Gross Negligence, Not Collusion: CESTAT Hyderabad Reduces Penalty

Sriram Srinivasa Rao Vs Commissioner of Central Tax & Customs (Appeals) (CESTAT Hyderabad)

The case of Sriram Srinivasa Rao vs. Commissioner of Central Tax & Customs (Appeals) at the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Hyderabad is a significant legal proceeding that revolves around a penalty imposed under section 117 of the Customs Act 1962. This article provides an in-depth examination of the case, shedding light on the circumstances that led to the penalty reduction.

Detailed Analysis:

1. Background: In this case, the appellant, Sriram Srinivasa Rao, found himself aggrieved by the imposition of a penalty amounting to Rs 1,00,000 under section 117 of the Customs Act 1962. The root of the issue lies in the import of a consignment by M/s Konaseema Exim Traders, which was initially assessed with a customs duty of Rs 5,35,000.
2. Payment by the Appellant: The pivotal moment occurred when Mr. Rao was requested by his friend, Mr. Rajesh, to make a payment of this assessed amount. In compliance with the request, the appellant transferred Rs 5,34,215 on 8/3/2019 through an online payment method. This action effectively discharged the Customs Duty, allowing the self-assessed Bill of Entry to proceed for further processing.
3. Discovery of Contraband Goods: The subsequent development in this case was the discovery of contraband goods concealed within the imported consignment. Specifically, customs officials unearthed a stash of cigarettes with an estimated value of Rs. 2,88,00,000. Importantly, Mr. Rao consistently maintained that he had no knowledge of or involvement in these illicit goods.
4. Contention: The legal representative of the appellant argued that, as Mr. Rao was not directly linked to the contraband items, the penalty imposed on him should be nullified. This contention is rooted in a significant finding made by the Adjudicating Authority, which stated that the payment made by Mr. Rao was unnecessary.
5. Customs Authorities’ Defense: On the opposing side, the Learned Assistant Registrar argued vigorously in favor of the confirmed penalty. The Assistant Registrar contended that Mr. Rao could not disavow responsibility for the situation since he had enabled the presentation of the self-assessed Bill of Entry by making the customs duty payment.
6. CESTAT’s Verdict: After a comprehensive review of the case, the CESTAT Hyderabad made a significant observation. While it was clear that Mr. Rao was not directly complicit in the contraband discovery, his actions, specifically the unnecessary payment, inadvertently facilitated the transgression. The tribunal, therefore, resolved to reduce the initially imposed penalty of Rs 1,00,000 to a more equitable Rs 20,000.

Conclusion:

The Sriram Srinivasa Rao vs. Commissioner of Central Tax & Customs (Appeals) case at CESTAT Hyderabad highlights the complexities and nuances of customs regulations and penalties. It serves as a prime example of how seemingly unrelated actions can have significant consequences. Mr. Rao’s case underscores the importance of due diligence and meticulous compliance with customs regulations. This verdict sends a clear message that inadvertent actions can lead to adverse outcomes, even if no direct collusion is proven. Importers and individuals involved in customs processes must exercise utmost care and adhere to the law to avoid penalties and legal repercussions. The reduction of the penalty from Rs 1,00,000 to Rs 20,000 serves as a reminder of the consequences of gross negligence in customs matters. 

FULL TEXT OF THE CESTAT HYDERABAD ORDER

The appellant is before the Tribunal being aggrieved by the penalty of Rs 1,00,000/- imposed on him under section 117 of the Customs Act 1962. The. Learned counsel submits that the import of the consignment was by M/s Konaseema Exim Traders. The Bill of Entry was assessed to customs duty of Rs 5,35,000/-. The present appellant Shri Sriram Srinivasa Rao was requested by one of his friend, Mr. Rajesh, to make the payment of this amount. The appellant received Rs 5,34,215/- on 8/3/2019 through online mode and after this amount was received, he has discharged the Customs Duty in respect of self assessed Bill-of-Entry.

2. The learned counsel for the appellant submits that when subsequently the imported consignment was opened and other contraband goods were found inside, the present appellant was in no way connected to them. He points out to para 44 of the order-in-original, wherein the Adjudicating Authority has given a finding that the appellant has made the customs duty payment which was not required to be made by him at all. Therefore, he submits that since no role is found to have been played by the appellant, the impugned order should be set aside.

3. Learned A.R. submits that after the self assessed Bill of Entry was presented along with payment of relevant customs duty, the investigating officials opened the consignment and found that it contained cigarettes valued at Rs. 2,88,00,000/-. He submits that the present appellant cannot plead that he has absolutely no role in this entire process. He justifies the confirmed penalty on the appellant.

4. In the rejoinder, Learned Advocate submits that the penalty under Section 117 can be imposed only when there has been any contravention of the provisions of the Customs Act. Since no specific contravention has been brought out against the appellant, the penalty imposed under section 117 is required to be set aside.

5. Heard both sides. Perused the documents.

6. As could be seen from the factual matrix given above, the appellant was not in any way concerned with the import of the consignment. The investigation also did not bring in any evidence to the effect that the present appellant has colluded in the transaction. However, it is a case of gross negligence on the part of the appellant. Self assessed Bill of Entry can be put up before the customs officials only after the Customs Duty is paid, which in this case has been done by the appellant, which was not required to be paid by him. Had he not made the payment, the self assessed Bill of Entry would not have been presented to the customs officials for final clearance of the imported consignment. Therefore, we do not agree that there was absolutely no contravention of any provision by the appellant. Contravention does not mean that it has to be directly done by the concerned person. Even when he takes up an act which results in contravention by the importer, still he would be liable for penalty under section 117. However, considering the fact that this is more in the nature of gross negligence rather than on account of any collusion in the contravention, I reduce the penalty of Rs 1,00,000/- to Rs 20,000/-. Appeal disposed of accordingly.

(Order pronounced and dictated in open court)