P.V. SUBBA RAO

1. These two appeals have been filed by M/s. Bimal Paper Pvt. Ltd.(Appellant) and Shri Praveen Kumar Jain (Jain) , Director of the appellant, assailing the same order-in-original dated 24.09.2019(Impugned order) passed by the Principal Commissioner of Customs, Import Commissionerate, Inland Container Depot, Tughlakabad, New Delhi and hence they are being disposed of together. The operative part of the impugned order is as follows :-

(i) I hereby confirm the demand of duties of Customs (BCD + CVD) amounting to Rs. 2,35,29,862/- (Rupees Two Crore Thirty Five Lakh Twenty Nine Thousand Eight Hundred Sixty Two Only), as detailed in Annexure – A to the Show Cause Notice, under Section 28 (4) of the Customs Act, 1962 along with applicable interest under Section 28AA of the Customs Act, 1962, against M/s Bimal Paper Pvt. Ltd., Delhi.

(ii) I hereby order appropriation of the amount of Rs. 90,00,000/- deposited by M/s Bimal Paper Pvt. Ltd., Delhi vide GAR-7 Challan No. 33243 dated 08/10/2015 against the demand confirmed at (i) above

(iii) The Goods imported by M/s Bimal Paper Pvt. Ltd., Delhi under the Bills of Entry as detailed in Annexure – A to the Show Cause Notice, and collectively valued at Rs. 14,54,34,994/- are held liable for confiscation under Section 111 (d) & 111 (o) of the Customs Act, 1962. However, as the goods are not available for confiscation, no redemption fine is being imposed.

(iv) I impose a penalty of Rs. 2,35,29,862/- (Rupees Two Crore thirty Five Lakh Twenty Nine Thousand Eight Hundred Sixty Two only), under Section 114A of the Customs Act, 1962 on M/s Bimal Paper Pvt. Ltd., Delhi.

(v) I impose a penalty of Rs. 30,00,000/- (Rupees Thirty Lacs only), under Section 114AA of the Customs Act, 1962 on M/s Bimal Paper Pvt. Ltd., Delhi.

(vi) I impose a penalty of Rs. 6,00,000/- (Rupees Six Lacs only), under Section 112 (a) (ii) of the Customs Act, 1962, on Shri Praveen Kumar Jain, Noticee No. 2 Director of M/s Bimal Paper Pvt. Ltd., Delhi

(vii) I impose a penalty of Rs. 5,00,000/- (Rupees Five Lacs only), under Section 114AA of the Customs Act, 1962 on Shri Praveen Kumar Jain, Director of M/s Bimal Paper Pvt. Ltd. Delhi.

(viii) I impose a penalty of Rs. 20,00,000/- (Rupees Twenty Lacs only), under Section 112 (b) (ii) of the Customs Act, 1962, on Shri Sharafat Hussain.

(ix) I impose a penalty of Rs. 2,50,00,000/- (Rupees Two Crore Fifty Lacs only) under Section 114AA of the Customs Act, 1962 on Shri Sharafat Hussain.

(x) I impose a penalty of Rs. 20,00,000/- (Rupees Twenty Lacs only), under Section 112 (b) (ii) of the Customs Act, 1962, on Shri Vinod Kumar Pathror.

(xi) I impose a penalty of Rs. 2,50,00,000/- (Rupees Two Crore Fifty Lacs only), under Sections 114AA of the Customs Act, 1962 on Shri Vinod Kumar Pathror

(xii) I impose a penalty of Rs. 2,00,000/- (Rupees Two Lacs only), under Section 112 (b) (ii) of the Customs Act, 1962, on M/s Kirti Cargo.

(xiii) I do not impose any penalty under Section 114AA of the Customs Act, 1962 on M/s Kirti Cargo”.

2. Customs Appeal No. C/52688 of 2019 is filed by the appellant aggrieved by (i) to (v) of the operative part of the impugned order. Appeal No. C/52689 of 2019 is filed by Jain, aggrieved by (vi) and (vii) of the impugned order which imposed penalties on him.

