) T.V.Shanmugam vs Commissioner Of Customs ...

[Arising out of Order-in-Original No.8384/2008 dt. 23.12.2008 dated passed by the Commissioner of Customs, Chennai]

1) T.V.Shanmugam 2) Sanco Trans Limited. Appellant

Versus

Commissioner of Customs (Seaport-Export), Chennai Respondent

Appearance:

Shri S. Murugappan, Advocate For the Appellant Ms. Indira Sisupal, AC (AR) For the Respondent

CORAM:

Honble Shri R. Periasami, Technical Member

Date of hearing : 13.2.2015 Date of Pronouncement : 15.6.2015

FINAL ORDER No.40627-40628/2015

Both the appeals are arising out of a common order-in-original and the same are taken up for hearing for disposal. 2. The appeals are filed against imposition of penalty under Section 114 of the Central Excise Act on both the appellants in the case of smuggling of Red Sanders Export cargo. 3. The brief facts of the case are that based on the intelligence DRI officials Chennai intercepted the export cargo in respect of Container No.CAXU-2577783 covered under shipping bill No.2750183 dt. 9.8.2007 filed in the name of M/s.Win Exports. On examination of the container, it was found to contain 572 numbers of Red Sander Logs instead of declared goods "Natural Slate Stones". On inspection of the container, it was noticed that rivet points in the lock handle of the container were tampered with red sanders were seized under mahazar 13807. On detailed investigation and statement recorded from various persons including the appellants T.V. Shanmugam (appellant), P. Bhaskaran, Clearing Clerk of M/s.Sankari Seasky Cargo, Chennai, K.Chandrsekaran, J.Lakshminarayanan, V.Sivasankar, Proprietor of M/s.Win Exports and Shri K. Shanmugam and Shri R.Chitty Raja.

Detailed investigations revealed that M/s.Win Exports had not made any export and V.Sivasankar, the proprietor of above firm never signed any document nor gave any authorization to anyone to make export or import on their behalf. On completion of the investigation, the Additional Director-General, DRI issued show cause notice dt. 9.1.2008 to both exporters and to other co-noticees including the appellants for imposition of penalty. The Commissioner of Customs, Chennai by the impugned order ordered for absolute confiscation of red sander logs and imposed penalty on R.Chitty Raja, K. Shanmugam, R. Bhaskaran. He also imposed penalty of Rs.5 lakhs on T.V. Shanmugam, (1st appellant herein), proprietor of M/s.TVS Shanmugam, the CHA and Rs.5 lakhs on M/s.Sanco Trans Ltd. (2nd appellant) under Section 114 of Customs Act. Aggrieved by the order, only these two appellants have filed appeals. There is no record of any appeals filed by other notices. 4. Heard both sides. 5. Ld. Advocate appeared for both the appellants. In respect of first appellant T.V.Shanmugam, the CHA he referred para-34 and para 34.1 of the order, where the contravention of provisions of the Customs Act was alleged against the appellant.

He submits that there is no dispute on the fact mentioned at para-34 of the order for the conduct of CHA signing the shipping documents for third party and not physically verified the genuineness of exporter. He further submits that mere negligence cannot be construed that CHA has abetted in any way in smuggling of Red Sanders. The adjudicating authority brought out the facts that the replacement of declared cargo with Red Sanders taken place in transit after the container was sealed by Customs officer enroute to port. He further submits that in the impugned order while imposing penalty under Section 114, no findings were recorded that the CHA had played positive role or he acted guilty with any person in smuggling of red sanders. The only mistake he committed was that he signed the shipping bill of third party. For any negligence or lapse on the part of CHA, the CHA is liable for action under CHALR 2004 which is a separate proceedings. Penalty under Section 114 can be imposed only on the importer or exporter without establishing mens rea. For others no penalty can be imposed without establishing mens rea and in the present case no mens rea is established.

He relied on the Hon'ble High Court's decision in the case of Commissioner of Customs (Exports) Vs Sahaya Edin Prabhu Patriot Freight Logistics Systems reported in 2015 (1) TMI 1032 (Mad.) where, in an identical case of smuggling of red sanders, the Hon'ble High Court has upheld the Tribunal's order dt. 2.11.2007 and set aside the penalty under Section 114 and dismissed the Revenue's appeal. Since the issue is identical, he pleaded for appropriate orders. 6. In respect of the second appellant, M/s.Sanco Trans Ltd.,CFS Chennai, the Ld. Advocate refers to para 35.5 of the order relating to the appellant and submits that the appellants discharged their function as custodian for import or export of goods. There is no mens rea established against the appellant that they colluded with persons in the smuggling. Based on the documents filed by the authorized persons of the exporter, he allotted space and the declared the goods were allowed to be brought inside the CFS and the goods were examined and sealed by the Customs Preventive officers with customs seal. The container was allowed to be transported to the gateway port for export.

