Custom, Excise & Service Tax Tribunal
Seaswan Shipping And Logistics vs Tuticorin on 3 January, 2024
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
Customs Appeal No.40255 of 2023
(Arising out of Order in Original TUT-CUSTOM-PRV-COM-11/2022 dated 30.9.2022
passed by the Commissioner of Customs, Tuticorin)
M/s. Seaswan Shipping and Logistics Appellant
16/3, Chidambara Nagar, 1 Street
st
Tuticorin - 628 008.
Vs.
Commissioner of Customs Respondent
Custom House New Harbour Estate Tuticorin - 628 004.
APPEARANCE:
Shri N. Viswanathan, Advocate for the Appellant Shri Anoop Singh, DC (AR) for the Respondent CORAM Hon'ble Shri M. Ajit Kumar, Member (Technical) Final Order No. 40008/2024 Date of Hearing : 18.12.2023 Date of Decision: 03.01.2024 This appeal is filed by M/s. Seaswan Shipping and Logistics against Order in Original No. 11/2022 dated 30.9.2022 (impugned order).
2. Brief facts of the case are that the appellant as a Customs Broker (herein after 'CB') filed Shipping Bills on behalf of exporters for the export of 'safety matches' through the Tuticorin Port during the period from 2017 to December 2020. Department alleges that although the only specific Customs Tariff Heading (CTH) under the Customs Tariff Act, 1975, for safety matches is under CTH 3605 0010 and there is no other competing heading, the goods were misclassified in the Shipping 2 C/40255/2023 Bill (SB) under CTH 3605 0090 with the intention of getting MEIS reward / incentive of 7% (1.11.2017 to 31.12.2019) and 5% (1.1.2020 to 31.12.2020) as against MEIS benefit for CTH 3605 0010 of 3%. A common show cause notice dated 08.06.2022 was issued seeking to impose penalties on the appellant contending that they were aware of the Act, rules and notification but had failed to correctly advise the exporter to declare the correct classification of the goods in the SB. Further, by not refusing to file the subject SB with CTH 3605 0090 or bringing the matter to the Departments notice they have thereby colluded with the exporter to claim higher MEIS scrips. After due process of law, the adjudicating Commissioner imposed penalty among other noticees on the Customs Broker of Rs.10,00,000/- (Rupees ten lakhs) under section 114 and Rs.10,00,000/- (Rupees ten lakhs) under section 114AA of the Customs Act, 1962 for filing incorrect declaration and misclassifying the goods. Aggrieved by the said order, the appellant is before this Tribunal.
2.1 No cross-objection has been filed by the respondent-department. 3 Shri N. Viswanathan, learned counsel appeared for the appellant and Shri Anoop Singh, learned Deputy Commissioner (AR) appeared for the Department.
3.1 The learned Counsel in his submission both oral and written and rejoinder statements has stated that section 28 AAA of the Customs Act permits the initiation of the recovery proceedings from person who had obtained the MEIS scrips/instruments through fraud willful mis- representation or suppression and not against the CB who only aided and assisted the exporter in filing the shipping bills for the genuine export of the goods. Further, the impugned order was not legal and 3 C/40255/2023 proper because the power to grant the MEIS rewards/benefit is conferred only on the DGFT authorities in terms of Chapter 3 of the FTP; the statutory order passed by the proper officer of Customs under Sec. 51 of the Customs Act accepting the classification has not been reviewed under Sec. 129D of the Customs Act; the onus of classification of the product especially when the issue involves interpretation and complex questions of law is on the proper officer of customs only; action against the CB can be taken only under the CBLR and not under the Customs Act; the appellant having been found guilty only based on the statement dated 11.03.2022 obtained from their Managing Partner and no other evidence, with nothing incriminatory to admit the guilt on their part is no ground to assume any culpable mental state; the product exported is a manufactured product which is subject to GST having only two sub-heading namely Hand-made safety machines under 3605 0010 leviable at 5% GST and others which covers the machine made safety- matches under 3605 0090 leviable to GST @ 18% for its domestic consumption and any duty paid on it for its exports could be claimed as rebate or refund, besides the fact that the IGST schedule is adopted for the purpose of customs tariff schedule also hence the declaration in the respective shipping bills as per the exporters request could not be faulted at all; Sec. 113(i) provides for holding the goods attempted to be exported liable for confiscation when the exporter mis-declares the material particulars or its value in this case it is admitted that the goods were properly declared as Safety Matches; the onus of proving that the appellant had intentionally or knowingly