2017 (10) TMI 1198 - AT - Customs

Sale of liquor - Duty free shop - public notice no. 5/2006 - it was alleged that appellant have made sales of liquor from the stock of duty free imports in contravention of various conditions which are required to be adhered to by M/s. Alpha as a duty free shop. Such goods are to be considered as cleared from the bonded warehouse in contravention of the conditions in which goods were allowed to be stored in the bonded warehouse - section 72 (1)(a) of the Customs Act - confiscation - redemption fine - penalty. Held that - The decision of the Hon ble High Court of Karnataka in the case of Flemingo Duty Free Shops Pvt. Ltd. 2009 (7) TMI 161 - HIGH COURT OF KARNATAKA AT BANGALORE , discussed by the Adjudicating Authority has settled the issue that duty free shops are to be considered as bonded warehouses within the meaning of section 28 of the Customs Act as it is distinguishable. M/s. Alpha were issued customs bonded warehouse license and permitted to operate duty free shops in various areas of the IGI airport New Delhi. The customs department has thoroughly investigated into the facts of M/s. Alpha in terms of the bond executed for the PBWL as well as conditions for grant of permission of running the DFS, which has been made with the strict condition that import of goods such as liquor, tobacco etc. were allowed duty free only for the purpose of selling the same to international passengers. They were also required to maintain detailed documentation by which the customs authorities could verify and ascertain whether the strict conditions prescribed for DFS / PBWL have been complied by M/s. Alpha. The scrutiny of the documents relating to DFS and PBWL have revealed that the appellant have completely disregarded the conditions under which licenses were granted to them. Bills were found to have been issued without mentioning required details like name, passport number, flight number, etc. of the passenger to whom liquor has been sold. The scrutiny has further revealed that the employees of the appellant have fraudulently recorded false details pertaining to the passenger to whom liquor has been sold. Fake passport numbers and wrong names were found to have been routinely recorded. Many of the passport numbers, upon verification with regional passport office, were found to be bogus. The names of passengers recorded were found to have never travelled in international flights. The statements recorded from various functionaries of M/s. Alpha have categorically established that such falsification of record was systematically carried out for diverting duty free imported liquor to domestic passengers in complete disregard of the conditions under which PBWL as well as DFS licenses were issued to M/s. Alpha. The well designed fraud committed against Revenue came to light only with the detailed investigations undertaken. M/s. Alpha were granted PBWL as well as permission to operate DFS. The investigation has revealed that through the action of the employees of M/s. Alpha, liquor has been sold to unauthorised passengers in clear violation of the terms of the bond executed. The acts of the employees have been done in their official capacity and are binding on the employer who cannot escape the vicarious responsibility. The duty free imported liquor, which had been warehoused, was found to be removed in contravention of the warehousing bonds. Consequently, the customs duty is required to be paid in terms of section 72 (1)(a). The goods cleared are also liable for confiscation. But, since the goods were not seized by the department no redemption fine can be imposed. However, the appellant will be liable for levy of penalties. The various employees of M/s. Alpha are also liable for penalty u/s 117. Appeal dismissed - decided against appellant.

Issues Involved:
1. Confiscation and redemption of seized goods.
2. Demand of customs duty and penalties based on show cause notices.
3. Validity of multiple show cause notices for the same period.
4. Liability of the appellant for actions of employees.
5. Valuation of goods for customs duty.
6. Classification of Duty Free Shops (DFS) as bonded warehouses.

Detailed Analysis:

1. Confiscation and Redemption of Seized Goods:
The initial show cause notice dated 01.04.2009 covered the seizure of 51 bottles of liquor sold to domestic passengers and shortages in the stock. The Tribunal upheld the confiscation and demand for duty, stating that the goods were removed from the customs bonded warehouses in contravention of section 71 of the Customs Act.

2. Demand of Customs Duty and Penalties Based on Show Cause Notices:
The Tribunal examined the demands confirmed by the Adjudicating Authority based on show cause notices dated 02.07.2010 and 26.03.2012. The investigation revealed falsification of records and sales to domestic passengers, justifying a customs duty demand of ?6,30,38,783/- and ?23,84,30,219/- respectively, along with penalties under various sections of the Customs Act.

3. Validity of Multiple Show Cause Notices for the Same Period:
The appellant argued that more than one show cause notice cannot be issued for the same period. However, the Tribunal found that the notices were issued on different grounds and circumstances. The show cause notices dated 02.07.2010 and 26.03.2012 were based on separate sets of facts, and hence, the issuance of multiple notices was justified.

4. Liability of the Appellant for Actions of Employees:
The appellant contended that they should not be held responsible for the misconduct of their employees. The Tribunal rejected this argument, stating that the acts of the employees in their official capacity are binding on the employer, making the appellant vicariously liable for the violations.

5. Valuation of Goods for Customs Duty:
The appellant challenged the valuation methodology adopted by the Adjudicating Authority. The Tribunal upheld the valuation, noting that the appellant failed to provide documentary evidence to substantiate their claims. The methodology used by the Department was found to be authentic and based on legal provisions.

6. Classification of Duty Free Shops (DFS) as Bonded Warehouses:
The appellant argued that DFS should not be treated as bonded warehouses and relied on the Supreme Court decision in the case of Hotel Ashoka. The Tribunal referred to the Karnataka High Court decision in Flemingo Duty Free Shops Pvt. Ltd., which categorized DFS as customs bonded warehouses under section 58 of the Customs Act. The Tribunal found this argument inapplicable and upheld the classification of DFS as bonded warehouses.

Conclusion:
The Tribunal found no infirmity in the orders in original dated 21.08.2012 and 17.05.2013. Both orders were upheld, and the appeals filed by the appellant were rejected. The Tribunal pronounced this decision in the open court on 12.09.2017.

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