3. The undisputed facts of the case are that the appellant imported goods which were cleared using licenses/duty free scrips under various export promotion schemes, such as, DFIA/FPS/FMS/VKGUY/DEPB during the period 01.04.2015 to 29.08.2015. M/s. Kirti Cargo (Kirti) was indicated as the Customs Broker /Custom House Agent (CB/CHA) in the Bills of Entry but they were actually filed by one Shri Sharafat Hussain(Sharafat) who was neither a licenced CB nor was the employee of Kirti. Kirti simply lent its licence for a consideration and had nothing to do with the Bills of Entry.

4. Investigations revealed that the duty free licences/scrips using which the goods imported by the appellant were cleared were neither issued to the appellant nor were they transferred to it. The licenses were actually issued to various exporters who were free to transfer them to others after fulfilling their export obligations. These licenses were purchased by M/s Zealous Overseas Pvt. Ltd. owned by Sharafat who manipulated them and fraudulently got wrong figures entered about the licenses in the Customs EDI system effectively showing enhanced values of each licence in the system or by entering licences which were not genuine licences at all.

5. The appellant paid a percentage of the duty payable on each bill of entry to Sharafat who, in turn, used these forged/manipulated licenses to clear the goods.

6. Shri Jain, Director of the appellant firm explained during investigation that the appellant had not bought the licenses nor has it paid Customs duty through a challan against the Bills of Entry but only paid a percentage of the duty payable to Sharafat who used the forged/manipulated scrips to clear the goods. He also accepted that M/s Zealous Overseas owned by Sharafat was not a Customs Broker and the appellant had not given any authorization to it. The goods were cleared with Kirti as the Customs Broker but the appellant had not given any authorization to it also.

7. The appellant never possessed copies of the licenses/scrips which were used to pay customs duty and, therefore, there was also no question of the appellant verifying the genuineness of the licenses which were used.

8. Duty free licences are issued by the Directorate General of Foreign Trade (DGFT) to encourage exports and these enable the licencee to import goods duty free, manufacture goods and export them. The licencee can also export goods against these licences first and thereafter, import the goods duty free. These licences/scrips are transferable and after the exporter fulfils its export obligations under the licence, it can sell them to anyone else who can then import goods against the licence/scrip duty free. Usually, the licences/scrips are sold at a discount, say, at 95% of the value of the duty exemption available under the licence. For imports under each of the schemes under which the licences/scrips are issued by DGFT, there is a corresponding exemption notification under the Customs Act. Thus, when the licence issued by the DGFT is produced before the customs for clearance, appropriate value is debited from the licence/scrip and goods are cleared without the importer paying the duty in cash in terms of the corresponding exemption notification.

9. During the relevant period, details of the licences/scrips issued by the DGFT were not getting transmitted from the DGFT‟s server to the Customs server. Instead, the licencee had to be bring them to the Customs officers to get the details entered by a Customs officer into the Customs Electronic Data Interchange (EDI) system. Thereafter, as the Bills of Entry were assessed utilising the licence, appropriate amounts would be debited from the licence in the Customs EDI. At the time of clearance of the goods, the licence/scrip had to be produced before the officer.

10. Sharafat and his company Zealot International bought the licences/scrips from licencees but got the wrong details entered in the Customs EDI system thereby showing higher value of duty free entitlement than was in the licence.

11. The customs broker M/s Kirti Cargo in whose name the Bills of Entry were filed is a Proprietorship firm owned by Shri Ramesh Chadha, who accepted that he sublet his licenses to Sharafat for Rs. 25,000/- per month and, therefore, he was in no way involved in the clearance of the cargo including in the use of the forged scrips. To sum up:

a) the appellant did not file the Bill of Entry or authorise any licenced Customs broker (including Kirti) to file the Bills of Entry;

b) Kirti sub-let its licence to Sharafat for Rs. 25,000/- per month (which is not permissible as per the Regulations);

c) The appellant had not even given any authorisation Sharafat to file the Bills of Entry;

d) The appellant gave its documents to Sharafat and paid him a percentage of duty payable and Sharafat, using the CB licence sub-let to it by Kirti, filed the Bills of Entry and cleared the goods using fraudulent/manipulated licences/scrips which were issued in the name of various exporters and transferred in the name of Zealot Overseas owned by Sharafat.

e) The appellant profited because it paid only a percentage of the duty payable (to Sharafat) and Kirti profited by illegally sub-letting its licence to Sharafat and Sharafat profited by collecting amounts from the appellant as duty and instead of paying duty, debiting the amounts from the fraudulent/manipulated licences/scrips.