made any false declaration or statement is cast on Revenue which has not been discharged hence the 4 C/40255/2023 disproportionate and harsh penalties imposed are totally bad and liable to be vacated; imposing penalties both under Section 114 and Section 114 AA on both of the CB and the exporter together for the same act has led to double jeopardy and grave mis-carriage of justice. He cited various case laws in support of their stand namely, Metal Industries Vs. CCE [2008 (232) ELT 71] ; Kunal Travels Vs. CC [2017 (354) ELT 447; KVS Cargo Vs. CC [2019 (365) ELT 392] which states that a CHA cannot be visited with any penalty under Section 114/114 AA of the Act for any omission or commission which is not wanton or intentional. He hence prayed that their appeal be allowed by setting aside the order of the respondent and render justice 3.2 Shri Anoop Singh, learned Deputy Commissioner (AR) submitted that, the classification of the goods declared in the Bill of Lading and in Bill of Entry is 'Safety Matches' with CTH 36050090, when there is only one specific heading for "Safety Matches" in the Customs Tariff and in the MEIS schedule i.e. CTH 360500 10. Hence there is no ambiguity or question of interpretation and it was only a case of misdeclaration. The Exporter was earlier regularly exporting the said goods under CTH 360500 10. The Custom Broker admitted being aware that correct CTH of the goods was 360500 10 and a l s o o f t h e resultant excess MEIS benefits accruing to the exporter due to the wrong classification. They however failed to advise their client about the correct CTH or dissuade the exporter from declaring a wrong CTH or bring the matter to the notice of the department. Hence the misclassification is not a result of lack of knowledge or some unintentional mistake but was rather a willful decision. There 5 C/40255/2023 has been no retraction of the admission made in the statement. Section 114 AA speaks of penalty for the use of false and incorrect material. Its main ingredients relevant to the issue are person knowledge and intention in making or causing to be made, any declaration, which is false or incorrect in any material particular in the transaction of any business, which is prevalent in this case. By knowingly filing with incorrect CTH, not advising their client and not informing the Department, mens rea is established. The MEIS Scrips received by means of willful mis-statement in respect of Classification of goods, have subsequently been utilized by other end users who have cleared goods at Ports like JNPT and Mundra causing revenue loss to Govt. The penalties have hence been correctly imposed. He prayed that the appeal filed by the appellant may be rejected on merits and render justice to the case.
4. I have carefully gone through the appeal and the submission made by the rival parties. The undisputed facts among the rival parties are
i) There is only one specific heading for "Safety Matches" in the Customs Tariff and in the MEIS schedule i.e. CTH 3605 0010.
ii) The classification of the goods declared in the Bill of Lading and in Bill of Entry is 'Safety Matches' with CTH 3605 0090.
iii) The MEIS reward / incentive was 7% (1.11.2017 to 31.12.2019) and 5% (1.1.2020 to 31.12.2020) for CTH 3605 0090, as against MEIS benefit for CTH 3605 0010 of 3%.
iv) The appellant was the CB who filed the impugned SB's.
v) The statement dated 11/03/2022, given by Shri S. Selvaraj Managing Partner of the CB appellant-firm has not been retracted. 6
C/40255/2023
5. The relevant portions of sections that are involved in the resolution of this dispute are listed below:
114. Penalty for attempt to export goods improperly, etc.--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 113, or abets the doing or omission of such an act, shall be liable,--
(i) in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force, to a penalty not exceeding three times the value of the goods as declared by the exporter or the value as determined under this Act, whichever is the greater;
(ii) in the case of dutiable goods, other than prohibited goods, subject to the provisions of section 114A, to a penalty not exceeding ten per cent. of the duty sought to be evaded or five thousand rupees, whichever is higher:
Provided that where such duty as determined under sub-section (8) of section 28 and the interest payable thereon under section 28AA is paid within thirty days from the date of communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent. of the penalty so determined;
(iii) in the case of any other goods, to a penalty not exceeding the value of the goods, as declared by the exporter or the value as determined under this Act, whichever is the greater.
***** ***** ***** 114AA. Penalty for use of false and incorrect material -- If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods."
