Provisions of IPC not directly applicable to Customs Act: CESTAT Drops Penalty imposed u/s 112(a) of Customs Act in absence of intention to evade tax [Read Order]

In a recent case, the Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) held that provisions of the IPC are not directly applicable to the Customs Act and dropped the penalty imposed under section 112(a) of Customs Act, 1961 in the absence of intention to evade tax.

Meticulous Forwarders, Masterstroke Freight Forwarders Pvt. Ltd, the assessee appellants are CHAs who were involved in the clearance of raw silk yarn valued at Rs.3,36,10,6140/- imported by M/s. Kalp Impex allegedly by misusing the Advance Authorisation Scheme, in February 2009. The appellants were alleged to have aided and abetted in the clearance of the imported goods which were cleared duty-free, into the local market.

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Further they had without obtaining the requisite authorisations from the importer and without verifying the signatures of the authorized persons of both the High Sea Seller and buyer firm, presented the HSS agreement before the authorities for clearance of the goods and after clearance from the customs, the consignments have been booked to Bangalore instead of Surat at the instance of the High Seas Seller.

It appeared that the appellants’ act of omission / commission have rendered the goods liable for confiscation under sec. 111(o) of the Customs Act, 1962 and the appellants were liable to penalty under sec. 112(a) of the Act for abetment. After due process of law, the Ld. Commissioner held that the appellants are liable for penalty and imposed penalty of Rs.7,00,000/- each under sec. 112(a). Hence the present appeals.

Counsel for the appellants submitted that without prejudice and without admitting but assuming the allegations in the show cause notice to be correct for argument sake, not meeting an importer or not having a written authorization, not transporting the goods to Surat and sending it to Bangalore etc does not amount to rendering the goods liable to confiscation or to abetment thereof. In this case, the confiscation is stated to arise in terms of section 111(d), (m) and (o) ibid.

The allegations do not fall within the mischief of these provisions to be read with section 112(a) which is invoked against the appellants. The allegations of "active collusion with the so-called 'High Sea Sellers’" are unsupported by any evidence. Neither the show cause notice nor the impugned order cites any evidence in this regard.

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Authorized Representative Shri Sanjay Kakkar appearing for revenue has reiterated the findings from the impugned order. He stated that mens rea was not an essential condition for the imposition of penalty under Section 112(a) of the Customs Act, 1962 and hence the omissions and commissions of the appellants which are in violation of the Custom House Agents Licencing Regulation 2004 and the Customs Act, had correctly been penalized under the Act. He hence prayed that the appeals may be rejected.

The dispute pertains to the alleged omission / commissions of the appellants-CHA’s whereby duty-free goods imported under the Advance Authorisation Scheme, were diverted into the local market. The appellants have resisted the imposition of penalty under section 112(a) of the Customs Act, 1962. 5. Blameworthy conduct by a CB can be subject to penal action both under the Customs Act 1962 and the Custom House Agents Licensing Regulations, 2004 (Regulations) as was in vogue at the relevant time.

However, any person including a CHA may be involved in blame worthy acts with the intention of helping the importer/ exporter evade payment of duty, by entering into a conspiracy/ collusion with an importer/ exporter or abetting them to defraud the exchequer etc. In such cases the cause of action is different from the role of a CHA under the Regulations and penal action can be taken under the Customs Act 1962.

An agreement between two or more persons to do an illegal act or legal acts by illegal means is a criminal conspiracy. The impugned order speaks of "active collusion” with the High Sea Sellers. Collusion involves a ‘conspiracy’ or an act of ‘abetment’.

It is seen that words like ‘omission’ and ‘abets’ appearing in section 112(a)are not defined under the Customs Act, 1962. When a word is not defined under a Central Act, its meaning can be ascertained from the definition given under clause 3 of the General Clauses Act,

1897, unless there is anything repugnant in the subject or context. The said Act defines ‘abet’ to have the same meaning as in the Indian Penal Code,1860 (IPC).

It is true that the provisions of the IPC are not directly applicable to the Customs Act, 1962. The two Acts operate in their own fields. One deal with criminal matter and the other with issue of taxation, where mens rea may not always require to be shown for the imposition of penalty. Further, it is seen that sec. 112 of the Customs Act, 1962 speaks of ‘omission’ only whereas section 107 of the IPC refer to ‘illegal omission’. Hence there is a difference in subject or context between the two Acts.

The finding in the impugned order also did not mention that the appellants along with the importer and High Seas Seller were a part of the plan to evade duty, or had a stake in the illegal gain. It states that the conduct of the CHA’s were in violation of the Customs House Agents licensing Regulations, 2004 and the provisions of Customs Act, 1962.

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A two member bench of M. Ajit Kumar, Member (Technical) and Ajayan T.V., Member (Judicial) observed that the act or stake was not just a violation of his obligation as a CB but was done with knowledge of the illegality. The evidence in this regard can be both / either, direct or circumstantial so long as common intent is discernable.

The Bench viewed that the evidence does not show that the appellants had a common intention along with the importer and High Seas Seller to do or omit to do any act which act, or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act. This being so the charge of "active collusion” with the High Sea Sellers is not proved and hence the penalty imposed against the appellants under section 112(a) of the Customs Act 1962, merits to be dropped.

The Tribunal set aside the penalty imposed on the appellants.

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