Custom, Excise & Service Tax Tribunal
Mumbai Travel Retail Private Limited vs Mumbai-Air Cargo Import on 9 May, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
Customs Appeal No. 40814 of 2024
(Arising out of Order in File No.GEN/E-OF/163/2024-BOND-O dated
08.07.2024 passed by Principal Commissioner of Customs, Preventive,
Custom House, No.60, Rajaji Salai, Chennai 600 001)
M/s.Mumbai Travel Retail
Private Limited .... Appellant
Art Guild House, Ground Floor,
'A' Wing, Next to Phoenix Market City, Kurla,
Mumbai 400 070.
VERSUS
The Commissioner of
Customs (Preventive) ... Respondent,
Custom House, No.60, Rajaji Salai, Chennai 600 001.
APPEARANCE :
Shri Prakash Shah, Senior Advocate for the Appellant Shri Sanjay Kakkar, Authorized Representative for the Respondent CORAM :
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL) HON'BLE MR. M. AJIT KUMAR, MEMBER (TECHNICAL) FINAL ORDER No.40531/2025 DATE OF HEARING : 29.01.2025 DATE OF DECISION :09.05.2025 2 Per: Shri P. Dinesha This appeal arises against the rejection order of the application for special warehouse license under Section 58A of the Customs Act, 1962. The admitted facts are that the appellant is a company operating duty-free retail outlets at various International Airports (including Mumbai International Airport) and Seaports in India. They had filed an application dated 24.04.2024 before the Principal Commissioner of Customs (Preventive), Chennai for issuance of a special bonded warehouse license under section 58A ibid. The license, if granted would enable the license holder to operate a special warehouse/duty free warehouse for storing duty, free goods intended for duty free retail shop premises at Adani Kattupalli Port, Chennai. The Special Bonded Warehouse, admittedly is a facility critical to the business of duty-free shop, in the absence of which The assessee could not commence its operations. It is the case of the assessee that its application for the above license did contain all the necessary annexure/documents.
2. Heard Shri Prakash Shah, Ld. Senior Advocate for the Appellant/Assessee and Shri Sanjay Kakkar, Ld. Deputy Commissioner for the Respondent/Revenue.
3. The background to the above dispute as we could gather from the documents on record, is that the appellant was subjected to a Customs adjudication, resulting in an Order-in-Original dated 27.06.2023, passed by the Deputy 3 Commissioner of Customs, Mumbai. In the said order, exemption claimed on certain imported samples goods which were imported for its duty, free retail outlets at Mumbai International Airport under a Bill of Entry was denied and the differential duty with interest was confirmed, which was demanded and the goods were ordered to be confiscated. Consequently, a penalty of Rs.2,50,000/- was imposed on the appellant under Section 112 (a) supra. It appears that the appellant paid the duty, fine and penalty under protest, but however, no appeal seems to have been filed.
4. In so far as the appellant's application for warehouse license is concerned, which is the subject matter of present appeal, the Principal Commissioner has rejected the same on the grounds that the appellant was had suffered an order of penalty, the imposition of the penalty vide above Order-in Original was clearly against Regulation 3(2)(c) of the Special Warehouse Licensing Regulations, 2016. The rejection order/communication, according to the applicant was affected vide internal file noting dated 06.07.2024, which was approved by the Principal Commissioner, which was communicated to the apparent by the Assistant Commissioner of Customs through a letter dated 08.07.2024. In the said communication, the appellant was apparently informed that its application for a Special Bonded Warehouse License stood rejected, and the original application documents were returned. It is against this rejection of its license application that the present appeal has been filed before us, under Section 129A of the Customs Act.
45. The Revenue took a preliminary objection as to the maintenance of the appeal; it was their case that the above communication of the Principal Commissioner's decision was only an administrative action and not an order passed in the capacity of an Adjudicating Authority and hence the Tribunal lacks jurisdiction to entertain this appeal. Per contra, learned advocate submitted that it was not open for the Revenue to raise the above objection, as regards the maintainability of the appeal is concerned, since the issue has already been addressed to, and decided by this Bench at the preliminary stage itself and after hearing the departmental representative. We find from the synopsis and cross objection filed by the Revenue/Departmental Representative that the preliminary objection has been raised once again. Advocate would however, rely on the Order No.40174/2024 dated 07.11.2024. Upon hearing both sides, the Bench has held that the jurisdiction would lie with this Tribunal and hence it was not open for the Revenue to re-agitate the same issue of maintenance ability.
