2017 (9) TMI 603 - HC - Customs

Penalty u/s 112(a) of the Customs Act, 1962 - mens rea - Whether the penalty on the appellant u/s 112(a) of the CA, 1962 is justified when the appellant was an employee working as executive director and he had no reason to believe that goods were liable for confiscation? - Held that - It appears quite undisputable that the appellant had signed the necessary documents for import of goods, the goods upon import though were required to be utilized for manufacture of export product at the factory of the company, never reached the factory premises but were diverted in the local market and that the appellant was incharge of the day to day functioning of the company. Such being the facts, the involvement and knowledge of the appellant in diversion of the goods in local market is writ large on the face of the record - No perversity is pointed out in such factual conclusions. Clause(a) of section 112 of the Customs Act, provides for penalty against the person who in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act. In such a case, the penalty that could be imposed would be an amount not exceeding the value of goods or ₹ 5000/whichever is greater. Even if therefore, invoking this provision would require mens rea on the part of the noticee, the same was duly established on record. Penalty upheld - appeal dismissed - decided against appellant.

Summary

Issues:
1. Justification of penalty under Section 112(a) of the Customs Act, 1962 for an employee unaware of goods' liability for confiscation.
2. Correctness of penalty under Section 112(a) without examining mens rea in the case.

Analysis:
1. The appellant, an Executive Director of a company, imported goods claiming duty exemption for manufacturing and exporting. However, the goods were diverted to the local market, breaching conditions. A show cause notice alleged diversion and sought confiscation, duty payment, and penalties under Customs Act, 1962.
2. The adjudicating authority found the company and directors, including the appellant, liable for breaches, confiscation, and penalties. Penalties of ?50 lakhs on the company, ?10 lakhs on the appellant, and ?20 lakhs on the Chairman were imposed. The Tribunal upheld this decision.
3. The appellant contended lack of evidence connecting him to the breaches, acting under the Chairman's instructions. However, statements and documents linked him to the diversion. The appellant's involvement in diversion was established through statements and his role in day-to-day affairs.
4. The appellant's signing of import documents, failure to utilize goods for manufacturing, and diversion to the local market under his supervision were key factors. The Tribunal confirmed findings, concluding the appellant's knowledge and involvement in the diversion.
5. Section 112(a) allows penalties for acts rendering goods liable for confiscation. The appellant's actions, leading to diversion and breach of conditions, justified the penalty imposition. Mens rea was established through evidence, supporting the penalty under the Act.
6. The High Court upheld the Tribunal's decision, dismissing the appeal due to no legal issues arising. The factual findings were deemed conclusive, with no grounds for interference.

This detailed analysis highlights the breach of conditions, evidence linking the appellant to the diversion, and the legal basis for imposing penalties under the Customs Act, 1962.