2025 (7) TMI 421 - AT - Customs

Levy of penalties - Rejection of country of origin of the dry dates exported by the appellant - re-determination of country of origin as Pakistan for the purpose of levy of duty - mis-declaration of description of goods - uncorroborated statements without even allowing the cross examination - Burden of proof - goods of UAE origin or not -non-compliance of Food Safety and Standards (Packing and Labelling) Regulation 2011 - HELD THAT - There are no merits in the reliance placed by the adjudicating examination report given by M/s Atul Rajasthan Date Palms Limited as the same is based on the experience of the person signing the said report without stating any reasons. In the case of Ram Prakash 1999 (12) TMI 824 - CEGAT NEW DELHI it was held that The opinion given by Shri Jai Prakash Gupta that the impugned scrap is of foreign origin is not acceptable for the simple reason that he has tendered his opinion without mentioning the reasons to arrive at such a conclusion. The learned Counsel for the appellants had rightly contended that he is not an expert as he has never imported copper scrap. He had himself deposed in his cross-examination that it is difficult to give a definite criteria of assessing imported copper scrap; it can only be assessed by a person dealing in this trade. Interestingly penalties have been imposed in the impugned order on Shri Kush Agarwal alleging that he has masterminded the entire operation by re-routing the consignments of dry date from Pakistan through UAE by manipulating the Certificate of Origin . However as earlier observed that there is no credible evidence produced to show that the Certificate of Origin issue by the designated authorities in UAE was manipulated in fact no enquiries have been made in this regard from the authorities in UAE. It is also noted that nothing has been placed on record to show that he has by his act of omission and commission contravened any provision of Customs Act 1962. He has supplied the goods dry dates for being imported into India by the said importers in normal course of business. Even if it is assumed and admitted that he has manipulated the documents to declare country of origin as UAE then also the offence which has been committed in UAE action would lie against him under the law of that country. Penalties imposed on the appellants under Section 112 (a) and/ (b) - HELD THAT - Penalty under Section 112 (a) can be imposed even when there is no intent (mensrea) of the person in committing the act of commission or omission leading confiscation of goods in terms of Section 111 of Customs Act 1962. Section 112 (b) requires intent (mensrea) to be established. In case of Hughes Network Systems India Ltd. 2024 (2) TMI 98 - DELHI HIGH COURT Hon ble Delhi High Court has observed In the case of the appellants Section 112 (a) of Customs Act has been applied which really is in the nature of absolute liability. Section 112 (a) of the Customs Act read with Section 111 clearly shows that the goods were liable to confiscation and for redemption thereof fine was to be imposed and further penalty liable to be imposed on the appellants. In the present case penalty has been on the Appellant 1 and 2 under Section 114AA without establishing the fraud in respect of the said concocted Certificate of Origin by way of proper enquiries with the certificate issuing authorities as have been provided by Rule 6 of Customs (Administration of Rules of Origin under Trade Agreements) Rules 2020. Thus there are no merits in the imposition of such penalties. There are no merits in the impugned order to the extent it is relation to the appellants - appeal allowed.

Summary

The core legal questions considered in this judgment revolve around the determination of the country of origin of imported dry dates, the validity of the Certificate of Origin (COO), the applicability of enhanced customs duty on goods originating from Pakistan, compliance with Food Safety and Standards (FSSAI) regulations, and the imposition of penalties under various provisions of the Customs Act, 1962. Specifically, the issues include:

1. Whether the country of origin of the imported dry dates is Pakistan or UAE for customs duty purposes.

2. Whether the Certificate of Origin issued by the Ajman Chamber of Commerce, UAE, is genuine and can be relied upon.

3. Whether the imported goods were liable for confiscation under Section 111(m) of the Customs Act, 1962 for mis-declaration of country of origin and violation of FSSAI (Packing and Labelling) Regulations, 2011.

4. Whether penalties imposed under Sections 112(a), 112(b), 114AA, and 125 of the Customs Act, 1962 on various importers and related persons are justified.

5. The evidentiary value of expert opinion based on physical examination of goods and uncorroborated statements recorded under Section 108 of the Customs Act.

6. The procedural propriety and jurisdictional aspects regarding verification of COO and imposition of penalties.

Issue-wise Detailed Analysis

1. Determination of Country of Origin and Validity of Certificate of Origin

The legal framework includes the Customs Act, 1962, particularly provisions relating to assessment and confiscation, and the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020. The enhanced customs duty of 200% on goods originating from Pakistan was imposed vide Notification No. 05/2019-Cus dated 16.02.2019, following a terrorist attack in Pulwama.

The revenue alleged that dry dates imported under Bill of Entry No. 5025038 dated 23.09.2019 were of Pakistan origin but were mis-declared as originating from UAE to evade higher duty. The importer relied on a COO issued by the Ajman Chamber of Commerce, UAE, which was bar-coded and purportedly competent. The revenue, however, rejected the COO without verifying its authenticity with the issuing authority in UAE, relying instead on an expert opinion from M/s Atul Rajasthan Date Palms Limited (ARDPL) based on physical examination, statements under Section 108, and other documents like export declarations obtained from shipping lines.

The Court noted that the COO issued by a designated authority of a foreign government is a documentary evidence that cannot be discarded without verification. Rule 6 of the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 mandates verification requests to the issuing authority in case of doubt. No such verification was made by the customs authorities in this case. The Court referred to precedents that emphasize the necessity of verification before rejecting COO and the inadmissibility of relying on assumptions or unverified expert opinions.

The expert opinion from ARDPL was found unreliable as it was based solely on visual inspection without scientific or chemical analysis, and the institution was not accredited for such testing. The Court further observed that determining country of origin is complex and cannot be conclusively decided by physical appearance alone.

