2014 (5) TMI 240 - AT - Customs

Leviability of penalties Liability of exported Castor oil to confiscation - Whether penalties can be imposed upon assessees u/s 113 (d) of the Customs Act 1962 SEZ Schemes Necessity of Development Comm. permission - Procurement and exportation directly from Domestic Tariff Area (DTA) units without following procedure - Section 11 (1), FTDR Act 1992 r/w para 18 (c) of Appendix 14 II of EXIM Policy 2002 07 and CBEC Circular No. 26/2003 cus dated 1.4.2003 - Sec. 2 (33), Sec 113(d) , 114 of Customs Act 1962 - Held that - Procuring the goods by outsourcing from DTA units is not a routine procedure and is required to be allowed by the appropriate authority in genuine cases - Such outsourcing was to be used for fulfilling the export obligation of the appellants and has to be a category of Castor Oil being manufactured on sub-contracting from a DTA unit - An approval given by the Development Commissioner to outsource a material by trading does not mean that permissions required by other controlling departments was not required as the fulfillment of export obligation is also supervised by Customs - Taking of permission required to be taken under the Customs Act and the procedure prescribed thereunder, will amount to imposition of a prohibition for the purpose of Sec. 2 (33) of the Customs Act 1962. Relying upon M/s Eurasian Equipments & Chemicals vs. Commissioner of Customs and Other 1979 (7) TMI 101 - HIGH COURT AT CALCUTTA (FULL BENCH) - In that case the issue was whether or not goods exported in violation or prohibition/restriction imposed u/s 12 (1) of the Foreign Exchange Regulation Act 1947will be deemed to be violation leading to penalty, w.r.t. goods already exported, u/s 114 - In that case as it was argued by the appellants that penalties u/s 114 can only be imposed w.r.t. export goods which are not yet exported - The above case law was not brought to the knowledge of the Chennai Bench while deciding the case of K Kamla Bai vs. Commissioner of Customs and Central Excise, Trichy 2004 (12) TMI 238 - CESTAT, CHENNAI which is thus distinguishable - In view of the law laid down by Calcutta High Court, confiscation of goods under Sec 113 (d) is an independent act from the penalties imposable u/s 114 (i) - Penalty u/s 114 (i) is attracted, on an act committed by the exporter, w.r.t. goods liable to confiscation, as soon as the goods are brought into a customs area for export in violation of the prohibitions/restrictions - An offence is thus committed by assessee and can not be wiped away by the fact that attempts of the appellants were successful - Therefore, penalties u/s 114 (i) have been rightly imposed Decided against assesse.

Summary

Issues Involved:
1. Imposition of penalties under Sec. 114 (i) of the Customs Act 1962.
2. Violation of Sec. 113 (d) of the Customs Act 1962.
3. Compliance with the Foreign Trade Development and Regulation Act 1992 and Export and Import Policy 2002-07.
4. Requirement of permissions under CBEC Circular No. 26/2003-cus dated 1.4.2003.

Issue-wise Detailed Analysis:

1. Imposition of penalties under Sec. 114 (i) of the Customs Act 1962:
The primary issue deliberated was whether penalties could be imposed under Sec. 114 (i) of the Customs Act 1962. The appellants argued that penalties could not be imposed as the goods were not confiscated. They referenced the CESTAT, Chennai Bench judgment in K Kamla Bai Vs. Commissioner of Customs & Central Excise, Trichy, which stated that penalties under Sec. 114 could not be imposed if the goods were not confiscated. However, the judgment cited by the Revenue from the Kolkata High Court in M/s Eurasian Equipments and Chemicals vs. CC and Others clarified that penalties could still be imposed even if the goods had already been exported. The Calcutta High Court held that the liability to confiscation arises as soon as the attempt to export contrary to prohibition occurs, and this liability attracts penalties under Sec. 114 irrespective of the actual confiscation of goods.

2. Violation of Sec. 113 (d) of the Customs Act 1962:
The adjudicating authority imposed penalties by holding that the export of "Castor Oil" by the appellants was liable to confiscation under Sec. 113 (d) of the Customs Act 1962. This section states that any goods attempted to be exported contrary to any prohibition imposed by or under this Act or any other law for the time being in force are liable to confiscation. The term "prohibition" was discussed, and it was noted that it means to forbid by law or authority. The definition of "prohibited goods" under Sec. 2 (33) of the Customs Act 1962 includes goods whose import or export is subject to any prohibition under this Act or any other law for the time being in force.

3. Compliance with the Foreign Trade Development and Regulation Act 1992 and Export and Import Policy 2002-07:
The appellants did not follow the prescribed procedure under Sec. 11 (1) of the Foreign Trade Development and Regulation Act 1992, which mandates that no export or import shall be made except in accordance with the provisions of this Act, the rules, and orders made thereunder, and the export and import policy for the time being in force. Additionally, para 18 (c) of the Export and Import Policy 2002-07 required that export orders be executed within the parameters of SEZ Schemes and goods be directly transferred from the SEZ unit to the port of shipment. The appellants failed to comply with these provisions, thus violating the regulations.

4. Requirement of permissions under CBEC Circular No. 26/2003-cus dated 1.4.2003:
The appellants procured goods from Domestic Tariff Area (DTA) units without obtaining the necessary permissions from the Customs Officers as required by CBEC Circular No. 26/2003-cus dated 1.4.2003. This circular mandated that before allowing sub-contracting of production in DTA, the jurisdictional Assistant Commissioner/Deputy Commissioner must satisfy themselves of the bona fide necessity of such sub-contracting. The circular emphasized that this facility should not be allowed routinely and should be permitted only in genuine cases to help units meet sudden demand for exports. The appellants' failure to obtain the required permissions constituted a violation of the prescribed procedures.

Conclusion:
The Tribunal upheld the imposition of penalties under Sec. 114 (i) of the Customs Act 1962, rejecting the appeals. The judgment clarified that the liability to confiscation under Sec. 113 (d) arises as soon as the attempt to export contrary to prohibition occurs, and this liability attracts penalties under Sec. 114 irrespective of the actual confiscation of goods. The appellants' non-compliance with the Foreign Trade Development and Regulation Act 1992, the Export and Import Policy 2002-07, and the requirements of CBEC Circular No. 26/2003-cus justified the imposition of penalties.