6. We further find that the Principal Commissioner's decision albeit communicated by a subordinate officers letter, is a decision or order passed by a Commissioner of Customs as an Adjudicating Authority within the meaning of Section 129A (1)(a). Further, Section 2 (1) of the Customs Act defines an "adjudicating authority" as any authority competent to pass any order or decision under this Act with the exclusion of the appellate authorities, namely Commissioner (Appeals), Board, Tribunal. But however, 5 since the grant or denial of a license under Section 58, is a decision taken under the Authority of the Customs Act by the Principal Commissioner, the same would fall within the definition of Section 2(1). There is hence no exclusion for filing appeal is provided in this regulation. Regulation in fact does not provide any statutory appeal mechanism against such a decision and hence the only available to an aggrieved person used to file appeal before the CESTAT. The following judicial pronouncements would come support above appellant's above view; thus, the only recourse for the Appellant is to file appeal before this Tribunal.
7. In support of the aforesaid position, the Appellant has placed reliance on following precedents to contend that Tribunal in various cases have entertained appeals against orders of a Commissioner communicated through letters, or against non-traditional adjudicatory decisions:
In CCE V. Maharashtra State Bureau of Text Books Production & Curriculum Research (CESTAT Mumbai), a case concerning refusal of centralized service tax registration (by a simple letter), the Tribunal held an appeal lay against such decision, recognizing it as a decision under the Act subject to Tribunal's appellate review.
In Samrat Houseware Pvt. Ltd. v. Commissioner of Customs (Sea), Chennai-V, this Tribunal dealt with an appeal against a Commissioner's refusal to convert shipping bills (communicated by a letter of an Assistant Commissioner). It was held that since the decision was in fact taken by the Commissioner and it 6 finally affected the assessee's rights, the communication conveying that decision was an appealable order. The Tribunal explicitly observed that "a letter which informs by deciding the rights of an assessee finally is an appealable order" and directed that the appeal be admitted as maintainable. The Appellant also cites the judgment of the Hon'ble Gujarat High Court in Commissioner of Central Excise v. Girish B. Mishra. In that case, a Chief Commissioner's order rejecting an application for compounding of an offence under the Central Excise Act (analogous to a discretionary administrative decision) was challenged. The Hon'ble High Court affirmed the Tribunal's view that such an order is appealable. It was held that an appeal lies before the Tribunal against "any such order" under the Act in terms of the broad language of Section 35B(1)(a) of the Central Excise Act, and the Hon'ble High Court expressly noted that the corresponding provisions of the Customs Act are analogous, making the principle equally applicable.
8. The Appellant contends that on merits the unsustainable. The Appellant contends that the ground of rejection viz., a prior penalty under the Customs Act, is not a valid or tenable ground under the law for denying a special warehouse license and that Regulation 3(2)(c) of the Regulations refers to penalty imposed for an offence under the Customs Act, Central Excise Act and Finance Act,1994.
79. Penalty under Section 112(a) of the Act is not for any offence under the Customs Act. Section 112 falls in Chapter XIV of the Customs Act (Confiscation and Penalties), whereas the term "offence" in the Customs Act is provided in Chapter XVI dealing with Offences and Prosecutions. The Appellant submits it has never been prosecuted or convicted for any offence under Chapter XVI; the penalty under Section 112(a) was imposed on the Appellant for claiming wrong exemption. This is not an offence under the Act. The Appellant has placed reliance on the principle laid down by the Hon'ble Supreme Court of India in Northern Plastics Ltd. v. CCE that an incorrect claim for exemption, even if disallowed, does not amount to misdeclaration or wrongdoing by the importer if the goods are truthfully described.