6. I shall now deal with the issues raised by the parties below. 6.1 Recovery proceedings should be from the person who had obtained the MEIS scrips/instruments through fraud willful mis-representation or suppression and not against the CB. I find from the impugned order that no recovery of duty is ordered from the appellant. The plea has no merits.
7
C/40255/2023 6.2 The power to grant the MEIS rewards/benefit being conferred only on the DGFT authorities in terms of Chapter 3 of the FTP, no action can be taken by customs authorities. The matter has been examined. The scheme of the Customs Act, 1962 and the Foreign Trade (Development and Regulation) Act, 1992, provide that while Customs officers, have powers to take action for assessment of dutiable goods under the Customs Tariff Act 1975 and to detect, prevent and take penal action on the irregular / illegal import and exports of goods as per the Customs Act 1962, the decision of DGFT shall be final on all matters relating to interpretation of EXIM Policy, relating to classification for import / export of goods as per the ITC (HS) including various scheme under the umbrella of the Foreign Trade (Development and Regulation) Act, 1992 and the EXIM Policy framed there under. Further to regulate imports / exports under various duty exemption schemes by way of scrips issued by DGFT, Customs notifications are issued by Central Board of Indirect Taxes and Customs (CBIC) and these scrips have to be registered by the importer/exporter concerned in the designated Customs House. On failure to comply with the specified conditions of the schemes, the duty that was exempted becomes recoverable by the Customs Department under the Customs Act. In addition to action by the Customs Department, the licensee is liable to penal action by DGFT under the FTDR Act 1992, for not fulfilling the conditions of the licence issued. Hence in respect to the violations under the individual provisions of the two Acts, levy of penalty or confiscation, may be initiated under the Customs Act apart from penal action being taken under Section 11 of the Foreign Trade (Development and Regulation) Act, 1992 including 8 C/40255/2023 the suspension or cancellation of the license issued under the FTDR Act, 1992. The Merchandise Exports from India Scheme (MEIS) Scheme is designed to provide rewards to exporters to promote the manufacture and export of notified goods/ products. The 'Duty Credit Scrips' and goods imported/ domestically procured against them is freely transferable. The Scrips can be used for payment of various Customs and Central Excise duties and fees as specified. In the impugned case no dispute on the classification heading of the goods under the schedule to the Customs Tariff Act 1975 has been raised. In fact, it is mentioned that as soon as the discrepancy in the classification heading was pointed out the exporter has paid the excess MEIS benefits claimed. In the era of self-assessment any wrong declaration including that of the classification of the goods which is done deliberately in the Shipping Bill / Bill of Lading for earning undue benefit on export of goods can be examined and penal action taken against all the persons concerned by Customs if so warranted. Such blame worthy acts ultimately affect the payment of Customs and Excise duties through use of freely transferable ineligible scrips, thus defrauding the exchequer. Hence while grant of rewards to the exporter is by the DGFT preventing the leakage of revenue is the concern of Customs. Therefor while the power to grant the MEIS rewards/benefit is conferred on the DGFT authorities, action for violation of specific provisions of law can be taken under both the Acts by the respective authorities.
6.3 The statutory order passed by the proper officer of Customs under Sec. 51 of the Customs Act accepting the 9 C/40255/2023 classification has not been reviewed under Sec. 129D of the Customs Act.
As stated in the impugned order in the era of self-assessment by the assessee, which is in vogue from 08.04.2011. The responsibility for assessment is that of the importer / exporter. The Customs officer has the power to verify such assessments and make re-assessment, where warranted. Hence there is no separate assessment done by the Customs Officer, unless a need is felt to verify the self-assessed Shipping Bill based on risk-assessment parameters or otherwise. Clearence of goods for export under section 51 of the Customs Act 1962 is a procedural provision based on the satisfaction of the proper officer and no review of such subjective satisfaction is contemplated under Sec. 129D of the Customs Act 1962.
6.4 The onus of classification of the product especially when the issue involves interpretation and complex questions of law is on the proper officer of customs only.
