Case Law Details

Case Name : M/s. Amritlakshmi Machine Works Vs The Commissioner of Customs (Import) (Bombay High Court)
Appeal Number : Customs Appeal nos.100-103 of 2012
Date of Judgement/Order : 29/01/2016
Related Assessment Year :
Courts : All High Courts (1347) Bombay High Court (304)

Sec. 112(a) – Simultaneously penalty on firm & partner restricted to alleged abetment by partner/firm – Bombay HC

Brief of the Case

Bombay High Court held that Simultaneous penalty can be imposed both on the partners and partnership-firm under Section 112 (a) where the   charge on   the   firm is   of acting or omitting to act rendering the goods liable for confiscation and the notice issued to the partner makes out a separate case of abetment on his part.  This abetment should be in respect of the act and/or the  omission to act on the part of the firm which has rendered the good liable for confiscation under Section 111 or where the allegation on the firm is of abetment and / or mens rea, then Section 135(1)(a) and 140 is applicable and simultaneous penalty is imposable. It is clear that in all other cases falling under Section 112 (a) simultaneous penalties upon the firm and its partner cannot be imposed. No penalty can be imposed upon the partner ipso facto merely on account of the fact that penalty is being imposed on partnership-firm.

Facts of the Case

The Appellants are engaged in the manufacture of textile machines. The following questions have been referred for opinion –

  • Whether under the Customs Act, 1962 and particularly in exercise of   the   powers   conferred   by   Section   112(a)   thereof, simultaneous penalties on both the Partner and Partnership can be imposed?
  • Whether, the   judgment   in   the   case   of   Commissioner   of Customs (E.P.) v/s. Jupiter Exports reported in 2007 (213) E.L.T. 641 (Bom.), holding that separate penalty on a partnership firm and a partner cannot be imposed, lays down the correct law or whether, as held by the later   Division   Bench   in   the   case   of Texoplast   Industries   v/s.   Additional   Commissioner   of Customs reported in 2011 (272) E.L.T. 513 (Bom.) it is permissible to impose penalty separately on a partnership firm and a partner particularly in adjudication proceedings under the Customs Act, 1962?

Contention of the Assessee

The ld counsel of the assessee in support of the proposition that penalty cannot be imposed simultaneously upon a partnership-firm and its partners under Section 112(a) submits as under:- The issue of jurisdiction under Section 112(a) to impose simultaneous penalties upon the partnership-firm and  its   partners stands concluded by the decision of  this   Court   in   Jupiter   Exports 2007 (213) E.L.T. 641 (Bom.) holding  that  it  cannot  be  done.  This decision is binding. Subsequent   decision   of   this   Court   in   Textoplast   Industries 2011 (272) E.L.T. 513 (Bom.) ought to have followed the binding decision of this Court in Jupiter Exports .The subsequent decision of this Court in Textoplast   Industries has   incorrectly   applied   the decision   of   the   Apex   Court   in Standard   Chartered   Bank   v/s. Directorate of Enforcement  197 ELT 80 which was rendered in the context of the   Foreign   Exchange   Regulation   Act,   1973   (FERA),   and   would have  no application while interpreting Section 112(a).

He further submitted that the scheme of the Act and FERA are entirely different. The Act unlike FERA   is   divided   into   different   chapters   and   certain provisions/   sections   of   the   Act,   are   made   applicable   only   to   a particular chapter. This chapterization is significantly absent under FERA. Therefore the provisions/ sections of FERA are not restricted in its application. Thus though Section 140 of the Act appears to be identical to Section 68 of FERA, it is not. This is so as the width of application of Section 140 of the Act is restricted. Evident from the fact that Section 140 of the Act is applicable only to offences under Chapter XVI of the Act which when contrasted with Section 138B of the Act,   which   is   also   a   part   of   Chapter   XVI   is   made   applicable across the Act. Thus, the provisions of Section 140 of the Act have to be restricted in its application.

