2014 (6) TMI 299 - AT - Customs

Smuggling of goods - Penalty u/s 114 - Duty evasion - Jurisdiction of authority - Burden of proof - Held that - appellant is situated in Mumbai and not anywhere else. The cause for investigation originated in Mumbai with the detaining of the post parcels and the subsequent seizure of the same and adjudication proceedings connected therewith - The Managing Director of the appellant firm Mr. N.P. Jajodia, has clearly admitted that the goods supplied to M/s. Cadilla were brought through carriers in their baggage by mis/non-declaration. If that be so, it is only reasonable to presume that the goods were smuggled through passenger baggage through Mumbai air-port. Mr. Jajodia has not divulged any details regarding the carriers or when or how they arrived with the goods. When pressed for the details in this regard, he refused to divulge the details as can be seen from his statements recorded under Section 108 of the Customs Act. Therefore, the appellant cannot take the plea now that the cause of action took place elsewhere - cause of action arose in Mumbai and as per the admission of the Managing Director of the appellant firm, the goods were smuggled through passenger baggage of carriers. Therefore, we do not find any infirmity in the Commissioner in charge of Mumbai Airport adjudicating the matter - Following decision of K.P. Abdul Majeed v. Collector of Customs & Central Excise, Cochin, 1995 (7) TMI 76 - HIGH COURT OF JUDICATURE AT MADRAS . Onus to prove - Held that - Department had clearly established the smuggled nature of the goods by conducting a thorough investigation. The claims made by Mr. Jajodia with respect to procurement of DSP from Indian sources were thoroughly verified and found to be bogus. Then the onus is on the appellant to prove that they have licitly procured the goods which they failed to do. The goods were smuggled at their behest and on their behalf and they sold the smuggled goods. The bill for the supply of smuggled goods were issued in the name of M/s. LCPL and it is LCPL who received the proceeds for the supply/sale of goods. Therefore, they are liable to discharge the duty liability in respect of the smuggled goods procured by them and we hold accordingly. Once the duty liability is upheld, the liability to pay interest is automatic and consequential. Investigation has been conducted and evidence unearthed only in respect of 24 kgs. of Mifepristone and 187 kgs. of Dexamethasone Sodium Phosphate supplied to M/s. Cadilla Healthcare Ltd. No such investigation has been conducted in respect of other 8 items supplied to various parties. Therefore, it cannot be automatically presumed that they are all smuggled goods. No doubt there is an admission by Mr. N.P. Jajodia that they are also smuggled and he is willing to pay the duty thereon. However, the department to discharge the initial burden cast on them to prove that the said goods are of foreign origin and smuggled. Therefore, the value of these items has to be excluded for determination of duty and consequential imposition of penalty. If that is done, the value for the purpose of determination of duty would come down from ₹ 2,78,25,987/- to ₹ 2,45,38,009/- and it is only on this value duty demand can be made. Penalty u/s 114A - section provides for imposition of penalty equal to the duty or interest determined in cases where the duty was not levied or was short-levied or the interest was not charged or paid or was part paid or the duty or interest was erroneously refunded by reason of collusion or any wilful misstatement or suppression of facts. In the present case the charge of smuggling has been clearly established against the appellant. Therefore they are liable to penalty under the said section. However since the penalty has been imposed on the appellant under Section 114A equal to the duty demanded, the same would also undergo change depending on the revised duty determined. However, matter remanded back for re-determination of the value and quantum of duty and thereafter consider the quantum of penalty imposable under Section 114A - Decided against assessee.

Issues Involved:
1. Jurisdiction of the adjudicating authority.
2. Evidence of smuggling.
3. Liability of LCPL for duty and interest.
4. Classification and duty rate applicable to the smuggled goods.
5. Penalty on LCPL under Section 114A.
6. Penalty on Mr. I. John under Section 112(b).

Detailed Analysis:

1. Jurisdiction of the Adjudicating Authority:
The issue of jurisdiction was not raised before the adjudicating authority but was introduced only at the appellate stage, which is considered an afterthought. The investigation originated in Mumbai, and the appellant's Managing Director admitted that the goods were smuggled through passenger baggage, presumably through Mumbai airport. The principle established in the case of K.P. Abdul Majeed v. Collector of Customs & Central Excise, Cochin, supports the jurisdiction of the Commissioner in charge of Mumbai Airport to adjudicate the matter.

2. Evidence of Smuggling:
The appellant argued that there was no evidence of smuggling except for Mifepristone. However, Mr. N.P. Jajodia admitted to smuggling 24 kgs of Mifepristone through carriers, and this admission was never retracted. The statements of Mr. Jajodia and corroborative evidence from M/s. Cadilla Healthcare and Earnest Healthcare Ltd. confirmed that the goods were of foreign origin and smuggled. The Hon'ble High Court of Madras in Govindasamy Raghupati held that admitted facts need not be proved.

3. Liability of LCPL for Duty and Interest:
LCPL argued that they did not smuggle the goods themselves. However, the goods were smuggled at their behest, and they sold the smuggled goods. Therefore, LCPL is liable to discharge the duty liability. The investigation revealed that the claims of indigenous procurement by Mr. Jajodia were false, and the onus was on LCPL to prove licit procurement, which they failed to do. The duty liability is upheld, and the liability to pay interest is automatic and consequential.

4. Classification and Duty Rate Applicable to the Smuggled Goods:
The duty was calculated at the highest baggage rate of 60%, which is not applicable as per the Supreme Court's decision in M. Ambalal & Co. The goods should be classified under the appropriate tariff heading applicable to the goods. Mifepristone and Dexamethasone Sodium Phosphate should be classified either under Chapter 29 as organic chemicals or Chapter 30 as medicinal preparations, depending on their form at the time of supply. The adjudicating authority must re-determine the duty based on the correct classification and tariff rate.

5. Penalty on LCPL Under Section 114A:
The penalty under Section 114A is imposed for collusion or willful misstatement or suppression of facts. The charge of smuggling against LCPL is established, making them liable for a penalty equal to the duty demanded. However, the penalty amount will change based on the revised duty determined.

6. Penalty on Mr. I. John Under Section 112(b):
To impose a penalty for abetment, the person must have knowledge that the goods are smuggled. Mr. I. John admitted to issuing invoices without supplying goods but did not know they were smuggled. There was no proposal or finding that the goods were liable to confiscation under Section 111. Therefore, the penalty imposed on Mr. I. John is not sustainable in law.

Conclusion:
The findings of the adjudicating authority that 24 kgs of Mifepristone and 187 kgs of Dexamethasone Sodium Phosphate are smuggled are upheld. The matter is remanded back to the adjudicating authority for re-determination of the value and quantum of duty and reconsideration of the penalty under Section 114A. The penalty imposed on Mr. Ignatius John is set aside. The appeals are disposed of accordingly.

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