2015 (6) TMI 743 - AT - Customs

Penalty upon CHA and CFS u/s 114 - smuggling of red sanders - Misdeclaration of goods - Confiscation of goods - Held that - Xharges levelled against the CHA is that he has failed to discharge the functions as a CHA and no other evidences have been brought out by the adjudicating authority to establish the role of the appellant in the attempt of smuggling of red sanders. By respectfully following the Hon ble High Court s decision (2015 (1) TMI 1032 - MADRAS HIGH COURT), I hold that penalty imposed on the appellant under Section 114 of the Customs Act is not sustainable. Impugned order in respect of this appellant is set aside. Appellant was appointed by the Govt as a Container Freight Station (CFS) in terms of provisions of Customs Act read with public notice issued by the Customs. It is abundantly clear that being a CFS as custodian they are responsible for the receipt, storage and clearance of import and export cargo in their CFS and equally responsible for safety and security of the cargo transshipped from CFS to the gateway port. It is one of the main conditions of appointing the appellant as custodian CFS which is evident as per the bond executed by the appellant before Customs. It is established beyond doubt that the sealed containers were tampered in transit and the goods were replaced with Red Sanders before the container reached the gateway port. Their contention that they are not responsible for change of cargo after exit from CFS is not justified and not acceptable. As per the terms and conditions of Custom House Public Notice No.5/2002 dt. 8.1.2002, it is clearly stipulated that the custodian (CFS) is responsible for any loss/damage/pilferage of cargo/container so moved. Therefore, they cannot plead ignorance. The CFS being custodian of cargo, he is responsible till delivery of the containers to the port. It is pertinent to state that the Govt. has entrusted the work of handling of cargo to a CFS only with a faith that Custodian will perform his duties diligently and in a dedicated manner. Prior to the concept of CFS entire operations of cargo clearance were done only at the port itself which is handled by Port Trust Authority appointed under Port Trust Act. - The role of CFS as custodian of cargo cannot be equated with the role of Custom House Agent and the CFS obligations and roles are entirely different from the role of CHA. For physical loss, no mens rea is required Appellant failed to deliver the sealed container from their CFs safely to the gateway port. Therefore, the adjudicating authority had rightly imposed penalty under Section 114 of the Customs Act. However, taking into overall facts and circumstances of the case, the penalty imposed on the appellant is reduced from ₹ 5 lakhs to ₹ 2,50,000 - Decision in the case of CC Vs Bansal Industries 2006 (9) TMI 58 - HIGH COURT, MADRAS and Chairman, SEBI Vs Sri Ram Mutual Fund 2006 (5) TMI 191 - SUPREME COURT OF INDIA followed - Decided partly in favour of appellants.

Summary

Issues Involved:
1. Imposition of penalty under Section 114 of the Customs Act on the appellants for smuggling of Red Sanders.
2. Role and responsibilities of the Custom House Agent (CHA) and Container Freight Station (CFS) in the smuggling operation.
3. Establishment of mens rea (guilty mind) for imposing penalties.

Detailed Analysis:

1. Imposition of Penalty under Section 114 of the Customs Act:
The appeals were filed against the imposition of penalties under Section 114 of the Customs Act on the appellants for their alleged involvement in the smuggling of Red Sanders. The adjudicating authority had ordered the absolute confiscation of the Red Sanders and imposed penalties of Rs. 5 lakhs each on T.V. Shanmugam, the proprietor of the CHA, and M/s. Sanco Trans Ltd., the CFS.

2. Role and Responsibilities of the CHA and CFS:
a. T.V. Shanmugam (CHA):
The CHA was penalized for signing shipping documents for a third party without verifying the genuineness of the exporter. The adjudicating authority alleged that the CHA had abetted the smuggling by his omission. However, the CHA contended that his role was limited to signing the documents and that the smuggling occurred after the container was sealed by customs officers. The CHA argued that mere negligence does not amount to abetment in smuggling. The Tribunal referenced the High Court's decision in the case of Commissioner of Customs (Exports) Vs Sahaya Edin Prabhu Patriot Freight Logistics Systems, which set aside penalties on CHAs in similar circumstances, emphasizing that penalties under Section 114 require evidence of active collusion or a positive role in smuggling.

b. M/s. Sanco Trans Ltd. (CFS):
The CFS was penalized as the custodian of the cargo, responsible for the safe transport of export goods from its premises to the gateway port. The adjudicating authority found that the CFS failed in its duty as the sealed containers were tampered with during transit, leading to the smuggling of Red Sanders. The CFS contended that it was not responsible for the cargo once it left its premises. However, the Tribunal noted that the CFS had a legal responsibility for the safe transport of the cargo as per the bond executed with customs authorities. The Tribunal upheld the penalty but reduced it from Rs. 5 lakhs to Rs. 2.5 lakhs, considering the overall circumstances.

3. Establishment of Mens Rea:
The CHA argued that penalties under Section 114 require the establishment of mens rea, which was not proven in this case. The Tribunal agreed, citing the High Court's decision that penalties for negligence in discharging duties as a CHA should be addressed under the Customs House Agents Licensing Regulations, not under Section 114. For the CFS, the Tribunal referred to the Supreme Court's decision in Pine Chemical Suppliers Vs CC, which held that mens rea is not required for imposing penalties for civil obligations under the Customs Act. The Tribunal concluded that the CFS's failure to ensure the safe transport of the cargo justified the penalty, even without proving mens rea.

Conclusion:
The Tribunal allowed the appeal of T.V. Shanmugam (CHA), setting aside the penalty imposed on him, as there was no evidence of active collusion in the smuggling. The appeal of M/s. Sanco Trans Ltd. (CFS) was partially allowed, with the penalty reduced to Rs. 2.5 lakhs, acknowledging their failure to fulfill their custodial responsibilities. The appeals were disposed of accordingly.

Judgment Pronounced:
The judgment was pronounced in open court on 15.6.2015.