2025 (5) TMI 778 - AT - Customs

Appropriate forum - maintainability of appeal against the rejection of the special warehouse license application under Section 58A of the Customs Act 1962 before the Tribunal under Section 129A of the Customs Act - correctness of rejection of the Appellant s special warehouse license application on account of a prior penalty under Section 112(a). Maintainability of appeal against the rejection of the special warehouse license application under Section 58A of the Customs Act 1962 before the Tribunal under Section 129A of the Customs Act - whether the impugned order (rejecting the license) can be considered a decision or order of the Principal Commissioner passed as an adjudicating authority? - HELD THAT - Firstly the term adjudicating authority is defined in Section 2(1) of the Customs Act to mean any authority competent to pass any order or decision under this Act with only a few specific exclusions (the Central Board of Indirect Taxes Customs the Commissioner (Appeals) and the Appellate Tribunal itself). The Principal Commissioner of Customs is certainly an authority competent to pass orders under the Act indeed Section 58A of the Customs Act itself confers upon that officer the power to decide on granting or refusing a license. Thus on a plain reading when the Principal Commissioner considers a license application and either grants or refuses it he is acting as an adjudicating authority (since he is making a decision under the Customs Act). It is immaterial that this decision is not in a traditional revenue-demand context or that it is communicated by a letter; what matters is that a right or privilege conferred by the statute (to seek a license) has been finally decided by such competent authority. In this instant case the Appellant s legal rights are affected i.e. it has been denied the opportunity to operate a special warehouse and there is no further departmental appeal available and hence the appellant is an aggrieved person . When the Principal Commissioner considers a license application and either grants or refuses it he is acting as an adjudicating authority (since he is making a decision under the Customs Act). It is immaterial that this decision is not in a traditional revenue-demand context or that it is communicated by a letter; what matters is that a right or privilege conferred by the statute (to seek a license) has been finally decided by such competent authority. In this instant case the Appellant s legal rights are affected i.e. it has been denied the opportunity to operate a special warehouse and there is no further departmental appeal available and hence the appellant is an aggrieved person - The department cannot be allowed to re-argue this point. In view of the above the impugned order dated 08.07.2024 conveying the Principal Commissioner s rejection of the Appellant s license application is an appealable decision under Section 129A (1) of the Customs Act. The appeal be held to be maintainable before the Tribunal. Correctness of rejection of the Appellant s special warehouse license application on account of a prior penalty under Section 112(a) - HELD THAT - Section 58A of the Customs Act provides for licensing of special warehouses wherein certain classes of imported goods (as notified by the Board) may be deposited without payment of duty. The power to grant the license is vested in the Principal Commissioner Commissioner of Customs. The section itself lays down no specific criteria or disqualifications except that the grant is subject to such conditions as may be prescribed. The conditions and procedural requirements are prescribed in the Special Warehousing Licensing Regulations 2016 (issued under the authority of Section 157 read with Section 58A of the Customs Act). Regulation 3 of the 2016 Regulations deals with eligibility. Regulation 3(2) enumerates certain conditions under which the license shall not be issued to an applicant. Among the these (c) reads the Principal Commissioner or Commissioner shall not issue a license if the applicant has been penalized for an offence under the Customs Act 1962 the Central Excise Act 1944 or Chapter V of the Finance Act 1994 . Admittedly beyond the bear fact of penalty the Principal Commissioner in the order has not pointed out to any other factor which would impugn the appellant s ability/suitability to operate a Special Bonded Warehouse. There is also no whisper or doubt about insolvency or any pending criminal investigation; nor is there any finding with regard to technical shortcomings in the proposed facility. In fact the appellant s prior conduct insofar as complaint is concerned was limited to a one-of incident for which it was penalized. That incident as discussed was certainly not in the nature that would point to dishonesty rather it was relating to a disputed exemption on imported goods. Hence denying the license on this single criteria is not justified. Conclusion - The impugned order is not sustainable since it is based on an erroneous interpretation of Regulation 3(2)(c) and Section 58A of the Customs Act. Accordingly the impugned order deserves to be set aside. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the appeal against the rejection of the special warehouse license application under Section 58A of the Customs Act, 1962 is maintainable before the Tribunal under Section 129A of the Customs Act?

(b) If maintainable, whether the rejection of the appellant's application for a special bonded warehouse license on the ground of a prior penalty imposed under Section 112(a) of the Customs Act is legally sustainable or liable to be set aside?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of the Appeal

Relevant legal framework and precedents: Section 129A(1)(a) of the Customs Act permits appeal to the Tribunal against "any decision or order passed by the Principal Commissioner of Customs or Commissioner of Customs as an adjudicating authority." Section 2(1) defines "adjudicating authority" as any authority competent to pass any order under the Act, excluding certain appellate bodies. The Special Warehousing Licensing Regulations, 2016, framed under Sections 58A and 157 of the Customs Act, govern the grant of licenses but do not provide any statutory appeal mechanism against rejection of license applications.

Judicial precedents relied upon include:

• The Tribunal's decision in Samrat Houseware Pvt. Ltd. v. Commissioner of Customs (Sea), Chennai-V, which held that a letter communicating a final decision of the Commissioner refusing amendment of shipping bills is an appealable order.
• CCE v. Maharashtra State Bureau of Text Books Production & Curriculum Research, where the Tribunal entertained appeal against departmental denial of centralized service tax registration by letter.
• Commissioner of Central Excise v. Girish B. Mishra (Gujarat High Court), which affirmed that decisions by Commissioners rejecting applications under Central Excise Act are appealable before the Tribunal and the Customs Act provisions are analogous.

