Is Customs' Confiscation and Penalty for False Duty Exemption Claims Justified?

Case Name:

Priyanka Enterprises Vs Commissioner of Customs (CESTAT Chennai)

Key Takeaways:

- The Tribunal upheld the classification of the goods under CTH 05119911 but quashed the confiscation, fine, and penalty imposed on the importer.

- It held that merely claiming an exemption cannot lead to confiscation and penal action if the goods are correctly described.

- The Tribunal criticized the department for not issuing a show cause notice before demanding differential duty, violating natural justice principles.

Issue:

Whether the confiscation of goods, imposition of fine and penalty on the importer for claiming duty exemption under a notification was justified.

Facts:

M/s. Priyanka Enterprises imported ‘GSL Artemia Brine Shrimp Eggs’ and classified them under CTH 05119911, seeking exemption under Notification No. 002/2017-Cus.

They had imported ‘GSL Artemia Brine Shrimp Eggs’ twice - Once under Bill of Entry number 2311679 dated 4.7.2017 and another under Bill of Entry No. 3450978 dated 3.10.2017.

Their first imported goods under bill of entry number 2311679 cleared normally.

However on their second import under bill of entry number 3450978, the department disagreed and demanded duty under Notification No. 001/2017-Cus.

The importer waived the issuance of a show cause notice, and the Joint Commissioner confirmed duty under Notification No. 001/2017-Cus, confiscated the goods, imposed a redemption fine and penalty. The Commissioner of Customs (Appeals) upheld this order.

The department demanded differential duty and imposed penalty on goods already cleared earlier under bill of entry number 2311679. The department did not issue any show cause notice for this.

Arguments:

Importer:

Merely claiming an exemption cannot lead to confiscation and penal action if the goods are correctly described.

The department should have issued a show cause notice before demanding differential duty.

Revenue:

The goods were correctly classified under CTH 05119911 and were not eligible for exemption under Notification No. 002/2017-Cus.

The importer had waived the issuance of a show cause notice.

Key Legal Precedents:

Northern Plastics Ltd. Vs. Collector of Customs and Central Excise [1998 (101) ELT 549 (SC)]:

The Supreme Court held that a charge of suppression cannot be brought against an importer if the goods are correctly described in the Bill of Entry.

Associate Builders v. Delhi Development Authority [(2015) 3 SCC 49]:

The Supreme Court held that judicial decisions must be fair, reasonable, and objective, and anything arbitrary and whimsical would not satisfy this requirement.

Judgement:

The Tribunal upheld the classification of the goods under CTH 05119911 and the duty demanded under Notification No. 001/2017-Cus for Bill of Entry No. 3450978 dated 3.10.2017. However, it quashed the confiscation of goods, redemption fine, and penalty imposed on the importer, holding that merely claiming an exemption cannot lead to such penal action if the goods are correctly described.

The Tribunal also set aside the differential duty demand for Bill of Entry No. 2311679 dated 4.7.2017, as the department had not issued a show cause notice, violating natural justice principles. Since no violation of law was established, the penalty imposed on the importer was also quashed.

FAQs:

Q1. What was the main issue in this case?

A1. The main issue was whether the confiscation of goods, imposition of fine and penalty on the importer for claiming duty exemption under a notification was justified.

Q2. What was the Tribunal’s decision regarding the classification of the goods?

A2. The Tribunal upheld the classification of the goods under CTH 05119911.

Q3. Why did the Tribunal quash the confiscation, fine, and penalty imposed on the importer?

A3. The Tribunal held that merely claiming an exemption cannot lead to confiscation and penal action if the goods are correctly described, as per the Supreme Court’s decision in Northern Plastics Ltd. Vs. Collector of Customs and Central Excise.

Q4. Why did the Tribunal set aside the differential duty demand for Bill of Entry No. 2311679 dated 4.7.2017?

A4. The Tribunal set aside the differential duty demand for this Bill of Entry because the department had not issued a show cause notice before demanding the duty, violating the principles of natural justice.

