Case Law Details
Behag Overseas Vs Commissioner of Customs (CESTAT Chennai)
Misdeclaration of goods and attempt to export such goods is punishable under Section 114 of the Customs Act. A Customs House Agent, who is a party to the mis-declaration, is liable to pay penalty.
Facts- On specific intelligence, it was alleged that red sanders log are being smuggled out in the export consignment. Accordingly, the officers worked out the market value of the red sanders seized to be Rs.5,28,75,000/- @ Rs.45 lakhs per MT. The container used to carry the red sanders logs for illicit export was also liable for confiscation.
However, the adjudicating authority dropped the proposal to impose penalty under sec 114(i) against the Customs Broker stating that there is no evidence that the appellant has abetted the smuggling plan. Against such order, the Department filed appeal before the Commissioner (Appeals) who set aside the order passed by the adjudicating authority as far as it relates to non-imposition of penalty on the appellant and remanded the matter to the adjudicating authority. Aggrieved by such order of remand, the appellant is now before the Tribunal.
Conclusion- The Hon’ble HC in the case of Sri Rama Thenna Thayalan had an occasion to consider similar set of facts wherein there was an attempt to smuggle red sanders. It was held that it is incorrect to say that CHA is only liable under Customs House Agents’ Licensing Regulations for such violations.
Therefore, misdeclaration of goods and attempt to export such goods is punishable under Section 114 of the Customs Act. A Customs House Agent, who is a party to the mis-declaration, is liable to pay penalty.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts of the case are that on receiving specific intelligence by the D.R.I, Chennai Zonal Unit that Red Sanders logs are being smuggled out in the export consignment filed in the name of M/s.Polyhose India (Rubber) Private Ltd. vide Shipping Bill dated 06.06.2018 wherein the goods are declared as “Wire Braided Rubber Hydaulic Hose”, the officers initiated investigation. The port of discharge declared in the shipping bill was Shanghai, China and the overseas buyer declared in the shipping bill was M/s.Xiangtan Bai State Trade Co. Ltd., China. The container was identified and examined. The seal affixed at the CFS were found to be intact. The container was opened and examined. It was found to contain large number of red coloured wooden logs stacked in the entire container and the declared cargo was not to be found. A mahazar was prepared and forest officers were informed who conducted inspection of the wooden logs and reported them to be ‘red sanders’. The officers worked out the market value of the red sanders seized to be Rs.5,28,75,000/- @ Rs.45 lakhs per MT. The container used to carry the red sanders logs for illicit export was also liable for confiscation. Summons were served to different persons and the statements were recorded.
2. Pursuant to the investigations, show cause notice under Section 124 of the Customs Act, 1962 dated 18.12.2018 was issued to various persons including the appellant herein (Customs Broker), who had filed the shipping bill for export of the consignment. After due process of law, vide Original-in-Original dt. 31.05.2019, the adjudicating authority held that there is no evidence that the appellant has abetted the smuggling plan and therefore dropped the proposal to impose penalty under Section 114 (i) of the Act ibid. Against such order, the Department filed appeal before the Commissioner (Appeals) who vide the order impugned herein set aside the order passed by the adjudicating authority as far as it relates to non-imposition of penalty on the appellant and remanded the matter to the adjudicating authority for reconsideration of the issue of non-imposition of penalty under Section 114 (i) of the Act ibid. Aggrieved by such order of remand, the appellant viz. Customs Broker is now before the Tribunal.
3.1 Ld. Counsel Dr. Sunita Sundar appeared and argued for the appellant. The foremost contention put forward by the Ld. Counsel for appellant is that the appeal filed by Department before Commissioner (Appeals) is time-barred and that the Commissioner (Appeals) ought not to have entertained the appeal itself. She adverted to Section 129D (2) and (3) of the Customs Act, 1962 and argued that review order under sub-section (1) and (2) of Section 129D ought to have been passed within a period of 3 months from the date of order passed by the adjudicating authority. In the present case, the order of the adjudicating authority is dated 31.05.2019. The office of the Commissioner of Customs is very much in the same building and it cannot be believed that they have not received the order on the date of dispatch itself. It is contended by the department that they have received the order only on 17.06.2019 which is utterly false. She argued that the date of order being 31.05.2019, the review order ought to have been passed within a period of 3 months from the date of such order. Sub-Section (3) of Section 129D states that the review order has to be passed from the date of order of the adjudicating authority. Even though a delay of 30 days can be condoned by filing an application, in the present case, the department has not filed any application to condone the delay. Hence the appeal filed by the department ought to have been dismissed by the Commissioner (Appeals) on the ground of limitation itself.
