2025 (6) TMI 1022 - AT - Customs

Levy of penalty on Custums Broker - Mis-declaration and mis-classification of imported goods - Appellant knowingly or intentionally abetted the evasion of ADD by classifying the goods under an incorrect tariff heading or not - H ELD THAT - There are nothing in the statement recorded or the order in original by which it can be said that the Appellant was in any way involved by the act of omission or commission leading to the confiscation of the imported goods or evasion of anti dumping duty. On the contrary it is an admitted fact that the Appellant had rightly advised about the correct classification of goods under the tariff heading on which the anti dumping duty was leviable. It is also not in dispute that the check list printed by him carried the correct classification of the imported goods. Appellant has not filed or caused to file any manipulated document which was found false in material aspects knowingly and intentionally. It is also not the case that the finding recorded in the order in original in respect of tweaking the invoice and country of origin certificate is based on any material investigation but is only a presumption on the basis of the sale confirmation document. In any case the Appellant was in no responsible for any such tweaking if any. The only failure for which the Appellant can be held responsible is that he failed to verify the antecedents of the importer physically. However even if it is admitted that such failure had occurred I do not find any reason why penalty for these failure penalties could have been imposed upon him under Section 114AA or Section 112 (a) of the Customs Act 1962. These failures are the failures as per the provisions of Custom Broker Licensing Regulations 2018 for which penalties and action has been provided under the said regulations. In case of VAZ Forwarding Ltd. 2010 (12) TMI 503 - GUJARAT HIGH COURT Hon ble Gujarat High Court held that it is apparent that the Tribunal after appreciating the evidence on record has found that there was no direct evidence on record to indicate that the respondent was aware of the fact that the advance licences were bogus and forged. The Tribunal has also found as a matter of fact that though there was some contravention on the part of the assessee in following the procedure envisaged under the Customs House Licensing Rules there was no evidence on record to show any knowledge on the part of the respondent that the advance licences in question were forged. It is in the light of the aforesaid findings recorded by the Tribunal that the Tribunal has held that there was no justifiable reason to impose the penalties on the respondent. Conclusion - In the absence of direct evidence showing knowledge or intention on the part of the Customs Broker to evade duty penalties under Sections 112 and 114AA are not justified. There are no merits in the impugned order - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the Customs Broker (Appellant) was liable for mis-declaration and mis-classification of imported goods under the Customs Act, 1962, specifically under tariff headings attracting Anti Dumping Duty (ADD).

(b) Whether the Appellant knowingly or intentionally abetted the evasion of ADD by classifying the goods under an incorrect tariff heading, thereby attracting penalties under Sections 112 and 114AA of the Customs Act, 1962.

(c) Whether the Appellant failed in his duty of due diligence and verification of the importer as required under the Customs Brokers Licensing Regulations, 2018, and if such failure attracts penalties under the Customs Act or the Licensing Regulations.

(d) Whether the penalty imposed on the Appellant under Sections 112 and 114AA of the Customs Act, 1962, was justified in light of the facts and evidence.

(e) The applicability and interpretation of the mens rea (knowledge or intention) requirement for imposition of penalties under Sections 112 and 114AA of the Customs Act, 1962, especially in the context of the Appellant's role as a Customs Broker.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Mis-declaration and Mis-classification of Goods Leading to Evasion of ADD

Relevant Legal Framework and Precedents: The Customs Act, 1962, Sections 112 and 114AA impose penalties for mis-declaration, mis-classification, and use of false or incorrect material to evade customs duties, including Anti Dumping Duty. Section 114AA specifically penalizes knowingly or intentionally making or using false or incorrect declarations or documents. Section 111(m) provides for confiscation of goods in cases of mis-declaration or mis-classification.

