Penalty u/s 114AB of Customs Act not imposable in any instrument by fraud, collusion, wilful mis-statement or suppression of fact: CESTAT [Read Order]

In a recent case, the New Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that a penalty under section 114AB of the Customs Act, 1961 is not imposable in any instrument by fraud, collusion, wilful mis-statement or suppression of fact.

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New Era Trading Pvt. Ltd. has filed this appeal to assail the order dated 27.04.2023 passed by the Principal Commissioner of Customs, ICD-Export, TKD, New Delhi , confiscating the goods exported under section 113(d), (g) and (i) of the Customs Act, 1962 but as the goods had been exported and were not available for confiscation nor cleared under a bond, redemption fine in lieu of confiscation has not been imposed.

The Principal Commissioner also ordered for recovery of the ineligible Focus Market Scrips from the appellant under section 28AAA of the Customs Act with applicable rate of interest. The amount of drawback under rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 has been dropped, but penalties have been imposed upon the Proprietor of the appellant under section 114(iii), 114AA and section 114AB of the Customs Act.

The appellant is engaged in the manufacture and export of Ready Made Garments. It entered into contracts for supplying Ready Made Garments to UAE, Sudan, Senegal, UK, Afghanistan, Armenia, Azerbaijan, Kazakhstan, Ethiopia, Germany, Myanmar under drawkback Focus Market Schemes. To encourage exports to remote markets, the Government introduced the Focus Market Scheme , designed to offset higher freight costs borne by buyers. Under the FMS, exporters often offer reduced prices to customers in designated countries like Panama. This approach ensures competitiveness by partially absorbing the elevated freight costs, aligning with the objectives of the FMS.

As per the contracts, the appellant was required to supply the goods on the prices stated in the agreement on FOB terms and to a place notified by the buyer. In terms of the contract, Concorde Shipping & Logistics India was solely responsible for undertaking shipping as per the instructions of the buyer.

According to the appellant, the buyer used to instruct the appellant telephonically to export the goods to a particular country which was "Panama" or "Netherlands" . Accordingly, the appellant would send the goods along with the export documents, such as commercial invoice and packing list to the Customs House Agent for customs clearance for making exports to Panama/Netherlands who sent the exporter copy of Shipping Bills to the appellant. The TR-1 and TR-2 copy of the Shipping Bills were forwarded to the Freight Forwarder.

Since the contract between appellant and buyer was on FOB basis, as soon as the Let Export Order was issued, title in the Goods passed to the buyer and the appellant would no longer be the owner of the Goods. Thereafter, the Freight Forwarder, being the representative of the buyer, was responsible for arranging the Shipping Lines and getting the Goods ultimately exported. The appellant claims that it was, therefore, not responsible for the movement of Goods thereafter and was also unaware of any communication between the buyer and Freight Forwarder.

On receipt of the exporter copy of Shipping Bills and Bill of Lading issued by the Freight Forwarder, the appellant claimed the benefit under the FMS. Accordingly, the appellant claimed benefits on goods exported through 203 shipping bills during the period of dispute from March 2013 to September 2013. All the export documents in possession with the appellant established that the Goods were exported to Panama.

The appellant claimed that later it came to know that the Goods were actually not exported to the aforesaid countries. The appellant inquired with the buyer regarding change in the country of destination. It was informed by the buyer that they had directed Imran Mirza, proprietor of the Freight Forwarder, to deliver the consignments to Dubai.

A show cause notice dated 24.01.2020 was issued inter alia proposing to confiscate the goods and demanding ineligible benefit availed under the FMS equivalent to Rs. 4,14,06,583/- under section 28AAA of the Customs Act with interest. It also proposed to impose penalty under section 114AA, section 114(iii) and section 114AB of the Customs Act on the appellant.

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Clearly, if the exporter applied for FMS scrips, it is the responsibility of the exporter to ensure that the goods reach that market and to produce proof as above. The responsibility of the exporter does not end with obtaining the Let Export Order. In this case, neither side produced before us the documents which were produced as proof that the goods reached the Focus Market.

The Customs authorities investigating the matter should have summoned the relevant documents from the DGFT. Either the goods must have reached the Focus Market or if they were diverted, the exporter may have submitted fake documents as proof of landing or the DGFT may have issued the scrips without obtaining the proof of landing. The impugned order, however, does not address this issue.

Penalties could not have been imposed under section 114AA and section 114(iii) of the Customs Act. The appellant claims that it was a bona fide exporter who exported goods in terms of the contract on FOB basis. The title of the goods passed to the buyer as soon as the Let Export Order was issued and the appellant was not responsible for any changes that may have been made in regard to the destination port.

The Principal Commissioner has relied upon the statement made under section 108 of the Customs Act that the changes were made on the instructions given by the appellant. This statement, for the reasons stated above, cannot be relied upon as evidence. Thus, penalty under section 114AA of the Customs Act could not have been imposed upon the appellant.

A two member bench of Justice Dilip Gupta, President and P. V. Subba Rao, Member (Technical) has held that penalty under section 114AB of the Customs Act could not have been imposed upon the appellant as the appellant had not obtained any instrument by fraud, collusion, wilful mis-statement or suppression of fact. Such allegations have been made in the impugned order based on statements of persons who were not examined by the Adjudicating Authority in accordance with the procedure prescribed under section 138B of the Customs Act. The statements, therefore, could not have been considered.

The court set aside the order and the appeal is allowed. Shri Ashirwad and Shri Virat sharma appeared for the appellant and Shri Shashi Kant Sharma, authorised representative of the department

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