PENALTY CANNOT BE IMPOSED UPON THE CUSTOMS HOUSE AGENT FOR INCORRECT CLASSIFICATION OF GOODS

[Mr. M. GOVINDARAJAN]

In M/S. CHAKIAT AGENCIES AND M/S. SOJI KURIAKOSE VERSUS COMMISSIONER OF CUSTOMS, CHENNAI - 2023 (2) TMI 490 - CESTAT CHENNAI, Forever Exports, Bangalore is in the exporting business.  The petitioner, as a Customs House Agent (‘CHA’ for short) on behalf of the Forever Exports, exported the goods ‘industrial salt’ to Vietnam and Malaysia.  The export consignments of 150 MTs of cargo declared as ‘Industrial Salt’ on 24.07.2009.  The cargo was packed in polyethylene bags of 50 grams each and covered under six shipping bills.  The Customs Officers, Chennai detained the said consignment based on the intelligence that ‘muriate potash’, a restricted item for export, is smuggled out of India in the guise of industrial salt. 

The goods were examined in the presence of two witnesses.  Samples were taken and forwarded to Coromandal Fertilizers Limited, Chennai on 29.07.2009 for chemical analysis to confirm the composition.  On analysis of the sample it was found that the consignment was muriate potash.  Therefore show cause notices were issued to the exporter and various including the appellant.  The original authority imposed a penalty of Rs.1 lakh each on the appellants. The Adjudicating Authority has noted the details of the test report issued by Coromandal Fertilizers Limited on 03.08.2009.  The test report says that the samples contain more than 60% of water soluble potash having more than 65% of articles in the range of 1.7 mm to 0.25 mm in size; having the moisture content of less than 3.5%.  The department, therefore, concluded that the consignment declared as industrial salt is muriate of potash.

Being aggrieved against the said order the appellant filed the present appeal before the Tribunal.

The appellants submitted the following before the Tribunal-

• The appellants had filed shipping bills as a CHA on behalf of the exporter Forever Exports, Bangalore.
• The goods were declared as ‘Industrial Salt’ on the basis of documents furnished by the exporter.
• The exporter submitted copies of test report given by the Geological and Metallurgical Laboratories, Bangalore certifying that the goods were industrial salt.
• The appellants did not know that the cargo attempted to be exported was MOP.
• They came to know that there was a mis-declaration on the exported goods only when the Customs Officers informed them.
• The appellants, therefore, cannot be alleged to have knowingly handled the documents and abetted commission of smuggling of MOP.
• They have filed documents based on the details and test report furnished by the exporters.
• The appellants had no opportunity to handle or examine the goods and therefore they cannot be held responsible for any violation in respect of the value or mis-declaration of the goods. 
• Since they had no role in the attempt of export the restricted goods there is no ground for imposing penalty on them. 

The Department submitted the following before the Tribunal

• The Manager of the appellant had admitted that the exporter had submitted copies of test reports given by Geological and Metallurgical Laboratories and Bangalore Test House certifying that the goods are industrial salt.
• The appellant even then accepted to handle the consignment.
• The test reports have stated that the samples are naturally occurring potassium chloride. 
• The goods, therefore should have been classified under ITC HS 3104 20 00. 
• Against this the appellant declared the goods as industrial salt falling under ITC HS 297 39 90, which covers other chlorides, chloricoxides  and chloride hydroxides. 
• The appellants ought to have taken note of the fact that the samples are naturally occurring potassium chloride. 
• The appellants made incorrect classification and they have abetted in the attempt of export of the restricted goods.

The Tribunal heard both sides.  The Tribunal considered the arguments of both the parties and also the records available in this case.

The Tribunal observed that the appellant, as a CHA, cannot be expected to examine and ensure the nature of the goods in the consignment.  The Original Authority has observed that when the test report mentioned that the samples are naturally occurring potassium chloride, the CHA ought to have classified the goods under ITC HS 3104 20 00 and they have not ought to have assisted the exported in misdeclaring the goods as ITC HS as 2827 39 90.  The Tribunal further observed that there is no classification mentioned in the test report.   The Original Authority imposed penalty on the appellants on the ground that they did not ensure correct classification of the goods so as to see whether the goods are restricted items.  Further the Original Authority held that they have abetted in the attempt to export restricted goods as they did not exercise due diligence to ascertain the correctness of the information imparted by their client.  There is no allegation or evidence to establish that the appellant had indulged in any overt act or played any role in any manner to assist the exporter in his attempt to export the goods. The issue of classification is complex nature.

The Tribunal relied on the decision in M/S HIM LOGISTICS PVT. LTD. (CHA) VERSUS CC, NEW DELHI - 2016 (8) TMI 925 - CESTAT NEW DELHI in which the Tribunal held that the Original Authority has levied the penalty only on the ground that the appellant has failed to exercise due diligence to ascertain the correctness of the information as regard the correct classification of the goods being imported by his client.  The appellant is merely a CHA.  The issue classification is of complex nature.  It cannot be said that the CHA should have information that the goods were ‘food supplements’ and not ‘medicaments’.  It is for the Customs Department to classify the goods.  Therefore the levy of the penalty is not justified.  The Tribunal found no reason to sustain the penalty and therefore set aside the impugned order.

The Tribunal after considering the evidence in this case and following the decision in ‘Him Logistics Private Limited’ (supra) held that the penalty imposed on the appellants under Section 114 of the Customs Act is not warranted and therefore set aside the impugned order.