The export declaration relied upon by the revenue was an unsigned photocopy with discrepancies and was not procured from the customs authority of Dubai, thus lacking evidentiary value. The term 'FZ Transit Out' in the export declaration was misinterpreted by the revenue; it applies to all goods exported from Dubai Free Zones, regardless of origin.

Statements recorded under Section 108 were largely hearsay and uncorroborated, and some were retracted under claims of coercion. The Court held that retracted statements or uncorroborated hearsay cannot be the sole basis for proving an offence.

Consequently, the Court held that the goods were of UAE origin as per the COO and other authentic documents, and the allegation of mis-declaration was based on assumption and presumption without tangible evidence.

2. Confiscation of Goods and Compliance with FSSAI Regulations

The revenue also alleged non-compliance with Food Safety and Standards (Packing and Labelling) Regulations, 2011, as the slips containing mandatory particulars were stapled and could be easily separated from packaging, violating labeling requirements.

The Court examined the role of FSSAI under the FSSAI (Import) Regulations, 2017, which empower authorized FSSAI officers to inspect and certify compliance. The consignment was inspected by FSSAI, samples drawn, and a No Objection Certificate (NOC) was issued certifying compliance. Customs examining officers did not raise any discrepancy during physical examination.

Therefore, the Court found the allegation of non-compliance baseless and the confiscation order on this ground invalid.

3. Penalties under the Customs Act

Penalties were imposed under Sections 112(a), 112(b), 114AA, and 125 of the Customs Act, 1962 on various importers and related persons for mis-declaration, use of false documents, and violation of customs laws.

The Court analyzed the distinction between Section 112(a) and 112(b). Section 112(a) imposes penalty on any person who commits an act rendering goods liable for confiscation and is a strict liability provision not requiring mens rea. Section 112(b) requires knowledge or reason to believe the goods are liable for confiscation and thus requires mens rea.

Section 114AA penalizes knowingly or intentionally making, signing, or using false or incorrect material, with penalty up to five times the value of goods.

The Court found that penalties under Section 114AA were imposed without establishing fraud or manipulation of COO by proper enquiries with the issuing authorities as mandated by Rule 6 of the Customs Rules. The absence of such verification and reliance on uncorroborated evidence rendered the penalties unsustainable.

Regarding employees such as import managers and marketing managers who filed bills of entry based on documents provided by others, the Court noted precedents holding that personal penalties on employees acting under directions without knowledge of wrongdoing are generally not sustainable. Token penalties under Section 112(a) may be imposed, but penalties under Section 114AA require proof of intentional wrongdoing, which was absent.

Statements of persons like Shri Anil Agarwal were retracted and alleged to have been made under duress, further weakening the case for penalties.

The Court also observed that even if the COO were found to be manipulated, the offence would lie in the country of issuance (UAE), and Indian authorities would have no jurisdiction over such acts by foreign persons.

4. Evidentiary Standards and Procedural Aspects

The Court emphasized the importance of proper evidentiary standards, particularly regarding expert opinions and statements under Section 108. It held that expert opinions without scientific basis or accreditation, and uncorroborated or retracted statements, cannot form the basis for adverse findings.

The Court also highlighted the procedural requirement of verifying COO authenticity with the issuing foreign authority before rejecting it and imposing penalties or confiscation.

5. Application of Law to Facts and Treatment of Competing Arguments

The appellants argued that the COO was issued by a competent authority in UAE, was bar-coded, and its authenticity was never questioned by the revenue through verification. They challenged the expert opinion and the reliance on export declarations and statements as baseless.

The revenue contended that the goods were of Pakistan origin, mis-declared as UAE origin to evade higher duty, supported by expert opinion and statements.

The Court found the appellants' arguments persuasive, noting the absence of any verification of COO authenticity, the unreliability of the expert opinion, and the lack of credible evidence to prove mis-declaration. The revenue's reliance on internal shipping documents and hearsay statements was rejected.

Conclusions

The Court concluded that:

- The goods in question were of UAE origin as per valid COO and supporting documents.

- The confiscation of goods under Section 111(m) for mis-declaration of country of origin was not sustainable.

- The allegation of violation of FSSAI (Packing and Labelling) Regulations, 2011 was baseless as the consignment was certified compliant by FSSAI.

- Penalties imposed under Sections 112(a), 112(b), and 114AA of the Customs Act, 1962 on the appellants were not justified due to lack of evidence of fraud, manipulation, or mens rea.

- The expert opinion and statements relied upon by the revenue lacked evidentiary value.

- No verification request was made to the UAE authorities to authenticate the COO, contrary to procedural requirements.

- The appeals were allowed, setting aside confiscation and penalties imposed on the appellants.

Significant Holdings

"The Certificate of Origin issued by the designated authority of the exporting country is documentary evidence which cannot be discarded without verification. Rule 6 of the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 mandates such verification. No such verification was made in this case, rendering the rejection of the COO unsustainable."

"Expert opinion based solely on visual inspection without scientific or chemical analysis and without accreditation has no evidentiary value for determination of country of origin."

"Statements recorded under Section 108 of the Customs Act, 1962, if uncorroborated, hearsay, or retracted, cannot be relied upon to establish an offence or impose penalties."

"Penalty under Section 114AA of the Customs Act can only be imposed when it is proved that a person knowingly or intentionally used false or incorrect material. Mere suspicion or assumption is insufficient."

"Confiscation and penalty cannot be imposed on an importer who files bill of entry based on documents supplied by the overseas supplier without evidence of involvement in mis-declaration."

"Non-compliance with FSSAI (Packing and Labelling) Regulations, 2011 must be established by the authorized FSSAI officer. Certification of compliance by FSSAI negates allegations of non-compliance."

"The burden lies on the revenue to verify the authenticity of COO and produce tangible evidence before rejecting it and imposing penalties."