2023 (7) TMI 642 - AT - Customs

Levy of penalty u/s 112(a) of Customs Act - vicarious liability of Pre-Shipment Inspection Agency - Allegation is that appellant's proprietorship firm is lack of diligence or negligence (on the part of its employee, i.e., Mr. Bob in the course of examination of cargo at the time of loading of containers in UK) and not the appellant by itself - HELD THAT - Shri Bob Inspector was located in London which was at the relevant time not a territory, within the purview of penalty proceedings under Indian Customs Act, 1962, as being a person who commits any omission outside India. However, for the purposes of present proceeding this may not be a relevant consideration as the penal proceedings have been directed against the present appellant in its capacity as an employer for lack of diligence on the part of its employee and itself. The concept of vicarious liability in penal proceedings, is not completely unknown in the Customs Act proceedings, as number of such cases between CHA and its employees have been dealt with under purview of Section 117, which is in the nature of residuary penal provision, and is applicable when no other express penalty provision is available. In the instant case, this Court is concerned with penalty which was initially purposed under Section 112 without quoting any sub-clause. However, same was later confirmed under Section 112(a) of Customs Act, 1962. Nothing has been brought on record as to show, how due diligence on the part of the employer (located miles away, from employee) is lacking, specially when it has prescribed percentage checks provided radiation detecting equipments as has been indicated by the investigation and also employed qualified persons - the invoking of Section 112(a) requires mens rea to be established on record. This Court is of the view that penalty as imposed does not sustain both in law and in the facts of the matter. The appeal is allowed with consequential relief of wavier of penalty under Section 112(a) as imposed - Appeal allowed.

Summary

Issues Involved:
1. Liability for penalty under Section 112 of the Customs Act, 1962.
2. Jurisdiction of the Customs Act, 1962 for acts committed outside India.
3. Requirement of mens rea for imposing penalties under Section 112(a) of the Customs Act, 1962.

Summary of Judgment:

1. Liability for penalty under Section 112 of the Customs Act, 1962:
The appellant, a Pre-Shipment Inspection Agency, was penalized under Section 112(a) of the Customs Act, 1962, for negligence in issuing incorrect Pre-Shipment Inspection Certificates, which led to the import of consignments containing bomb shells. The lower authorities dropped the penalty under Section 114AA but upheld the penalty under Section 112(a) to the extent of Rs. 10 Lakhs. The Tribunal noted that the penalty was imposed for lack of diligence or negligence by the appellant's employee, Mr. Bob Rushton, who inspected the cargo in the UK.

2. Jurisdiction of the Customs Act, 1962 for acts committed outside India:
The appellant argued that the act of omission occurred outside India, and the jurisdiction of the Customs Act, 1962, was extended to offenses committed outside India only by the Finance Act, 2018, effective from 01.04.2018. Since the offense occurred in 2011, the Show Cause Notice was without jurisdiction. The Tribunal acknowledged that the inspection and issuance of certificates took place outside India and noted that the Customs Act, 1962, did not extend to acts committed outside India during the relevant period.

3. Requirement of mens rea for imposing penalties under Section 112(a) of the Customs Act, 1962:
The Tribunal referenced several decisions where penalties under Section 112(a) required proof of intention to violate Customs law. It was held that lack of due diligence or negligence alone could not bring in penal consequences under Section 112(a) unless there was an intention to violate Customs law. The Tribunal emphasized that the concept of vicarious liability in penal proceedings is not completely unknown in Customs Act proceedings but requires mens rea to be established. The Tribunal found no evidence of knowledge or intention on the part of the appellant to issue incorrect certificates and concluded that the penalty under Section 112(a) was not sustainable.

Conclusion:
The Tribunal allowed the appeal, waiving the penalty imposed under Section 112(a) of the Customs Act, 1962, due to the lack of evidence of mens rea and the jurisdictional issues raised by the appellant. The appeal was allowed with consequential relief of waiver of penalty.