2025 (7) TMI 495 - AT - Customs

Levy of penalties u/s 117 of Customs Act 1962 - violation of section 71 of Customs Act 1962 read with Public Warehouse Licencing Regulations 2017 - failure to keep the goods in easily accessible location by improper stacking in non-bonded area - failure to provide solvency certificate for four years - failure to provide adequate camera coverage - failure to provide proper signage and failed to provide digital signatures - HELD THAT - In a routine mode the licencing-Commissioner fell back on a shibboleth usually resorted to for invoking the extended period of limitation without pausing to consider the grand tradition of public warehouse in the scheme of customs duty collection. He appears not to have given any thought to evolution of custodianship in the hands of customs authorities under Sea Customs Act 1878 through statutory custodianship under the original Customs Act 1962 to nominated custodianship now for relieving customs authorities and statutory agencies from custodial possession while entrusting risk in the liberalized regime of assessment to such persons as the appellant. Pettifogging implicit in penalizing of minor infractions that are hardly of significance to revenue preservation is not appropriate when the errors were rectified. There is no pleasure in penalty which has been designed as deterrent in systems that perceive the scheme of customs engagement with commodities holistically and in harmony with the several modules that make up the whole with warehouses not excluded. Thus on the facts standing as on the date of the impugned order there is no case for imposition of penalties under section 117 of Customs Act 1962 while the invoking of section 111(j) of Customs Act 1962 in the notice is with no cause for such. The impugned order does not merit affirmation and is consequently set aside to allow the appeal. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

• Whether the confiscation of nine consignments of imported goods under section 111(j) of the Customs Act, 1962 was legally justified, given the circumstances of their placement outside the licensed warehouse area;
• Whether the appellant, a licensed public warehouse keeper under section 57 of the Customs Act, 1962, breached statutory and contractual obligations by improper custody or removal of imported goods;
• The applicability and correctness of penalties imposed under section 117 of the Customs Act, 1962 for alleged deviations from the Public Warehouse Licencing Regulations, 2017, The Warehouse (Custody and Handling of Goods) Regulations, 2016, and licence conditions;
• The extent of liability and responsibility of the warehouse licensee for goods not owned by them but held in custody, especially in cases of alleged improper removal or storage outside the bonded area;
• The legal effect of permissions granted by customs authorities for temporary placement of goods outside the bonded warehouse area and its impact on confiscation and penalty proceedings;
• The interpretation and application of statutory provisions relating to confiscation (section 111), penalty (sections 112 and 117), and licensing obligations under the Customs Act and related regulations;
• The proportionality and reasonableness of penalties imposed for minor infractions that were subsequently rectified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Confiscation under Section 111(j) of Customs Act, 1962

Relevant legal framework and precedents: Section 111(j) empowers confiscation where any dutiable or prohibited goods are removed or attempted to be removed from a customs area or warehouse without permission of the proper officer or contrary to terms of such permission. Section 59 and 73A impose duties and liabilities on importers and warehouse licensees respectively for improper removal. The Public Warehouse Licencing Regulations, 2017 and The Warehouse (Custody and Handling of Goods) Regulations, 2016 govern the custody and handling of goods by licensed warehouses.

Court's interpretation and reasoning: The Tribunal emphasized that confiscation under section 111(j) can only be invoked upon proof of removal of goods from a customs area or warehouse without proper permission. The record did not demonstrate any such removal from the warehouse, nor any breach of permission terms. The goods were found outside the designated bonded area but explanations and permissions from customs officials were on record for temporary placement outside the bonded area.

Key evidence and findings: The goods were either still in the warehouse, had been cleared on payment of duty, or transferred with customs permission to other warehouses. The appellant was neither owner nor importer of the goods. The presence of goods outside the bonded area was attributed to difficulties in storage capacity and was temporary with remedial steps underway.

Application of law to facts: Since the goods were not removed from the warehouse without permission, confiscation was not legally sustainable. The Tribunal found no evidence that the goods had entered the bonded area improperly or that revenue interests were prejudiced. The statutory mandate and contractual obligations require safeguarding revenue interests, but the facts did not establish breach warranting confiscation.

Treatment of competing arguments: The appellant's contention that goods were accounted for and placed with customs permission was accepted. The respondent's reliance on the goods being outside the licensed area was insufficient to justify confiscation without proof of unauthorized removal. The Tribunal rejected the respondent's approach as lacking responsible adjudication.

Conclusions: The confiscation order was set aside as being without cause. Redemption fines and penalties linked to confiscation were also quashed.

Issue 2: Liability of Warehouse Licensee for Goods Not Owned by Them

Relevant legal framework and precedents: Section 57 licenses public warehouses as custodians of imported goods pending clearance. Section 59 requires importers to execute bonds for goods under warehousing. Section 73A imposes responsibility on warehouse licensees for improper removal. The contractual obligations under the licence and regulations supplement statutory duties.

