2017 (10) TMI 1446 - HC - Customs

Penalty on CHA u/s 114 of CA - Smuggling - Red Sanders - violation of the provisions of Customs Broker Licensing Regulations, 2013 - whether the appellant was also in aid of abetting the stakeholders to attempt the smuggling of prohibited goods, namely Red Sanders? - Held that - It is not the case of the appellant that he knew the exporter, from whom on getting the shipping bill, he was present at the time of initial stuffing of the containers and only in the presence of himself, the container were seized with proper declared goods from the exporter. When that being so, the appellant cannot claim knowledge that at the time of initial stuffing, only the declared goods were stuffed and subsequently only it might have been tampered. Since the appellant did not have any knowledge of the initial stuffing also, as he had stated that he had lent license only to the Litheesh of M/s. Flamingo, the said defence taken by the appellant in the reply to the show cause notice cannot be accepted. In the case on hand because of the attitude on the part of the appellant in lending his CHA license to a third party for usage without knowing the actual importer and the goods to be imported, is a serious issue and for the said purpose, since the appellant was admittedly get only ₹ 1,000/- for each consignment, the appellant has not only misused the CHA license but also very recklessly and carelessly lend it to some unscrupulous perons for facilitating smuggling activities and therefore such act on the part of the appellant shall be viewed seriously. Taking into account the said aspect of the issue, the imposition of penalty of a sum of ₹ 5 lakhs by invoking the provisions of the Customs Act, in the considered view of this Court, is not only justifiable but also acceptable as there was no excess imposition of penalty on the part of the revenue in this regard compared with the omission and commission of the appellant - the order-in-original as has been confirmed by the CESTAT through the impugned order is liable to be sustained and the substantial questions of law raised before this Court are to be answered in favour of the Revenue. Appeal dismissed - decided against appellant.

Issues Involved:
1. Justification of penalty imposition under Section 114 of the Customs Act, 1962.
2. Whether the appellant was privy to the alleged smuggling attempt.
3. Applicability of negligence as a ground for penalty under Section 114.
4. Interpolation of Customs Broker Licensing Regulations (CBLR) violations for penalty under Section 114.
5. Requirement of positive material evidence for abetment.
6. Scope of Customs Broker's obligations.
7. Proceedings under CBLR versus Customs Act.

Issue-wise Detailed Analysis:

1. Justification of Penalty Imposition under Section 114 of the Customs Act, 1962:
The appellant argued that the penalty under Section 114 was unjustified as the alleged violations pertained to the Customs Broker Licensing Regulations (CBLR), 2013. The court upheld the penalty, emphasizing that the appellant's actions facilitated smuggling by lending his CHA license without verifying the goods or the exporter. The court concluded that the appellant's negligence and failure to exercise due diligence rendered the goods liable for confiscation, justifying the penalty under Section 114.

2. Whether the Appellant was Privy to the Alleged Smuggling Attempt:
The appellant claimed ignorance of the smuggling attempt, stating that the containers were initially stuffed with declared goods and sealed by customs officials. However, the court found that the appellant's admission of lending his license without proper authorization and verification indicated his involvement. The court noted that the appellant's actions facilitated the smuggling attempt, making him liable for the penalty.

3. Applicability of Negligence as a Ground for Penalty under Section 114:
The appellant contended that mere negligence should not attract a penalty under Section 114. The court disagreed, stating that the appellant's reckless behavior and failure to adhere to due diligence requirements under the CBLR contributed to the smuggling attempt. The court emphasized that such negligence, especially in the context of facilitating smuggling, warranted the penalty.

4. Interpolation of CBLR Violations for Penalty under Section 114:
The appellant argued that violations of the CBLR should not result in penalties under the Customs Act. The court held that the proceedings under the Customs Act were independent of those under the CBLR. The appellant's actions, which facilitated smuggling, justified the penalty under Section 114, irrespective of the CBLR violations.

5. Requirement of Positive Material Evidence for Abetment:
The appellant claimed that there was no positive material evidence of his involvement in the smuggling attempt. The court found that the appellant's admission of lending his license and the evidence of his failure to verify the exporter and the goods constituted sufficient grounds for the penalty. The court noted that the appellant's actions directly facilitated the smuggling attempt.

6. Scope of Customs Broker's Obligations:
The appellant argued that his role as a Customs Broker was limited to processing shipping documents and did not extend to inspecting the goods. The court rejected this argument, stating that the appellant's obligations included verifying the authenticity of the exporter and the goods. The court emphasized that the appellant's failure to fulfill these obligations contributed to the smuggling attempt.

7. Proceedings under CBLR versus Customs Act:
The appellant contended that any violations should be addressed under the CBLR, not the Customs Act. The court held that the Customs Act proceedings were separate and justified in this case due to the appellant's role in facilitating smuggling. The court noted that the penalty under Section 114 was appropriate given the appellant's actions and their impact on customs regulations.

Conclusion:
The court dismissed the appeal, upholding the penalty of ?5 lakhs imposed on the appellant under Section 114 of the Customs Act. The court found that the appellant's actions, including lending his CHA license without proper verification and failing to exercise due diligence, facilitated the smuggling attempt, justifying the penalty. The court emphasized the importance of adhering to customs regulations and the serious consequences of negligence in this context.

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