Commr. of Cus. (Exports) vs K.R.M. International Ltd.

R. Sudhakar, J.—The above Civil Miscellaneous Appeals are filed by the Revenue under Section 130 of the Customs Act, 1962 as against the order dated 31-3-2005 made in Final Order Nos. 546, 547 and 548 of 2005 on the file of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai. Since, at the time of admission, no substantial question of law has been framed, we are inclined to frame the following substantial question of law:

"Whether the Tribunal was justified in modifying the penalty imposed under Section 114A of the Customs Act in respect of misdeclaration, where duty demand has been confirmed?"

The brief facts of the case are as follows:

All the three assessees/first respondent in the above appeals, who are importers of various leather chemicals, have availed the benefit of exemption under Duty Exemption Entitlement Scheme (DEEC Scheme). The Directorate of Revenue Intelligence found that the goods were misdeclared and consequently, show cause notices were issued for confiscation of the goods under Section 111 of the Customs Act for recovery of duty under Section 28(1) of the Customs Act together with imposition of penalty under Section 114A of the Customs Act. The case was adjudicated and a finding has been rendered by the adjudicating authority that the goods have been, in fact, misdeclared and therefore, they are liable for confiscation and accordingly, they were confiscated and duty has been demanded in terms of Section 28 of the Customs Act. In addition to the above, the adjudicating authority imposed penalty under Section 114A of the Customs Act.

Aggrieved by the said order, appeals were preferred by the three importers before the Tribunal, represented by a common counsel and the Tribunal by a common order dated 31-3-2005 confirmed the findings of the adjudicating authority insofar as the confiscation for recovery of duty. However, insofar as the penalty under Section 114A of the Customs Act is concerned, in all the three cases, the penalty imposed under Section 114A was reduced in the following manner:

Insofar as the appeal filed by the Revenue in respect of Aisha International is concerned (C.M.A. No. 1818 of 2007), the substantial question of law on which this appeal has been filed by the Revenue is concerned, it will not survive as there is no penalty under Section 114A imposed against Aisha International and accordingly, C.M.A. No. 1818 of 2007 is dismissed.

As far as other two appeals are concerned, on the question of law so framed, it is apparent that this is a case of misdeclaration and the findings of the adjudicating authority is confirmed by the Tribunal. As a result, duty was demanded in terms of Section 28 of the Customs Act and that is not in dispute. After coming into force the provisions of Section 114A, inserted by Finance (No. 2) Act, 1996, a person who is liable to pay duty or interest shall also be liable to pay penalty equal to the duty.

It is useful to extract Section 114A of the Customs Act, which reads as follows:

"114A. Penalty for short-levy or non-levy of duty in certain cases. - Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any willful misstatement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section (8) of section 27 shall, also be liable to pay a penalty equal to the duty or interest so determined."

The issue as to whether penalty can be reduced in any manner came up for consideration before the Supreme Court in the decision reported in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, . While considering the pari materia provision, namely, Section 11AC of the Central Excise Act, the Supreme Court held as follows:

"26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.

Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff''s case (supra) was not correctly decided but Chairman, SEBI''s case (supra) has analysed the legal position in the correct perspectives. The reference is answered...."

The above-said decision was followed by the Supreme Court in the case of Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, , wherein the Supreme Court held as follows:

"23. The decision in Dharamendra Textile must, therefore be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides.

It must, however, be made clear that what is stated above in regard to the decision in Dharamendra Textile is only insofar as Section 11AC is concerned. We make no observations (as a matter of fact there is no occasion for it) with regard to the several other statutory provisions that came up for consideration in that decision.

In the light of the discussion made above it is evident that in both the appeals, orders were passed by the Tribunal on a wrong premise. In both the appeals, therefore, the impugned orders passed by the Tribunal are set aside and the matters are remitted to the respective Tribunals for fresh consideration, in accordance with law, and in the light of this judgment...."

The Delhi High Court had an occasion to consider a similar question of law in the case of Commissioner of Central Excise Vs. Bisht Electronics, . Referring to the above-stated decision of the Supreme Court and the decision reported in Sony India Ltd. Vs. Commissioner of Central Excise, Delhi, , the Delhi High Court have taken a view that there was no discretion vested with the Tribunal to reduce the quantum of penalty than what is provided in terms of the Statute. The Delhi High Court also held as follows:

"14. In consonance with what is observed in the said judgment, the Tribunal had no discretion to reduce the penalty, as was sought to be done by way of the impugned judgment. Accordingly, question number (i) is answered in the negative and in favour of the Revenue. This would also answer question No. (iii). Accordingly, question No. (iii) is also answered in favour of the Revenue. Since the question No. (i) has been answered in the negative and in favour of the Revenue, we are not called upon to answer question No. (ii) as it is axiomatic that once it is held that Tribunal has no discretion to reduce the penalty, the question of giving reasons does not arise."

In view of the categorical statement of law and taking note of the specific provision of Section 114A where there is a specific mandate that the importer shall be liable to pay penalty equal to the duty or interest so determined by the authority concerned, when there is a misdeclaration the Tribunal is not justified in reducing the penalty imposed under Section 114A of the Customs Act. Such a mandate under the Statute cannot be given a go-by by the Tribunal. We therefore, answer the question of law in favour of the Revenue.

A faint plea was made by Mr. Murugappan, learned Counsel appearing for the respondent in C.M.A. No. 1817 of 2007 that since penalty under Section 114A has been levied, no penalty under Section 112(a) of the Customs Act should be imposed. The assessee is not in appeal before us and also we are not on the issue of Section 112(a). Hence, we are not inclined to answer this question. For the foregoing reasons, we pass the following order:

(i) On the question of law raised, we are of the view that the Tribunal was not justified in reducing the penalty imposed under Section 114A of the Customs Act.

(ii) Consequently, the order of the Tribunal dated 31-3-2005 insofar as M/s. KRM International Ltd. and M/s. Dhandapani Exports Ltd. are concerned (C.M.A. Nos. 1816 and 1817 of 2007) stands set aside.

In the result, C.M.A. Nos. 1816 and 1817 of 2007 are ordered in the above terms and C.M.A. No. 1818 of 2007 stands dismissed. No costs.