2023 (2) TMI 490 - AT - Customs

Levy of penalty on CHA under Section 114 of the Customs Act, 1962 - CHA, abetting in the attempt to export the restricted goods by misclassifying the goods - HELD THAT - The appellant as a CHA cannot be expected to examine and ensure the nature of the goods in the consignment. In para-65 of the impugned order, the adjudicating authority has observed that when the test report mentioned that the samples are naturally occurring Potassium Chloride, the CHA ought to have classified the goods under ITC HS 31042000; and they ought to have not assisted the exporter in misdeclaring the goods as ITC HS as 28273990. The classification is not mentioned in the test reports. The main reason for imposing penalty on the appellants is that they did not ensure correct classification of the goods so as to see whether the goods are restricted items. The original authority has held that the appellant has abetted in the attempt to export restricted goods as they did not exercise due diligence to ascertain the correctness of the information imparted by their client. There is no allegation or evidence to establish that the appellant had indulged in any overt act or played any role in any manner so to assist the exporter in his attempt to export the goods. The issue of classification is of complex nature. The Tribunal in the case of HIM Logistics Pvt. Ltd. 2016 (8) TMI 925 - CESTAT NEW DELHI has held that The appellant is mainly a CHA and the issue of classification is of complex nature. It cannot be said that the CHA should have information that the goods were Food Supplements and not Medicaments . It is for the Customs Department to classify the goods. Under these circumstances, the levy of the penalty is not justified. Thus the penalty imposed on the appellants under Section 114 of the Customs Act is not warranted and are therefore required to be set aside - appeal allowed.

Summary

Issues:
Misdeclaration of export consignment as 'Industrial Salt' when it was actually 'Muriate of Potash'; Allegation of abetting in the attempt to export restricted goods by misclassification; Imposition of penalty on Custom House Agent (CHA) for incorrect classification of goods.

Analysis:

Issue 1: Misdeclaration of export consignment
The case involves an export consignment of 'Muriate of Potash' misdeclared as 'Industrial Salt', a restricted item for export. The consignment was detained by Custom House officers in Chennai based on intelligence. Samples were drawn for chemical examination, which confirmed the composition as 'Muriate of Potash'. Show cause notices were issued, and penalties were imposed on the appellants, including the CHA and its manager, for their alleged involvement in the misdeclaration.

Issue 2: Allegation of abetting in the attempt to export restricted goods by misclassification
The Department alleged that the CHA abetted in the attempt to export restricted goods by misclassifying the consignment. The Department argued that the CHA should have been diligent in filing the shipping bills, especially considering the test reports indicating the consignment's true nature as 'Potassium Chloride'. The Department contended that the misclassification led to the attempt to export restricted goods, and penalties were justified.

Issue 3: Imposition of penalty on CHA for incorrect classification of goods
The main contention was whether the CHA should be held responsible for incorrect classification of goods and whether penalties under Section 114 of the Customs Act were justified. The appellants argued that they relied on documents provided by the exporter and had no knowledge of the misdeclaration. They contended that they did not play an active role in the misclassification and should not be penalized for the exporter's actions. The Tribunal cited a previous case to support the argument that penalties for incorrect classification by a CHA may not be justified in complex classification issues.

In the final judgment, the Tribunal set aside the penalties imposed on the appellants, including the CHA, based on the lack of evidence showing their active involvement or abetment in the misdeclaration. The Tribunal emphasized the complexity of classification issues and the CHA's reliance on documents provided by the exporter. The decision highlighted that the CHA's role may not always involve detailed knowledge of the goods being exported and that penalties should be justified based on active participation or negligence.