Legal principle

Once DGFT has issued EODCs and the customs bonds stand discharged, and a contemporaneous show-cause notice of another department records the EOU's receipt of the imported goods, co-noticees cannot be penalised under Section 112(a) on an unsubstantiated diversion theory.

Court decision

The Tribunal found no infirmity in the Order-in-Original to the extent challenged, held that no case was made out for imposition of penalty under Section 112(a) on KIL and THPL, upheld the impugned order, and rejected the Revenue's appeal.

Facts

M/s Jelenta Polytraders Pvt. Ltd. (JPPL) imported duty-free polymers (HDPE, PVC resin, LLDPE granules, polypropylene, LDPE) through Kolkata Port under 17 licences (5 Advance Authorisations and 12–13 Duty Free Import Authorisations) with M/s Kalpena Industries Ltd. (KIL) declared as supporting manufacturer under high-seas sale agreements. Export obligations were shown discharged through deemed exports/supplies by KIL to M/s Tara Holding Pvt. Ltd. (THPL), a 100% EOU. DRI investigated, alleging the deemed exports did not correspond to actual movement of goods, that documents were altered or tampered with, and that duty-free goods were diverted, and issued an SCN dated 28.03.2015 proposing confiscation under Section 111(o), recovery of Rs. 8,52,46,964 under Section 28(4), interest, and penalties under Sections 114A/112(a). By Order-in-Original dated 02.07.2019, the Commissioner ordered confiscation with Rs. 4 crore redemption fine under Section 125, confirmed duty and interest, imposed Rs. 8,52,46,964 penalty on JPPL under Section 114A and Rs. 80 lakh each on three individuals under Section 112(a)(ii), but did not impose penalty on KIL and THPL under Section 112(a).

Key provisions

• Section 112(a), Customs Act, 1962 — Penalty for improper importation of goods
• Section 111(o), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 28AA, Customs Act, 1962 — Interest on delayed payment of duty
• Section 135, Customs Act, 1962 — Evasion of duty or prohibitions
• Section 28(4), Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 114A, Customs Act, 1962 — Penalty for short-levy or non-levy of duty in certain cases
• Section 143(3), Customs Act, 1962 — Power to allow import or export on execution of bonds in certain cases
• Section 124, Customs Act, 1962 — Issue of show cause notice before confiscation of goods etc
• Section 125, Customs Act, 1962 — Option to pay fine in lieu of confiscation