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Leadking Sea Air Forwarders Pvt. Ltd. and Others V/S Commissioner of Customs and Service Tax

    C/920/2012-SM, C/1063/2012-SM (Arising out of Order-in-Original No. 21/2011, Dated: 30.1.2012 Passed by the Commissioner of Customs, Bangalore) and Final Order Nos. A/22297-22298/2017

    Decided On, 26 September 2017

    At, Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Bangalore

    By, THE HONORABLE JUSTICE: M.V. RAVINDRAN
    By, MEMBER

    For Petitioner: Pradyumna G.H., Advocate And For Respondents: N. Jagadish, Superintendent, AR



Judgment Text


1. These two appeals are disposed of by a common order since they are contesting the findings recorded by the adjudicating authority on the very same issue i.e. penalty imposed under provisions of Section 114(i) and 114 AA of the Customs Act, 1962. Heard both sides and perused the records.

2. On perusal of records, it transpires that show-cause notices were issued to various persons and also these two appellants, in appeal gainst impugned order No. 21/2011 dated 30.01.2012 before the Tribunal. The adjudicating authority by the order impugned has held that M/s. Leadking Sea Air Forwarders Pvt. Ltd. being a CHA has to be penalized under the provisions of Section 114(i) and 114 AA of the Customs Act, 1962 and Shri Rajesh being Manager of the said company needs to be penalized under the same provisions.

3. The relevant facts, that arise for consideration herein are the allegations in the show-cause notice indicate that the main appellant herein being a CHA has not verified the antecedent of the exporters who sought to export Ketami

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ne Hydrochloride in the guise of garments but did not notice it was concealed inside the said consignment which was detected after the Customs investigation and based on information.

3.1. The show-cause notices were issued to the appellant seeking their explanation as to why penalty should not be imposed on them under provisions of Section 114(i) and 114 AA of the Customs Act, 1962. Appellants contested the show-cause notice on merits. The adjudicating did not agree with the contentions raised and imposed penalties on them which is contested.

4. Learned counsel appearing for both the appellants took me through the findings recorded by the adjudicating authority in paragraph Nos. 44 and 45 of the order impugned. It is his submission that the findings recorded do not indicate that the adjudicating authority has come to the conclusion whether there was violation on the part of the appellant which rendered the goods liable for confiscation under Section 113 of the Customs Act, 1962 or otherwise. He would submit that similar issue came up before the Tribunal in the case of Sarosh Nagarwala, Skylark Travels Pvt. Ltd. and Flavian Walter D'Souza -. wherein the Bench held that provisions of Customs Act cannot be applied for in case of there being no finding as to the role attributable to appellants; also relies upon the decision of Hon'ble High Court of Madras in the case of I. Sahaya Edin Prabhu : 2015 (320) E.L.T. 264 (Mad.).

5. Learned AR on the other hand brings to my notice the very same paragraph wherein the adjudicating authority has recorded the findings. He submits that the main appellant CHA never checked the antecedent of the exporters and more so when the said exporters, only checking of the correctness of import export code does not mean the proper checking has been done and he should have been more vigilant as to find out whether the exporters were functioning from the declared address or otherwise.

6. After considering the submissions made by both sides and perusal of records, I find that the issue falls for consideration is regarding the penalties imposed under provisions of Section 114(i) and 114 AA of the Customs Act, 1962 on these two appeals on the ground that they have violated the provisions of Customs Act, 1962 by abetting with the exporters to clandestine export of their product.

6.1. The findings recorded by the adjudicating authority as regards the role attributable to these two appellants needs to be reproduced which are as under:

