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2025 (5) TMI 1041 - AT - CustomsImposition of penalty for improper importation of goods under section 112 - conscious attempt to evade customs duty - HELD THAT - In view of the judgment of the Kerala High Court in O.T. Enasu 2007 (11) TMI 431 - KERALA HIGH COURT the imposition of penalty upon Samit Guha cannot be sustained. This apart it has been pointed by the learned counsel appearing for CFO that CFO joined M/s. MMTC-Pamp India Pvt. Ltd. as Chief Financial and Technology Officer in July 2020. He was therefore not associated when the imports took place as all the Bills of Entry were filed before his joining. Thus penalty under section 112(a)(ii) of the Customs Act could not have been imposed upon CFO. The order dated 31.12.2022 passed by the Principal Commissioner to the extent it imposes penalty upon CFO under section 112(a)(ii) of the Customs Act therefore deserves to be set aside and is set aside. The appeal is accordingly allowed.
The core legal questions considered in this judgment revolve around the imposition of penalty under section 112(a)(ii) of the Customs Act, 1962. Specifically, the issues include:
1. Whether a penalty under section 112(a)(ii) can be imposed without establishing a conscious attempt to evade customs duty. 2. Whether the appellant, as Chief Financial and Technology Officer, had knowledge of or was responsible for any undervaluation or suppression relating to the import transactions. 3. Whether the facts of the case demonstrate that duty was sought to be evaded, thereby justifying penalty imposition. 4. The applicability of extended limitation periods under section 28(4) of the Customs Act in the context of provisional valuation and subsequent finalization of import invoices. Issue-wise Detailed Analysis 1. Imposition of penalty under section 112(a)(ii) of the Customs Act and requirement of conscious evasion The legal framework under section 112(a)(ii) of the Customs Act prescribes penalty for any person who does or omits an act that renders goods liable to confiscation under section 111 or abets such act, with penalty capped at 10% of duty sought to be evaded or Rs. 5,000/-, whichever is higher. The provision presupposes that duty was sought to be evaded, implying a mental element of conscious evasion. The Court relied heavily on the Kerala High Court's decision in O.T. Enasu vs. Union of India, which emphasized that "the jurisdictional fact to impose a penalty in terms of Section 112(a)(ii) includes the essential ingredient that 'duty was sought to be evaded'." The term "evade" was interpreted strictly as requiring a conscious exercise or attempt to avoid payment of duty. The Court noted that "the process of 'seeking to evade' essentially involves a mental element and the concept of the status 'sought to be evaded' is arrived at only by a conscious attempt to evade." The Court also referenced authoritative precedents from the Supreme Court that support strict construction of penal provisions and the necessity of establishing deliberate evasion before imposing penalties. Applying this framework, the Tribunal found that the penalty could not be imposed unless it was established that the appellant had consciously attempted to evade customs duty. 2. Responsibility and knowledge of the appellant regarding valuation and import declarations The appellant, Samit Guha, was the Chief Financial and Technology Officer of M/s. MMTC-Pamp India Pvt. Ltd., but he joined the company in July 2020. The import transactions and filing of Bills of Entry occurred prior to his joining. The Court observed that imposing penalty on him without establishing his association or responsibility in the relevant import declarations was untenable. This fact was significant because liability under section 112(a)(ii) requires a direct connection with the act or omission leading to duty evasion. The Tribunal noted that the appellant was not involved in the filing or valuation of the import entries that were under scrutiny. 3. Nature of provisional valuation and final assay of gold content in imported dore bars The appellant's submissions, upheld by the Tribunal, detailed the process of provisional valuation at the time of import and subsequent final assay of gold and silver content from multiple samples. The final supplier invoice reflected the definitive assay results, which could show either an increase or decrease in metal content compared to the provisional declarations. The Tribunal highlighted that in cases where the final assay showed higher gold content, the appellant had short paid customs duty, but in many other cases, the appellant had paid excess customs duty where the final assay showed less gold content than initially declared. The appellant had also claimed refunds for excess duty paid, which were sanctioned by the Customs authorities. This demonstrated that the appellant did not suppress facts or wilfully under-declare value to evade duty but was operating under a system of provisional assessment subject to final reconciliation. 4. Application of extended limitation under section 28(4) of the Customs Act The extended limitation under section 28(4) allows for longer periods to invoke duty recovery or penalties in cases involving fraud or wilful misstatement. However, the Tribunal found that since there was no wilful suppression or evasion, the extended limitation could not be invoked. The appellant's conduct, including payment of excess duty in some cases and claiming refunds, negated any inference of fraudulent intent or conscious evasion. Treatment of competing arguments The Department argued that the appellant was liable for penalty because the provisional invoice value was not disclosed, and duty was short paid on final assay. However, the Tribunal rejected this argument on the ground that mere nondisclosure of provisional status without intent to evade duty does not attract penalty under section 112(a)(ii). The appellant's counsel emphasized the absence of any conscious attempt to evade duty, the timing of his joining the company, and the procedural aspects of provisional valuation and final assay. The Tribunal accepted these contentions, noting the absence of mens rea (guilty mind) required for penalty imposition. Conclusions on issues The Tribunal concluded that:
Significant holdings and core principles established The Tribunal preserved the following crucial legal reasoning verbatim from the Kerala High Court decision: "Being a penal provision, it requires to be strictly construed. 'Evade' means, to escape, slip away, to escape or avoid artfully, to shirk, to baffle, elude. The concept of evading involves a conscious exercise by the person who evades. To say that one has sought to evade, that person should be found to have tried to find way to evade or had aimed at evading, or had resorted to evading, for, 'sought' is the past tense and past participle of the word 'seek'. Therefore, the process of 'seeking to evade' essentially involves a mental element and the concept of the status 'sought to be evaded' is arrived at only by a conscious attempt to evade." The core principles established include:
The final determination was that the penalty imposed on the appellant under section 112(a)(ii) of the Customs Act was set aside, and the appeal was allowed accordingly.
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