2008 (9) TMI 249 - AT - Customs

Equal penalty u/s 114A - Imported raw material was cleared duty-free in terms of Customs Notification No, 80/95 breach of conditions of notifications ibid - neither alleged nor shown that there was short payment of duty by reason of collusion or wilful misstatement or suppression of facts, necessary ingredients of Section 114A did not exist - so penalty u/s 114A not imposable regarding penalty on Managing Director, held that person, who, by his commissions or omissions, renders any imported goods liable to confiscation u/s 111, is liable to be penalized u/s 112 (a) of Custom Act

Summary

Issues:
1. Duty demand under Customs Notification No. 80/95 for breach of export obligation and diversion of imported raw material.
2. Imposition of penalties under Sections 112, 114, and 114A of the Customs Act.
3. Challenge against the penalty under Section 114A.
4. Penalty imposed on the Managing Director under Section 112.
5. Quantum of penalty imposed on the Managing Director.

Analysis:

1. The appellants imported mulberry raw silk under the DEEC scheme but failed to fulfill their export obligation within the stipulated time, breaching a substantive condition of Customs Notification No. 80/95. They also diverted a portion of the imported raw material, violating another major condition. Consequently, a show-cause notice was issued demanding duty payment and proposing confiscation of goods under Section 111 of the Customs Act, along with penalties under Sections 112 and 114A. The Commissioner confirmed the duty demand, imposed penalties, and ordered adjustment of the amount covered by a Bank Guarantee.

2. The appellants did not contest the duty demand but challenged the penalty under Section 114A. They argued that the conditions for imposing this penalty were not met as there was no collusion, wilful misstatement, or suppression of facts leading to short payment of duty. The Tribunal agreed, noting that Section 114A did not apply since the demand was based on Notification No. 80/95 without any allegations of collusion or wilful misstatement. The appeal by the company was allowed to vacate the penalty under Section 114A.

3. Regarding the penalty imposed on the Managing Director under Section 112, it was argued that there was no specific allegation against him in the show-cause notice, and the quantum of duty was excessive. The Tribunal considered the precedent cited by the JDR and upheld the penalty under Section 112, emphasizing that the penalty relates to the confiscability of goods. As the goods were found liable for confiscation under Section 111, the Managing Director, by his actions, was liable for the penalty under Section 112. However, considering the circumstances, the Tribunal deemed the original penalty harsh and reduced it to Rs. 1,00,000.

4. The Tribunal's decision highlighted the distinction between penalties under Sections 114A and 112 of the Customs Act, emphasizing the specific requirements for each type of penalty and the importance of proving collusion or wilful misstatement for the former. The judgment also underscored the significance of individual liability, especially in cases where specific allegations are made against company officials, such as Managing Directors, in customs-related matters.

5. The judgment serves as a reminder of the legal principles governing penalties under the Customs Act, emphasizing the need for clear evidence of non-compliance and deliberate wrongdoing to impose penalties effectively. It also showcases the Tribunal's role in reviewing penalties imposed by customs authorities to ensure fairness and proportionality in enforcement actions.