10. The Appellant further submits that the prior penalty of Rs.2,50,000/ imposed in the OIO arose from a bona fide interpretational dispute over exemption eligibility and there was no element of fraud or moral turpitude thereby inviting a penalty for any infraction of law. Therefore, the Appellant contended that Regulation 3(2)(c) cannot be mechanically applied to treat every person penalized under any provision of the Customs Act as ineligible. The term "offence" in the Regulation should be understood to refer to an offence in the sense of a prosecution-worthy act (e.g. smuggling, fraud, etc., dealt with under Chapter XVI, not every infraction leading to a penalty. Therefore, the Appellant's prior penalty under Section 112(a) did not render it 8 disqualified. Even assuming that Regulation 3(2) (c) could cover such a penalty, the Appellant contends that the authorities should have examined the nature of violation and exercised discretion judiciously instead of treating the Regulation as an absolute bar.
11. To substantiate his submissions, the Appellant has placed strong reliance on the decision of the Principal Bench CESTAT New Delhi in M/s. Kundan Care Products Ltd. vs. Commissioner of Customs, New Delhi (Final Order, CESTAT New Delhi, reported in 2024 (8) TMI 271) which dealt with an analogous issue. In that case, a special warehouse license already granted to the appellant was cancelled by the Commissioner on the ground that the appellant had suppressed a prior penalty under Section 112 and thus had obtained the license by falsely declaring that it had not been penalized for any offence under the Customs Act. The Principle Bench of this Tribunal set aside the cancellation, holding that imposition of a penalty under Section 112 does not equate to being penalized for an "offence" under the Customs Act, nor can it be treated as a misdeclaration for the purposes of the warehousing license regulations. In that order, it was held that the terms "contravention" and "offence" under the Customs Act are not synonymous and that where only a penalty for a contravention (and no criminal offence on record), stating so in the declaration was not false nor a violation of the regulations. Thus, the mere fact of a prior Section 112 penalty perse could not disqualify the person from holding a special warehouse license.
912. The Appellant further argued that the ratio of Kundan Care (supra) squarely covers the present situation: if a license cannot be cancelled for such a reason, equally an application for license cannot be rejected for that reason alone.
13. Per contra, The Learned Authorized Representative, argued that the Appeal is not maintainable under Section 129A of the Customs Act. The main argument of the department was that the Principal Commissioner's rejection of a license application is an administrative decision, not a quasi-judicial adjudication of a customs dispute. According to learned AR, Section 129A(1) permits appeals to the Tribunal against decisions or orders passed by Commissioners "as an adjudicating authority," which implies a decision rendered through an adjudication process (normally involving a show-cause notice, consideration of evidence, etc., under Section 122/122A of the Customs Act).
14. In the present case, no such adjudication procedure was followed - the application was processed and a rejection was communicated without any prior show cause or hearing. Therefore, according to learned AR, the absence of an adjudicatory process. The Principal Commissioner cannot be said to have acted as an "adjudicating authority, " in rejecting the application and thus the remedy, if any, lies elsewhere but not an appeal to CESTAT. He further contended that the Customs Act does not explicitly provide 10 any appellate mechanism against a decision to grant or refuse a special warehouse license. He tried to contrast this with other situations where the law expressly provides for appeals (such as Section 129A for customs duty demands or penalties, or Section 129D for departmental review, etc.), and suggested that the silence of the Customs Act here indicates that the legislature perhaps intended the licensing decisions to be at the discretion of the Commissioner, not subject to appeal.
15. The learned AR, in his Synopsis and Cross Objection has placed reliance on the judgment of Ramesh Govindbhai Patel versus Commissioner of Customs reported in 2007 (213) ELT 675 wherein the Mumbai Tribunal dismissed an appeal against a mere hearing notice by a Superintendent, holding it was not an appealable order. The learned AR argued that by analogy the communication in the present case is likewise a letter that ought not to be treated as an appealable order. The learned AR also refers to a decision of the Bangalore Tribunal in Tass Clearing Services Pvt. Ltd. versus Commissioner of Customs and Central Excise 2009 (238) E.L.T. 671 (Tri. -Bang.) where an appeal against a communication from the Commissioner was dismissed as it was issued in an "executive capacity". On the strength of authorities referred to in his synopsis cum cross objection, the learned AR contended that this Tribunal should reject the appeal as maintainable.
