The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has overturned a penalty imposed under Section 114(ii) of the Customs Act, 1962, on an exporter for allegedly attempting to export semi-finished leather disguised as finished leather.
The case involved M/s. Sri Vijayalakshmi Leathers, a leather exporter based in Chennai.
The dispute arose when the appellant filed a shipping bill on October 5, 2013, for the export of 8951 square feet of leather declared as “F/C Sheep Grain Finished Upper Leather” with a declared value of Rs. 7,71,205/- and a claim of drawback amounting to Rs. 46,273/-. Upon examination, it was discovered that the goods did not meet the quality standards of finished leather.
Subsequently, the goods were subjected to examination and evaluation by the Central Leather Research Institute (CLRI), whose report highlighted deficiencies in the leather, specifically citing the “Absence of Finishing Coat” and “Absence of Wax/Oil Coat.”
As a result, the Original Authority ordered the confiscation of the consignment and imposed a fine of Rs. 70,000/- under Section 125 of the Customs Act, 1962, along with a personal penalty of Rs. 70,000/- under Section 114(ii).
Displeased with this decision, both the exporter and the department filed appeals before the Commissioner (Appeals), contesting the penalty imposed. The Commissioner, after reviewing the appeals, remanded the matter back to the adjudicating authority to reconsider the penalty.
Aggrieved by this decision, the exporter, M/s. Sri Vijayalakshmi Leathers pursued the matter further and approached the CESTAT for adjudication.
The appellant, represented by Shri T. Sundaranathan, contended that there was no intention to export improper goods and highlighted their cooperation with the authorities. They emphasised that the deficiencies pointed out by CLRI were rectified before the goods were exported.
The respondent revenue, the Commissioner of Customs (Exports), represented by Shri. R. Rajaraman contended that the penalty imposed under Section 114(ii) of the Customs Act, 1962, was insufficient and not in accordance with the law. They argued for a reconsideration of the penalty, citing discrepancies in the export of leather goods not meeting the standards of finished leather.
The bench examined the records and the CLRI report, acknowledging the absence of certain coatings on the leather. However, upon consideration of the facts presented, the bench concluded that there was no attempt on the part of the appellant to export semi-finished leather under the guise of finished leather. It noted the appellant’s cooperation with the authorities and their prompt action to rectify the deficiencies highlighted in the CLRI report before exporting the goods.
In result, the two-member bench comprising Ms. Sulekha Beevi C.S. (Judicial Member) and Mr. Vasa Seshagiri Rao (Technical Member) ruled in favour of the appellant, setting aside the penalty of Rs. 70,000/- imposed under Section 114(ii) of the Customs Act, 1962 along with consequential reliefs, if any. However, the bench upheld the redemption fine of Rs. 70,000/-.
The ruling highlights the importance of intention and cooperation in cases involving alleged customs violations, emphasising that penalties should be commensurate with the offence committed and the intent behind it.
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