Court's Interpretation and Reasoning: The Tribunal examined the facts surrounding the import of goods declared as "Decorative Stoneware" under tariff heading 69139000, whereas the goods were found upon examination to be "Ceramic Tableware" (cups, mugs, bowls) classifiable under tariff heading 69120010, which attracts ADD. The Appellant, a G-card holder Customs Broker, was aware that ADD was leviable on goods under headings 6911 and 6912. However, the bill of entry was filed under the incorrect tariff heading 69139000, following the importer's direction.

The adjudicating authority found that the importer wilfully suppressed the correct description and classification to evade ADD, and the Customs Broker failed to exercise due diligence by accepting the importer's classification without proper verification. The Appellant's statement under Section 108 of the Customs Act admitted awareness of the correct classification and the ADD liability but also indicated that he filed the bill of entry as per importer's instructions.

Key Evidence and Findings: Examination of the goods by Customs officials confirmed the goods were ceramic tableware, not decorative stoneware. The importer's representative admitted the mis-classification and accepted liability for ADD and penalties. The Appellant's statement revealed no physical verification of the importer was conducted and that he knowingly filed the bill of entry under the incorrect tariff heading.

Application of Law to Facts: The Tribunal noted that the Appellant's actions constituted mis-declaration and mis-classification with knowledge of ADD applicability, fulfilling the mens rea requirement for penalties under Sections 112 and 114AA. The failure to verify importer details further evidenced negligence and omission.

Treatment of Competing Arguments: The Appellant argued that he had advised the correct classification initially and was compelled to file the bill of entry as per importer's direction, and that this was his first import for the importer. The Tribunal rejected this defense, emphasizing the Appellant's duty of due diligence and the conscious acceptance of incorrect classification.

Conclusions: The Tribunal upheld the finding that the Appellant was liable for penalties under Sections 112 and 114AA for knowingly abetting mis-declaration and evasion of ADD.

Issue (c): Failure to Verify Importer as per Customs Brokers Licensing Regulations, 2018

Relevant Legal Framework: The Customs Brokers Licensing Regulations, 2018, impose duties on Customs Brokers to verify importer details and maintain due diligence. Regulation 18 prescribes penalties for contravention, with maximum penalties of Rs. 50,000 for Customs Brokers (F card holders) and Rs. 10,000 for G card holders.

Court's Interpretation and Reasoning: The Tribunal acknowledged that the Appellant failed to perform physical verification of the importer, violating the Licensing Regulations. However, it observed that such failure attracts penalties under the Regulations themselves, not necessarily under the Customs Act's penal provisions (Sections 112 or 114AA).

Key Evidence and Findings: The Appellant admitted no physical verification was done. However, no evidence was found that the Appellant filed manipulated or false documents knowingly or intentionally.

Application of Law to Facts: The Tribunal held that the failure to verify importer antecedents was a breach of the Licensing Regulations, for which penalties are prescribed therein, but did not warrant imposition of penalties under the Customs Act Sections 112 or 114AA.

Treatment of Competing Arguments: The Appellant contended that the failure to verify importer should not attract heavy penalties under the Customs Act, especially in absence of mens rea. The Tribunal agreed, distinguishing between regulatory breaches and penal offences under the Customs Act.

Conclusions: The Tribunal concluded that penalties under the Licensing Regulations would be appropriate for verification failures, but not the penal provisions of the Customs Act invoked.

Issue (d): Justification of Penalties Imposed under Sections 112 and 114AA of the Customs Act, 1962

Relevant Legal Framework: Sections 112 and 114AA require proof of knowledge or intention (mens rea) for penalty imposition. Penalties under Section 114AA may extend up to five times the value of goods.

Court's Interpretation and Reasoning: The Tribunal reviewed the imposition of Rs. 5,00,000 under Section 114AA and Rs. 25,000 under Section 112(a) on the Appellant. It found that while the penalty amount was modest compared to the maximum permissible, the evidence did not establish the Appellant's mens rea beyond reasonable doubt. The Appellant had advised correct classification initially and was directed by the importer to file under the incorrect heading.

