Whether penalty under Section 114 can be imposed if drawback is wrongly availed?

PJ/Case law/2014-15/2231

Case:- MAHARASHTRA SOLVENT EXTRACTION PVT LTD SANJAY AGARWAL Vs CC (EXPORT), NHAVA SHEVA

Citation:- 2014-TIOL-926-CESTAT-MUM

Brief facts:- The appellants were in appeals against the impugned order wherein the penalties on the main appellant had been imposed under Section 114A and on the Director under Section 114(iii) of the Customs Act, 1962.
Brief facts of the case were that the main appellant was manufacturer of De-Oiled Cake and an exporter. To manufacture the said De-oiled Cake, they procured Hexane gas without payment of duty. After exportation of the goods, they claimed duty draw back available on the export goods. The claim was sanctioned. Later-on, it was revealed that the appellants had procured the Hexane gas without payment of duty and also availed draw back claim which was not admissible. Impugned proceedings were initiated and a show-cause notice was issued alleging that the appellants had wrongly and irregularly availed duty draw back therefore, they were liable to be penalized under Section 114A and 114(iii) of the Customs Act, 1962. Both the lower authorities confirmed the penalties on the appellants. Aggrieved by the said the appellants were before me.

Appellant’s contentions:- The learned Counsel for the appellants submitted that in this case the appellants were manufacturer of De-oiled cake which sometimes were cleared in DTA as well as exported. They had wrongly claimed the draw back on the export goods where they had not paid duty on Hexane gas. For that reason it could not be held that they had taken draw back claim with an intention to take double benefit. As the appellants had already paid the duty draw back claim along with interest before the issuance of the show-cause notice therefore, penalty was not imposable on them. As show-cause notice itself alleges that they had claimed draw back wrongly. He further submitted that the penalty on the appellant was not imposable under Section 114A as there was no demand of duty. In support of his contention he placed reliance on the decision in the case of Chowhan Exports Ltd. vs. CC - 2000 (121) ELT 833 (Tri.).
He further submitted that the penalty imposed under Section 114(iii) of the Customs Act, 1962 was also not imposable on the Director of the Company as there was no proposal in the show-cause notice for confiscation of the impugned goods. As per the provision of Section 114 of the Customs Act, 1962, penalty could be imposed if the goods were held liable for confiscation. In the circumstance, the impugned order quo imposing penalties on both the appellants were to be set aside.

Respondent’s contentions:- On the other hand, the learned A.R. appearing for the Revenue supported the impugned order and submitted that the penalties had been rightly imposed on the appellants for their act for availing draw back which they were not entitled to. It was further submitted that the act of appellants of the mis-declaration of fact to avail the drawback and without bringing the same to the notice of the department, proves suppression of facts. Therefore, the impugned order was to be upheld.

Reasoning of judgment:-On perusal of the show-cause notice, Hon’ble judge found that the allegation against the appellants was that they had wrongly availed draw back claim. If an assessee took draw back claim wrongly, in that situation, it cannot be said that the assessee was having an intention to suppress the facts. Therefore, the facts of suppression were not proved as the show-cause notice itself alleges that draw back had been taken wrongly. Hon’ble judge found force in the argument advanced by the learned Advocate that as per the Section 114A of the Customs Act, 1962, penalty can be imposed on account of non-payment, short payment or erroneously refunded duty but in this case duty was not demanded. The only allegation against the appellants was that they had availed draw back claim wrongly. Therefore, relying on the decision of this Tribunal in the case of Chowhan Exports Ltd. (supra), penalty under Section 114A of the Customs Act, was not imposable on the main appellant.
Further he found that in the show-cause notice there was no proposal for confiscation of the impugned goods. Therefore, penalty under Section 114(iii) was not imposable.
With these observations, he held that the penalties on both the appellants were not imposable. Accordingly, penalties imposed on the both the appellants were set aside. The impugned order was modified to this extent. With these terms, the appeals were allowed.

Decision:-Appeals allowed.

Comment:- The analogy drawn from the case is that as per the Section 114A of the Customs Act, 1962, penalty can be imposed on account of non-payment, short payment or erroneously refunded duty but not in the case where duty was not demanded. Therefore, relying on the decision of the Tribunal in the case of Chowhan Exports Ltd. (supra), penalty under Section 114A of the Customs Act, was not imposable on the assessee. Also, if there isn’t any proposal for confiscation of the impugned goods then penalty under Section 114(iii) was also not tenable.

Prepared By:Ranu Dhoot

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PJ/Case law/2014-15/2231

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