‘Knowledge’ is Mandatory Element for Imposing Penalty u/s 114 and 114AA of Customs Act: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad (CESTAT) set aside penalties imposed under Section 114 and Section 114AA of the Customs Act, 1962, holding that the absence of proven knowledge regarding alleged mis-declaration of export cargo rendered the penalties unsustainable.

The appeal was filed by Nachiket Satishbhai Mavalankar, who had been subjected to penalties of Rs. 7 lakh under Section 114(3) of the Customs Act, 1962 and Rs. 3 lakh under Section 114AA of the same Act. The case arose from proceedings initiated after the department suspected the appellant’s involvement in issuing an erroneous valuation certificate connected to an export consignment that was later intercepted by the Directorate of Revenue Intelligence.

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According to the Order-in-Original, the statements recorded from various notices, including the director of the exporting entity, indicated that while certain individuals had fled following the interception of the consignment, the statements did not attribute any knowledge of mis-declaration to the appellant. Despite these findings, the original authority imposed penalties, and the Commissioner (Appeals) subsequently upheld them.

The Appellant represented by Advocates, Manish Jain with Surbhi Chandani,highlighted the inconsistency between the factual findings and the conclusions reached by the Commissioner (Appeals), particularly the observation in paragraph 10.1 of the impugned order that the appellant had knowingly and intentionally signed a false valuation certificate.

The appellant relied on judicial precedents, including HRMM Agro Overseas Pvt. Ltd. (2013), to submit that penalties under Section 114 and Section 114AA could not be imposed without establishing knowledge or involvement.

The matter was heard by Somesh Arora, Judicial Member who observed that the Order-in-Original had clearly recorded that the appellant did not possess knowledge of any mis-declaration in the export cargo. Despite this, the appellate authority had taken a contrary and factually incorrect view by stating that the appellant knowingly signed an incorrect valuation certificate.

The Tribunal held that knowledge is a mandatory element for imposing penalties under Section 114 and Section 114AA of the Customs Act, 1962, and the judicial precedents cited by the appellant directly supported this principle.

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Finding that the impugned order proceeded on an erroneous factual premise and could not be sustained, CESTAT allowed the appeal and granted consequential relief.