Court's interpretation and reasoning: The Tribunal recognized that the warehouse licensee's responsibility is circumscribed by the statutory framework and contractual terms. The licensee is not the owner or importer and is liable only for proper custody as per the licence and law. The risk of loss or damage impacts both exchequer and owner, with civil remedies available to owners against warehouse keepers.

Key evidence and findings: The goods were not illicitly removed; permissions were obtained for temporary storage outside bonded area; clearance of goods on payment of duty was duly recorded.

Application of law to facts: The Tribunal held that liability for improper removal or breach of custody conditions must be demonstrated with evidence of unauthorized removal or breach of permission. Mere presence outside the bonded area, especially with permission, does not suffice.

Treatment of competing arguments: The appellant's explanation of operational difficulties and customs permissions was accepted. The respondent's allegations were found unsubstantiated.

Conclusions: The appellant was not liable for confiscation or penalties on grounds of improper removal or custody breach in relation to these goods.

Issue 3: Imposition of Penalties under Section 117 of Customs Act, 1962 for Minor Infractions

Relevant legal framework and precedents: Section 117 provides for penalties up to Rs. 4 lakh for contraventions of the Customs Act where no express penalty is provided. Regulation 12 of The Warehouse (Custody and Handling of Goods) Regulations, 2016 prescribes penalties for contraventions of those regulations. Precedents cited include Tribunal decisions emphasizing proportionality and corrective action.

Court's interpretation and reasoning: The Tribunal noted that the minor deviations-such as improper stacking, lack of signage, missing solvency certificates, inadequate camera coverage, and absence of digital signatures-were rectified promptly after being pointed out. The adjudicating authority appeared to invoke penalties routinely without considering the remedial actions or the commercial realities of warehousing.

Key evidence and findings: The deficiencies were minor, not persistent, and corrected before penalty imposition. The appellant demonstrated compliance post-verification. The Tribunal highlighted the evolution of custodianship to a 'liberalized regime' placing onus on licensees but also requiring fair and reasonable enforcement.

Application of law to facts: Penalties designed as deterrents must be applied judiciously. The Tribunal found no justification for penalties where contraventions were minor and rectified. The invoking of section 117 was deemed disproportionate and not in line with the statutory scheme.

Treatment of competing arguments: The respondent's reliance on the licensee's primary responsibility was acknowledged, but the Tribunal emphasized the need for balanced adjudication. The appellant's arguments on prompt rectification and minor nature of infractions were accepted.

Conclusions: Penalties under section 117 were set aside as unjustified on the facts and circumstances.

Issue 4: Interpretation of Permissions Granted by Customs Authorities for Temporary Placement Outside Bonded Area

Relevant legal framework and precedents: Section 49 of the Customs Act permits removal of goods under customs control with permission. The Public Warehouse Licencing Regulations and The Warehouse (Custody and Handling of Goods) Regulations provide for operational flexibility subject to customs oversight.

Court's interpretation and reasoning: The Tribunal accepted that permissions granted by customs officials for temporary placement outside the bonded warehouse were valid and negated allegations of illicit removal. The commercial necessity and logistical difficulties justified such permissions.

Key evidence and findings: Permissions were on record for transfer or temporary storage of goods outside the licensed area. The goods were either cleared or moved with customs consent.

Application of law to facts: Such permissions preclude confiscation or penalties for alleged unauthorized removal. The Tribunal stressed the importance of customs authorities' oversight and consent in such operational matters.

Treatment of competing arguments: The appellant's reliance on customs permissions was accepted over the respondent's strict interpretation of bonded area restrictions.

Conclusions: Temporary placement outside bonded area with customs permission is lawful and does not attract confiscation or penalties.

3. SIGNIFICANT HOLDINGS

"There is nothing on record to demonstrate removal from warehouse let alone of removal without permission or breach of any condition of permission accorded by 'proper officer' that invited retribution thereby."

"Unless it was demonstrated that the goods had been removed after bonding, recourse to confiscation for illicit removal is not a legal option."

"It just does not make for logic or common sense to ignore the commercial interests of both the appellant and the importer in safeguarding the goods, in their custody or belonging to them respectively, merely to jeopardize revenue (and without actually being so) that is only of peripheral significance to the commercial stakes in entirety."

"There is no justification for not identifying the breach of Public Warehouse Licencing Regulations, 2017 and The Warehouse (Custody and Handling of Goods) Regulations, 2016 as well conditions in the licence that was not complied with to conclude removal in a manner other than specified in section 71 of Customs Act, 1962."

"Pettifogging, implicit in penalizing of minor infractions that are hardly of significance to revenue preservation, is not appropriate when the errors were rectified."

"There is no case for imposition of penalties under section 117 of Customs Act, 1962 while the invoking of section 111(j) of Customs Act, 1962 in the notice is with no cause for such."

The Tribunal established core principles that confiscation under section 111(j) requires proof of unauthorized removal post-bonding, that temporary placement outside bonded areas with customs permission is lawful, and that penalties under section 117 must be proportionate and not imposed for minor, rectified infractions. The final determination was to set aside the confiscation, redemption fines, and penalties, allowing the appeal.