12. A show cause notice dated 04.10.2018 was issued to the appellant seeking to recover the duty under section 28 (4) along with interest under section 28AA of the Customs Act, 1962 and also proposing to confiscate the goods under section 111 (d) and section 111 (o) of theand also proposing to impose penalties under section 112, 114A and 114AA. This show cause notice was adjudicated upon and the impugned order was passed.

13. On behalf of the appellant learned counsel made the following submissions :-

(i) The appellant had deposited Rs. 57,57,716/- through demand draft number 3915767 dated 30/06/2016, copy of which has been enclosed. That he same has not been mentioned any were in the present order-in-original.

(ii) The appellant cannot be held responsible for the mis-deeds of the department in collusion with other persons and the demand of duty cannot be made from the appellant

(iii) The Appellant submitted a Copy of the FIR No. 0151/ 2016 dated 19.09.2016 against Vinodh Kumar Pathror & Sharafat Hussain, presently this FIR Investigation is Conducted by Office of Assistant Commissioner of Police, Cyber Crime Unit (IFSO) Special Cell, Sector 16 C Dwarka New Delhi 100 075.

(iv) Investigating the case in this FIR (No. 0151/2016 dated 19.09.2016). the police summoned the Appellant along with other paper market traders/Businessman of the same market in respect of the same issue and everybody submitted their documents and proof before the investigating officer and are cooperating with them to prove that they are the victim here and have not done anything illegal or forged any Scrips or licenses.

(v) The FIR was filed by the office of the Commissioner of Customs (Export) ICD, TKD, New Delhi Special Investigation and Intelligence branch, only against two persons namely Shri Vinodh Kumar Pathror & Shri Sharaffat Hussain.

14. In short, the submissions of the learned counsel for the appellant was that the appellant cannot be held responsible for the misdeeds of others, viz., Shri Sharafat Hussain and Shri Vinod Kumar Pathror and the Departmental officers who colluded with them because of which wrong details of the scrips were entered into the Customs EDI system. It is also his submission that a First Information Report (FIR) against Shri Vinod Kumar Pathror and Shri Sharafat Hussain was filed by the Revenue which also did not indicate that the appellant was involved in the fraud. The investigating police officer had summoned the appellant and he has been cooperating with the investigation. The appellant has already deposited Rs. 57,57,710/- to a demand draft dated 30.06.2016 which has now been mentioned in the order-in- original. He prays that the impugned order may therefore be set aside with consequential relief to the appellant.

15. Learned authorized representative for the Revenue submits that a large scale fraud was going on in the Customs ICD, Tughlakabad of which there were two master minds – Shri Sharafat Hussain and Shri Vindo Kumar Pathror who purchased licenses and scrips from exporters under various export promotion schemes, such as, DFIA/FPS/FMS/VKGUY/DEPB. These licenses were issued to exporters which enabled them to import goods duty free. If the exporter fulfills the export obligation without making the imports under these scrips, the exporter is free to transfer licences to anybody. In other words, the licenses were freely transferable. The buyer of the licenses, in turn, can use them import goods duty free and the amount of duty payable will be debited in the licenses instead of it being paid in cash. The two kingpins, in collusion, with some officers entered wrong details of these licenses in the customs EDI system and thereby greatly enhanced the value of the scrips. Instead of using the licenses/scrips to clear imported goods, Shri Sharafat Hussain with Shri Vinod Kumar Pathror used these licenses to clear goods imported by others who were neither the licensees nor were the transferees. While the licenses are transferable, the benefit of the exemption under them cannot be transferred without transferring the license itself. In other words, the license cannot be in the name of one person and the benefit of the license cannot be claimed by somebody else. If the benefit has to be passed on to anybody else, the license itself has to be transferred to the other person. The importer who claims benefit of the exemption using any license should, in the first place, be the holder of the license either as the licensee or as the transferee.

