2018 (3) TMI 1260 - AT - Customs

DEEC advance licences - diversion of imported goods - violation of actual user condition - penalties - Held that - Shri Kamal Agarwal is Executive Director of a shipping agency, though as per his job, he is not supposed to handle the documents particularly related to advance licence. However, from the facts of the case, it is revealed that Shri Kamal Agarwal also conspired in the fraudulent availment of the benefit of advance licence for diversion of the goods in the domestic market. However, considering the overall role of Shri Kamal Agarwal, we find as per his responsibility towards the entire episode is limited. Accordingly he deserves some leniency - the penalty on Shri Kamal Agarwal reduced from ₹ 2,00,000/- to ₹ 1,00,000/-. As regards the appeal of Shri Harbhajan Singh Sandhu, we observe that he is the person who imported and cleared the goods by using the advance licence and the goods were diverted to domestic market. Therefore, he was directly involved in the fraud of advance licence and was the next gainer of the benefit derived from the said fraud. Therefore, the penalty imposed of ₹ 2,00,000/- on Shri Harbhajan Singh Sandhu is just and proper. Penalty u/s 114A of CA - Held that - Once customs duty was confirmed under the proviso to Section 28, the ingredients to invoke Section 114A in relation to the entire duty stands invoked. Therefore, the Commissioner has gravely erred in not imposing the penalty of ₹ 3,47,48,553/- under Section 114A. - penalty enhanced. Appeal allowed in part.

Summary

Issues:
1. Fraudulent diversion of imported goods into the domestic market under Duty Exemption Entitlement Scheme (DEEC).
2. Allegations of conspiracy and misuse of advance licenses.
3. Imposition and reduction of penalties under Section 114A of the Customs Act, 1962.

Analysis:
1. Fraudulent Diversion of Imported Goods:
The case involved M/s. Amba Expo Fab falsely obtaining advance licenses for duty-free import of goods by misrepresenting themselves as manufacturer-exporters. The goods were diverted into the domestic market instead of being used for manufacturing export goods. Individuals, including Shri Kamal Agarwal and Shri Harbhajan Singh Sandhu, were implicated in conspiring to divert consignments, resulting in duty evasion. The Commissioner imposed penalties on the appellants for their involvement in the fraudulent diversion of goods.

2. Conspiracy and Misuse of Advance Licenses:
Shri Kamal Agarwal, as the Executive Director of a shipping agency, was found to have conspired in fraudulently availing the benefit of advance licenses for diverting goods into the domestic market. However, considering his limited role in handling such documents, a reduced penalty of ?1,00,000 was imposed on him. On the other hand, Shri Harbhajan Singh Sandhu, directly involved in importing and diverting goods, had a penalty of ?2,00,000 upheld against him as he was a key player in the fraud.

3. Imposition and Reduction of Penalties:
The Revenue sought an enhancement of the penalty under Section 114A to match the confirmed duty amount. The Tribunal observed that once duty was confirmed, Section 114A mandated the penalty to be equal to the duty amount. Citing legal precedent, the Tribunal held that the Commissioner erred in imposing a reduced penalty and enhanced the penalty from ?75,00,000 to ?3,47,48,553, aligning it with the confirmed duty amount. This decision clarified the mandatory nature of penalties under Section 114A, ensuring strict adherence to statutory provisions.

In conclusion, the Tribunal partially allowed Shri Kamal Agarwal's appeal, dismissed Shri Harbhajan Singh Sandhu's appeal, and allowed the Revenue's appeal by enhancing the penalty to match the confirmed duty amount, emphasizing the legal obligation to impose penalties in line with statutory requirements.