2024 (6) TMI 779 - AT - Customs

Penalty u/s 114AA of the Customs Act 1962 - Penalty on Co-noticee who is a Partner in a Customs Broker firm - undervaluation of the imported goods - power tools imported from China by various importers - HELD THAT - From plain reading of the legal provisions under Section 114AA of Customs Act 1962 it is clear that it has been introduced for the first time in the said Act and brought into effect from 13.07.2016. The said provision lays down that a maximum penalty not exceeding five times the value of the goods is liable to be imposed in certain situations stated therein. It is also found that the Customs Act 1962 inter alia provide for imposition of penalties under various sections such as Section 112 114 114A ibid which was in existence prior to the insertion of Section 114AA. Further some more sections have also been introduced for imposition of penalty subsequent to the introduction of section 114AA viz. Section 114AB 114AC ibid. Section 112 ibid deals with omission or commission of an action in relation to goods acquiring possession of goods various actions such as carrying removing depositing harbouring keeping concealing selling or purchasing of such goods all of which make such goods liable for confiscation. Similarly Section 114A ibid deals with non-levy or short levy of customs duty arising on account of the reason of collusion or any wilful misstatement or suppression of facts by any person. Furthermore in the case of Commissioner of Customs (Import) Vs. Trinetra Pvt. Limited 2019 (11) TMI 72 - DELHI HIGH COURT wherein the department having aggrieved that penalty imposed on CHA/CB under Sections 112(b) and 114AA of the Customs Act 1962 was deleted by the Tribunal had filed Customs Appeal. In the said case the Hon ble Delhi High Court have held that in the absence of an element of mens rea or conscious knowledge which can be attributed to CHA/CB and where a CHA/CB had merely facilitated imports on strength of documents that were handed over to him by importer no penalty can be imposable under Section 112(b) or 114AA ibid. The provisions of Section 114AA ibid does not apply to the present case of the appellant conoticee who is a Partner in a Customs Broker firm as neither there was any dummy export being made only on paper nor there was any criminal intent involving evasion of duty. In fact the present case deal with demand of short paid duty arising from under valuation of imported goods by various importers in which the appellant-CB being co-noticee had only facilitated as a customs broker but was imposed a penalty under Section 114AA ibid. Hence the imposition of penalty u/s 114AA does not arise in the present case of the appellant. The impugned order is modified to the limited extent of setting aside the penalty imposed on Mr. Suresh K Aggarwal Partner of M/s I.C.S. Cargo u/s 114AA of the Customs Act 1962. The appeal is allowed by setting aside the penalty.

Summary

Issues Involved:
1. Rejection of declared value of imported goods.
2. Re-determination of the value of imported goods.
3. Demand of differential duty.
4. Confiscation of seized goods.
5. Imposition of penalties on importers and other co-noticees.
6. Imposition of penalty on the appellant under Section 114AA of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Rejection of Declared Value of Imported Goods:
The impugned order addressed the rejection of the declared value of imported power tools from China by various importers. The Directorate of Revenue Intelligence (DRI) concluded that the appellant, a customs broker, had connived with importers to undervalue goods to evade customs duty.

2. Re-determination of the Value of Imported Goods:
The value of the imported goods was re-determined under Section 14 of the Customs Act, 1962, read with the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. This re-determination was part of the broader investigation into undervaluation and duty evasion.

3. Demand of Differential Duty:
The impugned order confirmed the demand for differential duty under Section 28(4) of the Customs Act, 1962, along with interest under Section 28AA. This was based on the re-determined value of the goods.

4. Confiscation of Seized Goods:
The seized goods were confiscated under Section 111(m) of the Customs Act, 1962, and were offered for provisional release on redemption fine under Section 110A.

5. Imposition of Penalties on Importers and Other Co-noticees:
Penalties were imposed on various importers and other co-noticees under Sections 112(a), 114A, and 114AA of the Customs Act, 1962. However, the current appeal focused solely on the penalty imposed on the appellant under Section 114AA.

6. Imposition of Penalty on the Appellant under Section 114AA of the Customs Act, 1962:
The main issue for determination was whether the imposition of a penalty on the appellant under Section 114AA was legally sustainable. The appellant was penalized for allegedly using false and incorrect material in customs transactions.

Legal Analysis:
- Section 114AA of the Customs Act, 1962: This section imposes a penalty if a person knowingly or intentionally makes, signs, or uses any false or incorrect declaration, statement, or document in customs transactions.
- Findings of the ADG (Adjudication): The ADG found that the appellant was aware of the misuse of Importer-Exporter Code (IEC) and was involved in submitting mis-declared Bills of Entry. However, no direct evidence of connivance in undervaluation was found.
- Judicial Precedents: The judgment referenced several cases, including those from the Supreme Court and High Courts, emphasizing the need for mens rea (criminal intent) or conscious knowledge for imposing penalties under Sections 112(b) and 114AA. The courts have held that mere facilitation of imports based on documents provided by importers does not justify penalties without evidence of intent or knowledge of wrongdoing.
- Legislative Intent: The legislative history and intent behind Section 114AA were examined, revealing that it was introduced to address fraudulent export transactions where no goods were actually exported, but false documents were created to claim export benefits.

Conclusion:
- The Tribunal concluded that Section 114AA does not apply to the appellant, a customs broker, as the case involved undervaluation of imported goods, not fraudulent export transactions.
- The penalty under Section 114AA was deemed inappropriate as the appellant's actions were related to facilitating imports, not creating false export documents.
- The impugned order's imposition of a Rs. 5,00,000 penalty on the appellant under Section 114AA was set aside, and the appeal was allowed in favor of the appellant.

Final Order:
The appeal was allowed, and the penalty of Rs. 5,00,000 imposed on the appellant under Section 114AA of the Customs Act, 1962, was set aside. The order was pronounced in open court on 03.06.2024.