The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that there cannot be dual custodianship of the same goods and set aside the Penalty imposed under Customs Act, 1962.
Initially the department wanted Messrs Kesar Enterprise Ltd, the appellants to operate as the custodian for which purpose the licences were also granted which, inter alia, contained the condition that in the capacity as a custodian, they will get the insurance of the goods in the custody done. The appellants in response to show cause notice produced a letter from the insurance company which is exhibited at running page 67 of the appeal memo in which the insurance company refused to do the insurance of the goods in their custody in storage tank at the Kandla port as by itself Kandla port authorities are custodian in their own right.
The objection of the insurance company emanated from the fact that the appellants had no insurable interest in the matter. A Show Cause Notice was issued to the appellants seeking to impose penalties under various provisions of the Customs Act, 1962 for failure to comply with the conditions of their license of custodianship more particularly of failing to take insurance. The proposal in the show cause notice with the above allegation was decided against the appellant vide decision dated 28.12.2011 in which stoic silence has been maintained in response to the party’s defence that they could not have got the insurance done.
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In view of the stand of the insurance company, which declared that there were no insurable interests vested in them. Prior to this, the appellants have indicated that vide a letter dated 07.12.2011 issued by the department indicated that they could not have the custodianship within the custodianship of another entity and therefore the party’s having the storage tank cannot be considered as the custodian and should be rather licensed as a private warehouse. The stated sequel position by the appellants is that they were licensed as a private warehouse, subsequent to this letter by withdrawal of their custodianship vide Public Notice 17/2015 and their status as such private warehouse continues till date. Therefore, the department itself has followed in letter and spirit, the letter dated 07.12.2011 and are continuing to do so and at this stage maintaining that custodianship within the custody of another custodian was not the course of action at any time to be adopted by the appellants or consequently to be adopted for license.
It was stated that the penalty is justified as there were violations of the condition of the licence as was initially issued to them and as was proposed in the show cause notice. The letter clarified the position from the executive side itself and should have been considered by the adjudicating authority while passing order dated 28.12.2011 as the letter was issued by DC Customs of the same port and was in normal course available to the department while deciding the matter.
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The single bench of Somesh Arora (Judicial Member) has observed that a licensed custodianship cannot be granted along with other authority i.e. port authority and viewed that there cannot be dual custodianship of the same goods. Therefore the legal position brought out in letter dated 07.12.2011 of the DC Customs is proper and legal and supersedes any license which was given contrary to position stated in this letter even if earlier.
Further, observed that the non consideration of the letter of the insurance company, which itself indicated that they were not capable of insuring the goods in the storage tank in view of there being no insurable interest was improperly not considered by the adjudicating authority in this matter. The Tribunal set aside the penalties imposed and allowed the appeal with consequential relief.
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