2025 (6) TMI 545 - AT - Customs

Levy of penalty u/s 114 (iii) and 114AA 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 - A manifest has to be filed before departure of the goods and has to be delivered to the proper officer containing the specified particulars. The container was booked to export the goods to Colon Free Zone Panama and the same was mentioned in the Shipping Bill as well. It is a fact that there were no fraudulent amendments in the five Shipping Bills pertaining to goods carried by the appellant. According to the appellant the goods were carried to Colon Free Zone Panama and thereafter on the request of the booking party the consignment was carried to Jebel Ali Port Dubai and the appellant charged freight for carrying the goods from exporting port in India to Colon Free Zone Panama and then to Jebel Ali port at Dubai which fact has been stated by V.K. Krishna Kumar in his statement. In support of this contention the appellant also filed e- mail communication and the container tracking report to show that the charges for carrying the shipment after it had arrived at Panama to Jebel Ali was negotiated and invoices were raised by the appellant. Knowledge and intention is sine qua non for imposing penalty under section 114AA of the Customs Act. The department has not been able to establish knowledge on part of the appellant or intention on the part of the appellant to help the exporter in obtaining the alleged undue export advantage. In such circumstances penalty under section 114AA of the Customs Act cannot be imposed upon the appellant. Conclusion - The imposition of penalties under section 114(iii) and section 114AA of the Customs Act upon the appellant are set aside. Appeal allowed.

Summary

The core legal questions considered by the Tribunal include:

1. Whether penalty under section 114(iii) of the Customs Act, 1962 can be imposed on the appellant for allegedly assisting and conniving in diverting export goods to a different port than declared in the shipping bills and Export General Manifest.

2. Whether penalty under section 114AA of the Customs Act can be imposed on the appellant for knowingly or intentionally making or using materially false particulars in the transaction relating to export goods.

3. Whether the appellant had knowledge or intention to facilitate fraudulent availing of benefits under the Focus Market Scheme by diverting goods to a non-notified country.

4. The legal effect of the confiscation order under section 113 of the Customs Act having been set aside in a related appeal on the imposition of penalties under sections 114(iii) and 114AA.

Issue-wise Detailed Analysis

1. Imposition of penalty under section 114(iii) of the Customs Act

The relevant legal framework is section 114(iii) which prescribes penalty for any person who does or omits to do any act causing goods to be liable for confiscation under section 113. Section 113(d), (g), and (i) deal with confiscation of goods where the goods are diverted or misdeclared.

The Commissioner found as a fact that the goods covered under five shipping bills were diverted from the declared port of discharge, Panama, to Jebel Ali, UAE, a non-notified country under the Focus Market Scheme. The Commissioner held that the appellant, along with other parties, assisted and connived in this diversion, leading to confiscation of goods under section 113.

However, the confiscation order was subsequently set aside by a separate Customs Appeal filed by the exporter, Colour Cottex. The Court noted that confiscation under section 113 is a precondition for penalty under section 114(iii). Since confiscation was set aside, the legal foundation for penalty under section 114(iii) no longer exists.

The appellant contended that it acted only on instructions from freight forwarders and had no knowledge or intention to facilitate any fraudulent export benefit. The Court found no evidence to establish willful misconduct or connivance by the appellant.

The Court concluded that penalty under section 114(iii) could not be imposed on the appellant in the absence of confiscation and knowledge of wrongdoing.

2. Imposition of penalty under section 114AA of the Customs Act

Section 114AA imposes penalty for knowingly or intentionally making, signing, or using any material false particulars in customs transactions, with penalty up to five times the value of goods.

The Commissioner imposed penalty on the appellant for not amending the Export General Manifest to reflect the actual place of discharge (Jebel Ali instead of Panama) and for issuing landing certificates and Bills of Lading indicating the goods were transported to Jebel Ali, contrary to the declared shipping bills.

The appellant argued that the goods were indeed carried to Panama initially, and subsequently, on request of the booking party and buyer due to a payment dispute, the container was diverted to Jebel Ali. The appellant produced documentary evidence including email communications and container tracking reports showing the charges for carriage from Panama to Jebel Ali were negotiated and invoiced, indicating transparency and no concealment.

The Court emphasized that knowledge and intention to commit a wrongful act are essential for imposing penalty under section 114AA. The department failed to establish that the appellant had such knowledge or intent to assist in obtaining undue export benefits under the Focus Market Scheme.

Accordingly, the Court held that penalty under section 114AA could not be sustained against the appellant.

3. Knowledge and intention of the appellant in the diversion of goods

The department's case rested on the premise that the appellant knowingly assisted in diverting goods to a non-notified country to fraudulently avail export benefits. Statements recorded under section 108 of the Customs Act from various parties including freight forwarders and the exporter indicated instructions to divert the container to Jebel Ali.

However, the appellant's defense was that it acted only on instructions received and that the diversion occurred after the goods reached Panama, due to a dispute between the buyer and exporter. The appellant claimed no knowledge of any fraudulent scheme or intention to assist in such.

The Court found that the department did not produce sufficient evidence to prove the appellant's knowledge or intention to commit a wrongful act. The appellant's conduct of invoicing and charging freight for the extended carriage supported the claim of legitimate business transactions rather than fraudulent diversion.

4. Effect of setting aside confiscation on penalty imposition

The confiscation of goods under section 113 was a key basis for imposing penalty under section 114(iii). Since the confiscation order was set aside in a related appeal, the legal basis for penalty under section 114(iii) no longer subsists.

The Court underscored this principle and accordingly set aside the penalty under section 114(iii).

Significant Holdings

"The confiscation of goods has been set aside ... Consequently, penalty under section 114(iii) of the Customs Act cannot be levied upon the appellant."

"Knowledge and intention is sine qua non for imposing penalty under section 114AA of the Customs Act. The department has not been able to establish knowledge on part of the appellant or intention on the part of the appellant to help the exporter in obtaining the alleged undue export advantage. In such circumstances, penalty under section 114AA of the Customs Act cannot be imposed upon the appellant."

"The appellant had no knowledge that any benefit was likely to arise to the exporter out of the transaction and the finding recorded by the Commissioner that the exporter and the appellant connived with each other in diverting the container containing the goods under the five shipping bills is without any basis."

The Tribunal held that penalties under sections 114(iii) and 114AA of the Customs Act imposed on the appellant were not sustainable due to lack of evidence of knowledge or intention and because the confiscation order was set aside. The appellant was merely a shipping line acting on instructions and charging freight accordingly. The imposition of penalties was set aside and the appeal allowed.