Penalty on CHA Not Sustainable When Classification Dispute is Settled in Favour of Importer and No Misdeclaration is Established: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that penalty on a Customs House Agent (CHA) is not sustainable when the classification dispute is settled in favour of the importer and no misdeclaration is established against the CHA.

Narendra Forwarders Pvt. Ltd., the appellant, is a licensed Customs House Agent. During November and December 2007, the appellant acted as CHA for Wadhwa Associates and Realtors Pvt. Ltd. for clearance of fabricated aluminium products including glass and accessories through three Bills of Entry.

Based on the documents provided by the importer, the goods were classified under Customs Tariff Heading 73.08 and were cleared with the benefit of exemption from additional duty under Notification No. 3/2005-Cus.

In September 2010, the Directorate of Revenue Intelligence questioned the classification and took the view that the goods were classifiable under CTH 76.10, under which the exemption was not available. On being pointed out by the department, the importer paid the differential duty of Rs. 27,87,692 along with interest before issuance of any show cause notice.

Even so, a show cause notice was issued to the appellant CHA proposing penalty under Section 112 of the Customs Act, 1962, and a penalty of Rs. 1,00,000 was confirmed.

The appellant’s appeal was initially dismissed for non-compliance with the pre-deposit requirement. Later, the Tribunal remanded the matter for fresh adjudication without insisting on pre-deposit.

In the meantime, in the importer’s own case, the Tribunal held that the classification adopted by the importer was correct and that the exemption was admissible. Despite this, the Commissioner (Appeals) confirmed the penalty against the CHA in the de novo proceedings, leading to the present appeal.

The appellant’s counsel argued that since the importer had paid the entire duty along with interest before issuance of the show cause notice, Section 28(2B) of the Customs Act barred such proceedings. It was also argued that once penalty on the importer had been set aside by the Tribunal, penalty on the CHA could not survive.

The counsel further argued that merely claiming a classification or exemption based on the importer’s instructions does not amount to misdeclaration. Reliance was placed on several judicial decisions to support the plea that penalty on a CHA is not justified in the absence of deliberate wrongdoing.

The revenue argued that the appellant had admitted misclassification in its statement recorded under Section 108 of the Customs Act and that the penalty imposed by the Commissioner (Appeals) was justified on this basis.

The two-member bench comprising Dr. Suvendu Kumar Pati (Judicial Member) and M.M. Parthiban (Technical Member) observed that the statement did not amount to an admission of misclassification as understood under law. It observed that the appellant had only stated that the exemption was claimed as per the importer’s instructions and that this could not be treated as a deliberate act of misclassification.

The Tribunal explained that claiming an exemption linked to a classification, which was later upheld by the Tribunal itself in the importer’s case, cannot be treated as misdeclaration by the CHA. It also pointed out that once the importer’s classification was held to be correct and penalty on the importer was set aside, penalty on the CHA could not be sustained.

The Tribunal allowed the appeal and set aside the order passed by the Commissioner (Appeals), granting consequential relief to the appellant.

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