2025 (6) TMI 375 - AT - Customs

Levy of penalty u/s 112 and 114AA on Customs Broker - Abetment in offence - appellant accepted the IEC of an import firm mentioned by Ashok Kumar Agarwal knowing fully well that he was not a Director of Trips Communications - reasons to believe - violation of regulation 13 (d) and (e) of the Customs House Agents Licensing Regulations 2004 - HELD THAT - As a holder of custom broker license issued under the Licensing Regulations the appellant merely acts on the basis of the documents provided by the importer. The department has imposed penalty on the appellant under section 114AA of the Customs Act for the reason that the appellant connived with the importer. In the absence of anything on record to show that the appellant connived with the importer penalty under section 114AA of the Customs Act could not have been imposed upon the appellant. In the present case both the Additional Commissioner and the Commissioner (Appeals) have held that the appellant accepted the IEC of a firm mentioned by Ashok Kumar Agarwal fully knowing that Ashok Kumar Agarwal was not the Director of Trip Communications. The Tribunal in Gopal Agarwal observed that since there is no bar under the Customs Act to import goods in the name of IEC holder and there is no offence under the Customs Act for lending IEC code penalty cannot be imposed. Section 114AA of the Customs Act provides that if a person knowingly or intentionally makes signs or uses or causes to be made signed or used any declaration statement or document which is false or incorrect in any material particular in the transaction of any business for the purposes of the Customs Act shall be liable to a penalty not exceeding five times the value of goods. The only allegation against the appellant is that the he was aware that the IEC was provided by Ashok Kumar Agarwal who was not the Director of Trip Communications. It has already been held that there is no bar in lending of IEC. Penalty under section 114AA of the Customs Act therefore could not have been imposed upon the appellant - The statements of Amit Kumar and Tripurari Nath and of the appellant made under section 108 of the Customs Act have been relied upon by the Commissioner (Appeals) for imposing penalty upon the appellant. Such statements could not have been relied upon as the procedure contemplated under section 138B of the Customs Act was not followed. Conclusion - The penalties imposed under sections 112 and 114AA of the Customs Act 1962 on the appellant were unsustainable due to lack of independent findings absence of evidence of knowledge or connivance failure to specify applicable sub-section and improper reliance on inadmissible statements. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant, a customs broker, violated Regulation 13(d) and (e) of the Customs House Agents Licensing Regulations, 2004, by accepting the Importer Exporter Code (IEC) of an import firm from a person not authorized as a director, thereby abetting mis-declaration and contravening the Customs Act, 1962.

- Whether penalty under sections 112 and 114AA of the Customs Act, 1962 was rightly imposed on the appellant for abetment and dealing with goods liable to confiscation.

- Whether the appellant can be held liable for the acts or omissions of the importer, specifically in relation to lending of IEC and mis-declaration.

- Whether penalty under section 114AA of the Customs Act can be imposed without evidence of connivance or knowledge of the appellant.

- Whether the penalty under section 112 of the Customs Act was validly imposed without specifying the applicable sub-section.

- Whether statements recorded under section 108 of the Customs Act can be relied upon without following the procedure prescribed under section 138B of the Customs Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Regulation 13(d) and (e) of the Customs House Agents Licensing Regulations, 2004

The appellant was alleged to have accepted the IEC of an import firm from a person who was not the director, thus violating the obligation to exercise due diligence under Regulation 13(d) and (e). These provisions require the Customs House Agent (CHA) to advise clients to comply with the Customs Act, report non-compliance to authorities, and ascertain correctness of information related to cargo clearance.

The Additional Commissioner and Commissioner (Appeals) upheld the penalty, relying largely on the allegations in the show cause notice, stating the appellant "knowingly and deliberately abetted" the unauthorized use of IEC. However, the Tribunal noted that the orders merely reproduced the allegations without independent examination or findings. Furthermore, the appellant's license revocation proceedings under the Licensing Regulations had been set aside by the Tribunal, undermining the finding of violation of these regulations.

The Tribunal emphasized that as a licensed customs broker, the appellant acts on documents provided by the importer and is not automatically responsible for verifying the genuineness of the IEC holder beyond the documents presented. The absence of independent findings or evidence of due diligence failure negated the alleged violation.

Issue 2: Imposition of penalty under sections 112 and 114AA of the Customs Act, 1962

Section 112 imposes penalties for various customs violations, while section 114AA penalizes knowingly or intentionally making false declarations or documents in customs transactions.

