2023 (9) TMI 1074 - AT - Customs

Imposition of penalty on container freight station (CFS) u/s 112A of Customs Act - existence of mens rea or not - cosmetics items mis-declared as Baby diapers - clandestine removal by way of generating producing bogus Custom documents - HELD THAT - In the instant case law of M/s. Munjal Showa Munjal Showa Ltd 2022 (9) TMI 1076 - SUPREME COURT , has no relevance as the same was pronounced, when import was made under forged license and purchaser in good faith wanted to benefit on the strength of such purchase. Same is not the situation here. In absence of any statement bringing on record either knowledge of employee or of CFS, penalty under Section 112A does not get attracted, as decided by the Hon ble High Court of Gujarat in the matter of RAMA NAGAPPA SHETTY VERSUS COMMISSIONER OF CUSTOMS 2020 (10) TMI 741 - GUJARAT HIGH COURT and as followed in the matter of SANDEEP GARG COMPANY VERSUS C.C. -JAMNAGAR (PREV) , GUJARAT 2023 (7) TMI 642 - CESTAT AHMEDABAD . Accordingly, mens rea not having been established in the instant matter, penalty imposed under Section 112A of Customs Act, 1962 is not sustainable. Appeal allowed.

Summary

Issues Involved:
1. Mis-declaration and smuggling of goods.
2. Legality of penalty imposed under Section 112A of the Customs Act, 1962.
3. Compliance with procedural requirements by Container Freight Stations (CFS).
4. Requirement and denial of cross-examination.

Summary:

1. Mis-declaration and Smuggling of Goods:
The appellants, a licensed Container Freight Station (CFS), were implicated in a case where two containers stuffed with cosmetics were mis-declared as baby diapers. Intelligence gathered by the Special Intelligence and Investigation Branch (SIIB) revealed that these containers were clandestinely removed using bogus Customs documents. Upon interception, it was confirmed that the containers contained cosmetics and cigarettes instead of the declared baby diapers. The goods were seized under Section 110 of the Customs Act, 1962, as they were liable for confiscation under Section 11(e), (f), (j) of the Customs Act, 1962.

2. Legality of Penalty under Section 112A:
The appellants argued that they followed all prescribed procedures and were victims of a fraud perpetrated by miscreants. The Commissioner of Customs imposed a penalty of Rs. 50 Lakh on the appellants under Section 112A, holding them vicariously liable for the omissions of their employees. However, the tribunal found that there was no evidence of mens rea or knowledge of the fraud by the appellants or their employees. It was noted that the employees acted in good faith, believing the documents to be genuine. The tribunal cited the Hon'ble High Court of Gujarat's decision in M/s. Rama Nagappa Shetty and M/s. Sandeep Garg, which established that mens rea is required for imposing a penalty under Section 112A.

3. Compliance with Procedural Requirements:
The appellants contended that they complied with the procedures laid down in Public Notice No. 24/2007 issued by the Kandla Custom House, which was applicable at the time. The tribunal noted that the appellants' employees followed the standard operating procedures and regularly submitted details of all bills of entry to the Custom House for post-clearance verification. The tribunal found that the appellants were diligent in their duties and that the fabricated documents were taken for real by the employees.

4. Requirement and Denial of Cross-Examination:
The appellants requested cross-examination of their employees, which was denied by the Commissioner. The tribunal upheld this decision, stating that cross-examination in quasi-judicial proceedings is not mandatory and depends on the facts of the case. The tribunal found that the employees' statements did not inculpate the appellants and that there was no violation of natural justice.

Conclusion:
The tribunal concluded that the penalty imposed under Section 112A of the Customs Act, 1962, was not sustainable as mens rea was not established. The appeal was allowed with consequential relief.