16. The appellant in this case as well as several others have availed the benefit of exemption using licenses which were neither issued in their name nor were transferred in their name. Instead of paying customs duty to the exchequer, the appellant paid a percentage of the customs duty to Sharafat, who, in turn, used any of the forged/manipulated licenses to pay the customs duty of the goods imported by the appellant. He submits that it has been decided by this Tribunal in the case of M/s Nidhi Enterprises and ors.(2022 (11) TMI 869 – CESTAT NEW DELHI) that there is no provision to transfer the benefit of any exemption either under the policy or any notification or any provision of the law. The license and scrips are freely transferable and if they are transferred the transferee gets the benefit of the notification but without transferring the licenses/scrips, the benefit of the exemption cannot be transferred. He, therefore submits that the appellant has clearly violated the law and claimed the benefit of ineligible exemption and, therefore, was liable to pay the duty and interest, as demanded. Further, in view of the violations of the appellant, the confiscation of the goods under section 111 and imposition of penalties under section 112, 114A and 114AA need to be upheld.

He prays that the appeal may be dismissed and the impugned order may be upheld.

17. We have considered the submissions from both sides and perused the records.

18. The question of liability of the importer for using fake or forged DEPB licenses/scrips where the importer itself was not the one which forged them was decided by Hon‟ble Supreme Court in Civil Appeal No. 2576/2010 and 5608/2011 – M/s Munjal Showa Ltd. & Ors. versus Commissioner of Customs and Central Excise (Delhi – IV) (2022 (9) TMI 1076 – Supreme Court) . The relevant paragraphs are as follows:-

“9. In that view of the matter and on the principle that fraud vitiates everything and such forged/fake DEPB licenses/Scrips are void ab initio, it cannot be said that the Department acted illegally in invoking the extended period of limitation. In the facts and circumstances, the Department was absolutely justified in invoking the extended period of limitation.

10. It is also required to be noted that the moment, the appellant(s) was/were informed about the fake DEPB licenses, immediately they paid the Customs Duty, may be under protest. The Customs Duty was paid under protest to avoid any further coercive action. Be that as it may, the fact remains that the DEPB licenses/Scrips on which the exemption was availed by the appellant(s) was/were found to be forged one and, therefore, there shall be a duty liability and the same has been rightly confirmed by the Department, which has been rightly confirmed by the Tribunal as well as the High Court.

11. Now, so far as the submission on behalf of the buyer(s) – appellant(s) relying upon the decision of this Court in the case of Aafloat Textiles India Private Limited and Ors. (supra) is concerned, whether the buyer(s) had a knowledge about the fraud or the forged/fake DEPB licenses/Scrips and whether the appellant(s) – buyer(s) was/were to take requisite precautions to find out about the genuineness of the DEPB licenses/Scrips which they purchased, would have a bearing on the imposition of the penalty, and has nothing to do with the duty liability. It is to be noted that in the present case so far as the penalty proceedings are concerned, the matter is remanded by the Tribunal to the adjudicating authority, which is reported to be pending.

12. In view of the above and for the reasons stated above, both the appeals fail and are accordingly dismissed. As the penalty proceedings are reported to be pending pursuant to the remand order passed by the Tribunal, we direct the adjudicating authority to complete the penalty proceedings on remand, at the earliest preferably within a period of six months from today”.

19. Following the decision of the Supreme Court in Munjal Showa, this Bench, in the case of M/s Nidhi Enterprises held that duty was payable where the duty was not paid initially by using fake/forged scrips/licenses. The relevant paragraphs of this order is as follows :-

“29. There is no provision to transfer the benefit of any exemption either under the policy or any notification or any provision of the law. The licences and scrips are transferable and if they are transferred, the transferee consequently gets the benefit of the exemption notification. Without transferring the licence/scrip, the benefit of exemption cannot be transferred. An example will further clarify the difference. Indian Railways have now made tickets transferable between family members. When „A‟ buys a railway ticket „A‟ earns a right to travel in a particular train on a date between the stations and occupy the allotted berth/seat. If „A‟ transfers the ticket to his family member „B‟ the right to travel is also transferred as a consequence. Without transferring the ticket, „A‟ cannot simply say let „B‟ travel instead of me because the right to travel flows from the ticket and cannot be separated from it. Just like railway tickets, the licences/scrips issued by the DGFT are also NOT bearer instruments which can be used by anyone to claim exemption. They are issued to the licensees/scrip holder who can freely transfer them to anybody else but without such a transfer, the benefit of the exemption itself cannot be transferred. The invoices issued by the companies owned by Shri Sharafat Hussain to the appellant produced before us do not indicate that any licence/scrip was transferred to the appellant Nidhi. Consequently, Nidhi never had any licence/scrip with it nor was even aware as to the benefit available under which licence/scrip issued to whom and/or transferred who was used in the Bill of Entry was known to the appellant. The question of producing the scrip or licence at the time of clearing the goods does not arise as a consequence. As the appellant had not fulfilled the requirements of either getting the licence/scrip transferred to it or producing it at the time of clearance as required under exemption notifications, we do not find any reason to hold that the appellant is entitled to the benefit of exemption notifications even to the extent that the manipulated licence has covered part of the duty debited.