As per Section 17 of the Customs Act, 1962 which provides for self- assessment of duty on imported and export goods it is for the importer or exporter to declare the correct classification, applicable rate of duty, value, benefit of exemption notifications claimed, if any, in respect of the imported / export goods while presenting BE or SB. He has also to give a declaration to that effect on the BE / SB for making a correct declaration as per law. Hence the onus is on the assessee and not on the Customs Officer. In cases, where the importer or exporter is not able to determine the duty liability / make assessment for any reason, he may request the proper officer for assessment of the same under Section 18(a) of the Customs Act, 1962. The appellant has not shown 10 C/40255/2023 that overwhelmed by the complex questions of law he had advised the exporter to request for assessment under Section 18(a) ibid. This is perhaps because as pointed out by Revenue, there can be no confusion with only one specific heading for "Safety Matches" in the Customs Tariff and in the MEIS schedule i.e. CTH 3605 0010. Hence the averments of the appellant is not correct.
6.5 Action against the CB can be taken only under the CBLR and not under the Customs Act.
Action taken by a broker in terms of the license requirements are actionable under CBLR, but for actions relating to intentionally using incorrect documents etc. collusion with exporters for defrauding the exchequer etc. the cause of action is different and separate action can be taken under the Customs Acy 1962.
6.6 GST having only two sub-heading namely hand-made safety machines under 3605 0010 and others which covers the machine-made safety- matches under 3605 0090. The IGST schedule is adopted for the purpose of customs tariff schedule also hence the declaration in the respective shipping bills as per the exporters request could not be faulted at all. Classification under two different Acts cannot be compared. Both the tariff schedules are not aligned and are hence not pari materia for purposes of classification of export goods. In Hari Khemu Gawali v. Deputy Commissioner of Police, Bombay and another [AIR 1956 SC 559], a Constitution Bench of the Apex Court stated:
"It has been repeatedly said by this Court that it is not safe to pronounce on the provisions of one Act with reference to decisions dealing with other Acts which may not be in pari materia."11
C/40255/2023 The onus of correct classification is on the appellant. If he had any doubts regarding the rates etc. he should have checked with the Department or sought assessment under Section 18(a) of the Customs Act, 1962.
6.7 Sec. 113 [i] provides for goods attempted to be exported liable for confiscation when the exporter mis-declares the material particulars or its value this is not the case here. Section 113 (i) of the Customs Act 1962, provides for the confiscation of goods entered for exportation which do not correspond in respect of value or in any material particular with the entry made under this. 'Material particulars' would include the CTH of the goods as it has a bearing on the benefits accruing to the appellant. Hence a mis- declaration relating to the classification of the goods is also actionable under the said section.
6.8 The onus of proving that the appellant had intentionally or knowingly made any false declaration or statement is cast on Revenue which has not been discharged hence the penalties are disproportionate and harsh.
The onus of proving that the appellant had intentionally or knowingly made any false declaration is on the Department. However, when people collude to do a blame worthy act it is always hatched in secrecy, and it is impossible to adduce direct evidence of the same. The offence can be largely proved from inferences drawn from acts or illegal omission or commissions made. This is a case where the appellant as CHA has been filing the Shipping Bill for various exporters for the export of 'safety matches' under CTH 3605 0010. This classification was suddenly changed to CTH 3605 0090. The MEIS reward / incentive 12 C/40255/2023 for CTH 3605 0090 was 7% (1.11.2017 to 31.12.2019) and 5% (1.1.2020 to 31.12.2020) as against MEIS benefit for CTH 3605 0010 of 3%. During the investigation Shri S Selvaraj, Managing Partner of the Appellants firm gave a statement on 11/03/2023. Replies to questions 4, 5, 6 and 8 which are relevant to this issue are reproduced below:-
Q.4 Are you aware of the CTI of safety matches being exported by the exporter?
A.4 Yes. Safety matches are classifiable under CTI 36050010. The exporters were also regularly exporting safety matches under CTI 36050010. But during period they asked us to file shipping bills under CTI 36050090. When we asked about the change of CTI, they told us that they are manufacturing machine made safety matches and hence the correct classification should be 36050090. Hence as per their instruction we filed these shipping bills under CTI 36050090. However, after that they said that they had realized their mistake and again asked us to file under CTI 36050010.
Q.5 Are you are aware of the difference between CTI 36050010 and 36050090?
A.5 Yes we are aware of the same. CTI 36050010 is for safety matches and the CTI 36050090 is for goods falling under "others" category.
Q.6 Are you aware of the MEIS benefits available for goods exported under CTI 36050010 and CTI 36050090?
