2025 (6) TMI 371 - AT - Customs

Levy of penalty upon the appellant u/s 114 (iii) of the Customs Act 1962 - diversion of export consignment covered under the five shipping bills to Jebel Ali to assist the exporter to fraudulently avail the benefit of the Focus Market Scheme without exporting the goods to the notified country. HELD THAT - Penalty has been imposed on the appellant holding that the appellant assisted and connived with Imran Mirza Proprietor of Concorde Shipping Agency and the exporter in diverting the container containing the export goods covered under subject five shipping bills. Section 114 (iii) of the Customs Act provides that any person who in relation to any goods does or omits to do any act which act or omission would render such goods liable to confiscation under section 113 of the Customs Act shall be liable to a penalty not exceeding the value of the goods as declared by the exporter or the value as determined under the Customs Act which ever is greater. The Commissioner confiscated the goods under section 113 of the Customs Act. As noticed above the confiscation of goods has been set aside by order of date in Customs Appeal No. 55760 of 2023 filed by Color Cottex. Consequently penalty under section 114(iii) of the Customs Act cannot be levied upon the appellant. Thus the imposition of penalty under section 114(iii) of the Customs upon the appellant is set aside. The impugned order dated 15.09.2021 passed by the Commissioner in so far as it imposes penalty upon the appellant is set aside - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether penalty under section 114(iii) of the Customs Act, 1962 can be imposed on the appellant freight forwarder for allegedly assisting and conniving in the diversion of export goods to a port different from that declared in the shipping bills.

- Whether the appellant's act or omission rendered the goods liable to confiscation under section 113 of the Customs Act, thereby triggering penalty liability under section 114(iii).

- The validity of the findings regarding diversion of goods from the declared "Port of Discharge" (Panama) to Jebel Ali, a non-notified country under the Focus Market Scheme (FMS).

- The effect of the appellate order setting aside confiscation of goods on the imposition of penalty under section 114(iii).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether penalty under section 114(iii) of the Customs Act can be imposed on the appellant for alleged diversion of export goods.

Relevant legal framework and precedents: Section 114(iii) of the Customs Act penalizes any person who does or omits to do any act which renders goods liable to confiscation under section 113. Section 113 lists various grounds for confiscation, including fraudulent export or diversion of goods. The penalty under section 114(iii) can be imposed up to the value of the goods.

Court's interpretation and reasoning: The Commissioner found that the appellant, an intermediate freight forwarding agency, had assisted and connived with the exporter and other freight forwarders in diverting containers to Jebel Ali instead of Panama, the declared port of discharge. This diversion was held to be a willful act aimed at fraudulently availing benefits under the Focus Market Scheme (FMS), which applies only to designated countries like Panama.

Key evidence and findings: Statements recorded under section 108 of the Customs Act from various parties including the proprietor of Concorde Shipping, the Deputy Manager of Safewater Lines, and the Assistant Manager of Evergreen Shipping Agency admitted that the container's destination was changed from Panama to Jebel Ali on instructions from the exporter and freight forwarders. The Export General Manifest filed mentioned Panama as the port of discharge, but the container was actually discharged at Jebel Ali. The appellant admitted instructing Evergreen Shipping Agency to discharge the container at Jebel Ali.

Application of law to facts: The Tribunal noted that the appellant's act of instructing the shipping line to discharge the container at a different port than declared in the shipping bills constituted an act rendering the goods liable to confiscation under section 113. Hence, prima facie, penalty under section 114(iii) was justified.

Treatment of competing arguments: The appellant contended that it was acting on instructions received from another freight forwarder (Concorde Shipping) and did not raise or issue any export documents. However, the Commissioner rejected this plea, holding that the appellant cannot absolve itself of responsibility merely because it did not issue documents, as it actively facilitated the diversion.

Conclusion: The Commissioner's imposition of penalty under section 114(iii) was based on the finding that the appellant had assisted in the diversion, which rendered goods liable to confiscation.

Issue 2: Whether the goods were liable to confiscation under section 113 of the Customs Act, and the impact of the appellate order setting aside confiscation on penalty liability.

Relevant legal framework and precedents: Section 113 of the Customs Act provides for confiscation of goods in cases of fraudulent export or misdeclaration, including diversion of goods to a place other than declared in shipping documents. Confiscation is a precondition for imposing penalty under section 114(iii).

Court's interpretation and reasoning: The Commissioner had initially found the goods liable for confiscation under sections 113(d), (g), and (i) due to diversion from Panama to Jebel Ali. However, a separate Customs Appeal filed by the exporter (Colour Cottex) resulted in the setting aside of confiscation of the goods under section 113.

Key evidence and findings: The Tribunal noted that the confiscation order was set aside by the appellate authority in a related appeal. Since penalty under section 114(iii) depends on the goods being liable to confiscation under section 113, the setting aside of confiscation negates the basis for penalty.

Application of law to facts: The Tribunal held that once confiscation is set aside, penalty under section 114(iii) cannot be sustained against any party, including the appellant freight forwarder.

Treatment of competing arguments: The department argued that the appellant's acts independently warranted penalty. The Tribunal rejected this, emphasizing the statutory link between confiscation and penalty under section 114(iii).

Conclusion: The penalty imposed on the appellant was untenable in the absence of confiscation, leading to the setting aside of the penalty order.

3. SIGNIFICANT HOLDINGS

- "M/s. Safewater Lines India Pvt. Ltd. (Intermediate Freight Forwarding Agency) cannot absolve itself of responsibility on the plea that they had not raised or issued any document. In their reply dated 23.1.2019, they have mentioned that they had instructed M/s. Evergreen Shipping Agency India Pvt. Ltd. to discharge the Container stuffed with the export goods covered under above said 5 Shipping Bills, at Jebel Ali, United Arab Emirates despite being cognisant of the fact that those Shipping Bills were filed for export of the goods to Colon Free Zone, Panama."

- "I therefore find that the above Noticees had assisted, facilitated and connived with Shri Imran Mirza, Proprietor of M/s. Concorde Shipping & Logistics India (Freight Forwarding Agency) and M/s. Colour Cottex Pvt. Ltd. (Exporter) in diverting the above said Container stuffed with the export goods covered under said 5 Shipping Bills to Jebel Ali, United Arab Emirates, instead of Colon Free Zone, Panama, as declared before the Customs in those 5 Shipping Bills and hence I hold that they are liable to penal action under Section 114(iii) of the Customs Act, 1962."

- The Tribunal emphasized that penalty under section 114(iii) is contingent upon the goods being liable to confiscation under section 113. Since confiscation was set aside in a related appeal, penalty cannot be imposed: "The confiscation of goods has been set aside by order of date in Customs Appeal No. 55760 of 2023 filed by Color Cottex. Consequently, penalty under section 114(iii) of the Customs Act cannot be levied upon the appellant."

- Final determination: The imposition of penalty under section 114(iii) on the appellant freight forwarder is set aside, and the appeal is allowed.