Key Evidence and Findings: Statements of the Appellant and importer representatives showed the importer accepted responsibility for mis-classification and agreed to pay ADD and penalties. No direct evidence indicated the Appellant knowingly manipulated documents or had a guilty mind to evade duty.

Application of Law to Facts: The Tribunal applied precedents emphasizing the necessity of mens rea for penalty imposition under Sections 112 and 114AA. It noted that mere negligence or failure to verify importer antecedents without conscious knowledge of wrongdoing does not suffice for penal consequences under these sections.

Treatment of Competing Arguments: The Revenue relied on the Appellant's acceptance of incorrect classification and failure to verify importer as grounds for penalty. The Appellant argued absence of mens rea and that penalties should not be imposed on him but on the importer.

Conclusions: The Tribunal found no justifiable reason to uphold penalties under Sections 112 and 114AA against the Appellant and allowed the appeal.

Issue (e): Mens Rea Requirement for Penalty Imposition on Customs Broker

Relevant Legal Framework and Precedents: The Tribunal relied on judicial precedents from the Gujarat High Court and Delhi High Court, which held that penalty under Sections 112 and 114AA requires mens rea or conscious knowledge. For abettors, mens rea is necessary to justify penalty imposition.

Court's Interpretation and Reasoning: The Tribunal applied these principles, noting that the Appellant was not shown to have knowledge of any forged or manipulated documents or to have intentionally abetted evasion. The failure to verify importer antecedents was procedural and regulatory in nature, not criminal or fraudulent.

Key Evidence and Findings: No direct evidence of mens rea against the Appellant was found. Statements indicated the Appellant acted on importer's instructions and did not oppose the classification, but this did not amount to conscious wrongdoing.

Application of Law to Facts: The Tribunal held that absence of mens rea negates the imposition of penalties under Sections 112 and 114AA on the Customs Broker.

Treatment of Competing Arguments: The Revenue's argument that the Appellant's failure constituted abetment was rejected due to lack of evidence of mens rea.

Conclusions: The Tribunal concluded that mens rea was not established, and penalties under Sections 112 and 114AA could not be sustained against the Appellant.

3. SIGNIFICANT HOLDINGS

"The mis-classification of the item under import was a blunder on his part as he knew that in the chapter heading where the goods fall 'Ceramic Tableware' Anti Dumping Duty was leviable . He failed to exercise due diligence by accepting the proposal of importer conveyed through the forwarder, which resulted in evasion of anti dumping duty leviable thereon."

"The Customs Broker did not perform any verification of the importer prior to the import of goods which is in violation of duties prescribed under Customs Brokers Licensing Regulations, 2018. The Customs Broker not only failed to advise his client about lawful classification of imported goods but also help in misclassification of the item under import."

"Section 114AA, Penalty for use of false and incorrect material.- if a person knowingly or intentionally makes, signs or use, or causes to be made, signed or use, any declaration, statement or documents which is false or incorrect in any material particular, in the transaction of any business for the purpose of this Act, shall be liable to a penalty not exceeding five time the value of goods."

"The charges of mis-declaration of description, classification, value of goods and violation of import conditions are well established to invite confiscation in terms of section 111 (m) of the Act."

"The argument of the classification of imported goods was done on the basis of invoice and country of origin certificate provided by the supplier is nothing but the circumvention of facts that they have wrongly declared or classified the import goods so as to evade Anti Dumping Duty."

"The failure to verify the antecedents of the importer physically is a breach of the Customs Brokers Licensing Regulations, 2018, for which penalties are provided under those regulations, but does not justify penalties under Sections 112 or 114AA of the Customs Act."

"The penalty under Sections 112 and 114AA of the Customs Act requires mens rea or conscious knowledge as a sine qua non. Mere procedural lapses or negligence without knowledge of wrongdoing do not attract these penalties."

"In the absence of direct evidence showing knowledge or intention on the part of the Customs Broker to evade duty, penalties under Sections 112 and 114AA are not justified."

"The appeal is allowed."