16. The learned AR, in his synopsis cum cross objection contended that while the nature of function assigned to the 11 licensing authority under Section 58A of the Customs Act read with the accompanying regulations is statutory in character, it assumes an adjudicatory character with compliance of a due process of law under Section 59 of the Customs Act, once action for cancellation of license has to be initiated. It was further contended that Section 58A read with the Regulations is a code only for grant of license, and no procedure for cancellation of license is provided under the said Regulations. The process of grant of license has been totally delinked from the procedure for cancellation of license, for which a separate Section 59, detailing the process of cancellation of license by observing the procedure of Section 122A of Customs Act has been emphasized. This is distinct from the procedure for, say, the Customs Brokers Licensing Regulations, where the Regulations have been framed as a complete Code. It appears that in the issue of grant license for warehouses, where goods were stored without payment of taxes, the legislature intended that the competent authority for grant of license adopt an approach of complete circumspection while granting the license, thoroughly weighing the probabilities that no escapement of tax was occasioned. However, a different approach was consciously and rightly adopted by the legislature for a situation once the license was granted and the cancellation could only be done by following a due fact-finding inquiry and an adjudicatory process of law, probably because civil consequences of various kinds (effects on investments, loss of livelihood of employees, obsolescence of warehoused goods, defamatory character of the action of cancellation of license, etc.) would emanate from a process of cancellation 12 of a license already granted through elaborate verifications. The refusal for grant of license could not have any such attributes as no prejudice appears to be caused to any Applicant at the stage of onset of any assignment and any license could not be claimed as a matter of right till all documentary requirements were met and the Statutory Authority was convinced of a blemish-less conduct, a total safety of taxes (public money) in the form of a bond, held as collateral by the Principal Commissioner stood guaranteed, free from any risk of escapement by the license-claimant. The learned AR submitted that the Appeal be dismissed as non-maintainable under Section 129A(1) of the Customs Act.
17. Heard both sides; upon hearing, the following issues arise for our consideration is :
(1) Whether the present appeal is maintainable before us ? and (2) If the Appeal is maintainable, whether the rejection of the Appellant's special warehouse license application on account of a prior penalty under Section 112(a) is legally sustainable or deserves to be set aside?
ISSUE 1: MAINTAINABILITY
18. The language of Section 129A(1)(a) allows an appeal to the Tribunal by any person aggrieved by "any decision or order passed by the Principal Commissioner of Customs or Commissioner of Customs as an adjudicating authority". The crucial question is whether the impugned order (rejecting the license) can be considered 13 a "decision or order" of the Principal Commissioner passed as an adjudicating authority.
19. Firstly, the term "adjudicating authority" is defined in Section 2(1) of the Customs Act to mean "any authority competent to pass any order or decision under this Act," with only a few specific exclusions (the Central Board of Indirect Taxes & Customs, the Commissioner (Appeals), and the Appellate Tribunal itself). The Principal Commissioner of Customs is certainly an authority competent to pass orders under the Act, indeed, Section 58A of the Customs Act itself confers upon that officer the power to decide on granting or refusing a license. Thus, on a plain reading, when the Principal Commissioner considers a license application and either grants or refuses it, he is acting as an adjudicating authority (since he is making a decision under the Customs Act). It is immaterial that this decision is not in a traditional revenue-demand context or that it is communicated by a letter; what matters is that a right or privilege conferred by the statute (to seek a license) has been finally decided by such competent authority. In this instant case, the Appellant's legal rights are affected i.e. it has been denied the opportunity to operate a special warehouse and there is no further departmental appeal available and hence, the appellant is an 'aggrieved person'.