Further submitted that in   any   view, on   a   plain   reading   of Section 112(a), no penalty is simultaneously imposable upon the partnership-firm   and   its   partners. The   penalty   under   Section 112(a) is imposable   upon a  person   also  who  does   or omits   to   do   any   act   which   renders   the   imported   goods   liable   to confiscation. A person not being defined under the Act, has to be understood as defined in the General Clauses Act and would include a partnership-firm. However, a firm is not distinct from its partners. A firm name is merely a compendious name   to describe   all the partners. This is so for the reason that the partnership-firm is not a separate   legal   entity.   Thus,   once   penalty   is   levied   upon   the partnership-firm, it would tantamount to imposing a penalty upon each   of   the   partners   individually   in   respect   of   same   offence. Therefore   imposition   of   penalty   once   more   on   the   individual partner is not warranted; and Imposition of penalty separately upon the partnership-firm and the partners   for   the   same   contravention   would   amount   to   double jeopardy/ penalty. Therefore, it is submitted that such imposition of double penalty is not sustainable in the face of Article 20(2) of the Constitution of India.

Contention of the Revenue

The ld counsel of the revenue in support of its contention that penalty under Section 112(a) is   imposable   on   the   Partnership-firm and the partners simultaneously, submits as under – The   reference   to   a   Full   Bench   by   the   Division   Bench   in Amritlaxmi  Machine Works  303 ELP 161  was not called for. This for the reason that there is only one decision holding the field in respect of imposition of simultaneous penalties upon the Partnership-firm and its partners and that is the decision of the Division Bench in Textoplast   Industries. It   is   submitted   that   this   Court   in Jupiter Exports (was not called upon to deal with the issue of   simultaneous   penalties   upon   the   Partnership-firm   and   the partners. Thus no referable question arises for consideration by this full Court.

Further submitted that Section 112 of the Act which empowers imposition of penalty   on   any   person.   It   is   emphasized   that the penalty is not   restricted   to   only   the   importer.   Therefore,   where under the Customs Act, the Partnership-firm is an importer who has filed a bill of entry; it can be visited with penalty in its capacity as an importer. This is so as a firm is a person as defined under the General Clauses Act, 1897.  A partner of the Partnership-firm can be visited with penalty along with the firm under the Act.  This is so as a   partner   is   a   person   different   from   the   importer   i.e.   the partnership-firm.   Section   112   does   not   restrict   the number of persons on whom penalty can be imposed.

Held by High Court

High Court held that from the Scheme of the Custom Act with regard to import of   goods, it is clear that   though   the   charge   under   the   Act   is   on import/export   of   the   goods,   action   can   be   initiated   against   offending goods which fall foul of Section 111 of the Act and also on any person whose act or omission to act has rendered the goods falling foul of Section111 of the Act. Thus, the penalty under Section 112(a) of the Act is not restricted  to  only  such  a  person  who  has  filed  a  bill  of  entry i.e. the  importer  but includes within its scope any other person who acts or omits to do any act rendering such goods liable for confiscation, including one who has abetted the act or omission. Further, the Act provides not only for quasi  judicial  proceedings  for   imposition   of   penalty  on   the  person   and confiscation of goods in case they offend Section 111 of the Act but also for prosecution in criminal proceedings in Court of law   under Chapter XVI of the Act. The criminal proceedings are subject of course to satisfying the additional  requirement of doing the act or omitting to do the act with knowledge   of   the   goods   becoming   liable   for   confiscation.   It   should   be noted that Section 127 of the Act, which is a part of Chapter XIV of the Act provides that any action taken under Chapter XIV of the Act shall not bar/affect any proceedings taken under Chapter XVI of the Act. Thus, the Act itself provides for parallel proceedings for imposition of penalty under the Act  and  for prosecution under the Criminal Procedure Code, 1973 in terms of Chapter XVI of the Act. This is permissible and not hit by double jeopardy  as held by the Apex Court in Union of India v/s. Purshottam 2015 (3) SCC 779.  This is for  the  reason  that  the  concept of  double   jeopardy would  only apply to successive punishment of criminal character.

