2012 (12) TMI 743 - AT - Customs

Penalty levied u/s 117 of Rs. 1,00,000/- - Non approval of the Commissioner of Customs for management, operation and maintenance of warehousing facilities - Held that - Section 117 of Customs Act 1962 provided for a penalty not exceeding Rs. 10,000/- during the relevant period when offence was committed. The amount of Rs. 10,000/- (not Rs. 1,00,000/-) is not the minimum or is a mandatory penalty. It is the maximum limit for imposition of penalty. Although the law had been violated but the intention was not malafide - mens rea is not required for imposition of penalty u/s 117 thus this is a case wherein a nominal penalty is required to be imposed and not the maximum penalty - penalty of Rs. 1,000/- would meet the ends of justice - in favour of assessee as directed.

Summary

Issues:
Violation of conditions for custodian appointment; Imposition of penalty under Section 117 of Customs Act 1962; Requirement of mens rea for penalty imposition; Quantum of penalty.

Analysis:

Violation of conditions for custodian appointment:
The case involved M/s. CWC, appointed as a custodian of a Customs Area, who entered into a Strategic Alliance Agreement without obtaining prior approval from the Commissioner of Customs as required by the relevant notifications. The agreement was with another entity for the management of their facility, leading to a breach of conditions specified in the notifications regarding subletting functions within the Customs Area. The violation of these conditions was acknowledged by both parties, establishing the non-compliance with the appointment terms.

Imposition of penalty under Section 117 of Customs Act 1962:
Proceedings were initiated against M/s. CWC for the breach, resulting in the imposition of a penalty of Rs. 1,00,000 under Section 117 of the Customs Act 1962. The imposition of the penalty was based on the non-compliance with the specific conditions outlined in the notifications and the statutory provisions, without requiring a showing of mens rea or deliberate intent for penalty imposition.

Requirement of mens rea for penalty imposition:
The appellant argued that the breach was unintentional and that they promptly informed the Commissioner of Customs about the agreement. The appellant relied on the principle that penalties should not be imposed for technical breaches or where the breach stemmed from a bona fide belief, citing a Supreme Court decision. However, the Tribunal clarified that mens rea was not a prerequisite for penalty imposition under Section 117 of the Customs Act 1962, emphasizing the importance of adhering to the prescribed procedures and conditions.

Quantum of penalty:
While acknowledging the inadvertent nature of the breach and the absence of deliberate intent, the Tribunal considered the maximum penalty limit under Section 117 of the Customs Act 1962, which was Rs. 10,000 during the relevant period. The Tribunal exercised discretion in reducing the penalty from Rs. 1,00,000 to Rs. 1,000, deeming it a nominal penalty appropriate to meet the ends of justice in light of the circumstances and the lack of mens rea requirement for penalty imposition.

In conclusion, the Tribunal upheld the penalty imposition but significantly reduced the amount, emphasizing the importance of compliance with the prescribed procedures and conditions for custodian appointments within Customs Areas, even in cases of inadvertent breaches.