A.6 Yes, we are aware of the same. The rates of MEIS benefit for CTI 36050010 and 36050090 during 1.11.2017 to 31.12.2019 were 3% FOB value and 7% of FOB value respectively.
***** ***** ***** Q.8 By not advising the exporter to follow the correct procedures on export of safety matches, and also not informing the Assistant Commissioner of Customs of the non-compliance of rules by your client and thereby enabling the exporter to avail excess MEIS benefit, you have not fulfilled the obligations of a Customs Broker and thus contravened the provisions of Regulation 10 of Customs Brokers Licensing Regulations, 2018. For this contravention, your Customs Broker license is liable to be revoked under Regulation 14 of Customs Brokers Licensing Regulations, 2018 and you are also liable to a penalty under Regulation 18 of the Customs Brokers Licensing Regulations, 2018. Please comment.
A.8 Even we knew the correct CTI of safety matches, the exporter convinced us that as they were manufacturing and exporting machine made safety matches only, we had to use CTI 36050090. We had not intention of contravening the Customs procedures and 13 C/40255/2023 Rules. Also since the exporter has paid the excess availed MEIS benefit, we request to you to take a lenient view and not to take any action against us. We are ready to cooperate in the investigation and appear before your goodself as and when required for any further inquiry."
He has not retracted this statement. As per sec. 58 of the Indian Evidence Act, no fact need be proved in any proceeding which the parties thereto or their agents agree to admit. The belief, knowledge and intention of the parties involved in a blame worthy act are a part of evidence. Voluntary statements, if clearly proved and found acceptable, are the most effective proof of law and can't be ignored.
The statement above clearly reveals that Shri S. Selvaraj was aware of the correct classification and also the difference in MEIS rates involved between the correct classification and the misclassified goods.
To that extent the knowledge of wrong doing by the appellant is established and the burden has been discharged by the department.
However, from the statement above it seen that the appellant was not a willing collaborator with the exporter. He did question the exporter about the change in classification and it was as per the exporters instructions that the SB was filed showing the classification of the goods under CTH 3605 0090. Knowing the illegal gain being made by the exporter he could have refused to file the SB and have brought it to the notice of the department. In Director of Enforcement vs. MCTM Corporation Pvt. Ltd. [(1996) 2 SCC 471], the Hon'ble Supreme Court quoted the following passage with approval:
In Corpus Juris Secundrum. Vol.85 at page 580, para 1023, it is stated thus:
"A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws." 14
C/40255/2023 While it is true that Appellate bodies should not interfere with the penalty imposed by the Original Authority just because another view is possible, at the same time the legal principle is that penalty ought always to fit the misconduct. While the penalty when warranted should act as a deterrent it should not be disproportionate. It has not been brought out that the appellant illegally profited from the act. The appellant was also not seen to be a part of a conspiracy to defraud the exchequer, however he has made a mistake by a conscious disregard of the illegality and in not distancing himself from the act and reporting the matter that he knew was wrong and this blameworthy conduct warrants a penalty. However, the penalty imposed in this case is shocking and requires to be modified.
6.9 Imposing penalties both under Section 114 and Section 114 AA on both of the appellant and the exporter together for the same act has led to double jeopardy and grave mis-carriage of justice.
I agree with the appellant that the penalties imposed have been done by splitting a single action under two different sections of the Customs Act, one which is in general and the other more specific to the impugned misconduct. If the appellant was being alleged to have committed two distinct offences then there should have been two distinct allegations. The fact is that goods were exported improperly only because the appellant as agent for the exporter knowingly used a declaration which was false or incorrect for export of goods. Since the role of the appellant was in knowingly using false / incorrect declaration for the improper exports of the goods, I feel that a penalty under 15 C/40255/2023 section 114AA which is more specific to the misconduct alone would be appropriate.
7. As per the discussions above and considering that the loss to the exchequer would have been to the tune of Rs 11,47,617/- if the issue had not been detected, I feel that a penalty of Rs 1,00,000/- (Rupees one lakh only) under section 114AA of the Customs Act 1962 on the appellant would suffice and is so ordered. The penalty under section 114(iii) is set aside for the reasons stated above. The impugned order in as much as it relates to the appellant is modified accordingly and the appeal disposed of on the said terms.
(Pronounced in open court on 03.01.2024) (M. AJIT KUMAR) Member (Technical) Rex