Intention Must be Proven for Imposing Penalty u/s 114AA of Customs Act for Obtaining Undue Export Advantage: CESTAT [Read Order]

The assessee/appellant, Evergreen Shipping Agency India Pvt Ltd, manufactures and exports ready-made clothing. It signed agreements with Lagoon Trading LLC, Lagcy Trading LLC, and Royal Readymade Garments, all based in the United Arab Emirates, to supply ready-made garments. Only five of the 211 shipping bills' worth of items were transported by the assessee. According to the assessee, no changes were made to TR-1/TR-2.

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The department the claims that although the assessee filed the Export General Manifest at the "Port of Discharge" in Panama for the transportation of the container filled with the export goods covered by the five shipping bills, the container was actually discharged at the port of Jebel Ali in the United Arab Emirates.

According to the order, the products were redirected to Jebel Ali, a nation that was not notified under the Focus Market Scheme, even though the "Port of Discharge" and "Country of Destination" on the five shipping bills remained unchanged.

Under section 114(iii) of the Customs Act, 1962, the Commissioner of Customs assessed the assessee a penalty of Rs. 10 lakhs, in addition to a penalty of Rs. 10 lakhs under section 114AA of the same Act.

The assessee claims that it is only a shipping company that transports items in accordance with the instructions and booking receipts. The Commissioner's finding that the appellant and the exporter conspired to divert the container containing the goods under the five shipping bills is without merit, and the assessee was unaware that the exporter would likely benefit from the transaction.

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The container was booked to export the goods to Colon Free Zone, Panama and the same was mentioned in the Shipping Bill as well. It is a fact that there were no fraudulent amendments in the five Shipping Bills pertaining to goods carried by the assessee, observed the Tribunal.

The bench observed that the assessee was penalized for failing to comply with the details specified in the Export General Manifest, specifically that the commodities were delivered to Jebel Ali rather than Panama.

The Tribunal noted that the assessee also submitted the container tracking report and email correspondence to demonstrate that the assessee had negotiated and generated invoices for the cost of transporting the shipment to Jebel Ali after it had landed in Panama.

The two member bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that “Knowledge and intention is sine qua non for imposing penalty under section 114AA of the Customs Act. The department has not been able to establish knowledge on part of the assessee or intention on the part of the assessee to help the exporter in obtaining the alleged undue export advantage. In such circumstances, penalty under section 114AA of the Customs Act cannot be imposed upon the assessee.”

While allowing the appeal, the tribunal held that knowledge and intention is sine qua non for imposing penalty under section 114AA of the Customs Act. The department has not been able to establish knowledge on part of the assessee or intention on the part of the assessee to help the exporter in obtaining the alleged undue export advantage.

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