2018 (11) TMI 501 - AT - Customs

Penalty on CHA u/s 114AA of Customs Act, 1962 - it was alleged that appellant was involved in the case of overvaluation of imported goods - It was also alleged that the CHA/Director failed to verify the KYC norms under the CHALR, 2004 - scope of SCN - Held that - The SCN has been issued under Section 110(2) of the Act and not under the Section 124 of the Customs Act - Section 110(2) of the Act deals with extension of time period for issuance of show cause notice within prescribed period of six months of the seizure of the goods. It is obvious from the show cause notice that the same has not invoked the provisions of Section 124 of Customs Act in this case - the another show cause notice has been issued by the DRI dated 7.7.2014 (supra) read with Addendum dated 10.7.2014 and the Commissioner (I G), New Customs House has extended the time limit for issue of show cause notice under Section 124 of the Customs Act in respect of detained goods vide Bill of Entry No. 4314276 dated 10.1.2014 by six months i.e. up to 29.1.2019 under the provisions of sub-section (2) of Section 110 of the Customs Act. The present show cause notice is issued in continuation to the earlier show cause notice issued by the DRI where the provisions of Section 124 of the Act has been invoked. The appellant has not provided the copies of these orders before us so as to arrive at the conclusion as to whether the impugned show cause notice and adjudication order is the extension of the previous show cause notices along with addendum which has been clearly spelt out with adjudicating authority - the present show cause notice in effect has to be treated as having been issued under Section 124 of the Customs Act in effect has to be treated as proviso under 110(2) of the Act. Compliance with KYC norms - Held that - CHA helps not properly verified the functioning of the client from at the declared address by using reliable independent and authenticate documents. This was a serious lapse on part of the CHA in verifying the KYC before taking up the Custom clearance of consignment of rough diamond imported by M/s Neotex Exim Pvt. Ltd. - The appellants, considering the nature of the imported goods i.e. rough diamond, would have exercised more vigilant approach before taking up the consignment for Customs clearance after verification of KYC norms of the importer, which has not been done in this case. Impugned order upheld - appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Imposition of penalty under Section 114AA of the Customs Act, 1962.
2. Alleged failure to verify KYC norms under CHALR, 2004 and CBLR, 2013.
3. Issuance of show cause notice under Section 110(2) instead of Section 124 of the Customs Act, 1962.
4. Verification of the declared address and authenticity of the importer.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 114AA of the Customs Act, 1962:
The appellants, M/s HLPL and its Director, were penalized under Section 114AA of the Customs Act, 1962 for their involvement in the overvaluation of the imported consignment. The appellant No. 1 was imposed a penalty of ?10 lakhs, and appellant No. 2 was imposed a penalty of ?5 lakhs. The adjudicating authority found that the appellants had a role in the deliberate overvaluation of the imported goods, as evidenced by the significant discrepancy between the declared value (USD 88,641.40) and the actual value (USD 14,297) determined by the jewellery appraiser.

2. Alleged Failure to Verify KYC Norms under CHALR, 2004 and CBLR, 2013:
The appellants argued that they had complied with the KYC norms by verifying documents such as the IEC certificate, address proof, identity proof, and bank statements. However, the adjudicating authority found that the appellants failed to properly verify the functioning of the client at the declared address using reliable and authentic documents. The investigation revealed that the declared premises were either locked or fictitious, and no firm existed at the given address. The adjudicating authority held that the appellants did not exercise due diligence, especially considering the nature of the imported goods (rough diamonds).

3. Issuance of Show Cause Notice under Section 110(2) instead of Section 124 of the Customs Act, 1962:
The appellants contended that the show cause notice was issued under Section 110(2) and not under Section 124, which they argued was a prerequisite for imposing penalties. The adjudicating authority clarified that a prior show cause notice dated 7.7.2014, along with an addendum dated 10.7.2014, had been issued by the DRI, and the Commissioner had extended the time limit for issuing the show cause notice under Section 124. Consequently, the present show cause notice was deemed to be in continuation of the earlier one and thus valid under Section 124 of the Act.

4. Verification of the Declared Address and Authenticity of the Importer:
The investigation found that the declared residential premises of the importer's directors were either incomplete or fictitious. The adjudicating authority concluded that the appellants failed to verify the authenticity of the importer’s address and the existence of the firm, which was a serious lapse. The appellants' employee admitted that the address provided by the importer was not verifiable, as there was no signboard or proper identification of the office premises.

Conclusion:
The tribunal upheld the adjudicating authority’s order, concluding that the appellants were involved in the deliberate overvaluation of the imported goods and failed to verify the KYC norms properly. The show cause notice was validly issued under Section 124 of the Customs Act, 1962, in continuation of the earlier notice. The penalties imposed were deemed correct, legal, and proper under the provisions of the Customs Act. The appeals filed by the appellants were rejected.