Partner cannot be Separately Penalised for Smuggling Once Customs Penalty Imposed on Partnership Firm: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) of Ahmedabad Bench held that once a penalty has already been imposed on a partnership firm under the Customs Act, 1962 a separate penalty cannot be imposed on an individual partner for the same act of smuggling.

As per the facts, an investigation conducted by the Directorate of Revenue Intelligence (DRI), Ahmedabad, into alleged smuggling activities involving M/s Rodex International, a partnership firm operating in the Kandla Special Economic Zone (KASEZ).

The firm had imported a consignment declared as refrigerators and LCD/plasma televisions through a Bill of Entry filed before customs authorities.

DRI officers discovered four concealed black polyethylene bags hidden inside refrigerators. Upon inspection, the bags were found to contain 28,580 “Micro” brand SD memory cards of 2 GB capacity, which had not been declared in the Bill of Entry. The department alleged deliberate concealment and smuggling of undeclared electronic goods.

The customs authorities imposed penalties on various persons including Mr. Dilip Dhakan, a partner of Rodex International-appellant in this case.

A penalty of ₹25 lakh each was imposed on him under Sections 112(a) and 114AA of the Customs Act, 1962. Challenging this order, the appellant approached the Tribunal.

The appellant argued that Rodex International itself had already been penalised for the alleged customs violations. Since a partnership firm and its partners are not separate legal entities under partnership law, a separate penalty on the partner for the same contravention was legally impermissible.

The appellant stated Gujarat High Courtrulings, including Commissioner of Central Excise v. Jai Prakash Motwani and CCE v. Mohammed Farookh Mohammed Ghani.

The Tribunal observed that a partnership firm does not enjoy a separate legal identity distinct from its partners, unlike a company. Therefore, once a penalty is imposed on the partnership firm itself, imposing another penalty on a partner for the same offence under Section 112(a) amounts to duplication.

The appellate tribunal, noting the Gujarat high court ruling, said that unless the statute specifically treats the firm and partners as distinct entities for penalty purposes, separate penalties cannot be simultaneously imposed.

The Bench noted that while the Customs Act contains specific provisions treating firms like companies for prosecution purposes under Section 140, no similar provision exists regarding imposition of penalties under Section 112(a).

Accordingly, the bench of S.S. Garg (Judicial member) set aside the penalty imposed on the appellant under Section 112(a) of the Customs Act.

However, the Tribunal upheld the penalty under Section 114AA, noting it was imposed personally on the appellant based on his un-retracted statement admitting involvement in arranging imports through Rodex International and expecting ₹1 lakh profit from concealed memory cards.

It held that admissions before customs authorities possess evidentiary value and justified action for false declarations. However, considering the disproportionate nature of the ₹25 lakh penalty compared to the alleged gain, the Tribunal reduced it to ₹2 lakh.

The appeal was partly allowed by quashing the Section 112(a) penalty while granting partial relief through reduction of the Section 114AA penalty.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates