Case Law Details

Case Name : Chloride Metals Ltd. Vs Commissioner of Customs (CESTAT Chennai)
Appeal Number : Customs Appeal No. 40430 of 2021
Date of Judgement/Order : 02/11/2021
Related Assessment Year :

Chloride Metals Ltd. Vs Commissioner of Customs (CESTAT Chennai)

Facts- The appellant paid IGST of INR 61,24,785. However, the appellant was not able to get the original documents for taking delivery of the impugned goods. The supplier of the appellant, based at Singapore, became bankrupt and was not in a position to provide the original document. Accordingly, the appellant filed IGST refund application as he didn’t intend to take release of goods. The said refund claim was later on withdrawn due to their deal with M/s. Gravita India Ltd.

Later a notice was issued to the appellant proposing penalty under section 114AA alleging attempt to claim undue refund of INR 61,24,785.

Section 114AA Penalty not leviable in absence of misdeclaration or misstatement

Conclusion- As per section 114AA, penalty can be levied only when a person knowingly or intentionally makes, signs or uses or causes to be made, signed or used, any declaration, statement or document, which is false or incorrect. The Hon’ble Supreme Court in the case of Hindustan Steel Ltd. – 1978 (2) ELT J159 (SC) has held that no penalty should be imposed for technical or venial breach of legal provisions or where the breach flows from the bonafide belief. Held there is nothing brought out in evidence which attracts the ingredients of section 114AA of the Customs Act, 1962.

FULL TEXT OF THE CESTAT CHENNAI ORDER

The brief facts as narrated in the impugned order are as under:-

2. The appellant M/s. Chloride Metals Limited imported Lead Ingots and Refined Lead Ingots for manufacture of pure lead and lead alloys. They entered into contract with M/s. KYEN Resources Pte. Ltd. Singapore for import of refined lead ingots. Based on the documents received, it was observed that M/s. Navam Lanka Ltd. was the manufacturer and shipper of the goods. The appellant filed bills of entry dated 5.9.2018 and 11.9.2018 and claimed exemption from payment of BCD vide Notification No. 26/2000 dated 1.3.2000 under FTA. The said bills of entry were assessed to duty and facilitated under RMS. The appellant paid the IGST of Rs.61,24,785/- on 5.9.2018 and 11.9.2018. The appellant was not able to get the original documents for taking delivery of the impugned goods. It was understood by the appellant that the supplier at Singapore had become bankrupt and was not in a position to provide the original documents. There was a huge demurrage and detention charges on the goods imported. The appellant filed application for refund of the IGST paid on the imported goods as he did not intend to take release of goods. Meanwhile, M/s. Navam approached the appellant to grant NOC (No Objection Certificate) to enable Navam to take charge of the goods and to mitigate the losses. In response to the request made by Navam, the appellant requested them to remit the IGST paid and other expenses incurred by the appellant. On receipt of the payment, the appellant would issue the NOC and that on receipt of the refund claim of IGST from the department, the appellant undertook to pay back the amount to Navam. Under these circumstances, Navam approached their sister concern M/s. Gravita India Ltd., Andhra Pradesh for clearing the goods in their name with the NOC given by the appellant. In terms of Public Notice No. 47/2016 dated 15.3.2016 issued by the JNCH, if the NOC is produced, the name of the importer in the bills of entry can be amended for clearing the goods. Pursuant to the issue of NOC, the appellant was under the impression that M/s. Gravita India Ltd. would get the IGM amended and would file fresh bills of entry in their name for clearing the goods. However, M/s. Gravita India Ltd. informed that since cancellation of the bills of entry was not possible in the ICEGATE system, they amended the name of the importer in the bills of entry. Ideally, the customs department ought to have refunded the IGST initially paid by the appellant and ought to have collected the IGST from the substituted importer (M/s. Gravita India Ltd. in this case) with applicable interest. However, the appellant was informed that the IGST payment of Rs.61,24,785/- was adjusted by department towards IGST payable by M/s. Gravita India Ltd. under the amended bills of entry. Upon receipt of this information, the appellant filed a letter dated 30.11.2018 for withdrawing the application of refund of IGST which had been submitted on 9.10.2018. After filing the application for withdrawing the refund claim, the department issued a deficiency memo dated 11.12.2018 to the appellant. As the refund claim was already withdrawn, the appellant did not respond to the deficiency memo. A Show Cause Notice dated 6.2.2019 was issued proposing to impose penalty on the appellant under sec. 114AA of the Customs Act, 1962 alleging attempt to claim undue refund of the duty to the tune of Rs.61,24,784/-. The appellant submitted a detail reply vide letter dated 19.3.2019 and also attended personal hearing held on 23.4.2019. The adjudicating authority confirmed the proposal in the Show Cause Notice and imposed penalty of Rs.50 lakhs on the appellant under sec. 114AA of the Customs Act, 1962.