3.2 The second argument put forward by the Ld. Counsel is that the Commissioner (Appeals) has not conducted personal hearing in a proper manner. Personal hearing was granted to the appellant herein on 06.02.2020 and 10.11.2020. The department did not appear on these dates. Further, a virtual hearing was fixed on 03.12.2020. Appellant though appeared online and submitted arguments, there was no representation on behalf of the department at that time. It is understood that hearing on the side of the department was conducted on the very same date at a later time. The appellant was prevented from hearing the argument put forward by the department and this has resulted in grave injustice to the appellant.
3.3 On merits of the case, Ld. Counsel adverted to para-42 of the order passed by the adjudicating authority and submitted that there is clear finding that there is no evidence in the show cause notice to prove that the appellant has abetted the illegal export of red sanders. It is stated by the adjudicating authority that at the most, the violation would fall only under Customs House Agents’ Licensing Regulations (CBLR), 2013 for which imposition of penalty under Section 114 of the Customs Act, 1962 is not warranted. In the impugned order, the Commissioner (Appeals) has held that the appellant has filed two shipping bills with serious misdeclaration of description and has also misused IEC of M/s.Polyhose India (Rubber) Private Ltd. without verifying the KYC and antecedents of the exporters; that therefore they are liable for penalty under Section 114 for having acted in a careless and reckless manner; that such omission and commission attracts penalty under Section 114 of the Customs Act, 1962. With these observations, the matter has been remanded to the adjudicating authority. Ld. Counsel submitted that the violations stated by the Commissioner (Appeals) would fall only under CBLR, 2013 and do not attract ingredients of Section 114 of the Customs Act, 1962. She prayed that the direction of remand by Commissioner (Appeals) may be set aside by allowing the appeal.
4.1 Ld. A.R Shri R. Rajaraman appeared and argued for the department. In reply to the argument that the appeal filed by the department is barred by limitation, Ld. AR submitted that the order was received at the Review Cell only on 17.06.2019. When computed from such date, the review order dated 03.09.2019 is within time. The same has been taken note of by the Ld. Commissioner (Appeals) and held that the appeal has been filed within the prescribed time limit.
4.2 In reply to the argument that the hearing was not conducted in a proper manner, Ld. A.R adverted to the discussions made by Commissioner (Appeals) in para-5 and in page 18 of the impugned order. Shri Kailash Bunkar, Superintendent had appeared on behalf of the department on 03.12.2020. Further, the Department vide letter dated 09.11.2020 had informed that the grounds of appeal filed by the department may be taken on record and that the department does not wish to make any further submissions. The order has been passed after hearing and considering the contentions raised by both sides.
4.3 On merits of the case, Ld. A.R adverted to the observations in para-6 of the OIO where the statement of Shri K. Katturaja, who is Operation In-charge of the appellant-Customs Broker, is given in detail. From this statement itself, it is clear that appellant did not obtain the complete KYC of the exporter. Without obtaining proper documents and without verifying the antecedents of the exporter, the appellant has filed the shipping bill for export of the prohibited goods. These violations cannot be considered merely as violations falling under Customs Brokers’ Licensing Regulations. The adjudicating authority has erred in holding that appellant has not abetted in illegal export and that the failure is only in discharging duty as Customs Broker. He relied upon the decision in the case of Sri Rama Thenna Thayalan – 2021 (12) TMI 47-MADRAS HIGH COURT to argue that in serious cases of misdeclaration and smuggling of prohibited goods, the CHA cannot be absolved from liability by contending that the violation falls under CBLR only. That, in any case, the Commissioner (Appeals) has only remanded the matter and the appellant has ample opportunity to establish their innocence before the adjudicating authority. He prayed that the appeal may be dismissed.
5. Heard both sides.
6. The foremost argument put forward by the counsel for appellant is that the review order passed by the Review Cell dated 03.09.2019 is barred by time and therefore the appeal filed by department before Commissioner (Appeals) is also barred by limitation. For better appreciation, the relevant clauses of Section 129D of the Customs Act, 1962 are reproduced as under :
“SECTION 129D. Powers of Committee of Principal Chief Commissioner of Customs or Chief Commissioner of Customs or Principal Commissioner of Customs or Commissioner of Customs to pass certain orders. —
…………………
(2) The Principal Commissioner of Customs or Commissioner of Customs may, of his own motion, call for and examine the record of any proceeding in which an adjudicating authority subordinate to him has passed any decision or order under this Act for the purpose of satisfying himself as to the legality or propriety of any such decision or order and may, by order, direct such authority or any officer of Customs subordinate to him] to apply to the Commissioner (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Principal Commissioner of Customs or Commissioner of Customs in his order.
