Penalty u/s 114 A of Customs Act, Person Liable to Duty would be Liable to Penalty Equal to Duty: CESTAT rules in Favour of IBM [Read Order]

In the case of IBM India Pvt Ltd, the Bangalore bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) has held that Penalty under section 114 A of the Customs Act, 1962 would be proportionate, ie, a person liable to Duty would be Liable to Penalty Equal to Duty and the person liable to pay interest would be liable to pay penalty equal to the interest amount.

The appellant has imported parts and accessories of computers in respect of the bills of entry providing the description of the goods and classifying the same under the respective Tariff Headings.  They have availed the benefit of Notification No. 06/2006-CE dated 01.03.2006. 

Later, the classifications declared by the appellant were disputed by the Revenue and the products were re-classified denying the benefit of Notification No. 06/2006-CE dated 01.03.2006.  Consequently, the differential duty of Rs.93,622/- was confirmed along with interest of Rs.16,388/- and penalty of Rs.93,622/- imposed under 114A of the Customs Act, 1962. The appellant paid the entire amount of duty, interest and penalty.

The Revenue filed the appeal before the Commissioner (Appeals) disputing the determination of the quantum of penalty. The Commissioner (Appeals) allowed the Revenue’s appeal observing that the quantum penalty under Section 114A of the Customs Act, 1962 be equivalent to the amount of duty plus interest payable.

The appellant submitted that the interest amount added to the duty by the Commissioner (Appeals) in computing the penalty under Section 114A of the Customs Act, 1962 is contrary to the principle of law and laid down by the Karnataka High Court in the case of CC & ST, Bangalore vs. Sony Sales Corporation – 2021 and also by the Tribunal in the case of CC (Export), Mumbai vs. Styale Corporation – 2020. 

whether the penalty under Section 114A of the Customs Act, 1962 be equivalent to the duty or interest or it should be duty and interest.  In the case of CC & ST, Bangalore vs. Sony Sales Corporation, it was held that “12. The aforesaid rule statutory interpretation was referred to by the Constitution Bench of the Supreme Court in Indore Development Authority v. Manohar Lal and Others, AIR 2020 SC 1496.  From a perusal of the relevant extract of Section 114A, it is evident that the language employed by the Legislature is plain and unambiguous and the provision contains a positive condition about the levy of penalty equal to duty or interest and does not contain any negative condition. The expression used is ‘or’ which is disjunctive between duty or interest and further use of expression as the case may suggest that aforesaid provision refers to two different persons and two different situations viz., one in which a person will be liable to duty and in other he may be liable to pay interest only and provisions that in both the situations the person liable to duty would be liable to penalty equal to duty and person liable to interest would be liable to penalty equal to interest. Therefore, in view of the law laid down by the Constitution Bench of the Supreme Court, the word ‘or’ cannot be interpreted as ‘and’.”

A two-member bench comprising of Dr D M Misra, Member (Judicial) and Mrs R Bhagya Devi, Member (Technical) observed that the Commissioner (Appeals) in computing the penalty under Section 114A of the Customs Act, 1962 is unsustainable in law. The CESTAT set aside the impugned order and allowed the appeal.  

To Read the full text of the Order CLICK HERE

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