32. Regarding the submission of learned counsel that since it is a bonafide importer, no penalty should be imposed on it, we find that the Supreme Court in the case of M/s Munjal Showa Ltd. has dealt with this issue and in paragraph 11 of the judgment held that the question as to whether the buyers had the knowledge about the fraud or forged licences and whether buyers were required to take precautions to find out about the genuineness of the licences which they have purchased would be bearing on the penalty. For that purpose, the Supreme Court had remanded that matter to the adjudicating authority.

33. We proceed to examine the question of penalty imposed upon the appellant based on these two parameters:

(a) Knowledge of the fraud or forgery;

(b) Precautions taken while buying the scrap and the responsibility for taking precaution.

34. We do not find any evidence of appellants‟ knowledge of fraud or forgery of the scrips/licences in this case. However, as far as the question of responsibility to take precautions and if such precautions were taken are concerned, we agree with the learned authorized representative that caveat emptor (Buyer Beware) is a well established principle and it requires the buyer of any goods to take reasonable precautions with respect to what he is buying. When one is buying an instrument for lakhs of rupees and claiming benefit of exemption from customs duty from it and such an instrument is numbered and is issued by any authority, it would be reasonable to expect that the buyer would know what instrument it is buying from who and in whose name it was issued originally. Even if one buys a car from another one would at least check the registration number of the car, make, model, etc. In the present case, none of purchase invoices produced by the appellant even indicate the licence or scrip which the appellant bought. The invoices show that the appellant bought the benefit of exemption which is not transferable and it had not bought the licences/scrips which were transferable. For this reason, the appellant neither received physical licences/scrips nor has it produced at the time of claiming the benefit of the exemption. Effectively, so far as the appellant is concerned instead of paying duty to Government exchequer it had paid a percentage of the amount equivalent to the duty to the firms of Shri Sharafat Hussain. Shri Sharafat Hussain, in turn, used manipulated/forged licences to clear the Bills of Entry. In our considered view, this does not even remotely meet the requirement of caveat emptor. Under these circumstances, we find no reason to hold that the appellant was a genuine buyer of licences/scrips and had purchased them in good faith

35. Penalty of an amount equal to the duty not paid was imposed on Nidhi under section 114A. This is a mandatory penalty imposable when a demand invoking extended period of limitation and since we have upheld the confirmation of the demand invoking extended period of limitation, we also uphold the imposition of penalty under section 114A.

36. Penalty of Rs.10,00,000 under section 112(a) (ii) and penalty of Rs. 1,00,000 under section 114AA were imposed on Jain, partner of Nidhi. The fifth proviso to section 114A reads as follows:

Provided also that where any penalty has been levied under this section, no penalty shall be levied under section 112 or section 114.

37. Penalty under section 112(a) (ii) on Jain (the partner) and penalty under section 114A on Nidhi (the partnership firm) in this case arise out of the same cause of action and therefore, penalty under section 112 cannot be sustained as penalty has been imposed under section 114A which we have upheld.

38. Penalty under section 114AA is imposable only if knowingly or intentionally a false declaration, statement or document is made, signed or used. This section reads as follows:

Section 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.

….

40. In view of the above, the impugned order is upheld except to the extent of imposition of penalties on Shri Jain. Customs Appeal No. 52173 of 2019 filed by M/s. Nidhi Enterprises is rejected. Appeal No. 52174 of 2019 filed by Shri Sudarshan Kumar Jain is allowed and penalties of Rs. 10,00,000 under section 112(a) (ii) and of Rs. 1,00,000 under section 114AA imposed on him are set aside with consequential benefits, if any, to him”.

