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2025 (5) TMI 1736 - AT - CustomsImposition of penalty under section 114A - lack of jurisdiction - redemption of goods - non-fulfilment of conditions of exemption notification - differential duty effected not under section 28 of Customs Act 1962 but as obligation in bond executed at the time of import - HELD THAT - There is also no evidence in the notice that any of the ingredients permitting resort to section 28(4) of Customs Act 1962 and thereby to section 114A of Customs Act 1962 was manifest at the time of assessment to duties even if foregone then. And it does not appear to have impressed itself on the reviewing authority that the impugned order may have opted for that very lack to bypass resort to section 28 of Customs Act 1962. The adjudication order has not drawn upon any evidence to suggest otherwise and appears merely to have relied upon the diversion of impugned goods had been diverted to suggest that this amounted to misrepresentation; misrepresentation is not a state of mind to be inferred but patent distortion of facts that must be established. The factual matrix incorrectly appreciated by the adjudicating authority insofar as penalty was concerned and inappropriately overlooked in submission of Learned Authorized Representative offers no scope for imposition of penalty under section 114A of Customs Act 1962 on M/s Hi-Tech Engineers. Indeed the plea in appeal of Commissioner of Customs for enforcement of the bond does not sit well with the contention of Learned Authorized Representative that equal penalty was in order. It only remains for us to examine the alleged impropriety in not quantifying fine under section 125 of Customs Act 1962 as condition for redemption of goods. Goods are admittedly not available and not retainable thereby for transfer back to the title holder upon complying with payment of fine. Such is merely an option which does not present itself for exercise by importer in the absence of need for the goods. Non-exercise of option crystalizes the ownership in the hands of the Central Government and determination of fine for redemption of goods that do not vest by confiscation and which cannot be made available by Central Government on compliance with fine is nothing but a futile exercise bordering on farce. The Hon ble High Court of Bombay in Commissioner of Customs (Import) v. Finesse Creation Inc 2009 (8) TMI 115 - BOMBAY HIGH COURT that was affirmed by the Hon ble Supreme Court 2010 (5) TMI 804 - SC ORDER held that goods already cleared and not available physically for confiscation cannot be burdened with fine under section 125 of Customs Act 1962. Thus there is no merit in recourse to section 114A of Customs Act 1962 owing to which the appeal of importer is allowed to set aside the penalty therein. For the reasons cited supra we hold the appeal of Commissioner of Customs (Preventive) Mumbai to be without merit and liable to be dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS Penalty under Section 114A of the Customs Act, 1962 and its applicability: The legal framework under section 114A imposes a penalty equal to the duty or interest determined under section 28(2) of the Customs Act where duty has not been levied or short-levied due to collusion, wilful misstatement, or suppression of facts. The penalty is contingent on the determination of duty liability under section 28. The Court noted that in the instant case, the recovery of differential duty was effected not under section 28 but as an obligation arising from a bond executed at the time of import under the EPCG scheme. This distinction was critical because section 114A's penalty is predicated on duty liability determined under section 28, which was absent here. The adjudicating authority had imposed penalty under section 114A on the basis that the importer misrepresented its status as a Manufacturer-Exporter to obtain the EPCG license and thereby saved customs duty. However, the Tribunal found this reasoning flawed, as it lacked evidence of collusion, wilful misstatement, or suppression of facts as legally required. Mere diversion of goods was treated as misrepresentation by the adjudicating authority, but the Tribunal emphasized that misrepresentation must be a patent distortion of facts, not an inferred state of mind. The Tribunal also referenced the circular no. 61/2002-Cus. clarifying that penalty under section 114A should be equivalent to duty and interest, and the Supreme Court ruling that such circulars are binding on the Department. Nevertheless, the Tribunal held that the statutory ingredients for invoking section 114A were not met, rendering the penalty imposition improper. The competing argument from the Revenue that the bond should be enforced and penalty imposed was rejected because enforcement of the bond is a separate executive action and not within the adjudicatory or appellate jurisdiction of the Tribunal. The adjudicating authority becomes functus officio after adjudication, and enforcement is to be pursued under section 142, not through penalty imposition under section 114A. Jurisdictional competence and procedural aspects: The Tribunal addressed the procedural history, noting that the appeal was transferred from a Single Member Bench to a Division Bench due to jurisdictional concerns. The Tribunal found no valid cause for restoration of the appeal to a Single Member Bench given the nature of the dispute, which involved recovery of duty foregone and penalties related to breach of EPCG conditions. The Tribunal nevertheless exercised jurisdiction, as it was not excluded, to dispose of the appeal on merits. Penalty under Section 112 and imposition of fine under Section 125: The adjudicating authority had imposed a penalty of Rs. 2,00,000 under section 112 and refrained from quantifying fine under section 125 for redemption of goods, as the goods were not available physically for confiscation or redemption. The Tribunal held that the non-availability of goods precludes the option of redemption by payment of fine, as the ownership of goods vests with the Central Government upon confiscation or non-availability. The Tribunal relied on binding precedent from the High Court and Supreme Court which held that goods already cleared and not physically available cannot be burdened with fine under section 125. Therefore, the failure to quantify fine was not improper but consistent with the legal position. Application of EPCG scheme conditions and consequences: The EPCG scheme allows import of capital goods at concessional or nil customs duty subject to export obligations and other conditions such as installation at a stipulated location. The importer had breached the installation condition, leading to initiation of recovery and penalty proceedings. The Tribunal observed that the dispute was limited to penalties and recovery of duty foregone due to non-fulfillment of EPCG conditions, with no challenge to duty rate or value. Hence, the Tribunal's jurisdiction was confined to penalty and recovery issues. 3. SIGNIFICANT HOLDINGS "Penalty, amounting to no less than sum of duty and interest, is erected on two pillars, viz., non-levy or short-levy of duty liability - by reason of collusion, willful misstatement or suppression of facts - and that the 'person liable to duty and interest' stands determined under section 28 of Customs Act, 1962." "In the instant case, the liability has not been determined with reference to empowerment under section 28 of Customs Act, 1962. There is also no evidence in the notice that any of the ingredients permitting resort to section 28(4) of Customs Act, 1962, and thereby to section 114A of Customs Act, 1962, was manifest at the time of assessment to duties, even if foregone then." "Misrepresentation is not a state of mind to be inferred but patent distortion of facts that must be established." "The adjudicating authority becomes functus officio and 'certificate action' is an act of the executive. For enforcement to be pressed, resort to jurisdiction of Tribunal is inappropriate." "Goods already cleared and not available physically for confiscation cannot be burdened with fine under section 125 of Customs Act, 1962." The Tribunal concluded that imposition of penalty under section 114A was improper due to absence of statutory ingredients and lack of duty determination under section 28. The appeal of the importer was allowed to set aside the penalty under section 114A. Conversely, the appeal of the Commissioner of Customs seeking enforcement of bond and penalty imposition was dismissed as without merit. The non-quantification of fine under section 125 was held to be legally appropriate given the non-availability of goods.
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