Whether penalty can be imposed under Customs Act on Bank Employee for issuance of Bank guarantee which was misused by importers?

PJ/CASE LAW/2016-17/3060

Case:- A. VAIYAPURI Versus COMMISSIONER OF CUS. (SEAPORT), CHENNAI
Citation:- 2015 (325) E.L.T. 403 (Tri. - Chennai)
Issue:- Whether penalty can be imposed under Customs Act on Bank Employee for issuance of Bank guarantee which was misused by importers?
Brief Facts:-The Appellant was working as a Branch Manager, Bank of Madura, Bangalore. The facts of the case relate to import of “Mulberry Raw Silk” in the guise of “Duppion Silk” and also misuse of DEEC scheme by the importers. The adjudicating authority in his orders confirmed the demand and ordered for confiscation of the goods and also imposed penalty on importer and also on various co-noticees and imposed penalty of Rs. 1 lakh imposed on the appellant in each appeal under Section 112(a) as well as under 112(b) of the Customs Act. They find that there are no appeals filed by other importers and co-noticees. Therefore, this order is confined only to the present appeals filed by appellant against imposition of penalty. Thereafter the appellant filed appeal before Tribunal.
Appellant’s Contention:-The appellant submits that he was working as a Branch Manager and issued only Bank Guarantee to the importers. The appellant relied paras 6, 10, 12 and 39 of OIO. The appellant has not contravened any of the provisions of the Customs Act and no allegations have been brought out either in the SCN or in the adjudication order. In the second appeal, the SCN has invoked the provisions of Section 112(a) for penalty whereas the penalty was imposed under Section 112(b). The department failed to bring out omission and commission of the appellant in relation to the imported goods in contravention of any of the provisions of Central Excise Act. Even if there is any violation under banking regulations, Customs Act cannot be invoked for imposition of penalty. Further, the appellant submits that there was no forgery of bank guarantee or any fraudulent issue of bank guarantee as the department have already enforced the said bank guarantee and realised the money from the bank towards the realisation of dues. The appellant also submits that this is not a case where any license was issued and misused by appellant. The appellant further submits that the only violation brought out in the orders is violation of banking regulations. Therefore, appellant being bank employee who acted bonafidely cannot be imposed penalty under Customs Act and there is no forgery of BG or fraudulent issue of BG. The appellant submits that he was already suspended from the bank and removed from the services in 2002. He relied on the following citations :-
(i)            GTC Industries Ltd. v. CCE, New Delhi - 1997 (94)E.L.T. 9 (S.C.)
(ii)           Reckitt & Colman of India Ltd. v. CCE - 1996 (88)E.L.T. 641 (S.C.)
(iii)          UOI v. Kanunga Industries - AIR 1990 (S.C.) 2190 = 2004 (178)E.L.T. 19 (S.C.)
(iv)         State of Kerala v. M.M. Mahew & Another - AIR 1978 (S.C.) 1571
(v)          Hindustan Steel Ltd. v. State of Orissa - 1978 (2)E.L.T. (J 159).
(vi)         Trilok Chand Jain v. State of Delhi - AIR 1977 SC 666
(vii)        Shri Ram v. State of U.P. - AIR 1975 SC 175

Respondent’s Contention:-The Revenue reiterated the findings and submits that bank guarantee is nothing but cash payment for clearances for duty free goods under DEEC. Importers have imported the goods by execution of bank guarantee to clear the goods under DEEC licence and the goods were diverted. The Respondent also submits that out of 8 BGs, 3 BGs were fraud and forged. The Respondent relied paras 14.2.2 and 15.1 and 15.2 of both SCNs. The Respondent submits that appellant has introduced the licence brokers to the importers, therefore he abetted in cases of imported goods. Appellant has acted as a link between the importer and the licence brokers.

Reasoning of judgment:-After hearing the submissions of both sides, the Tribunal find that the limited issue in this case is imposition of penalty on the appellant who issued bank guarantees as a Branch Manager employed in the Bank of Madura. The allegation made in the adjudication order against the appellant is reproduced as under : -
“The appellant signed the bank guarantees for M/s. Exim Silk without following the rules and with a view to facilitate the illegal import of the goods. It is also clear that he played a role in the illegal transfer of the licence by introducing the licence broker to the licence holder. Thus he has actively abetted the illegal transfer of the licence and misuse of the licence. Hence, he is liable to a penalty under section 112 (a) of the Customs Act, 1962.”
Identical allegations are made in another O-I-O. The allegations made in SCN are reproduced as under : -
“The appellant, Branch Manager, Bank of Madura Ltd., N.R. Branch, Bangalore appears liable for penal action under Section 112 (a) of the Customs Act, 1962 as he appears to have colluded with Shri Omar Farook, Proprietor of M/s. Moin Impex, Bangalore and with Shri R. Sadagopan, Proprietor of M/s. Exim Aides, Bangalore, and abetted the acts of omission and commission that had rendered the goods liable for confiscation under Section 111 (d) (m) and (o) of the Customs Act, 1962.
The appellant, Branch Manager N.R. Road, Branch, Bank of Madura Ltd., Bangalore is hereby called upon to Show Cause to the undersigned within 15 days from the date of receipt of this notice as to why a penalty should not be imposed under Section 112 (a) of the Customs Act, 1962 for abetting the acts of omission and commission that had rendered the goods liable for confiscation under Section 111 of the Customs Act, 1962.”
As seen from the allegations made in SCN as well as in the impugned orders, the department has only vaguely alleged that he has colluded with proprietor. No specific allegations have been brought out. It is also a fact that as a Branch Manager he has issued Bank Guarantee and it is not the case of issue of forged bank guarantee as it is confirmed by the department vide letter signed by Deputy Commissioner of Customs addressed to Joint Commissioner (AR) wherein he has confirmed that they have enforced the bank guarantee and the bank has issued two Demand Drafts for Rs. 5,30,000/- and Rs.30,000/- respectively. The same was deposited in the Customs with challans. Therefore, it is not the case of forgery of bank guarantee or any fraudulent issue of Bank Guarantee. Further on perusal of the impugned order dated 8-2-2002 adjudicating the SCN dated 17-6-1998, the appellant was proposed for imposition of penalty under Section 112(a) of the Customs Act whereas in the adjudication order , penalty is imposed under Section 112(b). Except for vague allegation, there is no evidence brought out by the department for abetment or collusion or commission or omission in relation to import of goods to establish contravention of provisions of Customs Act. There is no clear cut evidence produced by the appellant. Being a Branch Manager of the bank, mere introducing a Customer to another customer is not a violation. Even if he has issued a bank guarantee without collecting margin money from the persons it is only a violation of banking regulations not a violation under the Customs Act. The Tribunal finds from that the Hon’ble Supreme Court in the case of Shri Ram v. State of Uttar Pradesh (supra), wherein it is clearly held that in order to constitute abetment, the abettor must be shown to have intentionally aided to commission of the crime. Mere proof that the crime charged could not have been committed without the interposition of the alleged abettor is not enough compliance with the requirement of Section 107 of Cr. PC. Therefore, in the present case, there is no iota of evidence brought out for invoking provisions of Section 112(a) of the Customs Act. The Tribunal also finds one of the SCNs proposed for penalty under Section 112(a) whereas the impugned order imposed penalty under Section 112(b). Section 112(b) relates to dealing of contraband goods and the appellant is only a branch manager issued bank guarantee. If at all any violation under banking regulations it is for the bank to initiate action and the Bank suspended him and subsequently removed from service in the year 1997.
The Tribunalalso finds from the Hon’ble Supreme Court judgement in GTC Industries Ltd. (supra), the Court held that each SCN must be limited to the case that is made out therein. The relevant paragraphs of the Supreme Court’s order is reproduced as under : -
“15. The Tribunal found no legal difficulty in holding that the allegations contained in the third show cause notice should be looked into for the purpose of adjudication of the first and second show cause notices. We find great difficulty in upholding the Tribunal’s view. As we see it, each show cause notice must be limited to the case that is made out therein by the Revenue. It is not within the jurisdiction of the Tribunal to direct otherwise; to do so is to go beyond its purely adjudicatory function.
16. The appeals are allowed to the extent aforestated. The appeal filed by the Revenue before the Tribunal is held to be beyond time and it shall not be entertained. The hearing on remand of the first and second show cause notices shall proceed, but limited to the case made out in each on its own merits.”
Therefore, The Tribunal has not find any merit in the impugned order for imposing penalty on the appellant under Section 112(a)/112(b). Therefore penalty imposed under Section 112(a)/112(b) is not sustainable. The impugned orders in respect of this appellant are set aside.

Decision:-Appeals are allowed.
Comments:-The crux of the case is that the appellant was a bank employee and he has issue a bank guarantee for import of goods. Importers have imported the goods by execution of bank guarantee to clear the goods under DEEC licence and the goods were diverted. The department booked case against the appellant on the ground of fraud & forged and imposed penalty. The Tribunal finds that the appellant is only a branch manager issued bank guarantee. If at all any violation under banking regulations it is for the bank to initiate action and the Bank suspended him and subsequently removed from service. Hence, penalty under customs act should not be imposed on him.

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PJ/CASE LAW/2016-17/3060

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