20. We find the matter in this case is identical to the case of M/s Nidhi Enterprises inasmuch as the appellant did not pay the duty as required, but instead of paid a percentage of the duty payable to Sharafat who, in turn, used fake/forged scrips/licenses to clear the goods. The appellant was not aware as to which scrip or license would be used to clear its goods because they were never transferred in its name. Without transferring the licenses, Sharafat transferred the benefit of the licence to the appellant. In doing so, he also manipulated the license itself in collusion with the officers and entered wrong figures in the customs EDI system thereby magnifying several fold the benefit under the license.

21. It also needs to be pointed out that the appellant did not give any authorization or engaged M/s Kirti Cargo the CHA indicated in the Bills of Entry nor was issued nor has it issued any authorization in favour of Shri Sharafat Hussain or his firms. The appellant neither filed the bills of entry by itself nor has it authorized any license customs broker, but engaged Shri Sharafat Hussain who filed the bill of entry using the name of M/s Kirti Cargo and used the manipulated licenses available with him to pay the duty.

22. It needs to be pointed out that various export promotion schemes such as the ones referred to above are formulated by the DGFT to encourage exports who are also issues the licenses/scrips. Whenever a new scheme is formulated by the DGFT, a corresponding exemption notification is issued under the Customs Act exempting goods which are imported using that license. The exemption from Customs duty flows from the exemption notification. It is undisputed that the exemption notifications require the importer claiming the benefit to produce the license/scrip at the time of clearance of the goods. Even if the goods are cleared through the Customs EDI System, the license/scrip has to be produced at the time of the examination of the goods and their clearance for home consumption. The appellant had not done this. Further, the appellant has not even purchased any license/scrip but only purchased the benefit of the exemption notification and this benefit is not transferable. The benefit of the exemption notification is available to a person to whom the licence is either issued or is transferred neither is the case of the appellant.

23. It is a well settled legal principal that fraud vitiates everything and nobody can profit from the fraud whether or not the fraud itself was committed by that person. In this case, the fraud of forging and manipulating the license was done by Sharafat and Vinod Kumar Pathror and not by the appellant. It is for this reason, the FIR filed by the Department with the Economic Offences Wing of the Police also does not include the appellant as a suspect. However, the benefit of the exemption under the license is not available on the strength of a fraudulent licence and the appellant is liable to pay the duty.

24. In the case of Nidhi Enterprises, this Tribunal held that the buyer of the licenses has to fulfill the requirement of Caveat Emptor. The appellant in this case has not even remotely fulfilled its obligation as a buyer of the licences/ scrips. In fact, the appellant had not even bought the licences/scrips but only purchased the benefit from the licences/scrips. Therefore, the impugned order correctly confirmed the demand of duty from the appellant. Since, the duty is payable the corresponding interest also has to be paid, as applicable.

Confiscation and penalty

25. In the impugned order the imported goods were held as liable to confiscation under section 111(d) and 111(o) of the Customs Act, 1962. However, as the goods were not available, no redemption fine was imposed. Penalties were imposed under sections 114A and 114AA on the appellant and under sections 112 (a) (ii) and 114AA on Shri Jain, the Director of the appellant firm. These sections read as follows:

Section 111. Confiscation of improperly imported goods, etc. - The following goods brought from a place outside India shall be liable to confiscation: -

xxxx

(d) any goods which are imported or attempted to be imported or are brought within the Indian customs waters for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force;

xxxx

(o) any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer;

xxxxx

SECTION 112. Penalty for improper importation of goods, etc.- Any person, -

(a) 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 111, or abets the doing or omission of such an act, or

(b) who acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111,

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 the value of the goods or five thousand rupees, 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:

Section 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 wilful mis-statement 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 28 shall also be liable to pay a penalty equal to the duty or interest so determined:

Provided that where such duty or interest, as the case may be, 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 the 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 duty or interest, as the case may be, so determined:

Provided further that the benefit of reduced penalty under the first proviso shall be available subject to the condition that the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso

Provided also that where the duty or interest determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty or interest as reduced or increased, as the case may be, shall be taken into account:

Provided also that in case where the duty or interest determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available if the amount of the duty or the interest so increased, along with the interest payable thereon under section 28AA, and twenty-five percent of the consequential increase in penalty have also been paid within thirty days of the communication of the order by which such increase in the duty or interest takes effect :

Provided also that where any penalty has been levied under this section, no penalty shall be levied under section 112 or section 114.