3. Aggrieved by such order, they filed appeal before Commissioner (Appeals) who upheld the same. Hence this appeal.

4. The learned Consultant Shri R. Srinivasan appeared and argued on behalf of the appellant. He adverted to page 131 of the appeal paper book and submitted that the appellant had filed the application for withdrawing the refund claim and the same was received by the department on 6.12.2018. Even after repeated efforts, the appellant did not get the original documents required for clearing the goods. They had filed bills of entry on the basis of copies of documents received by email. Since they did not get the original documents from the importer of the goods, they opted not to clear the goods and to cancel the bills of entry. In such situation, they filed the refund claim dated 9.10.2018 for refund of duty paid by them. Only later, by efforts made by the supplier M/s. Navam Lanka Ltd., another purchaser was located. Thus, as per the instructions from Navam, the appellant agreed to issue NOC to M/s. Gravita India Ltd. The bills of entry were amended by incorporating the name of the new purchaser. This was done after obtaining permission from the department.

However, the duty paid by the appellant having been accepted by the department, the appellant came to know that the same cannot be refunded and has been adjusted towards the goods that are cleared in the name of M/s. Gravita India Ltd. For this reason, the appellant filed an application for withdrawing the refund claim. The department does not dispute the fact that the appellant has paid duty and also filed the application to withdraw the refund claim. Even after the application for withdrawal of the refund claim, the department has issued a deficiency memo dated 11.12.2018 requiring the appellant to furnish documents to process the refund claim. Later on, Show Cause Notice dated 6.2.2019 was issued alleging that the appellant had attempted to obtain undue refund and thereunder proposing to impose penalty under section 114AA of the Customs Act, 1962. The appellant had filed reply to the Show Cause Notice explaining the set of facts. However, the adjudicating authority confirmed the proposals in the Show Cause Notice and imposed a penalty of Rs.50 lakhs.

5. He argued that the conduct of the appellant was bonafide and there was no intention to avail ineligible refund. The appellant had paid the duty in respect of the goods which could not be cleared by them. It is also brought out from the Show Cause Notice that the goods have been cleared by M/s. Gravita India Ltd. The appellant had filed the refund claim in the initial stage when they were not able to clear the goods for want of original documents. Later, when NOC was issued and the bills of entry were amended in the name of the new purchaser, the appellant came to understand that the duty cannot be refunded and the same has to be adjusted against the duty liability. The application for withdrawing the refund claim was thus filed. In para 6 of the Show Cause Notice and at page 10 of the Order in Original, the department states that once duty was remitted online against a particular bill of entry, the said duty amount cannot be adjusted with duty against some other bill of entry filed by another importer. On the belief that the appellant would not be able to clear the goods they applied for the refund. Later on coming to know that even though the purchaser has filed the bill of entry, the duty amount cannot be adjusted, the appellant filed the application for withdrawing the refund claim. Without looking into the application filed by the appellant for withdrawing the refund claim, the department has issued deficiency memo requesting the appellant to furnish documents for processing the refund claim. The appellant did not attend to the deficiency memo only for the reason that since the application for withdrawing the claim has been filed by the appellant, the deficiency memo has become infructuous. He argued that there are no grounds for attracting the ingredients of section 114AA and that the penalty imposed cannot sustain.

