2007 (11) TMI 431 - HC - Customs

Penalty - imposition of penalty on the Managing Director of the company invoking Section 112 of the Act has been done without stating any reasons whatsoever - Held that - without entering a finding that the writ petitioner, as the Managing Director, is guilty of omissions or commissions and had sought to evade duty. Neither the Commissioner nor the Appellate Tribunal had found against the version of the petitioner regarding the failure of business and that the international contracts with the Italian collaborators failed, leading the company to fall into liquidation. These factors clearly established that there was no ground to conclude that the situation in hand calls for an order against the Managing Director under Section 112 of the Act, imposes penalty on the writ petitioner as the Managing Director of the company

Summary

Issues:
Imposition of penalty under Section 112 of the Customs Act without proper reasoning and findings.

Analysis:
The petitioner, a managing director of a company, was entitled to import capital goods for manufacturing goods for export. However, due to business decline, the company went into liquidation. Customs authorities issued a notice under Section 111(o) of the Customs Act, alleging non-use of imported goods for export production. An order of confiscation was issued without providing an opportunity to redeem the goods, and a penalty of Rupees One Lakh was imposed on the petitioner under Section 112 of the Act. The petitioner appealed, but the appeal was dismissed.

The petitioner challenged the penalty imposition, arguing that no reasons were given for the penalty and that without mens rea, the penalty was impermissible. Section 112 allows penalties for acts or omissions leading to goods' confiscation under Section 111. The penalty must be based on conscious evasion of duty. The Commissioner found the petitioner in control of the company, but evasion of duty requires a conscious attempt to evade. Previous court decisions support the requirement of a conscious effort to evade duty.

The court noted that the penalty was imposed without stating reasons or establishing that the petitioner sought to evade duty. The petitioner's explanations for business failure and liquidation were not contradicted. As there was no evidence of the petitioner's involvement in duty evasion, the penalty imposition was unjustified. The court allowed the writ petition, quashing the penalty imposed on the petitioner as the managing director.

In conclusion, the judgment focused on the necessity of establishing conscious evasion of duty for penalty imposition under Section 112 of the Customs Act. The court emphasized the importance of providing reasons and evidence before penalizing individuals, especially in cases of company liquidation and business failure. The judgment highlighted the need for strict interpretation of penal provisions and conscious efforts to evade duty before imposing penalties.