They are only a custodian of goods which are brought by the importer or exporter or their agents and they have not played any positive role in the smuggling of red sanders nor they have colluded with anybody in the act of smuggling. Without establishing mens rea no penalty can be imposed on the appellant under Section 114. He relied on the above Hon'ble Madras High Court order dt. 8.1.2015 and pleaded to set aside the order. In respect of waiver of penalty on both appellants, he relied on the following judgements : 1) CC (EP) Vs P.D.Manjrekar - 2009 (244) ELT 51 (Bom.) 2) Neptune's Cargo Movers Pvt. Ltd. Vs CC (Export), Chennai 2007 (219) ELT 673 (Tri.-Chennai) 3) D.H.Patkar & Co. Vs CC (Import) Mumbai 2008 (229) ELT 612 (Tri.-Mumbai.)

4) CC (Export) Mumbai Vs Rajasthan Spinning & Weaving Mills Ltd. - 2008 (229) ELT 614 (Tri.-Mum)

5) Swaroop Shipping Services Vs CC (Seaport-Exports), Chennai- 2008 (227) ELT 555 (Tri.-Chennai).

7. On the other hand, LD. A.R on behalf of Revenue reiterated the findings of the Commissioner. She refers to para-(5) of the OIO where entire modus operandi has been unearthed in the smuggling of Red Sanders by using exporter's name. The shipping bill was filed fraudulently by using the name of M/s.Win Exports the CHA had authenticated all the documents. The entire operation of filing shipping bills, booking space at CFS, processing the documents, transportation have been carried out fraudulently with intention to smuggle out red sanders. She further submits that exporter name Win Exports is a fictitious one and even the trailer of the container number is happened to be of the two wheeler registration. She submits that TV Shanmugam, CHA fully aware of the bookings transactions and colluded with K. Shanmugam, Chitty Raja and through P.Bhaskaran of Shankari Seasky Cargo. She submits that investigation clearly established both CFS and the CHA were involved in filing of the documents in the fictitious name of exporter with ulterior motive of smuggling of red sanders and adjudicating authority has rightly imposed the penalty under Section 114. He relied on following case laws :- 1) Maheshwari Rocks (I) Pvt. Ltd. Vs CC Chennai 2010 (262) ELT 574 (Tri.-Chennai) 2) CC (Export) Chennai Vs Bansal Industries 2007 (207) ELT 346 (Mad.)

3) P. Bhaskar Naidu Vs CC Chennai 2013 (298) ELT 248 (Tri.-Chennai) 4) Pine Chemical Suppliers Vs Collector of Customs 1993 (67) ELT 25 (SC) 8. Ld. Advocate countered the arguments of AR and submitted that the case law of Bansal Industries (supra) relied by the department is for imposition of penalty on the importer where mens rea is required, the same is not applicable. In the case of Mr. P.Bhaskar Naidu, he submits that against the Tribunal's order, appellant filed CMA which is pending before the Hon'ble High Court. The case law of Pine Chemical Suppliers (supra) is not applicable to CHA-appellant as the apex court order related to imposition of penalty on the importer where no mens rea is required. Same is not applicable to the present case. 9. I have heard both sides and examined the records and case laws. 10. The issue in both appeals relates to imposition of penalty both appellants under Section 114 of the Customs Act. The adjudicating authority has imposed a penalty of Rs.5 lakhs each on the first appellant M/s.T.V.Shanmugam, Proprietor of T.V.Shanmugam, CHA and second appellant M/s.Sanco Trans Ltd., CFS.

The whole issue relates to smuggling of red sanders weighing 16400 MTs against the declared export cargo of Natural Slate Stones under Shipping Bill No.2750183 dt. 9.8.2007 filed in the name of M/s.Win Exports. The adjudicating authority has discussed the modus operandi of smuggling and Red Sander and the persons involved in the smuggling activity. The adjudicating authority ordered absolute confiscation of red sanders and imposed penalties on various co-noticees including the appellants. 11. RECORD OF FINDINGS & CONCLUSION :- Appeal No.C/12/2009 filed by Shri T.V. Shanmugam In respect of this appellant, the adjudicating authority held that appellant being a CHA he has signed the shipping documents for third party without verifying the genuineness who was not authorized by the exporter to handle the documents. He has not seen the exporter. Instead he has signed shipping documents produced by P.Bhaskaran, a clearing clerk of M/s.Sankari Seasky Cargo. The appellants main contention is that he has not played any key role in the smuggling of red sanders which has taken place after sealing of the customs cargo by the customs officer and during transit from CFS to port.

