IMPOSITION OF PENALTY LESSER THAN MANDATORILY PRESCRIBED

[Mr. M. GOVINDARAJAN]

Section 28 of the Customs Act, 1962 provides that where any duty has not been levied or not paid or has been short-levied or short- paid] or erroneously refunded, or  any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than  the reasons of collusion or any willful mis-statement or suppression of facts,  the proper officer shall, within two years (one year before 14.05.2016)  from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

Section 114A(1) of the Customs Act, 1962 provides that where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any willful mis-statement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section (8) of section 28 shall also be liable to pay a penalty equal to the duty or interest so determined.  The penalty prescribed in this section is mandatory one.   No lesser penalty can be imposed on the assessee than mentioned in this section.

To levy mandatory penalty the correct provisions should be mentioned in the show cause notice.

In COMMR. OF CUS. (IMPORT) , NHAVA SHEVA VERSUS NAGPAL INTERNATIONAL - 2018 (12) TMI 1837 - CESTAT MUMBAI, the respondent company was owned by one Shri Rakesh Nagpal.  Health Impex was owned by Shri Praveen Nagpal, who is the brother of Rakesh Nagpal. Both had imported health equipments from China, Taiwan and Korea.

The Directorate of Revenue (‘DRI’ for short), New Delhi received a specific intelligence that both the above firms were importing ‘fitness/health equipments’ by declaring under invoiced value of the said goods with the intent to evade payment of customs duty.  During the course of investigation it was found that the fitness equipments valued at ₹ 50,96,400/- were found by the department.  The same were seized and later on provisionally released on furnishing of bond and bank guarantee.  The statement of Rakesh Nagpal was also obtained in which he agreed with the details of emails regarding the import of health equipments.

The Additional Director of DRI issued a show cause notice on 04.06.2010 to both the firms.  The show cause notice asked them as to why-

• The value of the goods amounting to ₹ 2,22,14,644/- declared by him at the time of import should not be rejected in terms of Rule 10A of Customs Valuation Rules, 2007 read with Section 14 of the Customs Act and the goods should not be assessed at the revised total value amounting to ₹ 4,64,54,086/- worked out in terms of Rule 6 of the Valuation Rules, 1988/Rule 5 of Valuation Rules, 2007 and Rule 8 of the Valuation Rule, 1988/Rule 9 of the Valuation Rules, 2007.
• The imported goods having a revised assessable value of ₹ 4,64,54,086/- should not be confiscated in terms of section 111(m) of the Customs Act, 1962.
• Customs duty to the tune of ₹ 74,90,065/- short paid by them on account of under-invoicing in their imports should not be demanded and recovered from him along with interest in terms of provisions of section 28 read with  section 28AB of the Customs Act, 1962.
• Penalty should not be imposed upon him in terms of section 112(a) of the Customs Act, 1962 and read with section 114A of the Customs Act, 1962.

The Commissioner of Central Excise (Adjudication) adjudicated the show cause notice on 04.04.2012 confirming the demand for recovery in the show cause notice.  The order held that the Rakesh Nagpal is the main person behind all such manipulations including suppression of value and the beneficiary of the evasion of customs duty.  Therefore the Commissioner held that Rakesh Nagpal for his acts of omission and commission under the provisions of section 114A of the Customs Act is exposed to the penal consequences.  A sum of ₹ 10,00,000/- was imposed on Rakesh Nagpal as penalty under section 112(a) & (b) on the ground that he is personally liable for contravention of various provisions of the Customs Act, 1962.

The Revenue filed an appeal before CESTAT against the order of Commissioner.  The Revenue has assailed the impugned order by framing the question of law as to whether the order of the Adjudicating Authority insofar as it relates to imposition of lesser penalty than mandatorily prescribed under section 114A of the Customs Act, 1962, is legal and proper.

In the personal hearing the respondent did not appear.  The Tribunal examined the case records.  On close scrutiny of the proposals in the show cause notice issued by the Revenue the Tribunal found that the bills of entry in question were not finalized by the department at the time of initiation of the investigation proceedings and issuance of the notice to the respondent.   

The Tribunal also observed that insofar as Section 28 is concerned, the proper officer is vested with the power to recover the duties not levied, short levied or short paid, by issuance of show cause notice to the person concerned.  Since the bills of entries were not finalized by the department, it cannot be said that the duty amount has been determined by the proper officer, for which the provisions of section 28 shall be invoked.  In absence of determination of the duty liability, the provisions of section114A cannot be invoked inasmuch as imposition of penalty under the said statutory provision is subject to determination of liability under section 28. The show cause notice issued to the respondent under section 124 is meant to be issued before confiscation of goods.  The show cause notice issued under section 124 for confiscation of the offending goods in question.  Mere mention of the proviso to section 28(1) in the show cause notice will not alter the stand that the case relates to short levy or non levy by way of adjudication.  The impugned order though specifically mentioned that Rakesh Nagpal was liable for penal action for his acts of omission or commission under the provisions of section 114A, but in the order the provisions of section 112(a) and (b) have been invoked for the imposition of penalty on Rakesh Nagpal.  Invocation of the statutory mandates inasmuch as the issue relates to confiscation of goods and not on the issue of determination of the duty liability, which was short paid non paid by reason of collusion or any willful misstatement or suppression of facts etc.

The Tribunal further observed that the Revenue has not assailed the impugned order the on the ground that quantum of penalty imposed under section 112(a) and (b) is not corresponding to the gravity of offence but the prayer has been made that mandatory penalty prescribed under section 114A should not be at a lesser side.  Since in the issue involved in this case is for confiscation of goods and related contravention of the statutory provisions.  Section 114A could not be invoked. 

The Tribunal found that no infirmity is found in the impugned order and dismissed the appeal filed by the Revenue.

In this case the Revenue filed appeal without appreciating the order issued by the Commissioner.  The penalty on the assessee was imposed on the basis of the provisions of section 112(a) and (b) of the Customs Act, 1962 but the Revenue filed appeal that the penalty was levied lesser than the mandatorily requirement under section 114A of the Customs Act.