Whether penalty under section 114 should be equal to the quantum of duty evaded?

PJ/Case Law/2013-14/1651

Case:-M/s C M HUSSAIN MUBARAK CO Vs COMMISSIONER OF CUSTOMS (SEA-EXPORTS) CHENNAI

Citation:-2013-TIOL-948-CESTAT-MAD

Brief facts:-The appellant filed Shipping Bill No.3473273, dated 26.08.2009 for export of 20,539.50 sq. ft. Of goods declared as “Buff light Burnish Upper Finished Leather" under claim for drawback. On examination, the Customs officers were of the view that 4803 sq. feet of the goods did not confirm to the description declared in the shipping bill. Here, it is relevant to note that there was export duty of 60% on unfinished leather and there was also restriction on its export, whereas finished leather was allowed to be exported free of any restriction and without any export duty. Samples were drawn from the consignments and forwarded to the Central Leather Research Laboratory (CLRI) Adyar , Chennai. They gave a report that the description of the goods did not satisfy the norms and condition of Public Notice No.3- ETC ( PN)/92-97, dated 27.05.1992 for the type of finished leather as declared. Against the above background, the adjudicating authority confiscated 4,803 sq.ft . of consignments valued at Rs.2,62,041/- and allowed its redemption on payment of a fine of Rs.35,000/-. Further, a penalty of Rs.5 ,000 /- was imposed under Section 114 of the Customs Act, 1962. The exporter paid the redemption fine and penalty and took back the entire consignment without exporting it, owing to mix-up that has happened at the time of packing. The Revenue was aggrieved that the penalty imposed on the appellant was very meagre and, therefore, filed an appeal with the Commissioner (Appeals). The Commissioner (Appeals) held that under Section 114, there is no discretion for imposing penalty less than the duty amount sought to be evaded and consequently, he imposed a penalty of Rs.1,58,413/-. Aggrieved by the order of Commissioner (Appeals), the appellant has filed this appeal

Appellant’s contention:- The learned counsel for the appellant submits that the goods sought to be exported was, in fact, finished leather and the only mismatch was that it did not fit into the type of finished leather, which was declared in the shipping bills. Therefore, the case made out that the appellants had attempted to evade export duty is not correct. In his opinion, the original penalty of Rs.5000 / - is more than what was warranted. The learned counsel for the appellant further submits that the interpretation of the Commissioner (Appeals) that there is no discretion vested in the officers in imposing penalty under Section 114 of Customs Act is wrong because Section 114 clearly sets out a maximum penalty that can be imposed under the said section and penalty is to be decided by the adjudicating officer considering the gravity of the offence. He relies on the decision of Commissioner of Customs, Tuticorin Vs Sai Copiersreported in 2008 (226) E.L.T 486 (Mad) = 2008-TIOL-98-HC-MAD-CUS. He further points out that at the time of filing the appeal before the Commissioner (Appeals), the department was relying on this decision with the prayer that at least 5% of the value of the goods be imposed as penalty and, therefore, the Commissioner (Appeals) had gone beyond the prayer of the Revenue before the Commissioner (Appeals) and hence, the penalty imposed is excessive.

Respondents Contention:-The learned AR for the Revenue submits that since the appellants have accepted the mis -declaration of goods and took back the goods out of Customs custody accepting the mis -declaration, they cannot re-contest the issue, that there was mis -declaration. Testing the goods showed 'absence of wax coat, absence of burnishable effect and absence of dyeing imparting medium/dark shade.' These goods could be considered as finished leather only in terms of the Exemption Notification, which in turn, depends upon Public Notice No.3- ETC ( PN)/92-97, dated 27.05.1992, issued by the DGFT. He further submits that the penalty of Rs.5,000/- imposed on the appellant is very low, considering the fact that the duty said to be evaded was Rs.1,58,413/-

Reasoning of Judgement:- It was observed by the Tribunal that the issue that the penalty to be imposed under Section 114 has to be equal to the duty sought to be evaded has already been decided by the Madras High Court in Sai Copiers(supra) and hence, does not have to be dealt with in detail. But, considering the submissions of both sides, Tribunal was of the view that the penalty imposed by adjudicating authority is slightly on the lower side and the penalty imposed by Commissioner (Appeals) is excessive. Therefore, Tribunal reduced the penalty amount to Rs.9000 /-. The appellant is to pay the differential amount of Rs.4000 /- (Rupees Four Thousand only). Accordingly, the appeal is allowed partially.

Decision:-Appeal allowed partly.

Comment:- The gist of this case is that it is not mandatory to impose penalty equal to the duty sought to be evaded under section 114 and that the penalty prescribed under section 114 is the maximum penalty that may be imposed, based on the discretion of the adjudicating authority.

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PJ/Case Law/2013-14/1651

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