Explanation . - For the removal of doubts, it is hereby declared that -

(i) the provisions of this section shall also apply to cases in which the order determining the duty or interest sub-section (8) of section 28 relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President

(ii) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.

Section 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.

26. As far as the impugned order holding the goods liable to confiscation under section 111(d) and (o) is concerned, we find that section 111(d) provides for confiscation of goods imported or attempted to be imported in contravention of any prohibition in place. There is nothing on record to show that the imported goods were prohibited and could not be imported or that they could not be imported without a licence. The entire case of the Revenue is that the goods were cleared without paying the duty but by using fraudulent or manipulated duty free licences/scrips. Therefore, confiscation of the goods under section 111(d) cannot be sustained and needs to be set aside.

27. Section 111(o) provides for confiscation of goods which are exempt from payment of duty or prohibition of import subject to some conditions and those conditions have been violated. In this case, the imported goods were exempt from payment of duty subject to some conditions that included the condition that they were imported against a licence and that it is produced at the time of clearance of the goods. The appellant was neither the licencee nor was the transferee of the licences which were used to clear the goods. Further, the licences were fraudulently manipulated by entering wrong details in the Customs EDI system and they were never produced at the time of clearance of the goods. Neither the manipulation by entering the wrong details of the licences/scrips in the Customs EDI system nor clearing the goods without producing the original licence at the time of clearance of goods would have been possible without the collusion of the officers concerned. Therefore, the officers have necessarily to be complicit in the offence but action against the officers is not part of these proceedings. Learned authorised representative states that the matter relating to the involvement of officers has been referred to the Central Bureau of Investigation which is investigating the matter. We agree that if the involvement of the officers is a far more serious matter than mere action under the Customs Act and it also needs to be investigated from the point of Prevention of Corruption Act and Central Civil Services Conduct Rules. As far as the imported goods in this case are concerned, they were clearly liable for confiscation under section 111(o). As they were not available for confiscation, they were not actually confiscated nor has any redemption fine been imposed. We, therefore, find that the goods were correctly held as liable for confiscation under section 111(o).

28. As far as the penalty on the appellant is concerned, it has been imposed under section 114A and section 114AA.

29. Penalty under section 114A is a mandatory penalty imposable if the duty is not paid due to collusion or any wilful mis-statement or suppression of facts. We have already upheld the demand of duty invoking extended period of limitation under section 28 and therefore, find the mandatory penalty under section 114A also needs to be upheld.

30. Penalty under section 114AA is imposable only if knowingly or intentionally a false declaration, statement or document is made, signed or used. In the factual matrix of this case, we found no evidence that the appellant had knowledge of the fraud/forged licences/ scrips being used to clear the goods and therefore, the penalty under section 114AA cannot be sustained.

31. Penalties were imposed under sections 112 (a) (ii) and 114AA on Shri Jain, the Director of the appellant firm. Penalty under the section 112 can be imposed for any action or omission which renders the goods liable to confiscation under section 111. In this case, we find that goods were exempted from payment of duty subject to come conditions and those conditions were not fulfilled. We, therefore, find the case is squarely covered under section 111 (o) and the goods have been correctly held to be liable for confiscation. Consequently, the penalty under section 112 (a) (ii) on the appellant needs to be upheld.

32. Penalty under section 114AA is imposable only if knowingly or intentionally a false declaration, statement or document is made, signed or used. In the factual matrix of this case, we found no evidence that Shri Jain had knowledge of the fraud/forged licences/ scrips being used to clear the goods and therefore, the penalty under section 114AA cannot be sustained

33. In view of the above, Customs Appeal No. C/52688 of 2019 filed by the appellant is partly allowed by setting aside the penalty imposed on the appellant (M/s. Bimal Papers Pvt. Ltd.) under section 114AA and upholding rest of the impugned order insofar as it pertains to the appellant M/s. Bimal Papers Pvt. Ltd.

34. Appeal No. C/52689 of 2019 filed by Jain, is partly allowed and the penalty under section 114AA imposed on him is set aside and the rest of the impugned order insofar as it pertains to Shri Jain is upheld.