20. Secondly, consistent jurisprudence has evolved on the Tribunal's jurisdiction to hear appeals in matters of this nature. The Respondent's argument that an adjudication 14 under Section 129A of the Act must involve a formal show- cause process is not borne out by the statute or case law. This Tribunal in the matter of Samrat Houseware Pvt. Ltd. versus Commissioner of Customs (Sea), Chennai-V reported in 2019 (368) E.L.T. 1089 (Tri. - Chennai), on the issue of an appeal filed against impugned letter/order whereby the decision of the Commissioner refusing to amend shipping bill was communicated to the appellant therein by the Assistant Commissioner, has categorically held that since the decision was in fact taken by the Commissioner, an appeal lie to the Tribunal. It was observed that even a seemingly informal communication, if it "decides the rights of an assessee finally," is to be treated as an appealable order.
21. Similarly, in the matter of CCE versus Maharashtra State Bureau Of Text Books Production & Curriculum Research reported in 2015 (39) S.T.R. 235 (Tri. - Mumbai), the Mumbai Bench of this Tribunal entertained an appeal in a case where a departmental letter had denied the assessee a centralized registration under service tax, implicitly recognizing such communication as an order susceptible to appeal. In this case also it was held that where the order impugned determines the rights of the party or is likely to affect its rights, communication thereof cannot be said to be a communication simplicitor" and appeal against such communication should be maintainable.
22. The judgment of the Hon'ble Gujarat High Court in Commissioner of Central Excise Girish B. Mishra 15 reported in 2016 (339) E.L.T. 67 (Guj.) is a landmark decision, settling the issue of maintainability. In this case, the High Court refused to disturb the Tribunal's decision on jurisdiction under Section 35B(1) (a) of the Central Excise Act (which is analogous to Section 129A of the Customs Act), implicitly recognizing that a decision by a Commissioner (or the competent authority) cannot escape appellate review merely because it was conveyed through internal communication.
23. The ratio of the aforesaid judgments can squarely be applied in this present Appeal- this is because the impugned order/letter of 08.07.2024 addressed by the Assistant Commissioner communicated a final decision of the Principal Commissioner that conclusively affected the Appellant's rights. In other words, the mere fact that an order is passed by a high-ranking officer (Chief/Principal Commissioner) in an administrative capacity does not oust appellate remedy, so long as that order is under the Customs Act and affects the rights of a person. If the effect is to deny a benefit or right under the Customs Act, and the source of power is the Customs Act itself, the order cannot be placed beyond scrutiny - otherwise, the aggrieved party would be left remediless or driven to writ jurisdiction for matters that the Tribunal is well-equipped to handle.
24.1 The various contrary decisions sought to be relied upon by the Respondent or interim (such as letters setting hearing dates, communications by subordinates) are 16 distinguishable in facts. A mere procedural letter by a Superintendent, for example, was rightly held in Ramesh Govindbhai Patel (supra) not appealable, because it did not decide anything final and an appeal at that stage would be premature. Likewise, a communication that is purely in the nature of executing an order, as in Tass Clearing Services (supra), where the Commissioner's letter permitting resumption of CHA operations for a limited period was viewed as an executive order might not qualify as a "decision" amenable to appeal. But the present case is on a different footing altogether; the Principal Commissioner's decision is final and determinative, leaving nothing further to be done at his end. It is therefore not a mere procedural step but, an outcome. Hence, the cases relied upon by the department do not help its cause.
24.2 In any case, we find that even the Hon'ble Apex Court has laid down binding precedents on similar issue, in the following decisions
1) Raj Kumar Shivhare vs. Assistant Director, Directorate of Enforcement (2010 4 Supreme Court case
772)
2) Jaswant Sugar Mills Ltd., Meerut vs. Lakshmichand And Others [1963 AIR 677, 1963 SCR SUPL. (1) 242 - 5 Judge Bench]
3) National Securities Depository Ltd. vs Securities and Exchange Board of India [2017 (348) ELT 601 (SC)] 17 In view of the above decisions of the Hon'ble Apex Court, the Decisions/Orders of any other lower Courts will not be of any significance.
25. Thirdly, this Tribunal also needs to be guided by practical and legal necessity. If this CESTAT were to accept the Respondent's view, an odd situation would arise: a person whose license is granted would obviously be subject to this Tribunal's jurisdiction if later that license is cancelled (because Section 58B's cancellation, following adjudication, would be appealable), but a person whose license is denied outright would have no remedy here, There is no logic or legislative indication to create such an anomaly. In fact, denying an initial license could be seen as equally or more severe than cancelling an existing one, since the applicant never even gets to operate. It would be anomalous to hold that the legislature provided an appeal for one and not the other. A far more coherent reading is that both are decisions of the Commissioner under the Customs Act and both can be appealed.
