RE procured 7 Advance Authorisation licenses from the period 23.03.2016 to 27.05.2016, from the Joint Director General of Foreign Trade, Madurai for import of RCN in shell without payment of customs duty. They imported and cleared a quantity of 3073.331 Mts of RCN valued Rs. 31,85,42,558/- without payment of customs duty under the said 7 Advanced Authorisation license vide 19 bills of entry through Tuticorin Sea port availing the benefit of notification No.18/2015–CUS dated 01.04.2015 from the period 01.04.2016 to 22.07.2016. Though it was claimed that the materials were diverted only for the purpose of processing cashew nuts, no permission whatsoever was obtained from the competent authorities for such processing at those places. Further, the respondent did not even send any intimation to the Customs authorities regarding the diversion. While the respondent pleaded innocence on the ground of procedural lapse and undertook that the goods would be processed only in their factory, such a plea is untenable. Even assuming that the diversion was only for processing, the same ought to have been done only at the insistence of M/s.Regin Exports, the authorised agent, and subject to the mandatory condition of informing the Customs authorities. In the present case, the diversion was carried out solely on the instructions of M/s. Regin Agency, which had neither authority nor authorisation to undertake or arrange processing work. Maintenance of true and proper accounts under Handbook of Procedures - HELD THAT:- The respondent failed to maintain true and proper accounts as stipulated under Paragraph 4.21 of the Handbook of Procedure. No records were produced to show the exact details of diversion, the locations where processing was carried out, or the payments made for such processing. No registers were maintained except a daily stock register, which itself did not tally with the quantity of goods imported through the port under the Advance Authorisation. Tribunal found fault with the inspecting authority for not inspecting the other units of M/s.Regin Agency where processing was allegedly carried out, but failed to observe that huge quantities of imported goods were sold by the respondents through M/s.Regin Agency. The respondents also failed to produce any document to disprove the contentions raised by the authorities. Further, the respondents did not explain the nonmaintenance of accounts and the large-scale sales made to third parties. The purchasers clearly stated that they purchased the goods from M/s.Regin Exports and M/s.Regin Agency and that payments were made through banking channels. The order of the Tribunal is therefore improper, perverse, and liable to be set aside. Mere non-tallying of the total quantity of goods imported by the respondents with the materials seized does not vitiate the investigation, especially when the respondents, who were expected to furnish the necessary particulars, failed to do so. The order passed by the Tribunal is liable to be set aside. Penalty and mens rea requirement for imposition on customs brokers - HELD THAT:- The fine imposed on M/s.Daniel and Samuel logistics Private Limited and Zion logistics is not justifiable, as the respondent in C.M.A.(MD)Nos.573 of 2020 and 574 of 2020 are customs broker, merely transported the goods on the directions of M/s.Regin Agency, and it has not been proved that they had transported the goods in connivance with the respondent with an intention to evade Government revenue. Therefore, these Civil Miscellaneous Appeals are liable to be dismissed. In view of the above, the C.M.A.(MD)Nos.573 and 574 of 2020 are dismissed. The order dated 17.09.2018 passed by the Customs, Excise and Service Tax Appellate Tribunal, Chennai, is hereby confirmed. Issues: (i) Whether the importer who imported raw cashew nuts (RCN) under Advance Authorisation and diverted the imported goods to unauthorised units/agents without requisite permission and without maintaining mandated accounts violated the conditions of Notification No.18/2015-CUS and relevant provisions of the Foreign Trade Policy/Handbook of Procedures, thereby attracting duty, confiscation and penalties; (ii) Whether customs brokers who cleared and transported the consignments on instructions of the importer/agent can be held liable for the penalty imposed by the Commissioner.Issue (i): Whether diversion of duty-free imported RCN to unauthorised units and failure to maintain prescribed records breached the conditions of the Advance Authorisation and Notification No.18/2015-CUS, attracting duty, interest and penalties.Analysis: The decision analyses the terms of the Advance Authorisation and condition sheet (including para 4.16 of the Foreign Trade Policy 2015-2020 and condition (x) of Notification No.18/2015-CUS) which impose the actual user condition, prohibit transfer or sale of imported materials except as permitted, and require maintenance of true and proper accounts under para 4.21 and related HBP provisions. The factual findings relied on admissions in recorded statements, seizure of imported RCN from multiple units, sales invoices, banking records, transport and import documents showing direct dispatch from port to various processing units, and the absence of registers reconciling imported quantities with stocks. The materials show that only a small portion of imported RCN reached the authorised processing addresses, a large quantity was dispatched to other units under control of the agency, processed product was sold in local market or through the agency, and no permission/endorsement was obtained from Customs or Regional Authority for transfers/job work as required. Those facts were held to demonstrate diversion and failure to comply with the actual user and accounting conditions, rendering the importer liable to confirm duty, interest and penalties imposed by the adjudicating authority.Conclusion: In favour of Revenue. The diversion and non-maintenance of requisite accounts constituted breach of Advance Authorisation/Notification conditions and justified confirmation of duty, interest and penalty as imposed by the Commissioner.Issue (ii): Whether customs brokers who executed clearance and transport of consignments on instructions of the importer/agent were liable to the penalties imposed by the Commissioner.Analysis: The decision examines the role of the customs brokers, the documentary and testimonial record as to instruction and conduct, and the scope of obligations on brokers under the Customs Brokers Licensing Regulations, 2013. It notes that the brokers performed customs clearance and transportation as per instructions from the importer/agent, and there is no material proving that the brokers acted in connivance with the importer to evade revenue or that they exceeded the scope of their clearance/transport functions.Conclusion: In favour of Respondents (customs brokers). The penalty imposed on the customs brokers was not justified and the Tribunal's order confirming dismissal of penalty against them is to be upheld.Final Conclusion: The appeals are partly allowed: the order of the Tribunal is set aside and the adjudicating authority's duty, interest and penalty measures against the importer are confirmed; however, the penalties against the customs brokers are not sustained and the Tribunal's order in their favour is affirmed.Ratio Decidendi: Where goods imported under an Advance Authorisation are transferred or diverted to unauthorised units without the statutory/authorisation-required permission and required accounting evidences are not maintained, such diversion breaches the actual user condition of the Advance Authorisation and Notification No.18/2015-CUS, attracting duty, interest and penal consequences; by contrast, mere performance by customs brokers of clearance and transport on instructions, without proven connivance to evade revenue, does not justify imposition of like penalties on the brokers.