2025 (5) TMI 419 - AT - Customs

Quantum of penalty u/s 114A and 114AA of the Customs Act 1962 - mis-declaration misclassification and undervaluation of the imported goods - HELD THAT - From perusal of Section 112(a)(v) 114A and 114AA of the Customs Act 1962 it is clear that they are distinct and meant for imposition of penalty on the basis of facts obtaining in each case. In fact prima facie it appears that the fifth proviso to Section 114A bars levy of penalty under Section 112 or Section 114 if a penalty were to be imposed under Section 114A. Therefore the act of the Adjudicating Authority in imposing a combined penalty very clearly reflects a non-application of mind. The matter remanded back to the Adjudicating Authority for the limited purpose of a decision afresh on the applicability and quantum of the penalties that are to be imposed under the aforesaid provisions duly bearing in mind the relevant binding judicial precedents. Needless to say the Adjudicating Authority should adhere to the principles of natural justice. Appeal allowed by way of remand.

Summary

The core legal questions considered in this appeal are:

1. Whether the Adjudicating Authority erred in imposing a penalty under Section 114A of the Customs Act, 1962 that was less than the differential duty determined as evaded by the importer.

2. Whether the penalty under Section 114A is mandatory and equal to the duty or interest determined, without any discretion for reduction.

3. Whether the Adjudicating Authority was justified in imposing penalties simultaneously under Section 112 and Section 114A, given the statutory proviso suggesting mutual exclusivity.

4. Whether the Adjudicating Authority should have imposed any penalty under Section 114AA of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Quantum and Mandatory Nature of Penalty under Section 114A

Legal Framework and Precedents: Section 114A of the Customs Act mandates that where duty is short-levied or not levied due to collusion, willful mis-statement, or suppression of facts, the person liable to pay the duty or interest shall also be liable to pay a penalty equal to the duty or interest so determined. The statute provides no discretion to reduce this penalty. The provisos allow for a reduced penalty (25%) if payment is made within 30 days of communication of the order determining the duty. The Larger Bench decision in the cited textile processors case, interpreting a pari materia provision under the Central Excise Act, held that no discretion is available to reduce the quantum of penalty under the equivalent provision.

Court's Interpretation and Reasoning: The Tribunal, relying on the statutory text and judicial precedent, emphasized that the penalty under Section 114A is mandatory and must be equal to the duty or interest determined. The Adjudicating Authority's imposition of a penalty of Rs.16,00,000/- which was less than the differential duty of Rs.86,24,294/- was thus inconsistent with the statutory mandate. The Tribunal noted that the Adjudicating Authority's discretion in this regard is curtailed by the clear language of the statute and binding judicial decisions.

Application of Law to Facts: The importer was found to have mis-declared, mis-classified, and undervalued the imported goods, resulting in a short levy of duty. The differential duty was correctly determined at Rs.86,24,294/-. Given the statutory mandate, the penalty under Section 114A should have been equal to this amount, unless reduced by timely payment under the proviso.

Treatment of Competing Arguments: The Department argued for imposition of the full penalty relying on the statutory language and judicial precedent. The importer did not appear. The Adjudicating Authority's lesser penalty was viewed as a non-application of mind or error.

Conclusion: The penalty under Section 114A must be equal to the duty sought to be evaded, subject to the provisos, and the Adjudicating Authority's lesser penalty was improper.

2. Mutual Exclusivity of Penalties under Sections 112 and 114A

Legal Framework: Section 112 prescribes penalties for improper importation, including mis-declaration and undervaluation, with penalties linked to the value or duty sought to be evaded. Section 114A prescribes penalty for short-levy or non-levy of duty due to collusion or willful mis-statement. The fifth proviso to Section 114A explicitly states that where a penalty is levied under Section 114A, no penalty shall be levied under Section 112 or Section 114.

Court's Interpretation and Reasoning: The Tribunal observed that the Adjudicating Authority imposed combined penalties under Sections 112(a)(v), 114A, and 114AA, which prima facie violated the statutory proviso barring simultaneous penalties under Sections 112 and 114A. This indicated a non-application of mind by the Adjudicating Authority in penalty imposition.

Application of Law to Facts: Since the penalty under Section 114A was imposed, the proviso bars imposition of penalty under Section 112 for the same act. Therefore, the Adjudicating Authority's combined penalty was legally impermissible.

Treatment of Competing Arguments: The Department did not contest this point explicitly but sought imposition of the full penalty under Section 114A. The Tribunal found the Adjudicating Authority's approach inconsistent with the statutory scheme.

Conclusion: Penalties under Sections 112 and 114A are mutually exclusive, and the Adjudicating Authority must impose penalty under only one of these provisions as applicable.

3. Penalty under Section 114AA for Use of False or Incorrect Material

Legal Framework: Section 114AA provides for penalty up to five times the value of goods if a person knowingly or intentionally uses false or incorrect declarations or documents in any transaction under the Customs Act.

Court's Interpretation and Reasoning: The Adjudicating Authority imposed penalty under Section 114AA along with Sections 112 and 114A but failed to discuss the applicability or quantum of this penalty in detail. The Tribunal noted this omission and remanded the matter for fresh consideration.

Application of Law to Facts: The importer's mis-declaration and undervaluation could potentially attract penalty under Section 114AA if it is established that false or incorrect material was knowingly used. However, the Adjudicating Authority must apply the provision with proper reasoning and adherence to principles of natural justice.

Treatment of Competing Arguments: The Department sought imposition of penalty under Section 114AA but did not elaborate extensively. The importer did not appear to contest.

Conclusion: The applicability and quantum of penalty under Section 114AA require fresh adjudication with proper reasoning and adherence to natural justice.

4. Adjudicating Authority's Non-application of Mind and Need for Remand

The Tribunal found that the Adjudicating Authority failed to correctly apply the statutory provisions, particularly the mandatory nature of penalty under Section 114A and the mutual exclusivity proviso barring simultaneous penalties under Sections 112 and 114A. The imposition of combined penalties without detailed discussion reflected non-application of mind. The Tribunal accordingly remanded the matter for fresh adjudication on penalties, directing the Adjudicating Authority to consider all relevant provisions and judicial precedents and to adhere to principles of natural justice.

Significant Holdings:

"Plain reading of the legal text as above clearly shows that the Adjudicating Authority does not have any discretion as to the quantum of penalty imposed under Section 114A, ibid, which is a mandatory penalty equal to the duty so demanded under the said Act."

"The fifth proviso to Section 114A bars levy of penalty under Section 112 or Section 114, if a penalty were to be imposed under Section 114A."

"The act of the Adjudicating Authority in imposing a combined penalty very clearly reflects a non-application of mind."

"We therefore remand the matter back to the Adjudicating Authority for the limited purpose of a decision afresh on the applicability and quantum of the penalties that are to be imposed under the aforesaid provisions, duly bearing in mind the relevant binding judicial precedents. Needless to say, the Adjudicating Authority should adhere to the principles of natural justice."

The Tribunal's final determinations are that the penalty under Section 114A must be imposed mandatorily equal to the duty sought to be evaded unless reduced under the statutory proviso; penalties under Sections 112 and 114A cannot be imposed simultaneously; and the question of penalty under Section 114AA requires fresh consideration. The matter is remanded for fresh adjudication on penalties consistent with these principles and judicial precedents.