Penalty under section 114A cannot be imposed if no demand proposed under section 28.

PJ/Case Law/2014-15/2134

Case:-COMMISSIONER OF CUSTOMS (IMPORT AND GENERAL) Vs M/s CARE FOUNDATION

Citation:-2014-TIOL-537-HC-DEL-CUS

Brief facts:-The assessee- Care Foundation had imported a medical equipment and declared it as "Da Vinci Surgical System (Endoscope Systern)" claiming classification of goods under' Customs, Tariff Item 90189011 and claiming benefit of concessional rate of duty under S. No. 363(A) in Notification 21/2002-Cus dated 01-03-2002. The exemption covered fibre optic endoscopes of different kinds. The Care Foundation relied upon a commercial invoice from the supplier which showed the description as "IS 1200 Da Vinci Surgical System" from the literature published by J. Mitra & Bros, the sole indenting agent of the supplier. The bill of entry was assessed for customs duty of Rs. 29.03 lakhs which was paid. The customs department initiated proceedings based upon information that the goods did not match the declaration and that they were actually surgical robotic system with endoscopy. Whilst this was under dispute the Care Foundation paid Rs. 2.05 crores in addition to the amount paid and provisionally cleared the goods. The Collector of Customs adjudicated upon a show cause notice issued and confirmed the demand on 11.7.2007 confirming the duty at Rs. 2.34 crores i.e. the sum actually paid. On the other hand the order-in-original confiscated the goods under section 111(m) of Customs Act, 1962 and imposed a redemption fine of Rs. 50 lakhs. Likewise penalty for the amount equal to the duty of Rs. 2.34 crores was also imposed. Other penalties were imposed upon the Secretary of Care Foundation and other individuals. By the impugned order the Tribunal imposed Rs. 25 lakhs upon J Mitra as penalty. It is a matter of record that J. Mitra's appeal in respect of penalty imposed upon it was dismissed. By the impugned order the penalty imposed upon the Care Foundation under section 114A was cancelled.

Appellant’s contentions:-Revenue viewed that the goods did not match the declaration and that they were actually surgical robotic system with endoscopy. Accordingly, it pleaded for imposition of penalty under section 114A.

Respondent’s contentions:-The pleaded for upholding the order of the Tribunal setting aside penalty under section 114A.

Reasoning of judgment:- The revenue claims to be aggrieved by this order to the extent it completely cancelled the penalty. It urges that the Tribunal fell into error in holding that the goods were fully duty paid before the assessment was complete and upon its interpretation of section 28(8) of the Customs Act. The revenue relies upon Section 112. The Tribunal fell into error that penalty imposed under section 114A was not sustainable.

The relevant extract of the Tribunal's order discussing the rationale was deletion of the penalty under section 114A is as follows:

“18. One of the legal issue (sic) raised is that in this case the assessment was provisional and full duty was paid before clearance of goods. So there was no demand under section 28 of the Customs Act, 1962 for duty short levied. When there is no such demand no penalty can be imposed under section 114A of the Customs Act. The opening part of the said section reads as under:

Section 114A. Penalty for short-levy or non-levy of duty in certain cases. – Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under sub section (8) of section 28 shall also be liable to pay a penalty equal to the duty or interest so determined:

19. We find that there was no demand under section 28(8) of the Customs Act, for duty short levied and hence no penalty could have been imposed under this section. So the penalty imposed on M/s Care Foundation under section 114A is not legally sustainable. There might have been a case for imposing penalty under section 112 on Care Foundation also. Since such penalty is not imposed by the adjudicating authority, we refrain from imposing such penalty.

20. The appellants argue that the goods could not have been confiscated because the assessment was provisional. This argument is legally not tenable. Under section 111 (m) of Customs Act, 1962 any goods which do not correspond in respect of value or in any other particular with the entry made under the Act is liable to confiscation. In this, a deliberate action to declare the goods as an endoscopic system, with an intention to claim the exemption, is evident even though there was no such description in the invoice or literature of the manufacturer. The additional description was purposely added. Such misdeclaration made would make the goods liable to confiscation. So we are not able to agree with the argument that the goods were not liable to confiscation. The confiscation is thus upheld. However considering the nature of the equipment to be one used in medical care and also the nature of mis-declaration involved and the letter issued by a public authority like the Chief Medical Officer DGHS, we reduce the redemption fine to Rs. 25 lakhs.

21. Once the goods are liable to confiscation any person who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 111 is liable to penalty under section 112 of the Customs Act. The part played by Shri. Arun K. Tiwari is obvious and there is no case for fully absolving them from the penalty imposed on him. However considering that the persons concerned were not doing it for any personal gain we reduce the penalty to Rs. 2.5 lakhs.

22. However we are of the view that the indenting agent who prepared documents was to enable the importer to claim the exemption. They gave shelter to misdeclaration by their ill-design and manipulation. So we do not find any reason to grant relief from penalty imposed on M/s Mitra and Brothers.

After considering the above order, it was accepted that penalty under section 114A can be imposed only if there was duty demand under section 28 of the Customs Act. As in the present case, the duty along with interest was paid before clearance of goods, there was no demand proposed. As such, when there was no demand, penalty could not be imposed under section 114A.

In the opinion of this Court, no exception can be taken to the finding that since there was no demand under section 28(8) of the Customs Act for duty, no penalty could have been imposed under that provision and consequently the penalty under section 114A was not sustainable. The further reasoning that there could have been penalty under section 112 but since that provision was not invoked, the direction to pay penalty at Rs. 2.34 crores was not warranted in the circumstances, does not appear to be in error of law. For these reasons the Court is of the opinion that the question of law framed has to be answered against the revenue and in favour of the assessee.

The appeal was therefore dismissed.

Decision:-The appeal is dismissed.

Comment:- The analogy of the case is that since there was no demand under section 28(8) of the Customs Act for duty, no penalty could have been imposed under that provision and consequently the penalty under section 114A was not sustainable. It was further held that there could have been penalty under section 112 but since that provision was not invoked, the direction to pay penalty at Rs. 2.34 crores was not warranted in the circumstances, does not appear to be in error of law.

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PJ/Case Law/2014-15/2134

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