Immediate suspension of custodian license is justified where serious lapses found in safety of goods

Brief of the Case

Madras High Court held In the case of M/s. Chandra CFS and Terminal Operators Pvt. Ltd. vs. Commissioner of Customs that as per Regulation 11(2) the Commissioner of Customs may in appropriate cases where immediate action is necessary, suspend the approval granted to a Customs Cargo Service provider where an enquiry against such Customs Cargo Service provider is pending or contemplated. In the present case, the Commissioner of Customs already issued SCN where the appellant is a co-noticee for contravention under the Customs Act. We also noticed the appellant had outsourced the security CFS to other persons without approval/permission from competent authorities. The above repeated instances of smuggling of goods in the appellant CFS confirms that there are serious lapses on the part of custodian and this cannot be overlooked or treated as isolated incident as claimed by the appellant. In the interest of Government revenue and safety and security of Customs goods, the Department has the right to take immediate action under Regulation 11(2) of HCCAR, 2009.

Facts of the Case

The appellant, as a custodian, is bound to be diligent enough in discharging their duties   and obligations under the prevailing customs laws and Handling of Cargo in Customs Area Regulations (HCCAR regulations). In so far as the present case is concerned, the container bearing No.SEGU 1697558 containing Red Sander logs   weighing 9430 kgs was sized by the Directorate of Revenue Intelligence Unit (DIU) under a mahazar, dated 6.3.2014 and entrusted with the appellant for safe and secured custody.

On 19.12.2004, the said container was removed un-authorisedly from the custody of the appellant by using forged documents. Prima facie, it appeared that the alleged removal of seized goods was due to the gross negligence and utter failure on the part of the appellant for not ensuring safety and security of the seized goods which were kept under their custody. Since the nature of offence was very serious and caused a reasonable doubt on the bona fides of the appellant, the first respondent viz., the Commissioner of Customs, Chennai, by exercising the powers vested under Regulation 11(2) of HCCAR, 2009, had passed an order on 23.12.2014 suspending the custodianship of the appellant.

 Contention of the Appellant

 The ld counsel of the appellant submitted that this order is is an unilateral one as no enquiry was contemplated as against the appellant CFS. He submitted that order of suspension of custodianship of the appellant’s CFS was absolutely   a gross violation of the tenets of natural justice as the appellant was neither given any pre-decisional nor any post decisional hearing. At present the law was well settled   that the principles of natural justice had to be adhered to   when any order was passed to the detriment   of any person unless the statute had either specifically or by necessary implication excluded the application of principles of natural justice.

In support of his contention, he has placed reliance upon the following decisions – Freightwings and Travels Ltd. vs. Commissioner of Customs, Mumbai (2001 (129) ELT 226 (Tri-LB), Automative Tyre Manufacturers Association vs. Designated Authority (2011 (263) ELT 481 (S.C.), Pinkcity Logistics Ltd. vs. Commissioner of Customs (2015 (320) ELT 241 (Raj.), International Cargo Services vs. Union of India (2006 (193) ELT 546 (Del.), Commissioner of Customs (Gen), Mumbai vs. Raj Clearing Agency (2006 (199) ELT 602 (Bom.).

He has also laid emphasis on the point that the show cause notice, dated 5.2.2015 was issued without even referring to the order of suspension of custodianship of the appellant, dated 23.12.2014 after the completion of detailed investigation   and after recording the statement of all concerned and that the conclusion of the Tribunal was absolutely wrong to say that the investigation was yet to be completed.

Finally, he would submit that the first respondent/Commissioner had not proved that the removal of the seized container   was done with the knowledge   of the appellant’s CFS and therefore, the impugned order, dated 23.12.2014   suspending the custodianship of the appellant was absolutely   erroneous and against the principles of natural justice and hence, he has urged   to allow the appeal after setting aside the order of the Tribunal.

Contention of the Revenue

 The ld counsel of the revenue submitted that the offence committed in   contravention of the provisions of HCCAR, 2009 by the appellant was not new and that they had been repeatedly violating the provisions of   HCCAR, 2009.

He drawn attention to the show cause notice, dated 12.9.2014 issued to the appellant’s CFS as well as other persons with reference to their previous violations. It appears from the above said show cause notice that an offence case was registered against one M/s.Point to Point, the appellant and one Shri M.B.Sathyam, the AGM of the appellant   for an alleged attempt to export Muriate of Potash (MoP), a restricted item, for which, they, including the appellant, were penanlised   vide O-in-On No.15880/2011, dated 5.5.2011 for their role in permitting entry and storing of the goods   inside the CFS without any export documents like shipping Bill and invoice.

He has also submitted that in so far as the present case is concerned, the conduct of the appellant’s CFS had revealed that due to the complete failure of the security system   in the appellant’s premises, the decoy container, which entered the appellant’s premises as an empty container, was found later containing coconut tree trunks and mango tree trunks and this would go to show that the container when it had entered the appellant’s premises was neither opened nor checked properly   or weighed by the officials of the appellant’s CFS.