Court's interpretation and reasoning: The Tribunal held that the Principal Commissioner's rejection of the license application, although communicated by a subordinate officer's letter, is a final decision affecting the appellant's legal rights under the Customs Act and hence qualifies as an order passed by an adjudicating authority. The absence of a formal show-cause or adjudicatory process does not negate the character of the decision as an adjudication under the Act. The Tribunal rejected the Revenue's contention that the decision was purely administrative and non-appealable.

Key evidence and findings: The rejection letter dated 08.07.2024 conveyed a final decision denying the appellant the right to operate a special bonded warehouse, with no further departmental remedy available. The Tribunal had already ruled on maintainability at the preliminary stage and declined the Revenue's attempt to re-agitate the issue.

Application of law to facts: The Tribunal applied statutory definitions and consistent judicial precedents to conclude that the impugned order is appealable. It emphasized the practical necessity of allowing appeals against denial of licenses to avoid anomalous situations where cancellation of granted licenses is appealable but initial refusals are not.

Treatment of competing arguments: The Revenue's reliance on administrative character of the decision and absence of formal adjudication was rejected. Decisions cited by the Revenue involving mere procedural communications or executive letters were distinguished on facts and found inapplicable.

Conclusion: The appeal against the rejection of the special warehouse license application is maintainable before the Tribunal under Section 129A of the Customs Act.

Issue 2: Merits of the Rejection of License Application on Ground of Prior Penalty under Section 112(a)

Relevant legal framework and precedents: Section 58A of the Customs Act empowers the Principal Commissioner to grant special warehouse licenses subject to prescribed conditions. The Special Warehousing Licensing Regulations, 2016, specifically Regulation 3(2)(c), disqualifies applicants who have been "penalized for an offence under the Customs Act, 1962, the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994." The Customs Act distinguishes between penalties for contraventions (Chapter XIV) and offences attracting criminal prosecution (Chapter XVI). Section 112(a) penalty falls under Chapter XIV and is a civil penalty for contraventions such as incorrect claims of exemption, not a criminal offence.

Judicial precedents include:

• Principal Bench CESTAT New Delhi decision in M/s. Kundan Care Products Ltd. vs. Commissioner of Customs, which held that a penalty under Section 112 does not amount to penalization for an "offence" under the Customs Act for the purpose of Regulation 3(2)(c), and cancellation of license on that ground was unsustainable.
• Supreme Court decision in Northern Plastics Ltd. v. CCE, which held that an incorrect claim for exemption, even if disallowed, does not amount to misdeclaration or wrongdoing if goods are truthfully described.

Court's interpretation and reasoning: The Tribunal interpreted the phrase "penalized for an offence" in Regulation 3(2)(c) restrictively, confining it to serious criminal offences under Chapter XVI of the Customs Act, not every penalty under Chapter XIV. The penalty under Section 112(a) imposed on the appellant was for a bona fide interpretational dispute over exemption eligibility, without any element of fraud or criminal wrongdoing. The Tribunal held that applying Regulation 3(2)(c) mechanically to disqualify applicants penalized under any provision of the Customs Act would be draconian and inconsistent with the statutory scheme.

Key evidence and findings: The appellant had not been prosecuted or convicted for any offence under Chapter XVI. The penalty was for claiming exemption incorrectly on imported sample goods, which was a civil contravention. No suppression or misdeclaration was alleged in the license application. The Principal Commissioner did not point to any other disqualifying factors such as insolvency, technical deficiencies, or pending investigations.

Application of law to facts: The Tribunal applied the distinction between contraventions and offences, and relied on the binding precedent of Kundan Care to hold that the prior penalty under Section 112(a) did not render the appellant ineligible for the special warehouse license. The rejection order was therefore based on a misinterpretation of the Regulations and the Act.

Treatment of competing arguments: The Revenue's argument that the rejection was a discretionary administrative decision and that no appeal lay was rejected as discussed under Issue 1. The Tribunal also rejected the notion that the Regulation should be applied as an absolute bar without discretion, emphasizing the need for a nuanced and judicious approach.

Conclusion: The rejection of the appellant's special warehouse license application solely on the ground of a prior penalty under Section 112(a) of the Customs Act is legally unsustainable and is set aside. The appellant is entitled to the consequential benefit of grant of license subject to fulfillment of other conditions.

3. SIGNIFICANT HOLDINGS

"The language of Section 129A(1)(a) allows an appeal to the Tribunal by any person aggrieved by 'any decision or order passed by the Principal Commissioner of Customs or Commissioner of Customs as an adjudicating authority.' The crucial question is whether the impugned order (rejecting the license) can be considered a 'decision or order' of the Principal Commissioner passed as an adjudicating authority. The Principal Commissioner of Customs is certainly an authority competent to pass orders under the Act... Thus, on a plain reading, when the Principal Commissioner considers a license application and either grants or refuses it, he is acting as an adjudicating authority." (Paragraphs 18-19)

"A letter which informs by deciding the rights of an assessee finally is an appealable order." (As cited from Samrat Houseware Pvt. Ltd. case in Paragraph 20)

"The phrase 'penalized for an offence under the Customs Act' in Regulation 3(2)(c) must be understood as referring to offences under Chapter XVI of the Customs Act, which entail criminal prosecution, and not every penalty under Chapter XIV such as Section 112(a). The mere fact of a monetary penalty under Section 112 does not automatically trigger disqualification under Regulation 3(2)(c)." (Paragraphs 32-33)

"The impugned order is not sustainable, since it is based on an erroneous interpretation of Regulation 3(2)(c) and Section 58A of the Customs Act." (Paragraph 38)

"The appeal is allowed." (Paragraph 39)