"44. As regards M/s. Leadking Sea Air Forwarders Pvt. Ltd., the show-cause notice alleged that they had undertaken the CHA work without exercising adequate caution, without causing necessary verification and without employing due diligence and used false and incorrect material and thus abetted the attempt to smuggle out ketamine hydrochloride. The CHA maintained that they had verified IE Code and AD code and then taken up the work of processing of export documentation. As per Rule 13(o) of CHALR, 2004 which was introduced keeping in view the KYC Norms vide Notification No. 30/2010 dated 8.4.2010, CHAs are required 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. This appears to have not been done by the CHA. They have merely verified the details in the website. They have not actually verified the functioning of the exporter at the declared address. There appears no such attempt was made even after they attended about seven consignments. This failure of CHA, has led to the fraudsters to smuggle the contraband. Immediately after the contraband was seized in respect of the consignment cleared by the CHA, this office has prohibited operation of their licence and the parent Commissionerate where their Original Licence is registered have been informed to take necessary action and accordingly their licence has been suspended across the country. The CHA has quoted myriad case laws that in the absence of involvement in the fraud no action can be taken against them. They have vehemently contended that mere filing shipping bill does not amount to abetting the offence. They have further stated that their License has been suspended and that they are out of business for two years. They further submitted that it has taken toll on the livelihood. I also see that they have relied on Mr. Satish of Nayak Aviation as he was attending the export consignments of M/s. Sandhya Impex. Apart from Regulation 13(o) of CHALR, as per Regulation 13(d) the CHA has to advise his client to comply with Customs Act and in case of non-compliance bring it out to the notice of Deputy Commissioner of Customs. This has clearly not been done by the CHA. As per Regulation 13(e) CHA has to exercise due diligence to ascertain the correctness of any information which he imparts to a client. In this case the CHA has accepted documents on behalf of a fictitious Ghaziabad based company and also accepted documents signed by one 'Ajay' which was actually done by Mr. Satish of Nayak Aviation. The CHA clearly failed to advise his client, the exporter, ignored the suspicious activity of export of garments under a free Shipping Bill and failed to comply with Regulation (o) of CHALR. I therefore hold that the CHA has abetted in the attempt of alleged export and is therefore liable for penal action under the provisions of Customs Act.

45. Regarding Mr. Rajesh of M/s. Leadking, I find that he knew Mr. Satish of Nayak Aviation personally and even though he found the consignment suspicious, ignored the same and accepted the consignment of export. He knew that the goods 'RMG' gets drawback of customs duty and yet accepted the goods under Free Shipping Bill, in case of which goods are not checked by customs. I find that as a CHA employee he has failed to exercise due diligence in verifying the antecedents of the exporter, accepted documents i.e declarations, invoice, packing list signed by one non-existent 'Ajay' and therefore rendered himself liable for penal action."

It can be seen from the above reproduced paragraph that the adjudicating authority has recorded the findings against the main appellant as to how the act of appellants has violated the provisions of Rule 13(o) of CHALR 2004 and has not discussed any issue as to the violation of the Customs Act, 1962 by these appellants. In my view, when the adjudicating authority himself has abandoned the allegations in the show-cause notice for the violation of the Customs Act 1962, there being absence of evidence which indicate that appellant had a role, which is tantamounts to abettment in export of goods which are liable for confiscation, penalties imposed on these appellants are liable to be set aside. I find that this is the ratio which is recorded by the Tribunal in the case of Sarosh Nagarwala Skylark Travels Pvt. Ltd. (supra) wherein in paragraph 6 the Bench has held as under:

"6. Despite the original authority having noted the lack of any evidence or statement to link appellant with the offence, the impugned order has gone on to invoke the penal provision by relying, in passing, upon the allegations in the show cause notice. First appellate authority, too, relies solely on those allegations which were made with reference to alleged misconduct while discharging the functions of 'customs house agent' and are, indeed, enumerated in the Customs House Agents Licencing Regulations, 2004 and it successor Regulations. These are framed by the Central Board of Excise & Customs in exercise of powers under section 146 of Customs Act, 1962. The enabling provision in the statute also empowers the notifying authority to incorporate penalty measure and procedure to be followed for imposition of penalties. When a statutory instrument specifically provides for a code of conduct and penalty for breach thereof, it is not legal and proper to bring such breach within the ambit of another statutory provision which is intended to penalize smuggling of goods, or attempt thereof, unless that latter provision specifically intends such coverage. There can be no doubt that a 'customs house agent' can be penalised under section 114 of Customs Act, 1962 but that penalty must follow a finding that an act of omission or commission on the part of 'customs house agent' rendered the goods liable for confiscation. To link up carriage of contraband with failure to ascertain the identity of exporter or obtain the authorization is to infer that such ascertainment or obtaining would have prevented the attempt to smuggle. Nor is it credible to infer that failure to do so has encouraged the perpetrators. If enforcement were so ludicrously simple, the immense manpower resource appointed under the Customs Act, 1962 can be done away with. If deviation from the code of conduct enumerated the Regulations were to be dealt with as abetting of smuggling, such provisions in the Regulations are redundant and a mere reference to section 112 and section 114 of Customs would have sufficed instead of the elaborate procedure laid down in the Regulations. It would appear that the findings of the original and first appellate authority are not in conformity with legislative intent."

7. In view of the foregoing, these two appeals are allowed and the impugned order to the extent it is contested in these appeals before the Tribunal is set aside. The appeals are disposed of as indicated hereinabove
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