Legal principle

Where MEIS scrips granted by DGFT remain valid and unrevoked, customs authorities lack jurisdiction to initiate proceedings over their alleged misuse, and a mere mis-description of classification, without wilful intent, does not attract penalty under Section 114AA against a customs broker acting only as the exporter's agent.

Court decision

The court allowed the appeal and set aside the CESTAT final order No.FO/A/40008/2024-CU(SM) dated 03.01.2024, answering the substantial questions of law in favour of the appellant and against the department. It held that the customs action suffered from lack of jurisdiction since the MEIS scrips granted by DGFT continued valid and unrevoked and only DGFT could act against any unfair advantage taken of them; that Section 28 could not be invoked absent any import or duty demand, and Section 28AAA was inapplicable; and that no penalty under Section 114AA could be imposed on the broker absent wilful intent/mens rea.

Facts

M/s.Seaswan Shipping & Logistics, a licensed customs broker under the CBLR 2018 operating at Chennai and Tuticorin, filed 32 shipping bills (2017–2019) for about 17 exporters, including M/s.Shivam Exports, for export of machine-made safety matches classified under CTSH 36050090 with an FOB value of Rs.5,73,80,848/-, claiming MEIS benefits; the exporters received MEIS scrips of Rs.11,47,617/- from DGFT. The Tuticorin customs (SIIB) alleged excess availment of MEIS benefits due to wrong classification (CTSH 36050090 instead of 36050010, which carried only 3% MEIS benefit) and issued notices to the exporter, importer and the broker for penalties under Sections 114 and 114AA. The adjudicating authority by order dated 30.09.2022 sustained a penalty of Rs.10 lakhs on the exporter as well as the customs broker. On appeal, CESTAT Chennai by final order dated 03.01.2024 modified the penalty to Rs.1 lakh under Section 114AA and set aside the penalty under Section 114(iii), prompting this appeal under Section 130 of the Customs Act.

Key provisions

• Section 114AA, Customs Act, 1962 — Penalty for use of false and incorrect material
• Section 114, Customs Act, 1962 — Penalty for attempt to export goods improperly etc
• Section 28AAA, Customs Act, 1962 — Recovery of duties in certain cases
• Section 130, Customs Act, 1962 —  Appeal to High Court
• Section 28, Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 4, The Foreign Trade (Development and Regulation) Act, 1992 — Continuance of existing orders.