The penalty was imposed on the basis that the appellant abetted mis-declaration and dealt with goods liable to confiscation. The authorities alleged the appellant was aware that the IEC was provided by an unauthorized person and thus connived in mis-declaration.

The Tribunal, however, relied on precedents such as D.S. Cargo Service and Prime Forwarders, which held that mere handling of documents or acting on importer-provided information without knowledge or connivance in mis-declaration does not attract penalty. The Tribunal noted the absence of any material showing appellant's knowledge or intent to abet wrongdoing.

Regarding section 114AA, the Tribunal observed that lending of IEC is not an offence under the Customs Act and penalty under this section requires proof of knowingly making false declarations. The appellant's mere acceptance of the IEC without evidence of falsehood or misrepresentation did not satisfy this requirement.

Issue 3: Liability of customs broker for importer's misconduct, specifically lending of IEC

The appellant contended that lending of IEC is not an offence and cannot attract penalty. The Tribunal agreed, citing the decision in Gopal Agarwal, which held that importing goods in the name of the IEC holder is lawful and lending IEC is not prohibited under the Customs Act. Penalty under Customs Act cannot be imposed for such lending, which is governed under the Foreign Trade (Development and Regulation) Act, 1992, if at all.

Issue 4: Requirement to specify sub-section of Section 112 for penalty imposition

The appellant argued that the penalty order did not specify the sub-section of section 112 invoked, rendering the penalty invalid. The Tribunal agreed, referring to decisions including S.G. Steels and Aadil Majeed Banday, which emphasize that specific sub-sections must be cited to clarify the nature of the offence and the basis of penalty.

Moreover, sub-section 112(b) requires that the person be aware of the offending nature of the goods. Absence of such knowledge negates penalty. The impugned orders failed to specify the sub-section or establish knowledge, making the penalty unsustainable.

Issue 5: Admissibility of statements recorded under section 108 of the Customs Act

The Commissioner (Appeals) relied on statements recorded under section 108 by the appellant and others to impose penalty. The appellant challenged the admissibility, citing procedural non-compliance under section 138B of the Customs Act.

The Tribunal analyzed relevant provisions and precedents, including the decision in M/s. Surya Wires Pvt. Ltd., which clarified that statements recorded under section 108 during inquiry are admissible only if the person making the statement is examined as a witness before the adjudicating authority and the authority forms an opinion to admit the statement in evidence, with opportunity for cross-examination.

Failure to follow this mandatory procedure renders such statements inadmissible. Since the procedure was not followed, reliance on these statements was improper.

3. SIGNIFICANT HOLDINGS

"The order passed by the Additional Commissioner and the Commissioner (Appeals) are almost reproduction of the allegations made in the show cause notice. It was incumbent upon the Additional Commissioner and the Commissioner (Appeals) to have independently examined the issues and record findings."

"As a holder of custom broker license issued under the Licensing Regulations, the appellant merely acts on the basis of the documents provided by the importer. The department has imposed penalty on the appellant under section 114AA of the Customs Act for the reason that the appellant connived with the importer. In the absence of anything on record to show that the appellant connived with the importer, penalty under section 114AA of the Customs Act could not have been imposed upon the appellant."

"Merely IEC holder lending the IEC to a third party is not an offence under the Customs Act and penalty for violation of Section 7 of Foreign Trade (Development and Regulation) Act, 1992 cannot be imposed under Customs Act."

"Penalty has also been imposed upon the appellant under section 112 of the Customs Act without specifying which particular sub-section of this section would be applicable. Even if section 112(b) of the Customs Act was to be invoked, penalty could be imposed only if the appellant was aware of the offending nature of the goods. In the present case there is nothing on the record to show that the appellant was aware of the nature of the imported goods."

"Statements recorded under section 108 of the Customs Act during inquiry shall be relevant for proving the truth of facts contained therein only when the person who made the statement is examined as a witness before the adjudicating authority and the adjudicating authority forms an opinion that the statement should be admitted in evidence, with opportunity for cross-examination. Failure to comply with this procedure renders such statements inadmissible."

The final determination was that the penalties imposed under sections 112 and 114AA of the Customs Act, 1962, on the appellant were unsustainable due to lack of independent findings, absence of evidence of knowledge or connivance, failure to specify applicable sub-section, and improper reliance on inadmissible statements. The appeal was allowed and the impugned order set aside.