Further it is undisputed that the decision in the case of Standard Chartered Bank was rendered in the context of FERA and we are concerned with the Customs Act. Therefore, though the wordings of Section   68   of   FERA   and   Section   140   of   the   Act   are   similar,   there   are significant differences between the two. In particular the words used in Section 140 of the Act that it applies to offences under this Chapter i.e.Chapter XVI of the Act and it is not so in Section 68 of FERA. Thus unlike Section   140   of   the   Act,   Section   68   of   the   FERA   does   not   restrict   its operation only to offences and prosecutions but makes it applicable to all  the   contraventions   across   all   sections   of   FERA.   One   more   significant difference is that wherever the Parliament decided that the provisions of Chapter XVI of the Act is to be made applicable across all the provisions of the Act, it so specifically provided for it, as is noticed in Section 138B of the   Act   which   is   also   a   part   of   Chapter   XVI   of   the   Act.   Thus,   while interpreting Section 140 of the Act, meaning must be given to the words’ in   this   Chapter’   occurring   therein.   It   is   a   settled   rule   that   while interpreting a  fiscal  or  a  penal  enactment it is not open to ignore any words thereof on any assumed or supposed intention/object. Thus  though  aid /guidance should be taken from the decision of the Apex Court in Standard Chartered Bank, the same cannot be applied, as it is, ignoring the differences in wordings of Section 68 of FERA and Section 140 of the Act.

Further it is clear that that   although the Division Bench of this Court in Textoplast Industries has held on first principles that Section 140 of the Act is to be read into all cases falling under Section 112(a)   of   the   Act,   we   do   not   agree.   Section   140   of   the   Act   on   first principles has to be read into only in cases where the notice to impose penalty under Section 112 (a) of the Act, the Revenue makes out a case of an offence prima facie satisfying the requirements of Section 135(1)(a) of the Act. It is only then that Section 140 of the Act can be invoked for purposes of imposition of penalty under Section 112(a) of   the Act both upon the partner as well as the firm.   In the second class of cases i.e. abetment   under   Section   112(a)   of   the   Act   a   specific   case   of   abetment against the partner would have to be made for a separate penalty upon  him. The notice issued by the Revenue should make out a case of the  partner   having   acted   and/or   omitted   to   act   with   knowledge   in   his individual capacity that such act and/or omission to act on the part of the firm would render the goods liable to confiscation. It has nothing to do with   Sections   135   and   140   of   the   Act.   However,   penalty   cannot   be imposed on the partner merely because penalty is being imposed upon the firm. The burden is upon the Revenue in the show cause notice to make out a case that penalty is imposable under Section 112 of the Act upon the partner for abetment of the offence by the firm. This is so, as otherwise, a penalty imposed upon the firm would be a penalty imposed upon all the partners of the firm as this has nothing to do with the knowledge of the breach   rendering   the   goods   liable   for   confiscation   on   the   part   of the partners concerned. The liability is strict. Therefore, imposed on all parties irrespective of the fact,   whether   the partner   concerned   is   an   active or sleeping partner.

In view of the above, the decision of the Division Bench of this Court in Textoplast Industries to the extent it places reliance upon the Apex Court decision in Standard Chartered Bank does not seem to be appropriate as it was rendered under a different statute. Each of the two Act i.e. FERA and the Act, provides a different scheme for imposition   of   penalty.   However,   the   decision   in   the   case   of   Textoplast Industries to   the   extent   it   holds   on   first   principle   that simultaneous penalty is imposable is the correct view only to the following extent:- (a) where  the  show cause notice  makes out a  case of an offence under Section 112(a) of the Act read with Section 135 (1)(a) of the Act, then alone, Section 140 of the Act is applicable for penalty upon the partner;   or (b) where the show cause notice makes out an independent case of abetment   by   the   partner   for   the   act   or   omission   done   by   the partnership   firm   which   has   rendered   the   goods   liable   for confiscation under Section 111 of the Act. The notice in such a case need not invoke Sections 135 or 140 of the Act for simultaneous imposition of penalties. However, we would like to clarify that (a) above are not case where   Section   112(a)   of   the   Act   is   alone   invoked   for   breaches   under Section 111 of the Act.  These are cases where penalty is being imposed for an offence under Section 135(1)(a) of the Act r/w Section 112(a) of the   Act. Thus,   it   would   cover   cases   where   the   allegation   is   that   the importer   (firm)   is   knowingly   concerned   with   acting   or   omitting   to   act rendering the goods liable to confiscate then, the partner in charge of the affairs of the firm would be liable (Section 140 of the Act). In both the above cases simultaneous penalties is imposable upon   the   partnership   firm   and   the   partner.   It   is   not   open   to   the Authorities under the Act to impose penalty upon the partner ipso facto only   because   penalty   is   being   imposed   upon   the   firm   under   Section 112(a) of the Act.  In   the   light   of   our   above   discussion,   we   answer   the   two questions posed for our opinion.

Accordingly, appeal disposed of.

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