2012 (10) TMI 423 - HC - Customs

100% Export-Oriented Unit - manufacture of ready-made garments alleged that 100% EOU had cleared without payment of duty certain goods and had been diverted into the domestic market in violation of the provisions of the Customs Act, 1962 Held that - Apart from the statement given by the employees who are also held guilty of liability to make payment of penalty there is no other material whatever to connect the company M/s. MNS Exports Private Limited and its Managing Director - disputed transaction has been carried out by collusion with three employees of the respondent-company and Sri Bhaskar who was an employee in the Customs Department and Sri Vikram Jain - in the criminal case no allegation was made against the respondent, it clearly shows that there was no nexus between M/s. MNS Exports Private Limited or its Managing Director - appeal is dismissed

Summary

Issues:
1. Interpretation of Section 147(2) of the Customs Act, 1962 regarding liability of principal and agent.
2. Whether the company and its Managing Director are liable for acts of employees without their knowledge.

Analysis:

Issue 1: Interpretation of Section 147(2) of the Customs Act, 1962 regarding liability of principal and agent.
The appeal was filed by the Commissioner of Customs challenging the order of the Customs, Excise and Service Tax Appellate Tribunal. The primary question of law was whether the Tribunal was correct in holding that the company was not responsible for the acts and omissions of the authorized representative, contrary to the provisions of Section 147(2) of the Customs Act, 1962. The Tribunal set aside the order passed by the Commissioner imposing duty and penalties on the company and its Managing Director. The Commissioner had imposed various duties and penalties on the company and individuals involved in the diversion of goods without payment of duty, based on investigations and statements from employees.

Issue 2: Whether the company and its Managing Director are liable for acts of employees without their knowledge.
The Tribunal found that the employees of the company had not informed the company or the Managing Director about their activities. It was revealed that the diversion of goods was carried out without the knowledge of the company, and invoices were manipulated by certain employees in collusion with a Customs Inspector and another licensee. The Commissioner's order imposing duties and penalties was set aside by the Tribunal, stating that there was no nexus established between the company or its Managing Director and the disputed transactions. The Tribunal concluded that the company and its Managing Director cannot be held liable based on the presumption under Section 147(2) of the Customs Act. The Tribunal's decision was based on the lack of evidence connecting the company and its Managing Director to the illicit activities.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the appeal filed by the Commissioner of Customs. The Court found that the Tribunal's findings were based on the material on record and were not arbitrary or perverse. The Court held that the company and its Managing Director cannot be made liable for the acts of employees done without their knowledge, as there was no evidence establishing their involvement in the diversion of goods.