2025 (5) TMI 585 - AT - Customs

Smuggling of R-22 gas - jurisdiction of Appellate Tribunal to issue a show cause notice - alleged offence was committed outside India prior to the amendment of the Customs Act effective 29.03.2018 - penalty imposed on the basis of statements of co-noticees - appellant was not provided an opportunity of cross examination of the co-noticees - violation of principles of natural justice - HELD THAT - The learned Commissioner has confirmed the role of the appellant in the impugned case of smuggling of R-22 gas and has imposed penalties on the grounds that the appellant along with Shri Bhavesh Thakkar was the mastermind and chief strategist; Shri Vipan Kumar Garg stated that the appellant came up with the offer of sale of R-22 gas during the meeting and that he was physically present when the impugned goods were loaded. The role of the appellant was confirmed on the basis of the allegations that he along with Shri Bhavesh Thakkar was the mastermind. However we find that CESTAT vide Final Order No. 70593-70596/2024 has set aside the penalty on Shri Bhavesh Thakkar. If Shri Bhavesh Thakkar who along with the appellant was alleged to be the mastermind of the illegally import of R-22 gas was not held liable for penalty it is difficult to believe that the appellant is liable for penalty. Conspiracy alleged to have been entered into two persons cannot be now restricted to one person. It is a matter of common sense that no conspiracy will be possible with one conspirator. Therefore the moment penalty imposed on one of the two-conspirators has been set aside it would not be possible to sustain the same on the other. The case against the appellant is based on the statements of different persons involved in the case including the above. Therefore denying the cross examination violates principles of natural justice more so looking into the fact that the adjudicating authority has also not examined the said persons under the provisions of Rule 9D of Central Excise Act. Conclusion - i) Revenue has not made out any case for imposition of penalty on the appellant under Section 112(a)(i) of CA 1962. ii) The appellant having not filed any declaration/form under the provisions of Customs Act cannot be fastened with the penalty under Section 114AA. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

- Whether the Appellate Tribunal had jurisdiction to issue a show cause notice and impose penalties on the appellant for alleged abetment of illegal import of R-22 gas cylinders when the alleged offence was committed outside India, prior to the amendment of the Customs Act effective 29.03.2018.

- Whether penalty can be imposed on the appellant solely based on statements of co-noticees, especially when such statements were retracted or when penalties on co-noticees have been set aside.

- Whether the appellant was denied the opportunity of cross-examination of co-noticees whose statements were relied upon, thereby violating principles of natural justice.

- Whether penalties under Sections 112(a)(i) and 114AA of the Customs Act were warranted against the appellant, who allegedly neither colluded nor had knowledge of the illegal import, and who did not sign or cause any documents to be signed.

- Whether the appellant's role as a conspirator or mastermind in the illegal import is sustainable when the penalty on the alleged co-conspirator has been set aside.

2. ISSUE-WISE DETAILED ANALYSIS

Jurisdiction and Applicability of Customs Act Prior to Amendment

The legal framework centers on the territorial jurisdiction of the Customs Act and its applicability to acts committed outside India. The amendment to sub-Section 2 of Section 1 of the Customs Act effective 29.03.2018 extended the Act's reach to certain extraterritorial offences. The appellant contended that since the alleged offence occurred in Dubai prior to this amendment, the show cause notice lacked jurisdiction and penalties could not be imposed.

The Court accepted this contention, recognizing that the Customs Act prior to the amendment did not apply to offences committed outside Indian territory. Consequently, the appellant could not be penalized for acts committed abroad before the effective date of the amendment.

Reliance on Statements of Co-Noticees and Retraction Thereof

The appellant challenged the imposition of penalty solely on the basis of statements made by co-noticees, particularly Bhavesh Thakkar, whose penalty was subsequently set aside by the Tribunal. The appellant cited precedents wherein penalties could not be sustained on uncorroborated statements of co-accused, including Mridul Agarwal, Saurabh Aggarwal, and Commissioner of Customs (Preventive), Kolkata vs. Amit Jalan.

The Court noted that the role of the appellant was confirmed primarily on the allegation that he, along with Bhavesh Thakkar, was the mastermind behind the illegal import. However, since the penalty on Bhavesh Thakkar was set aside, the Court held it was logically inconsistent to sustain penalty on the appellant alone. The Court emphasized the principle that conspiracy requires at least two persons; hence, penalizing one conspirator while absolving the other was untenable.

Denial of Opportunity for Cross-Examination

The appellant argued that he was denied the opportunity to cross-examine co-noticees whose statements were relied upon, violating principles of natural justice. Reliance was placed on cases such as Gobinda Das vs. Commissioner of Customs and Sunil Aidasani @ Vicky vs. Principal Commissioner of Customs.

The Court found merit in this submission, observing that the adjudicating authority did not permit cross-examination nor examine the co-noticees under Rule 9D of the Central Excise Act. Given that the case against the appellant was based on statements of other persons involved, the denial of cross-examination was a procedural infirmity prejudicial to the appellant.

Imposition of Penalties under Sections 112(a)(i) and 114AA

Section 112(a)(i) of the Customs Act pertains to penalties for knowingly aiding or abetting prohibited imports, while Section 114AA deals with penalties for failure to file declarations or forms as required under the Act. The appellant contended that he neither colluded nor had knowledge of the illegal import, did not sign or cause any documents to be signed, and did not file any declarations or forms.

The Court evaluated the appellant's statement recorded under Section 108 of the Act, which denied knowledge or involvement. Given the absence of documentary evidence or signed documents implicating the appellant, and the failure to establish that the appellant filed any declarations, the Court held that penalties under both Sections 112(a)(i) and 114AA were unwarranted.

Application of Law to Facts and Treatment of Competing Arguments

The Court balanced the Revenue's argument that the appellant was the mastermind and chief strategist, physically present during loading and involved in the offer of sale, against the appellant's denials and procedural lapses in the investigation and adjudication. The Revenue's reliance on statements of co-noticees, some of whom had retracted or had penalties set aside, weakened its case.

The Court also considered the legal principle that conspiracy cannot subsist with a single conspirator and that penalizing one while absolving the other is illogical. The procedural denial of cross-examination further tilted the balance in favor of the appellant.

3. SIGNIFICANT HOLDINGS

"If Shri Bhavesh Thakkar, who along with the appellant was alleged to be the mastermind of the illegally import of R-22 gas, was not held liable for penalty, it is difficult to believe that the appellant is liable for penalty. Conspiracy alleged to have been entered into two persons cannot be now restricted to one person. It is a matter of common sense that no conspiracy will be possible with one conspirator. Therefore, the moment penalty imposed on one of the two-conspirators has been set aside, it would not be possible to sustain the same on the other."

"Denying the cross examination violates principles of natural justice, more so looking into the fact that the adjudicating authority has also not examined the said persons under the provisions of Rule 9D of Central Excise Act."

"The submissions of the appellant to the extent that the Customs Act was not made applicable to such persons before 29.03.2018, the appellant cannot be penalized for violations if any committed prior to that date, are having a force and need to be accepted."

"The appellant having not filed any declaration/form under the provisions of Customs Act cannot be fastened with the penalty under Section 114AA."

The Court concluded that the Revenue failed to establish a case for penalty under Section 112(a)(i) or Section 114AA against the appellant. The appeal was allowed, and penalties imposed on the appellant were set aside.

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