He has also indicated that the appellant had admitted the role of his employees in the illegal act of removal of the seized container from their premises and therefore, the appellant was responsible for every act of omission and commission made by their employees and the appellant could not isolate themselves from the acts committed by its employees.

Apart from this, he has also maintained that the appellant had also violated   the Regulation 6(2) of HCCAR, 2009 by employing the persons for security service from outside without obtaining prior permission from the Commissioner of Customs. In support of his contentions, he has placed reliance upon the following decisions – Commissioner of Customs (Gen), Mumbai vs. Raj Clearing Agency (2006 (199) ELT 602 (Bom.), Pinkcity Logistics Ltd. vs. Commissioner of Customs (2015 (320) ELT 241 (Raj.), S.R. Sale & Co. vs. Union of India (2013 (296) ELT 289 (Bom.) and Ujwal International Ltd. vs. Commissioner of Customs, Kochi (2015 (319) ELT 490 (Ker.).

Held by CESTAT

CESTAT dismissed the appeal of the appellant. It was held that the bonafide and credibility of conduct of custodian – appellant raised a serious doubt and the investigation by customs and police authorities was still pending and yet to be completed and if the appellants were allowed to continue as custodian, it would certainly cause jeopardy and hamper the process of investigation.

 Held by ITAT

ITAT dismissed the appeal of the assessee. ITAT has directed the first respondent to complete the investigation proceedings   and take appropriate action under HCCAR, 2009 as expeditiously as possible preferably within three months subject to receiving the investigation   report from the police authorities.

Held by High Court

 It is obvious to note here that the Commissioner of Customs, who is the first respondent herein, by her letter, dated 23.12.2014 had suspended the custodianship of the appellant CFS in terms of the provisions of the Regulation 11(2) of HCCAR, 2009, alleging that the appellant had contravened the provisions of Regulations 6(1)(f), 6(1)(i) and 6(1)(q) of HCCAR, 2009. It is also significant to note here that   on 29.12.2014, a corrigendum to the said order was issued   by the first respondent, wherein, it is stated that the existing Import and Export Goods available in the CFS will be allowed to be cleared/exported after completion of necessary Customs formalities.

Regulation 11(2) envisages that the Commissioner of Customs may in appropriate cases where immediate action is necessary, suspend the approval granted to a Customs Cargo Service provider where an enquiry against such Customs Cargo Service provider   is pending or contemplated. From the this, it is thus made clear that where immediate action is necessary, the Commissioner of Customs can suspend the approval granted to a Customs Cargo Service provider. In the given case on hand, the earlier showcause notice, dated 12.9.2014 reveals the previous antecedents of the appellant. On three occasions, the appellant had violated the Regulations of HCCAR, 2009 and in one case, the appellant was also penalized with penalty.

As per the Regulation 6(k) of HCCAR, 2009, the custodian is responsible   for the secure transit of the goods from the said customs area to any other customs area at the same or any other customs station in accordance with the permission granted by the proper officer. In this case, obviously, the appellant had not complied with the Regulation 6(k) and that was why the showcause notice, dated 5.2.2015   was issued to showcause as to why the seized container should not be confiscated and penalty should not be imposed on the appellant. From the perusal of the materials available on record, we find that there was laxity in the supervision on the part of the appellant and no surprise checks were conducted during night hours to ensure that the staffs were on night duty would remain vigilant.

We find that the Commissioner of Customs did not bring the operation of the appellant in a standstill in view of the order passed in corrigendum, dated 29.12.2014 and that the appellant was not prejudiced in any way by the impugned order, dated 23.12.2014. Keeping in view of the above facts, we have made up our mind to answer the first question of law as against the appellant by holding that the principles of natural justice has not been violated in the case of the appellant.

Further we find that the action of the Commissioner of Customs was fully justified in invoking the provisions of Regulation 11(2) of HCCAR, 2009. It cannot be heard to say that the appellant was not aware of the illegal removal of the seized container from their CFS. Equally, it is not able to be countenanced that the appellant could not be held responsible for the acts committed by their employees. It is trite law that the employer is vicariously liable for the acts of its employee acting in the course of his employment. There are grounds to believe that the alleged act was done in the course of the employment by their employees and therefore, the appellant must be ready to take the responsibility. As adumbrated supra in the earlier paragraphs, in appropriate cases, where immediate action is necessary, the Commissioner of Customs may suspend the approval granted to a Customs Cargo Service provider. This principle is laid down in sub-regulation (2) of Regulation 11 of HCCAR, 2009.

In the present case, we understand that the intent of the legislature is to take emergent action and in that event and subject to fulfilment of the ingredients of the provisions enunciated under Regulation 11(2) of HCCAR, 2009, an order could very well be passed by the Commissioner of Customs without affording pre decisional hearing and subsequently, immediate post decisional hearing may amount to substantial compliance with the basic rule of law.

Accordingly appeal of the appellant dismissed.