26. Additionally, this Bench had, at the preliminary stage itself (order dated 07.11.2024), already expressed the view that it has jurisdiction and the appeal is maintainable. The department cannot be allowed to re-argue this point. In view of the above, the impugned order dated 08.07.2024, conveying the Principal Commissioner's rejection of the Appellant's license application, is an appealable decision under Section 129A (1) of the Customs Act. The appeal be held to be maintainable before the Tribunal.
18ISSUE 2:
27. Coming to the substantive merits of the Appeal, the short question is whether the Principal Commissioner was justified in refusing the Appellant a special warehouse license solely on the ground that the Appellant had been penalized under Section 112(a) of the Customs Act in the past. Considering the facts and the law, it is the case of the appellant that the impugned order cannot be sustained. The denial of the license in the present circumstances is legally untenable and improper.
28. Section 58A of the Customs Act provides for licensing of special warehouses wherein certain classes of imported goods (as notified by the Board) may be deposited without payment of duty. The power to grant the license is vested in the Principal Commissioner Commissioner of Customs. The section itself lays down no specific criteria or disqualifications except that the grant is "subject to such conditions as may be prescribed." The conditions and procedural requirements are prescribed in the Special Warehousing Licensing Regulations, 2016 (issued under the authority of Section 157 read with Section 58A of the Customs Act). Regulation 3 of the 2016 Regulations deals with eligibility. Regulation 3(2) enumerates certain conditions under which the license shall| not be issued to an applicant. Among "the these, (c) reads:
the Principal Commissioner or Commissioner shall not issue a license if the applicant has been penalized for an offence under the Customs Act, 1962, the Central 19 Excise Act, 1944 or Chapter V of the Finance Act, 1994".
29. This clause is central to the dispute - the Principal Commissioner invoked it, taking the view that the Appellant, having been penalized under Section 112(a) of the Customs Act, fell foul of this condition. On a plain reading, Regulation 3(2)(c) indeed appears to bar grant of license to anyone who has been penalized for an offence under the Act. However, the crux of the matter lies in the interpretation of the phrase "penalized for an offence under the Customs Act."
30. The above phrase cannot be read in isolation or given an unduly literal meaning divorced from the context of the scheme of the parent Act, i.e. Customs Act. A holistic reading of the Customs Act reveals a clear distinction between contraventions that attract civil penalties and offences that attract criminal prosecution. This distinction has both textual and jurisprudential support.
31. The Act itself segregates the topics: Chapter XIV (Sections 111-127) is titled "Confiscation of goods and conveyances and imposition of penalties"- violations dealt with here (like improper importation, misdeclaration, etc.) result in confiscation of goods and monetary penalties on persons (e.g. Section 112, 114). In contrast, Chapter XVI (Sections 132-140A) is titled "Offences and prosecutions"- which covers criminal offences like false declarations (Section 132), fraudulent evasion of duty (Section 135), obstruction of officers (Section 136), etc., 20 which can result in prosecution and possible imprisonment. The use of the word "offence" in Chapter XVI strongly indicates a context of crime and prosecution. Indeed, Section 135 is the principal penal provision creating offences that are cognizable and non-bailable.
32. When Regulation 3(2)(c) disqualifies an applicant who "has been penalized for an offence under the Customs Act,"
a reasonable construction is that it targets those applicants who have been found guilty of offenses of a kind that denote serious wrongdoing - essentially those entailing mens rea and prosecuted as crimes or subject to Compounding in lieu of prosecution. If, on the other hand, every customs infraction leading to a penalty was meant to be included, the legislation could have simply said "penalized under the Act"
(omitting "for an offence"). The added words "for an offence"
must be given meaning. We interpret them as referring to offences in the sense of Chapter XVI offences or similarly grave violations.
