No Prohibition on Lending IEC: CESTAT Sets aside Penalty imposed u/s 114AA of Customs Act for accepting IEC of an Import Firm [Read Order]

M/s. GND Cargo Movers has sought quashing of the order dated 31.05.2019 passed by the Commissioner of Customs (Appeals), New Customs House, New Delhi by which the order dated 18.05.2016 passed by the Additional Commissioner of Customs, ACC Import (Adjudication), New Delhi , imposing penalty of Rs. 50,00,000/- upon the appellant under sections 112 and 114AA Customs Act, 19624 has been upheld and the appeal has been dismissed.

At the request of one Ashok Kumar Agarwal, the appellant, who held a customs broker license, managed the customs clearance of several import consignments for M/s. Trip Communications Pvt. Limited. The customs officers cleared these consignments.

A show cause notice was issued to the appellant alleging violation of regulation 13 (d) and (e) of the Customs House Agents, Licensing Regulations, 2004 for a reason that the appellant accepted the IEC of an import firm mentioned by Ashok Kumar Agarwal knowing fully well that he was not a Director of Trips Communications. The show cause notice also alleged that the appellant abetted and dealt with goods which it knew or had reasons to believe were liable to confiscation under the Customs Act and, therefore, was liable to penalty under sections 112 and 114AA of the Customs Act.

CESTAT Sets aside Penalty under Customs Act for Assissiting Illegal Export when Confiscation of Exported Consignment Already set aside [Read Order]

The Additional Commissioner, by the order imposed penalty of Rs. 50 lakhs upon the appellant under section 112 and section 114AA of the Customs Act. Feeling aggrieved, the appellant filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) dismissed the appeal and upheld the order passed by the Additional Commissioner. It clearly transpires from the aforesaid that the order passed by the Additional Commissioner and the Commissioner (Appeals) are almost reproduction of the allegations made in the show cause notice.

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The order passed by the Commissioner in proceedings initiated under the provisions of the Licensing Regulations against the appellant was assailed by the appellant in Customs Appeal No. 50444 of 2017 and by a decision dated 31.08.2017 the order was set aside. It cannot, therefore, be said that the appellant contravened the provisions of regulation 13 (d) and (e) of the Licensing Regulations.

As a holder of custom broker license issued under the Licensing Regulations, the appellant merely acts on the basis of the documents provided by the importer. The department has imposed penalty on the appellant under section 114AA of the Customs Act for the reason that the appellant connived with the importer. In the absence of anything on record to show that the appellant connived with the importer, penalty under section 114AA of the Customs Act could not have been imposed upon the appellant.

Both the Additional Commissioner and the Commissioner (Appeals) have held that the appellant accepted the IEC of a firm mentioned by Ashok Kumar Agarwal fully knowing that Ashok Kumar Agarwal was not the Director of Trip Communications. The Tribunal in Gopal Agarwal observed that since there is no bar under the Customs Act to import goods in the name of IEC holder and there is no offence under the Customs Act for lending IEC code, penalty cannot be imposed. The relevant portion of the order is reproduced below:

Penalty has also been imposed upon the appellant under section 112 of the Customs Act without specifying which particular sub-section of this section would be applicable. It was observed that counsel for the appellant is justified in contending that specific sub-section has to be mentioned and even if section 112(b) of the Customs Act was to be invoked, penalty could be imposed only if the appellant was aware of the offending nature of the goods. In the present case there is nothing on the record to show that the appellant was aware of the nature of the imported goods. This is what was observed by the Tribunal in S.G. Steels.

The only allegation against the appellant is that he was aware that the IEC was provided by Ashok Kumar Agarwal who was not the Director of Trip Communications. It has already been held that there is no bar in lending of IEC. Penalty under section 114AA of the Customs Act, therefore, could not have been imposed upon the appellant. The Tribunal examined the provisions of sections 108 and 138B of the Customs Act as also the provisions of sections 14 and 9D of the Central Excise Act, 1944.

After examining various judgments of the High Courts and the Tribunal, the two member bench of Justice Dilip Gupta, President and Hemambika R. Priya, Member (Technical) observed that both section 9D(1)(b) of the Central Excise Act and section 138B(1)(b) of the Customs Act contemplate that when the provisions of clause (a) of these two sections are not applicable, then the statements made under section 14 of the Central Excise Act or under section 108 of the Customs Act during the course of an inquiry under the Acts shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence.

It has been observed that the statements recorded during inquiry/investigation by officers has every chance of being recorded under coercion or compulsion and it is in order to neutralize this possibility that statements of the witnesses have to be recorded before the adjudicating authority, after which such statements can be admitted in evidence.

The tribunal set aside the impugned order passed by the Commissioner (Appeals) and allowed the appeal.

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