2022 (9) TMI 1223 - AT - Customs

Levy of penalty u/s 112(b)(i) of the Customs Act 1962 - petitioner has any role in the smuggling of Gold activity or not - Appellant is the financer of the importer - HELD THAT - On going through the statements of persons recorded in impugned matter, nowhere it has been found that the Appellant had knowledge about the use of fund in smuggling of gold. Appellant has financed the fund against the mortgage of properties owned by Shri Mehul Bhimani, Shri Jitendra Rokad, Ms.Hina Rutugna Trivedi and Shri Rutugna Trivedi. Details of the property mortgaged to lenders were also furnished by the Appellant to the investigation authority during the investigation. It is also fact that Airport Intelligence Unit did not find incriminating documents against the Appellant to show prima facie that the Appellant financed money for smuggling of gold into India. Even no evidence whatsoever was found to substantiate the finding of the Respondent that the Appellant financed to Shri Rutugna Trivedi for smuggling of gold. Admittedly, the appellant is only arrange the finance in their regular course of business, appellant did not deal with alleged gold smuggling activity in question. Facts borne on record revealed that the appellant has maintained all along that it never had the possession of the impugned goods nor was in any way concerned with the carrying, removing, etc., of the consignments in question and hence, it was beyond their comprehension that the goods in question were per se liable for confiscation under Section 111(d) ibid - Undisputed peculiar facts of the case are that the appellant is neither the importer nor the owner who had acquired possession nor in any way concerned with the carrying, removing, etc., of the goods in question, and Revenue has nowhere ascribed knowledge of the appellant as to the confiscation. Penalty under Section 112(b) can be imposed when a person acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111. It is submitted that it is not the case of the Revenue that the Noticee was indulged in any of the activities as mentioned under Section 112(b) of the Customs Act. As the Appellant did not acquire possession of or in any way concern with import of gold, penalty under Section 112(b) ought not to have been imposed. It is found that the appellant cannot come within the ambit of Section 112(b) because appellants had never acquired possession or in any way concerned in any of the activities mentioned in the Section or any measure dealing with any goods which the appellants knew or had reason to believe are liable to confiscation. In the absence of the department having not proved the knowledge of the appellant in the activities relating to the smuggled gold, there were no grounds for imposition of penalty on him. It is now well established that mens rea is an important ingredient for imposing a penalty on the persons enumerated in Section 112(b) of the Customs Act. The evidence brought out by the department nowhere suggests that the appellants were aware that the goods in question were smuggled into the India. The penalty imposed on Appellant, therefore, cannot be sustained. The appellant is not liable imposition of penalty under Section 112(b) of the Customs Act, 1962 - the penalty is set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Imposition of penalty under Section 112(b)(i) of the Customs Act, 1962.
2. Alleged involvement in financing gold smuggling activities.
3. Validity of reliance on retracted statements and third-party documents.
4. Determination of knowledge or reason to believe in the smuggling activities.

Detailed Analysis:

1. Imposition of Penalty under Section 112(b)(i) of the Customs Act, 1962:
The core issue revolves around the imposition of a penalty of Rs. 1,63,00,000/- on the Appellant under Section 112(b)(i) of the Customs Act, 1962. This section penalizes anyone who acquires possession of or deals with goods liable to confiscation under Section 111, with knowledge or reason to believe that such goods are liable to confiscation.

2. Alleged Involvement in Financing Gold Smuggling Activities:
The department alleged that the Appellant financed gold smuggling activities orchestrated by Shri Rutugna Trivedi and his associates. The Appellant's defense was that he lent money as part of his legitimate business activities through licensed firms, without knowledge that the funds were used for smuggling gold. The Appellant provided collateral security for the loans, which were documented and mortgaged.

3. Validity of Reliance on Retracted Statements and Third-Party Documents:
The Appellant challenged the reliance on the statements of Shri Mehul Bhimani and Shri Jitendra Rokad, which were retracted on grounds of coercion. The Appellant argued that these statements cannot be relied upon unless the conditions under Section 138B of the Customs Act are met. Additionally, the Appellant contested the reliance on documents retrieved from a pen drive seized from Ms. Nita Parmar's residence, asserting that these documents did not prove his involvement in smuggling.

4. Determination of Knowledge or Reason to Believe in the Smuggling Activities:
The Tribunal examined whether the Appellant had knowledge or reason to believe that the funds he provided were used for smuggling gold. The Appellant's statements and evidence showed that he was engaged in legitimate financial activities and had no knowledge of the smuggling operations. The Tribunal noted that the Appellant had financed the funds against the mortgage of properties and had no business relations with the individuals involved in smuggling beyond the financial transactions.

Tribunal's Findings:
- Role of Appellant: The Tribunal found that the Appellant was engaged in legitimate financial activities, providing loans against collateral security. There was no evidence to suggest that the Appellant had knowledge or reason to believe that the funds were used for smuggling gold.

- Statements and Documents: The Tribunal observed that the retracted statements of Shri Mehul Bhimani and Shri Jitendra Rokad could not be solely relied upon. The documents retrieved from Ms. Nita Parmar's pen drive did not conclusively prove the Appellant's involvement in smuggling activities.

- Knowledge and Mens Rea: The Tribunal emphasized that for imposing a penalty under Section 112(b), it must be proven that the person had knowledge or reason to believe that the goods were liable to confiscation. In this case, the evidence did not establish that the Appellant had such knowledge.

- Precedents and Legal Interpretations: The Tribunal referred to various judgments, including those related to Rule 209A of the Central Excise Rules, 1944, and Rule 26 of the Central Excise Rules, 2002, to highlight the necessity of proving knowledge or reason to believe for imposing penalties.

Conclusion:
The Tribunal concluded that the Appellant was not liable for the penalty under Section 112(b) of the Customs Act, 1962. The penalty was set aside, and the appeal was allowed with consequential relief. The judgment underscored the importance of proving knowledge or reason to believe in the context of penalties under the Customs Act.

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