2025 (1) TMI 1268 - HC - Customs

Levy of penalty u/s 114 of the Customs Act 1962 - attempted export of prohibited items specifically red sand/armature shaft - case of petitioner is that the petitioner has no direct role to play in the alleged export of red sand/armature shaft and that the petitioner has been made a scape goat - HELD THAT - Even if the role of the petitioner in the alleged illegal export of red sand/armature shaft is confirmed the imposition of penalty of Rs. 2/- Crores on a Senior Manager cannot be countenanced as it appears to be disproportionate with the gains that the petitioner would have made from the alleged involvement in the export of red sand/armature shaft. Therefore the impugned order is set aside insofar as imposition of penalty under Section 114 of the Customs Act 1962 on the petitioner and the case is remitted back to the respondent to pass a fresh order on merits taking note of the financial position of the petitioner and the purported gain the petitioner would have made from the alleged involvement in the export of the contraband goods. This exercise shall be carried out by the respondent within a period of three (3) months from the date of receipt of copy of this order. Petition disposed off by way of remand.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the petitioner, as a Senior Manager in Awardlink Logistics India Private Limited, was liable for the penalty under Section 114 of the Customs Act, 1962, for the attempted export of prohibited items, specifically red sand/armature shaft.
Whether the penalty of Rs. 2 Crores imposed on the petitioner was proportionate to the alleged involvement in the illegal export activities.
Whether the petitioner had an alternative remedy available and the appropriateness of seeking relief directly from the High Court instead of pursuing an appeal before the Commissioner of Customs (Appeals).

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The case revolves around the application of Section 114 of the Customs Act, 1962, which pertains to the imposition of penalties for attempts to export goods in contravention of the law. The legal framework requires establishing the involvement or culpability of the individual in the act of contravention. The petitioner cited several precedents, including cases such as Fast Cargo Movers Vs. Commissioner of Customs and Skyline Shipping & Logistics Vs. Commissioner of Customs, to argue against the imposition of penalties. However, the Court found these precedents irrelevant due to differing facts and circumstances.

Court's Interpretation and Reasoning

The Court examined the submissions made by the petitioner and the respondent. It noted that the petitioner was accused of facilitating the export of prohibited goods by using unauthorized credentials to file necessary documents, aiding in the smuggling activities. The Court acknowledged the petitioner's argument that their role was limited and that they were not directly involved in the illegal export.

Key Evidence and Findings

The evidence presented included the unauthorized use of M/s. AFS Logistics International Pvt. Ltd.'s User ID and Password by the petitioner to facilitate the movement of the container containing prohibited goods. The Court found that the petitioner, as a Senior Manager, arranged for the container without verifying the authenticity of the parties involved, which contributed to the smuggling activities.

Application of Law to Facts

The Court applied Section 114 of the Customs Act, 1962, to assess the petitioner's liability. It considered the petitioner's limited involvement and the lack of direct evidence of collusion or abetment in the smuggling activities. The Court also evaluated the proportionality of the penalty imposed in relation to the petitioner's purported gains from the illegal export.

Treatment of Competing Arguments

The petitioner argued that they were made a scapegoat and had no direct role in the illegal export activities. The respondent maintained that the petitioner's actions facilitated the smuggling, warranting the penalty. The Court balanced these arguments, acknowledging the petitioner's limited role while questioning the proportionality of the penalty.

Conclusions

The Court concluded that while the petitioner had some involvement in the illegal export, the penalty of Rs. 2 Crores was disproportionate to the petitioner's role and potential gains. It set aside the impugned order regarding the penalty and remitted the case back to the respondent for a fresh assessment, considering the petitioner's financial position and purported gains.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

The Court held, "Even if the role of the petitioner in the alleged illegal export of red sand/armature shaft is confirmed, the imposition of penalty of Rs. 2/- Crores, on a Senior Manager cannot be countenanced as it appears to be disproportionate with the gains that the petitioner would have made from the alleged involvement in the export of red sand/armature shaft."

Core Principles Established

The proportionality of penalties in relation to the individual's role and gains in illegal activities is crucial in determining the appropriateness of such penalties under Section 114 of the Customs Act, 1962.
Alternative remedies should be considered before approaching the High Court, but the Court can intervene if the penalty appears disproportionate.

Final Determinations on Each Issue

The Court set aside the penalty imposed on the petitioner and remitted the case for a fresh order on merits, emphasizing the need to consider the petitioner's financial position and potential gains.
The petitioner was advised to provide additional submissions before the final order is passed by the respondent.

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