(3) Every order under sub-section (1) or sub-section (2), as the case may be, shall be made within a period of three months from the date of communication of the decision or order of the adjudicating authority :
Provided that the Board may, on sufficient cause being shown, extend the said period by another thirty days.”
(emphasis supplied)
Sub-section (3) provides that the review order has to be passed within a period of 3 months from the date of communication of decision or order of the adjudicating authority. On perusal of records, it is seen that the date of Order-in-Original is 31.05.2019. The date of dispatch is shown as 03.06.2019. The appellant contends that department would have received it on the same date and therefore the review order passed on 03.09.2019 is beyond 3 months. They have not adduced any evidence to show that the department has received the order passed by the Adjudicating Authority either on 31.05.2019 or on 03.06.2019. The department has submitted before the Commissioner (Appeals) that they have received the order only on 17.06.2019. This Bench, on 02.03.2022, directed the department to produce evidence as to the date on which they have received the order passed by the adjudicating authority. An affidavit was filed by the Asst.
Commissioner of Customs (Review Cell), Chennai-IV stating that the Review Cell has received the order only on 17.06.2019. There is nothing to establish contrary to this affidavit filed by the Review Cell. On such score, I find that the review order passed on 03.09.2019 is well within time. Consequently, the appeal filed by the department is also within the prescribed time limit.
7. In any case, it is also necessary to state that proviso to sub-section (3) says that on sufficient cause being shown, the period can be extended by another 30 days on filing an application to condone the delay. The delay in the present case is less than 30 days.
8. The second argument put forward by the Ld. Counsel is that personal hearing was not conducted in a proper manner as both the parties were not present at the same time in the virtual hearing conducted by the Commissioner (Appeals). From the records, it is seen that department has filed a letter on 09.11.2020 informing that the grounds of appeal filed by the department may be taken on record as arguments for the department. In such case, it cannot be said that department has to appear in the online hearing. From the discussions made in the impugned order also, it is not seen that any new grounds were taken up by the department other than what they have stated in their grounds of appeal. Though I should say that such conduct of hearing where both parties are not present at the same time is irregular and not proper, I do not find any prejudice caused to the appellant herein as the department has already informed that they are not putting forward any grounds other than what they have stated in the grounds of appeal. The argument put forward appears to be untenable and hyper-technical.
9. The Commissioner (Appeals) has set aside the order passed by the adjudicating authority and remanded the matter to look into the issue of imposing penalty under Section 114 (i) of Customs Act, 1962. The Counsel for appellant has argued that there is a clear finding by the adjudicating authority that the appellant has not abetted illegal export and that violation, if any, would fall only under CBLR. At this juncture, it would be necessary to reproduce the relevant part of the statement given by Shri K. Katturaja, Authorized Signatory of the appellant herein as under :
“6. … … …. as they already had KYC of M/s Mac-Nels with them, they requested for KYC of the Shipper viz M/s. Polyhose India (Rubber) Pvt. Ltd.; that M/s.Mac-Nels handed them over an incomplete KYC format and ROC declaration of M/s.Polyhose India (Rubber) Pvt. Ltd; that M/s.Mac-Nels told them that they will obtain and give them the complete KYC in a short while; that they prepared and sent the check list for approval; that after approval, they (M/s.Behag) submitted the checklist online and got it numbered as Shipping Bill No.5386076 dated 06.06.2018; ………….. .
To a query as to whether they verified the antecedents / identity of the client to whom they provided their services, he stated that they verified the antecedents in the ICEGATE Customs website; that they verified the antecedents/identity of the IE Code holder – M/s Polyhose India (Rubber) Pvt. Ltd., by typing their IE code and PAN number in Google and found that they were regularly filing around 30 to 35 shipping bills per week; that but they did not verify the instant export order with M/s Polyhose India (Rubber ) Pvt. Ltd., directly….”