33. This interpretation is buttressed by the decision in Kundan Care Products Ltd. (supra), which is directly on point. In that case, this Tribunal (Principal Bench, New Delhi) was confronted with the identical Regulation 3(2)(c) when a license was cancelled on the premise that a prior Section 112(a) penalty constituted an "offence" that the licensee had failed to disclose. The Tribunal disagreed with the Revenue's broad brush approach, and made an important delineation: it held that a penalty under Section 112, which arises from a contravention of the Customs Act, 21 is not the same as being "penalized for an offence" under the Customs Act. The Tribunal noted that the appellant in that case had not been prosecuted or convicted for any offence under the Act, and therefore the declaration it made that it had not been penalized for an offence was essentially true in the intended legal sense. Consequently, the cancellation of the license was set aside. The salient point from Kundan Care (supra) is that the mere fact of a monetary penalty under Section 112 does not automatically trigger the disqualification in Regulation 3(2)(c), because that regulation's scope is confined to penalties for "'offences", which was understood to mean something other than every contravention. We find ourselves in full agreement with the rationale and are in fact bound to follow this decision. It aligns with the scheme of the Customs Act and avoids an overbroad result that Would treat minor/transgressions and serious crimes identically.
34. Applying that reasoning here, the Appellant's case is if anything more compelling than Kundan Care (supra). There is no allegation that the Appellant misled the authorities or suppressed information in its application. It simply became ineligible in the eyes of the Principal Commissioner because of Regulation 3(2)(c). Now, if we interpret Regulation 3(2)(c) in the restrictive sense as discussed above, the Appellant was not, in truth, penalized for an "offence" under the Customs Act: the penalty under Section 112(a) was for a wrong claim of exemption (a civil contravention) and not for an offence under Chapter XVI. No court convicted the Appellant of any offense; no compounding of an offense 22 (under Section 137) was involved either. Therefore, disqualifying the Appellant on this ground was based on a misapplication/misinterpretation of the law.
35. Even if one were to accept the Department's view that any penalty under the Customs Act counts as an "offence" for Regulation 3(2)(C), the license rejection is to be held to arbitrary and unsustainable. The language "shall not issue a license if..." in Regulation 3(2) may seem mandatory, but in context it should guide the discretion of the Commissioner, not eliminate it. If every penalty, however trivial the underlying contravention could lead to automatic rejection, the result would be draconian. If one were to label this penalty as an "offence", it would mean that thousands of importers who routinely face minor penalties (for classification disputes, short payments, procedural lapses, etc.) are all "offenders" under the Customs Act, a proposition that the Customs law itself does not subscribe to.
36. In this instant case, the Principal Commissioner failed to consider the nature and gravity of the Appellant's past violation. The Appellant's transgression was essentially an over-claim of an exemption for samples, which was not outright smuggling or fraud, but an interpretational issue (as evidenced by the fact that the goods were allowed conversion to warehousing in the very OIO and no Section 114A penalty for fraud was imposed).
37. Admittedly, beyond the bear fact of penalty, the Principal Commissioner in the order has not pointed out to 23 any other factor which would impugn the appellant's ability/suitability to operate a Special Bonded Warehouse. There is also no whisper or doubt about insolvency or any pending criminal investigation; nor is there any finding with regard to technical shortcomings in the proposed facility. In fact, the appellant's prior conduct insofar as complaint is concerned, was limited to a one-of incident, for which it was penalized. That incident, as discussed, was certainly not in the nature that would point to dishonesty, rather it was relating to a disputed exemption on imported goods. Hence, denying the license on this single criteria is not justified.
38. In view of the above discussions, the impugned order, in our view, is not sustainable, since it is based on an erroneous interpretation of Regulation 3(2)(c) and Section 58A of the Customs Act. Accordingly, the impugned order deserves to be set aside, which we hereby do and since there are no other grounds forthcoming from the impugned order pointing out towards the disqualification of the appellant for the license, the appellant is entitled for the consequential benefit.
39. In the result, appeal is allowed.
(Order pronounced in open court on 09.05.2025) (M. AJIT KUMAR) (P. DINESHA) Member (Technical) Member (Judicial) vl