6. Section114AA of the Customs Act, 1962 prescribes that penalty is to be imposed for use of false and incorrect material. The said section reads as under:-

“114AA. Penalty for use of false and incorrect material.—If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods.”

7. As per the section, only a person knowingly or intentionally makes, signs or uses or causes to be made, signed or used, any declaration, statement or document, which is false or incorrect, the liability for penalty would arise. The Hon’ble Supreme Court in the case of Hindustan Steel Ltd. – 1978 (2) ELT J159 (SC) has held that no penalty should be imposed for technical or venial breach of legal provisions or where the breach flows from the bonafide belief.

8. The Tribunal in the case of Commissioner of Customs Vs. Sri Krishna Sounds and Lightings – 2019 (370) ELT 595 (Tri. Chennai) has held that the penalty can be imposed only in situation when benefits are claimed presenting forged documents. He prayed that the appeal may be allowed.

9. The learned AR Shri S. Balakkumar supported the findings in the impugned order.

10. Heard both sides.

11. The allegation is that the appellant attempted to obtain undue refund. From the facts narrated above, it can be seen that the refund claim was filed on 9.10.2018 in a situation where appellant paid duty and was not able to clear the goods. The duty of Rs.61,24,785/- having been paid on 5.9.2018 and 11.9.2018, the appellant filed refund claim since he did not find any ways to clear the goods. Later, the foreign supplier has arranged for a new purchaser and the NOC was issued by the appellant. It is understood from the facts of the case that by this time the duty paid vide bill of entry presented by the appellant was appropriated towards the imported goods. Even though the title of the goods were transferred to the new purchaser by amended bills of entry, the duty could not be collected from the new purchaser as the duty on the goods already stood discharged.

12. The allegation in the Show Cause Notice is that the appellant has made deliberate attempt to obtain undue refund. In fact, the appellant has replied to the Show Cause Notice explaining the entire situation by which he had to file the refund claim and thereafter the application for withdrawing the refund claim. The adjudicating authority however proceeded to impose a penalty of Rs.50 lakhs. Interestingly, the Commissioner (Appeals) after taking cognizance of all the facts has observed that the appellant did not respond to the Show Cause Notice and did not appear for personal hearing before the adjudicating authority. This incorrect understanding by Commissioner (Appeals) that appellant did not respond to the Show Cause Notice and did not appear for the personal hearing has been taken as the basis to conclude the element of mens rea on the part of the appellant. I cannot understand how the Commissioner (Appeals) has arrived at this conclusion. The appellant has given a detailed reply to the Show Cause Notice which has been recorded in the Order in Original. So also he has attended the personal hearing which has also been taken note of. The relevant part in the Order in Original is reproduced as under:-

“7. Accordingly, an opportunity of personal hearing was offered to the importers on 23.4.2019. Shri Ratan Jain, Advocate representing the importers and Shri Balvant Kulkarni, Chief commercial Officer of the importing firm appeared for personal hearing on 23.4.2019 and reiterated their reply dated 19.3.2019 in response to the SCN. They have also stated that SCN has been proposed to impose penalty under section 114AA of the Customs Act, 1962 and the same is not invokable in this case. They have further stated that they have neither misdeclared nor made any misstatement nor made any false or incorrect details in the documents and therefore, penalty under section 114AA of the Customs Act, 1962 is not invokable. They had nothing further to add.”

13. The above being the fact, the conclusion arrived by the Commissioner (Appeals) that the appellant did not reply to the Show Cause Notice did not appear for the personal hearing would establish the mens rea is not only wrong but highly absurd. I have to say that the appellant has been put to hardship of making predeposit on such huge penalty by wrong appreciation of facts.

14. After appreciating the facts, there is nothing brought out in evidence which attracts the ingredients of section 114AA of the Customs Act, 1962. The mere fact that the department had already appropriated the duty amount paid by the appellant towards the imported goods and therefore could not collect further amount against the amended bills of entry presented by the new purchaser cannot be a ground to issue a Show Cause Notice alleging attempt to claim undue refund.

15. In view thereof, the impugned order is set aside. The appeal is allowed with consequential relief, if any.

(Pronounced in open court on 02.11.2021)

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