10. From the above statement, it is seen that the appellant has admitted that they have not verified the antecedents of the exporter in the ICEGATE Customs Website. Further, they have not received the complete KYC. The incident is an attempt to smuggle prohibited red sanders which has to be viewed seriously. Such violation on the part of the Customs Broker cannot be brushed aside as mere violation under Customs Brokers’ Licensing Regulations.
11. The findings of the adjudicating authority is noteworthy and reproduced below :
“42. ………….. . I observe that by not verifying the antecedents of the exporter, the Customs Broker had failed in discharging the responsibility of the Customs Broker under the Customs Brokers Licensing Regulations 2013. However, I notice that they have not abetted the smuggling plan of Shri Sabarivasan in as much as they did not know him directly or had in touch with him any point of time. I find that there are many legal decisions with regard to the role of Customs Broker in such smuggling activity. In one such case, viz., Commr of Customs (Exports) Vs. I. Sahaya Edin Prabu – 2015 (320) ELT 264 (Mad.), the Hon’ble Tribunal held for failure to discharge as a Customs House Agent penalties are provided in the Customs House Agents Licensing Regulations and imposition of penalty under Sec. 114 of the Customs Act, 1962 is not warranted. The said decision of the Hon’ble CESTAT was also upheld by the Hon’ble High Court of Madras by its Oder dated 8.1.2015. Applying the ratio, I hold that Shri K. Katuraja, the Authorised Signatory of M/s.Behag Overseas, of Customs Broker is not liable for penalty under Sec.114 of the Customs Act, 1962.”
12. The Hon’ble High Court in the case of Sri Rama Thenna Thayalan(supra) had an occasion to consider similar set of facts wherein there was an attempt to smuggle red sanders. It was held that it is incorrect to say that CHA is only liable under CBLR for such violations. The relevant paras of Hon’ble High Court’s decision are reproduced as under:
“17. The plea that action against the erring Customs House Agent can be initiated only as per the procedure under CHALR 2004 and not under Section 114 (i) of the Customs Act is baseless argument.
18. Regulation No.12 of CHALR 2004 says that the licence is not transferable or sold. Thus, while granting licence, it is very clear that the licensee cannot allow the third party to misuse the licence. Regulation No.13 of CHALR imposed certain obligations on the Customs House Agent and one such obligation is to exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearance of cargo or baggage and yet another obligation is to verify antecedent, correctness of Importer Exporter Code (IEC) Number, identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information.
19. From the records and the own admission of the appellant, it is clear that the appellant had not discharged these obligations, which cast on him. It is a case where under the guise of Coco Peats, prohibited goods namely, Red Sanders weighing 10.760 MTs. has been transported. The DRI based on the intelligence gathered, had rescue the goods and found the Cargo was transported based on the Annexure – A containing the signature of the appellant Customs House Agent. Customs House Agent is governed by the Regulations framed by the Government in exercise of the powers conferred under the Customs Act, 1962. Therefore, misdeclaration of goods and attempt to export such goods is punishable under Section 114 of the Customs Act. A Customs House Agent, who is a party to the mis-declaration, is liable to pay penalty not exceeding three times of the value of the goods mis-declared. The first respondent Tribunal is empowered to enhance the penalty imposed, if the penalty imposed is not adequate. Further, the provisions under the Regulations to punish the Customs House Agent for violation and contravention of the Regulations is in addition to the penal provisions prescribed under the parent act, namely, the Customs Act. It is incorrect to say that the Customs House Agent is liable only under the Regulations for any violation and contravention. The licence issued to the Customs House Agent under conditions not to commit any grave offence. If action under the Regulations not sufficient for the grave offence, the Customs House Agent is liable also to be proceeded under the Customs Act. There is no legal impediment to proceed against the Customs House Agent under the Customs Act besides action under the Regulations.”
13. The decision in the case of V. Prabhakaran Vs CC Chennai – 2019 (365) ELT 877 (Mad.) was referred to by the Hon’ble High Court. This Tribunal in a similar case of attempt to smuggle red sanders in the case of R.S. Arunachalam and Other Vs Commissioner of Customs, Chennai vide Final Order No.40115-40116/2022 dated 04.03.2022 had applied the above decisions to uphold the penalty imposed under Section 114 (i) of the Act.
14. From the discussions made above, I hold that the view taken by Commissioner (Appeal) that the matter has to be remanded for reconsideration does not require any interference. The impugned order is upheld. Appeal is dismissed.
(Pronounced in court on 06.06.2022)
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