2024 (5) TMI 801 - AT - Customs

Cancellation of warehouse licenses - Penalty u/s 117 - fake insurance policies and port allotment letters - violations of Rules made - appellant submits that there is no provision for submission of NOC from the Port; there was a mistake on the part of the employee of the appellant in submitting not genuine/ fake insurance policies; genuine insurance policies were available for license - HELD THAT - The appellants are alleged to have submitted fake insurance policies in respect of some licenses; though, the appellants argue that the submissions of licenses within the renewal period was not required and at best can be termed as superfluous and the same would not have any bearing on the licenses; it is evident that the management of the appellant were not aware of the fact of submission of such fake licenses which was done by an employee. I find that this will not absolve the appellant of the commission of the offence, if any. There is no mention of any criminal complaint was registered against the employees of the appellant and if so, what was the outcome of the same. Though, the same is not relevant to see the veracity of the licenses, it could throw light on the mala fides of the appellant, if any. Revocation of licenses - Revenue is free to take action against the licenses which are obtained by fraud or mis-representation, such an action cannot be excessive and needs to be commensurate to the commission of offence, more so, looking into the fact that the Adjudicating Authority has allowed continuation of warehousing operations for a period of three months to enable the clearance of cargo. It is also seen that the Adjudicating Authority categorically holds that the appellants have paid the applicable dues to the Vishakhapatnam Port Authorities in respect of all the warehouses which was not disproved in the investigation. This gives an indication that the Adjudicating Authority had an idea at the back of his mind that the license can be continued notwithstanding the submission of fake/ nongenuine insurance policies in respect of some licenses. Thus, it would have been in the fitness of things if the two licenses Nos.16/2020, 24/2018, for which genuine insurance policy was available, were not cancelled. Similarly, I find that the appellant s argument that mere possession of fake NOCs has no bearing on the case as the NOCs were not even required to be submitted. Penalty on the Director - Revenue has not brought out any violation committed by Shri Venugopal for being liable for penalty under Section 117 of the Customs Act, 1962. I am of the opinion that unless there is a specific provision in the Rules/ Regulations to impose penalty under such Rules/ Regulations, recourse cannot be taken to the general provisions unless provided for. Further, learned Adjudicating Authority merely avers that mens rea is not required for imposition of penalty ibid. The issue of mens rea comes when any of the violations have been highlighted. In the absence of the same, the imposition of penalty on Shri Venugopal under this Section is not legally sustainable. Thus, Appeal is partly allowed by setting aside the cancellation of license and imposition of penalty on Shri M. Venugopal, Director of the appellant. Accordingly, Appeal stands allowed.

Issues Involved:
1. Legality of the suspension of warehouse licenses under Section 58(B)(2) of the Customs Act, 1962.
2. Contradiction in the suspension notice and show-cause notice.
3. Requirement and submission of NOC and insurance policies.
4. Imposition of penalty on the Director under Section 117 of the Customs Act, 1962.

Summary:

1. Legality of the Suspension of Warehouse Licenses:
The appellant argued that Section 58(B)(2) of the Customs Act, 1962 only empowers the Principal Commissioner to suspend the operation of the warehouse during the pendency of an enquiry and not to suspend the license itself. The Adjudicating Authority erred by equating the suspension of warehouse operations with the suspension of licenses. The appellant relied on the Supreme Court's rulings in Cannon India Pvt. Ltd. and Hussein Ghaidially to support their argument that statutory procedures must be strictly followed.

2. Contradiction in Suspension and Show-Cause Notices:
The appellant pointed out inconsistencies between the suspension notice and the show-cause notice. The suspension notice alleged forged documents related to insurance policies and port allotment letters, while the show-cause notice mentioned fake invoices and insurance policies. The appellant also contended that Rule 6 of Public-Bonded Warehouse Licensing Regulations 2016 and CBEC Circular No.26/2016 do not mandate annual renewal of licenses, yet they were submitting renewal papers since 2016.

3. Requirement and Submission of NOC and Insurance Policies:
The appellant argued that there was no requirement to submit NOCs from the port and that the submission of non-genuine insurance policies was due to an employee's mistake. Genuine insurance policies were available for licenses Nos. 16/2020 and 24/2018, but the Adjudicating Authority canceled these licenses without considering the merits of each case. The appellant emphasized that the procedure for canceling licenses should be strictly followed as per the law.

4. Imposition of Penalty on the Director:
The appellant contested the imposition of a penalty on the Director, Shri M. Venugopal, under Section 117 of the Customs Act, 1962, arguing that the show-cause notice did not specify any violations under this section. The Tribunal found that Section 117 provides for a penalty for contraventions of the Act but does not cover violations of rules made under the Act. The Revenue failed to demonstrate any specific violation by Shri Venugopal warranting a penalty under Section 117.

Tribunal's Findings:
The Tribunal noted that the revocation of licenses is not explicitly provided for in the regulations, only cancellation or surrender. It was incumbent on the Department to follow the laid-down procedures strictly. The Tribunal found no justification for canceling licenses Nos. 16/2020 and 24/2018, which had genuine insurance policies. The Tribunal also found that the imposition of a penalty on Shri Venugopal was not legally sustainable as the show-cause notice did not specify any violations under Section 117.

Conclusion:
The Tribunal partly allowed Appeal No. C/30450/2023 by setting aside the cancellation of licenses Nos. 16/2020 and 24/2018 and the imposition of a penalty on Shri M. Venugopal. Consequently, Appeal No. C/30451/2023 was allowed. The order was pronounced in open court on 03/05/2024.

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