2007 (5) TMI 79 - AT - Customs

Confiscation and penalty - Alleged that appellant had imported 538 pieces of explosives with melting scrap and accordingly liable for penalty - Held that the allegation was not sustainable and set aside the penalty

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the confiscation of the entire quantity of Heavy Melting Scrap imported by the appellant was justified, given that only a small portion (538 pieces) of explosive materials were found concealed within the consignment.

(b) Whether the appellant importer had knowledge or intention regarding the importation of the offending explosive materials concealed within the scrap.

(c) Whether the imposition of penalties on the appellants under Section 112 of the Customs Act was justified, especially in the absence of specification of the relevant sub-section in the show cause notice and adjudication order.

(d) Whether the importers complied with the procedural requirements, including 100% examination mandated by the CBEC circular dated 18-10-2004, and whether this compliance negated any culpability.

(e) The applicability of precedents concerning confiscation of non-offending goods and penalty imposition in similar cases involving scrap consignments containing concealed explosives.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification for Confiscation of Entire Heavy Melting Scrap

The relevant legal framework includes Section 111(d) of the Customs Act, which permits confiscation of goods that are prohibited or offensive in nature. Section 119 allows confiscation of materials used for concealing offending goods. The show cause notice alleged that the 538 pieces of missile shells and cartridges were offensive goods liable for confiscation and that the entire scrap consignment was used to conceal these offending goods.

The Tribunal noted that the 538 pieces were found in only four containers among eighteen, and the rest of the scrap was non-offending. The appellant had procured the scrap for manufacturing steel ingots and had taken care to ensure no explosives were included, relying on a certificate from the supplier confirming absence of arms, ammunition, or explosives.

The Court emphasized that the import of 344 M.T. of Heavy Melting Scrap was bona fide and for legitimate industrial use. The presence of the explosive materials was inadvertent, likely due to the supplier's negligence, and not a deliberate act by the importer to conceal explosives.

The Tribunal rejected the contention that the entire scrap consignment was imported to conceal the offending goods, stating: "In the facts of the case, it cannot at all be held that the import was of the 538 pieces of explosives and 344 M.T. of Heavy Melting Scrap was imported merely for the purpose of concealing the dangerous materials."

Thus, the confiscation of the entire Heavy Melting Scrap was found to be unjustified.

Issue (b): Knowledge or Intention of the Importer Regarding Offending Goods

Section 112 of the Customs Act imposes penalties on persons who knowingly import offending goods or render goods liable to confiscation. The appellant contended there was no knowledge or intention to import explosives. The certificate from the supplier and the appellant's compliance with examination procedures supported this claim.

The Tribunal analyzed the evidence and found no material indicating awareness or complicity of the importer. The appellant's anxiety to avoid explosives was underscored by the acceptance of 100% examination of the consignment by Customs and Bomb Disposal Squad.

The Tribunal held that the appellant was a bona fide importer with no motive or knowledge to import explosives. The penalty provisions under Section 112(b), which require knowledge of the offending nature, were not applicable as there was no evidence of such knowledge.

Issue (c): Validity of Penalty Imposition Without Specification of Relevant Sub-Section

The show cause notice and adjudication order did not specify the sub-section of Section 112 under which penalties were imposed. The appellants relied on a Supreme Court precedent which held that generalized penalty proceedings without specifying the exact provision violate principles of natural justice and render penalty imposition unsustainable.

The Tribunal agreed with this contention, noting: "In the absence of specific charges against the appellants in terms of specific sub-sections of Section 112, and also by imposing penalties under the relevant sub-section, authorities have rendered it difficult to understand the charge against each of the appellants."

Hence, the penalty imposition was found to be procedurally flawed and unjustified.

Issue (d): Compliance with 100% Examination Requirement and Its Legal Effect

The CBEC circular dated 18-10-2004 mandated 100% examination of scrap consignments imported or loaded on vessels prior to the circular's issuance, due to safety concerns arising from explosive materials found in scrap.

The appellant's consignment was loaded in July 2004 and arrived in November 2004, thus falling under the circular's purview. The appellant subjected the consignment to 100% examination at the factory premises, involving Customs and Bomb Disposal Squad officials.

The Tribunal held that such compliance demonstrated due diligence and negated any presumption of culpability. It was further noted that the appellant's concerns for safety were genuine and legally relevant.

Issue (e): Precedents on Confiscation and Penalty in Similar Cases

The appellant relied on Tribunal decisions in Tower Steels (I) Ltd., ITC Global Holding, and Bhrigu Alloys & Steels Pvt. Ltd., where confiscation of non-offending goods and penalties were set aside in cases involving concealed explosives in scrap consignments.

The Tribunal found these precedents instructive and consistent with the present facts, reinforcing the principle that non-offending goods cannot be confiscated merely because offending goods were concealed within the consignment, especially where the importer lacked knowledge or intent.

3. SIGNIFICANT HOLDINGS

"In the facts of the case, it cannot at all be held that the import was of the 538 pieces of explosives and 344 M.T. of Heavy Melting Scrap was imported merely for the purpose of concealing the dangerous materials."

"The appellant had no motive to allow the arrival of these goods. Therefore, confiscation of the melting scrap and imposition of penalty on the importer are clearly not justified."

"In the absence of specific charges against the appellants in terms of specific sub-sections of Section 112, and also by imposing penalties under the relevant sub-section, authorities have rendered it difficult to understand the charge against each of the appellants."

"The appellant satisfied the requirement of 100% examination, thereby fully conforming with law and procedure."

The Tribunal established the core principle that confiscation of non-offending goods is impermissible when offending goods constitute only a minor portion and the importer is bona fide without knowledge or intent. Penalties under Section 112 require clear specification of the sub-section and proof of knowledge or culpability.

Final determinations included setting aside the confiscation of the Heavy Melting Scrap and vacating the penalties imposed on both appellants.