2011 (6) TMI 639 - AT - Customs

Penalty - Appeals are being decided one from IDBI Bank Ltd. and another from Shri Ravinder Rajurkar an employee of the said Bank - fraudulent exports - adjudication order imposed a penalty of Rs. 5.00 lakhs on IDBI Bank Ltd. and Rs. 5.00 lakhs on Shri Ravinder Rajurkar under Section 114 of the Customs Act - There is no evidence forthcoming that Shri Ravinder had handled the impugned goods or even handled documents about which he was aware that they related to goods liable to confiscation under Section 113 of the Customs Act, penalty imposed on Shri Ravinder under Section 114 of the Customs Act is not maintainable - liability of IDBI Bank arises basically from the negligence of Shri Ravinder Held that - United Western Bank which was taken over by IDBI did not handle the goods. It is submitted that the banking transactions relating to the export goods were carried out in the normal course of business without any mens rea. It is also argued that the liability of IDBI Bank is further remote because the offence if any was committed by United Western Bank which they took over. It is argued that a company taking over another company cannot be held liable for the offence committed by the company taken over, arguments raised on behalf of IDBI are valid arguments. Further considering that we are setting aside penalty on Shri Ravinder, penalty on IDBI Bank is not maintainable, Misc. Application requesting for early hearing and the two appeals are allowed, penalties imposed on these two appellants in the impugned order are set aside

Summary

Issues:
1. Allegations of fraudulent exports by merchant exporters.
2. Imposition of penalties on IDBI Bank Ltd. and an employee.
3. Responsibility of the employee and the bank in facilitating fraudulent activities.
4. Argument regarding lack of personal knowledge and mens rea for imposing penalties.
5. Validity of penalties imposed under Section 114 of the Customs Act.
6. Liability of IDBI Bank in relation to the fraudulent activities.

Analysis:
1. The case involved allegations of fraudulent exports by merchant exporters, resulting in revenue loss. The exporters were accused of overvaluing goods, using fake currency declaration forms, and fraudulently claiming export benefits. A show cause notice was issued for recovery of drawback and proposed confiscation of goods, leading to penalties being imposed on IDBI Bank Ltd. and an employee.

2. The responsibility for the fraud primarily fell on the employee, who was found to have facilitated the criminal acts by not verifying essential documents. The bank, as the employer, was deemed to have a vicarious responsibility. The penalties were imposed based on the employee's actions, which were considered careless and facilitating the fraudulent activities.

3. The employee argued that he had no personal knowledge of the fraud and that his actions amounted to carelessness rather than intentional wrongdoing. The argument emphasized the lack of mens rea required for imposing penalties under Section 114 of the Customs Act.

4. The tribunal observed that the penalties imposed on the employee were based on carelessness and failure to perform duties, which might warrant departmental proceedings but did not constitute an offense under Section 114. The employee had not directly handled the impugned goods or documents leading to confiscation, rendering the penalty unjustifiable.

5. Regarding the liability of IDBI Bank, it was linked to the negligence of the employee and his supervisors. However, the tribunal noted that for penalties under Section 114, the individual must have handled the goods directly. Since the penalties on the employee were set aside, the liability of the bank was deemed further remote, as the alleged offense was committed by the bank taken over by IDBI.

6. Ultimately, the tribunal allowed the appeals and set aside the penalties imposed on both the employee and IDBI Bank. The arguments regarding lack of direct involvement in handling the impugned goods and the remote liability of the bank were considered valid, leading to the penalties being revoked.