It was further contended that as per the shipping documents the export goods were duly presented for examination and the goods were examined by Customs and loaded in the container and the cargo was sealed by Customs. Therefore, he has not committed any omission or commission in so far as the declared cargo i.e. Natural Slate Stones is concerned. The adjudicating authority has clearly discussed the modus operandi and held that persons who masterminded the entire operation are Shri Chitti Raja and K.Shanmugam in connivance with Bhaskaran. As seen from the impugned order at para 34.1 & 34.2, the only allegation made against appellant was that the CHA signed the shipping documents for the third party CHA. The adjudicating authority also relied CHALR Regulations 2004 for the conduct of the CHA for which separate proceedings already initiated against the appellant under CHALR. The adjudicating authority stated that appellant by omission had abetted and rendered the goods liable for confiscation. But for this finding no other evidence is on record to establish the active collusion by the appellant with the main persons involved in the smuggling of the red sanders.

In this regard, the Honble High Court of Madras in the case of CC (Exports) Chennai Vs I. Sahaya Edin Prabhu Patriot Freight Logistics Systems reported in 2015 (1) TMI 1032 = 2015-TIOL-212-HC-MAD-CUS on an identical issue of smuggling of red sanders case, upheld this Tribunals order setting aside penalty on CHA and the Revenue's appeal was rejected. The relevant paragraphs 4 to 7 are reproduced as under:- "4. The main plea of the learned Standing Counsel appearing for the department is that the first respondent, while acting as Customs House Agent, has not verified the authenticity of the documents and by such act of negligence, has abetted and aided in the smuggling of the red sander wooden logs, which are prohibited for export, and, therefore, the penalty imposed under Section 114(i) of the Customs Act is justified. 5. The role played by the first respondent, even as per the finding of the Original Authority, is as under: "51. I find that the custom house agent has not discharged his duty in the normal course of his service. He signed the customs document given by some Shri S.S.Sivakumar for monetary considerations, which paved the way for unauthorized persons access to the customs clearing formalities and enabled unscrupulous persons in facilitating the smuggling of prohibited goods."

6. With regard to the above said finding of the Original Authority, the Tribunal, in the order under challenge, held as under: "4. I find that apart from a vague allegation in para 51 of the impugned order (supra) that the appellant had failed to discharge his functions as a CHA, in the entire order, there is no finding of a positive role of the appellant in the attempt to smuggle out red sanderwood logs or the manner in which he abetted the attempt. For failure to discharge functions as a CHA, penalties are provided in the Custom House Agents' Licensing Regulations. In the absence of any finding showing that the appellant had abetted the failed effort to smuggle out prohibited red sanderwood logs, I find that penalty imposed on the appellant under Section 114(i) is not sustainable. Accordingly, the appeal filed by Shri I.Sahaya Edin Prabhu is allowed." 7. The Tribunal has rendered a categoric finding that there is no finding of a positive role of the first respondent in the attempt to smuggle out red sander wooden logs. Even in the order of the Original Authority, it is held that the custom house agent has not discharged his duty in the normal course of his service.

As rightly observed by the Tribunal, for failure to discharge functions as a Custom House Agent, penalties are provided in the Customs House Agents Licensing Regulations. Therefore, imposition of penalty under Section 114(i) of the Customs Act is unwarranted. We, therefore, find no reason to differ with the finding of the Tribunal. In such view of the matter, this appeal is dismissed finding no question of law arising for consideration. No costs."

11.1. The ratio of the above Honble High Courts order is squarely applicable to the present case as in the present case, the charges levelled against the CHA is that he has failed to discharge the functions as a CHA and no other evidences have been brought out by the adjudicating authority to establish the role of the appellant in the attempt of smuggling of red sanders. By respectfully following the Honble High Courts decision (supra), I hold that penalty imposed on the appellant under Section 114 of the Customs Act is not sustainable. Impugned order in respect of this appellant is set aside. Accordingly, Appeal No.C/12/2009 is allowed.

Appeal No. C/26/2009 filed by Sanco Trans Ltd.

