2018 (4) TMI 1433 - AT - Customs

Penalty u/s 114(1) of Customs Act, 1962 - fraudulent export of pharmaceutical drugs through three front companies - Duty Entitlement Pass Book scheme - Held that - It would appear that M/S Sitara Shipping Ltd had issued bill of lading and received freight charges only upto Dubai whereas the consignment was destined for St. Petersberg. Furthermore, it would appear that Capt. Sahi instructed that twelve of the export containers be diverted to Colombo. Penalties not sustainable - appeal allowed.

Summary

Issues:
Appeal against penalties under section 114(1) of Customs Act, 1962 for alleged role in fraudulent export of pharmaceutical drugs through front companies under DEPB scheme.

Analysis:
The judgment by the Appellate Tribunal CESTAT MUMBAI involved an appeal by M/S Sitara Shipping Limited and its Managing Director against penalties imposed under section 114(1) of the Customs Act, 1962 for their alleged involvement in fraudulent export activities. The penalties of &8377; 1,00,00,000/- and Rs.50,00,000/- were imposed on the company and its director, respectively, for their role in the fraudulent export of pharmaceutical drugs through front companies under the Duty Entitlement Pass Book scheme of the Foreign Trade Policy. The exports in question were conducted in March and April 1999, enabling scrips valued at &8377; 5,99,95,225/-. The appeals challenged only the penalties, and as the issues were common and interconnected, they were disposed of by a common order.

The tribunal noted that M/S Sitara Shipping Ltd and its director, Capt. S.S. Sahi, had admitted to receiving payment of freight charges only up to Dubai, despite the consignment being destined for St. Petersberg. Additionally, Capt. Sahi instructed that twelve export containers be diverted to Colombo. The tribunal observed a nexus between Capt. Sahi and the exporting firm, concluding that he was part of a conspiracy to defraud the government and was involved in money laundering. The tribunal held that M/S Sitara Shipping Ltd and Capt. Sahi aided and abetted the exporting firm and its directors in fraudulently procuring DEPB Credits, rendering them liable for penal action under section 114(1) of the Customs Act, 1962.

In a significant point of reference, the tribunal mentioned a previous order-in-original where the same appellants had been penalized, but on appeal, it was held that the provisions of section 114(1) could not be invoked against them. Based on this, the tribunal held that the penalties imposed against the appellants in the current case were not sustainable in law. Consequently, the penalties were set aside, and the appeal was allowed to that extent. The judgment was pronounced in open court on 05/04/2018.