Q5. What was the significance of the Supreme Court’s decision in Associate Builders v. Delhi Development Authority in this case?

A5. The Tribunal relied on this decision to emphasize that judicial decisions must be fair, reasonable, and objective, and anything arbitrary and whimsical would not satisfy this requirement.

These appeals arise out of a common Order-in-Appeal passed by the Commissioner of Customs (Appeals - II), Chennai dated 27.2.2018 (impugned order). Both the appeals were heard together and are being disposed of by this common order.

2. Brief facts of the case are that the importer M/s. Priyanka Enterprises, had filed a Bill of Entry No. 3450978 dated 3.10.2017 for the clearance of the goods declared as ‘GSL Artemia Brine Shrimp Foods’ by classifying them under CTH 05119911 and sought to avail the preferential rate of IGST under Sl. No. 33 of the Notification No.002/2017-Cus dated 28.6.2017. The department felt that the goods were eligible for the benefit of IGST Notification No. 001/2017 under Sl. No. 21 of Schedule I which attracts IGST @5% and not under Notification No. 002/2017-Cus. The importer requested adjudication without issue of Show cause Notice and personal hearing. The learned Joint Commissioner in his order confirmed IGST @ 5% as per IGST Notification No. 001/2017 and also held that the importer had cleared the same goods previously under Bill of Entry No. 2311679 dated 04.07.2017 without payment of 5% IGST and demand differential duty of Rs.31,70,083/- on the same. The goods were not confiscated as they were not available for confiscation. The goods imported vide Bill of Entry No. 3450978 was confiscated under Section 111(m) ibid with an option to redeem the goods on payment of Redemption Fine of Rs.60,00,000/-. A penalty of Rs.6,55,000/- was also imposed o the importer. Pursuant to the same, the importer has filed the appeal before the Commissioner of Customs (Appeals), Chennai, who vide the impugned order rejected the appeal. Aggrieved by the order, the importer has filed an appeal before this Tribunal, assailing the impugned order. The department on the other hand is aggrieved by the impugned order for not having imposed redemption fine on goods imported under Bill of Entry No. 2311679 dated 4.7.2017.

3. We have heard learned counsel Shri L. Gokulraj for M/s. Priyanka Enterprises and Shri R. Rajaraman, learned AC (AR) for the Revenue.

3.1 The learned Counsel for the importer submitted that as the goods were perishable and required urgently and further since demurrage and detention charges were mounting, the importer was constrained to give a letter allowing the department to adjudicate the issue regarding eligibility for duty exemption without issuance of show cause notice. He submitted that they had sought a change of classification of the goods before the Commissioner (Appeals) from that declared in the Bill of Entry i.e. CTH 0511 9919 which only covers “Artemia”. The goods under import are ‘Artemia Brine Shrimp Eggs’, which are admittedly used as prawn feed. Prawn feed is specifically covered under CTH 2309.He however stated that since duty has already been paid and a long time had passed, they are not contesting the classification and are now only pleading for dropping the demand for differential duty made without issue of SCN along with setting aside the confiscation, fine and penalty confirmed by the impugned order without any valid reason.

3.2 The learned AR stated on behalf of Revenue that the imported goods were “Artemia” and were covered under the specific Customs Tariff Heading 0511 9919. Further the impugned order, relies for the classification of the goods upon the decision of the Mumbai Bench of the Hon’ble Tribunal, in the case of the Commissioner of Customs (Preventive), Mumbai Vs. Atherton Engineering Private Limited reported in 2001 (129) ELT 502 (Tri-Mum) which was upheld by the Hon’ble Supreme Court [2002 (144) ELT A293 (SC)]. He stated that the order came to be passed without the issue of a SCN as the appellant had waived the issuance of show cause notice. He hence prayed that the impugned order may be modified and redemption fine be imposed for the past clearances in line with the judgment of the Hon’ble Madras High Court in CMA No. 2857/2011 dated 11.8.2017.

