2023 (7) TMI 775 - AT - Customs

Levy of penalty u/s 112 and 114AA of the Customs Act, 1962 - Executives / Employees of freight and forwarding agent - existence of mensrea - knowledge of prohibited goods concealed in the subject imports of A4 paper reams or not - entire case made out against the appellants is with regard to deliberate connivance with the main noticees in changing the name of the consignee without due diligence and verification and without NOC from the consignee M/s Hong Kong Jofa Paper Limited and M/s Guangzhou BMPAPER Paper Company Limited - HELD THAT - For imposition of penalty under Section 112 of Customs Act, 1962, it can be noted that a person is liable for penal consequences under Section 112 of the Customs Act for committing an act or failure to do so an act as would render such goods liable to confiscation. Penalty under Section 112 is also imposable on a person who is concerned with in any manner in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchase of or dealing in any other manner with goods for which knowledge about their liability to confiscation exists with the person concerned with regard to any of the aforesaid activities. For levy of penalty under Section 112 of Customs Act ibid, the imputations of conduct as brought out in the show cause notice and as analysed in the Order-in-Original and the Order-in-Appeal have to be gone into to ascertain the correctness or otherwise of the imposition of such penalty. Thus, it is an undisputed fact that the impugned five containers found to contain prohibited goods, concealed amids cartons of A4 paper reams, were initially booked in the name of Ashtvinayak International, however later changed to M/s Global World Traders - it is wrong to infer, contrary to what has been done by authorities below that the said change in consignee name, meant to deceive the authorities is clearly a case of connivance. In fact, as it comes out from the testimonies of the various persons including Sarvesh Sharma, Anil Batra others, this change is clearly on account of misrepresentation by Anil Batra and there is not a fig leaf of evidence led in the show cause notice to conclude the same is attributable to connivance. The authorities below have failed to disengage what they indicate as a failure in exercising due diligence with what they conclude as connivance. Any failure, if so, of due diligence certainly cannot be a case of connivance. Connivance is required to be led by positive evidence and mere surmise or presumption or the failure to do a particular thing leading automatically to the other cannot in itself be a given. Also any observation beyond that charged or alleged in the show cause notice is clearly a violation of the principle of natural justice being in excess of the charge made out and therefore beyond the scope of the show cause notice. In fact what is stated in the order in so many words is not at all stated in the show cause notice. Thus, there is considerable force in the contention of the learned advocate when they assail the order to have been passed in excess of the show cause notice prescriptions. For invoking of penalty under Section 114AA of the Customs Act, as evident from the language of Section 114AA of the Customs Act, it can be noted that for levy of such penalty, it is imperative that there has to be a deliberate/knowing usage of false or incorrect material in the transaction. There is nothing on record to impute knowledge about the usage of false or incorrect material in the transactions undertaken as regards the present two appellants - As per the fact on records, in the intervening time, the requisite payments were made to their principle overseas, that accounts for the change in status from freight collect to prepaid and this fact cannot be given a go by. The said difference pointed out by the learned Adjudicating Authority cannot be therefore held sufficient enough to uphold the charge of forgery and use of fact forged/fictitious documents. In fact, the show cause notice does not remotely alleges and castigates the two appellants herein for manipulation and forgery in the bill of lading. Any finding to say so is thus perverse of the show cause notice and thus is clearly not sustainable. The penalty therefore under Section 114AA is not leviable. This Tribunal in the case of V. LAKSHMIPATHY VERSUS COMMISSIONER OF CUSTOMS, COCHIN 2003 (1) TMI 404 - CEGAT, BANGALORE in respect of invocation of penalty under Section 112 had held the existence of mens rea as an essential ingredient to invoke the same. This pre supposition is non-existing in the present matter as show cause notice leads no evidence to indicate a guilty mind on part of the appellant - In the case of MOHAMMED ILIYAS VERSUS COMMISSIONER 2018 (8) TMI 2119 - SC ORDER the honourable Apex Court had held the penalty under Section 114AA, as not leviable (among other reasons) for no discussion being made as to the type of false /incorrect material. Similar is however the position in the present case. Thus, no penalty under Section 112 and Section 114AA is leviable - the impugned order in as much as it concerns the imposition of the penalty on the two appellants can therefore not be sustained and is therefore set aside - appeal allowed.

Summary

Issues Involved:
1. Imposition of Penalty under Section 112 of the Customs Act, 1962.
2. Imposition of Penalty under Section 114AA of the Customs Act, 1962.
3. Alleged Connivance and Due Diligence Failure by the Appellants.
4. Validity of the Adjudicating Authority's Findings and Scope of Show Cause Notice.

Summary:

1. Imposition of Penalty under Section 112 of the Customs Act, 1962:
The Tribunal examined whether the appellants, Sarvesh Sharma and M/s Codognotto Logistics India Pvt Ltd, had knowledge or mens rea regarding the prohibited goods concealed in the imported containers. It was noted that the change in consignee name from Ashtvinayak International to Global World Traders was made based on instructions from Anil Batra and the provided KYC documents. The Tribunal found no evidence of prior knowledge or intent to deceive customs authorities. The facilitation of the consignee name change without conscious knowledge of the goods' liability to confiscation could not justify the imposition of a penalty under Section 112. The order emphasized that mere presumption of knowledge is insufficient for penal consequences.

2. Imposition of Penalty under Section 114AA of the Customs Act, 1962:
Section 114AA requires deliberate or knowing usage of false or incorrect material in transactions. The Tribunal found no evidence that the appellants knowingly used false documents. The change in freight status from "collect" to "prepaid" was explained by the appellants as a result of payments made to their overseas principals. The Tribunal concluded that the show cause notice did not allege manipulation or forgery of the bill of lading, rendering the penalty under Section 114AA unsustainable.

3. Alleged Connivance and Due Diligence Failure by the Appellants:
The Tribunal addressed the allegations of deliberate connivance and failure to exercise due diligence. It was highlighted that the appellants acted based on previous business associations and the provided KYC documents. The Tribunal found no evidence of connivance or intent to deceive customs authorities. The failure to obtain KYC documents for Ashtvinayak International was attributed to the short timeframe for the consignee name change. The Tribunal emphasized that failure in due diligence does not equate to connivance, which requires positive evidence.

4. Validity of the Adjudicating Authority's Findings and Scope of Show Cause Notice:
The Tribunal noted that the adjudicating authority's findings went beyond the scope of the show cause notice, violating the principle of natural justice. The show cause notice did not comprehensively address the acquisition of knowledge about the prohibited nature of the goods. The Tribunal found that the impugned orders failed to demonstrate malafides or ulterior motives on the part of the appellants, rendering the penalties imposed unsustainable.

Conclusion:
The Tribunal set aside the penalties imposed on Sarvesh Sharma and M/s Codognotto Logistics India Pvt Ltd under Sections 112 and 114AA of the Customs Act, 1962, and allowed the appeal filed by the appellants. The order emphasized the necessity of establishing conscious knowledge and intent for imposing penalties under the relevant sections of the Customs Act.