1986 (1) TMI 250 - AT - Customs

Summary

Issues Involved:
1. Confiscation and fine under Section 125 of the Customs Act, 1962.
2. Imposition of penalty under Section 112 of the Customs Act, 1962.
3. Validity of import under Open General Licence (OGL).
4. Role and liability of the Bank of Madura.
5. Role and liability of Vinod Kumar.
6. Role and liability of M/s. Kanna Industries.

Detailed Analysis:

1. Confiscation and Fine under Section 125 of the Customs Act, 1962:
The primary issue was whether the imported goods were liable for confiscation and if the fine imposed was appropriate. The Collector of Customs, Madras, ordered the confiscation of the goods under Section 111(d) of the Customs Act, 1962, read with Section 3(2) of the Imports and Exports (Control) Act, 1947, but allowed the Bank of Madura to redeem the goods on payment of fines of Rs. 3 lakhs and Rs. 4 lakhs for two consignments. The Tribunal found these fines to be "extremely low, inadequate" and increased them to Rs. 20 lakhs and Rs. 15 lakhs respectively, considering the gravity of the act, the nature of the goods, and the circumstances under which the letters of credit were opened.

2. Imposition of Penalty under Section 112 of the Customs Act, 1962:
The Tribunal examined whether the Bank of Madura and Vinod Kumar were liable for penalties under Section 112. The Tribunal concluded that the Bank's actions, while imprudent and in violation of financial norms, did not constitute an act or omission rendering the goods liable for confiscation under Section 112(a). Therefore, no penalty was imposed on the Bank. However, Vinod Kumar was found to have "master-minded the entire fraudulent operation" and was imposed a penalty of Rs. 10 lakhs under Section 112(a).

3. Validity of Import under Open General Licence (OGL):
The goods were imported under OGL, which required actual user conditions. The Tribunal found that M/s. Kanna Industries and M/s. Hansons Enterprises, the alleged importers, did not meet these conditions. M/s. Kanna Industries was a small factory incapable of using such a large quantity of steel, and M/s. Hansons Enterprises was found to be a fictitious entity. Hence, the imports were not valid under OGL, making the goods liable for confiscation.

4. Role and Liability of the Bank of Madura:
The Bank of Madura was found to have acted with "extreme casualness" and "reprehensible imprudence" in opening letters of credit for substantial amounts without proper verification. The Bank's actions facilitated the fraudulent importation masterminded by Vinod Kumar. Despite these findings, the Tribunal ruled that the Bank's actions did not meet the criteria for penalty under Section 112(a) but increased the fines imposed for the confiscated goods.

5. Role and Liability of Vinod Kumar:
Vinod Kumar was identified as the key orchestrator of the fraudulent import scheme. He used forged documents and manipulated financial instruments to facilitate the illegal importation of goods. The Tribunal found him guilty under Section 112(a) and imposed a penalty of Rs. 10 lakhs.

6. Role and Liability of M/s. Kanna Industries:
M/s. Kanna Industries, represented by its proprietor Marimuthu, was found to have provided its SSI certificate and letterheads to Vinod Kumar for a consideration of Rs. 3000, without any involvement in the actual importation. Marimuthu had already been penalized Rs. 10,000 under Section 112, and the Tribunal found no grounds for increasing this penalty.

Conclusion:
- The appeals by the Bank of Madura were dismissed, and the fines were significantly increased.
- The appeal against Vinod Kumar was allowed, and a penalty was imposed.
- The appeal against M/s. Kanna Industries was dismissed, with no increase in the existing penalty.