4. We have gone through the appeals and have heard the rival parties. During the hearing, the learned counsel for M/s. Priyanka Enterprises stated that they were no longer seeking to change the classification of ‘GSL artemia Brine Shrimp Eggs’ under CTH 05119911, which had been originally declared by them. They are also not contesting for the eligibility of benefit under Notification No. 002/2017-Cus dated 28.6.2017, pertaining to Bill of Entry No. 3450978 dated 3.10.2017, since duty in this case has already been paid. Their main objection is regarding the confiscation of the goods pertaining to the said Bill of Entry, the burden of verifying the eligibility of exemption of the imported goods was to be done by the department. Hence no suppression or misstatement could be charged against the importer, as held by the Apex Court in Northern Plastics. Further no penal action can be taken merely for claiming the benefit of an exemption notification. He hence prayed that the confiscation of the impugned goods as ordered and the redemption fine imposed may be dropped. Secondly, with respect to Bill of Entry No. 2311679 dated 4.7.2017, he stated that since the adjudicating authority had not given them a Show Cause Notice or personal hearing, they were unaware of the charges that were made and they could not respond to the same. Hence this was in violation of the principles of natural justice and such an order cannot sustain. He hence prayed that the differential duty demanded in this case may also be set aside. Finally, he prayed that since there was no violation of any provisions of the Act or Rules done by them, there was no ground for imposition of penalty which also needs to be quashed and justice rendered.

4.1 On the other hand, Revenue had appealed for the imposition of redemption fine on goods already cleared. We find that a penalty can be imposed and goods confiscated only if there is a breach of any specific provisions of the Act or law framed there under. What is made punishable under the Customs Act is the 'blameworthy' conduct of the importer. A mere claim of exemption by the importer cannot be visited by confiscation of goods along with fine and penalty. Further, charge of suppression could not have been brought against an importer if he has correctly described the goods in the Bill of Entry as held by the Apex Court in Northern Plastic Ltd Vs. Collector of Customs and Central Excise [1998 (101) ELT 549 (SC)]. Since the description of goods and classification done by the importer has been found correct and accepted by the department, we find that the confiscation of the goods and imposition of fine was improper and merits to be set aside. In the case of Bill of Entry No. 3450978 dated 3.10.2017, Revenue has erred in reopening a finally assessed Bill of Entry without even giving the importer the grounds on which action is sought to be taken through the issue of a Show Cause Notice. The fundamental purpose behind the serving of a show cause notice is to make the notice understand the precise case set up against him, which he has to meet. Without meeting this fundamental requirement the order cannot sustain as it is in violation of principles of natural justice and the demand of differential duty in this regard also merits to be set aside. The question of confiscation of the goods hence does not arise. Having found that the importer-appellant has not violated any provisions of the Act or rules, we also set aside the penalty imposed upon them. The Hon’ble Apex Court in Associate Builders v. Delhi Development Authority [(2015) 3 SCC 49] held that the principle of judicial approach demands a decision to be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would not satisfy the said requirement. We hence find that the impugned order merits to be modified.

5. In view of the discussions above, we do not disturb the classification of ‘GSL artemia Brine Shrimp Eggs’ under CTH 05119911 along with duty as finalized with respect to Bill of Entry No. 3450978 dated 3.10.2017. However, the confiscation of the goods and the fine imposed on the goods imported by the said Bill of Entry is set aside. We also set aside the differential duty demand in respect of Bill of Entry No. 2311679 dated 4.7.2017. Since no violation of law has been established the penalty imposed on M/s. Priyanka Enterprises is quashed. Both the appeals are disposed of on the above terms, with consequential relief to M/s. Priyanka Enterprises, if any, as per law.

(Pronounced in open court on 25.01.2024)

(M. AJIT KUMAR) (S.S. GARG)

Member (Technical) Member (Judicial)