2018 (12) TMI 883 - HC - Customs

Penalty u/s 112(a) of the Customs Act, 1962 - allegation that Chartered Accountant (CA) has abetted the fraud - CA issued the Export Performance Certificate and Solvency Certificate - Duty Exemption Entitlement Certificate - Duty Drawback - the only allegation against the appellant was that as a chartered accountant, he has abated in the fraud committed by the principal importer since he had issued Export Performance Certificate and Solvency Certificate in the name of said M/s. Spectrum Fabrics without verifying the facts. Held that - The SCN itself, is sufficiently clear. Against the appellant, only allegation was that he had issued certificates without full verification. This in turn, enabled the importer to obtain advance licence. This advance licence was utilized for making duty free import of goods which were in breach of the condition of license diverted into local market. In so far as the appellant-assessee is concerned, his involvement even as per the show cause notice was confined to issuing certificates without full verification. There is no allegation that the assessee was either part of or aware of impeding fraud which the importer intended to perpetrate. Whatever be the fault of assessee in exercising the due diligence in issuing the relevant certificates, even according to the department as emerges from the show cause notice and the order of the Commissioner, no role was played by him in so far as the imports and illegal diversion of the imported goods to local market are concerned. Even accepting the allegations contained in the show cause notice against the assessee and the final findings of the Commissioner in the penalty order, it cannot be stated that the assessee either had done or committed to do any act which would render the goods liable to confiscation under Section 111 of the Act - The Tribunal in the impugned judgment erroneously expanded the findings of the Commissioner by observing that the role prescribed by the adjudicating authority to the assessee was of knowingly being involved in facilitating the importer to commit the fraud. This was neither the allegations contained in the show cause notice nor was the findings of the Commissioner. In fact the allegations and the findings clearly were that the assessee had acted without due care and issued the certificates without full verification. Decided in favor of appellant.

Summary

Issues:
- Whether the penalty imposed by the Commissioner of Customs on the appellant, a Chartered Accountant, under Section 112(a) of the Customs Act, 1962, was justified.
- Whether the appellant's issuance of certificates without full verification abetted in the fraud committed by the principal importer.
- Whether the Tribunal's decision upholding the penalty was correct based on the appellant's role in the fraudulent activity.

Analysis:

Issue 1: Penalty Imposed by Commissioner of Customs
The Commissioner imposed a penalty of ?5 Lacs on the appellant under Section 112(a) of the Customs Act, 1962, for issuing certificates without full verification. The Commissioner relied on the appellant's statement and concluded that the penalty was warranted based on the evidence presented. However, the High Court noted that the Commissioner's order and the show cause notice only alleged the appellant's involvement in issuing certificates without proper verification, not in the actual fraud committed by the importer. The High Court found that the penalty under Section 112(a) was not applicable to the appellant's actions, as he did not directly or indirectly aid in the fraud that led to the diversion of goods.

Issue 2: Appellant's Role in the Fraudulent Activity
The Tribunal upheld the penalty on the appellant, stating that he knowingly facilitated the importer in committing fraud by issuing certificates without proper verification. However, the High Court disagreed with this interpretation, emphasizing that the appellant's role, as per the show cause notice and the Commissioner's order, was limited to issuing certificates without full verification. The High Court clarified that the appellant's actions did not extend to aiding or abetting the importer in committing the fraud, as alleged by the Tribunal. Therefore, the High Court set aside the Tribunal's decision and ruled in favor of the appellant.

Conclusion:
The High Court concluded that the penalty imposed on the appellant was not justified under Section 112(a) of the Customs Act, 1962, as his actions did not directly contribute to the fraudulent activity of the importer. The High Court highlighted the distinction between the appellant's role in issuing certificates and the actual perpetration of the fraud. Consequently, the High Court set aside the Tribunal's decision and disposed of the appeal in favor of the appellant.