2006 (4) TMI 178 - AT - Customs

Penalty - duty paid prior of issue of show cause notice - violation of import/export prohibitions without or with Customs duty infringement while the Later Act - HELD THAT - This plea will not induce us to bring out an automatic penalty liability u/s 114A of Customs Act, 1962, when short payments of duty have been complied even before the issue of a notice determination. The plea that penalty is required and prescribed by legislature to be as a regulatory measure or deterrent from doing or not doing an particular act which is undesirable by law would however be on a separate footing. The Custom Act is not only Revenue raising enactment but is also a regulatory enactment, therefore penalties under Sections 112 or 114, 116 of the Customs Act consequent to regulatory enforcement could be arrived at even if duties were discharged or not discharged on or before a notice was issued, since such penalties arise, from a liability of violation of a prohibition regulation etc. by the goods or the importer/abettor and may not necessarily result of in duty implications penalty in such cases could be upheld as imposition of penalty under these section, cannot be only to be related to duty evasion. Thus, we would answer the reference as follows There is no reason to differ with the findings of the L.B. in case of Machino Montell 2004 (4) TMI 101 - CESTAT, NEW DELHI uphold the penal consequences of Section 114A when duty short paid are deposited before the issue of a show cause notice. However, penal consequences liability emerging from other provisions of Customs Act, 1962 can be separately attracted, on the facts of each case. The matter may now be sent back to the referring bench to decide the appeal.

Issues Involved:
1. Applicability of the decision in the case of Machino Montell Ltd. to penalties under the Customs Act, 1962.
2. Interpretation of Section 28 of the Customs Act, 1962, particularly sub-section (2B).
3. Mandatory nature of penalties under Section 114A of the Customs Act, 1962.
4. Relevance of the decision in Jay Yuhshin L v. CCE, Delhi.
5. Impact of duty payment before the issuance of a show cause notice on penalty imposition.

Detailed Analysis:

1. Applicability of the Decision in Machino Montell Ltd. to Penalties under the Customs Act, 1962:
The Tribunal considered whether the decision in Machino Montell Ltd. (2004) would apply to penalties under the Customs Act, 1962. The Tribunal noted that the causes for arriving at penalties under the Customs Act and the Central Excise Act are not similar. The Customs Act deals with violations related to import/export prohibitions, while the Central Excise Act focuses on revenue generation. The Tribunal upheld the applicability of the Machino Montell decision to cases under the Customs Act when it involves a simple duty demand based on reassessment.

2. Interpretation of Section 28 of the Customs Act, 1962:
The Tribunal examined Section 28, especially sub-section (2B), which allows for the recovery of duties not levied or short-levied before the issuance of a show cause notice. It was found that if the duty is paid before the notice, no further determination of duty by the proper officer is required, and hence, the provisions of Section 114A could not be attracted. The Tribunal emphasized that the legislative procedure does not require a notice if the duty is paid before its issuance, irrespective of the reasons for such payment.

3. Mandatory Nature of Penalties under Section 114A of the Customs Act, 1962:
The Tribunal held that penalties under Section 114A are not mandatory and must be imposed based on the discretion of the assessing authority. The Tribunal cited the Supreme Court's decision in State of Madhya Pradesh v. Bharat Heavy Electricals, which stated that penalties are not fixed amounts and should be determined based on the facts of each case. Therefore, the Tribunal rejected the argument that penalties under Section 114A are mandatory.

4. Relevance of the Decision in Jay Yuhshin L v. CCE, Delhi:
The Tribunal considered the argument that the decision in Jay Yuhshin L v. CCE, Delhi should prevail over Machino Montell. However, it was determined that the Machino Montell decision, being a later ruling, should be considered. The Tribunal rejected the reliance on Jay Yuhshin, noting that the issue before the bench was not the validity of the Machino Montell decision but its applicability.

5. Impact of Duty Payment Before Issuance of Show Cause Notice on Penalty Imposition:
The Tribunal addressed the argument that paying duty before the issuance of a show cause notice should not negate the imposition of penalties. The Tribunal cited several cases where penalties were imposed despite pre-notice duty payments. However, it concluded that penalties under Section 114A should not be automatically imposed when duty is paid before the notice. The Tribunal acknowledged that penalties under other sections of the Customs Act could still be applicable based on the facts of each case.

Conclusion:
The Tribunal concluded that the findings in Machino Montell Ltd. regarding penalties under Section 114A should be upheld when duties are paid before the issuance of a show cause notice. However, penalties under other provisions of the Customs Act could still be applicable based on the specific circumstances of each case. The matter was sent back to the referring bench to decide the appeal.

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