12. In this appeal, appellant was imposed with penalty of Rs.5 lakhs under Section 114 of the Act. The appellants only contention is that appellant being a CFS is only the custodian of the cargo they are not liable for penalty as the containers were duly sealed by the Customs and replacement of the declared cargo with red sanders taken place outside the CFS after removal from CFS and while transporting the sealed container to the gateway port. I find that adjudicating authority dealt the issue in detail in paras 35.1 to 35.6 of impugned order and elaborately discussed the role of CFS as custodian and their obligations. For ease of convenience, para 35.3 of the impugned order is reproduced as under :-

"35.3 The position that a custodian of a CFS is responsible for the sale transport of export goods from its premises to Gateway Port is, in fact, supported by M/s.Sanco Trans Limited's own letter No.CFS/325/07 dated 30-01-2008 whereby they reconfirmed their legal responsibility for safe transport of the export goods from the CFS to the Gateway Port in terms of the custodian Bond executed by them. Conditions 3, 4 and 8 of the said Bond executed by M/s.Sanco Trans Limited with the Customs authorities are relevant to the present proceedings and are reproduced below for sake of clarity:

"3. If the custodian transport the respective consignment of such export goods as are allowed by the Commissioner of Customs, Chennai in this regard from Sanco CFS, Chennai directly to the Port of Chennai, by road.

4. If the custodian furnished documentary evidence to the satisfaction of the Commissioner of Customs. Chennai within one day from the date of dispatch of the settled containers containing export goods from Sanco CFS, Chennai to Port Chennai or within such extended time as the Commissioner of Customs, Chennai may allow that the export goods to be exported through sealed containers have reached the gateway port in full. ......

8. The liability of this bond shall also cover safety and security of the cargo being transshipped by Sanco CFS from Chennai Port to their CFS and vice versa in their capacity as carrier and custodian. Then the above written bond shall be void and of no effect, otherwise the same shall remain in full force and virtue."

Therefore, the finding is that in terms of CBEC Circular(s) and Chennai Custom House Public Notice(s) and the Bond furnished by them M/s, Sanco Trans Limited has undertaken the responsibility of safe transport of export containers from its premises to the Port. Hence, the defense put forward by Mk. Sanco Trans Limited that it is not responsible for the safe transport of the 'export good's merits rejection."

13. It is pertinent to state that the appellant was appointed by the Govt as a Container Freight Station (CFS) in terms of provisions of Customs Act read with public notice issued by the Customs. It is abundantly clear that being a CFS as custodian they are responsible for the receipt, storage and clearance of import and export cargo in their CFS and equally responsible for safety and security of the cargo transshipped from CFS to the gateway port. It is one of the main conditions of appointing the appellant as custodian CFS which is evident as per the bond executed by the appellant before Customs. In the impugned order, it is clearly brought out that as per conditions 3, 4 and 8 of the bond as recorded in para 35.3 of the order it is evident that the appellant being CFS and custodian of cargo is responsible for security of cargo and safe transport of the export container from their premises to gateway port. It is established beyond doubt that the sealed containers were tampered in transit and the goods were replaced with Red Sanders before the container reached the gateway port. Their contention that they are not responsible for change of cargo after exit from CFS is not justified and not acceptable.

As per the terms and conditions of Custom House Public Notice No.5/2002 dt. 8.1.2002, it is clearly stipulated that the custodian (CFS) is responsible for any loss/damage/pilferage of cargo/container so moved. Therefore, they cannot plead ignorance. The CFS being custodian of cargo, he is responsible till delivery of the containers to the port. It is pertinent to state that the Govt. has entrusted the work of handling of cargo to a CFS only with a faith that Custodian will perform his duties diligently and in a dedicated manner. Prior to the concept of CFS entire operations of cargo clearance were done only at the port itself which is handled by Port Trust Authority appointed under Port Trust Act. Therefore, it is evident from the above discussions that being custodian of the cargo as CFS, the appellant had failed from their primary responsibility entrusted with them for safe transport of the sealed container to the gateway port. Appellants another contention that penalty cannot be imposed on the appellant under Section 114 as no mens rea has been established by the department is not acceptable and not tenable.

The appellant relied on the High Court decision which is related to CHA. The role of CFS as custodian of cargo cannot be equated with the role of Custom House Agent and the CFS obligations and roles are entirely different from the role of CHA. Therefore, the decision relied by the appellant are not relevant to the facts of the appellant's case and the facts are distinguishable. In this regard, I rely on Honble Madras High Courts order in CC Vs Bansal Industries (supra) relied upon by Revenue wherein the Honble High Court allowed the Revenues appeal by relying on Honble Supreme Courts decision in the case of Chairman, SEBI Vs Sri Ram Mutual Fund [2006 (5) SCC 361 held that for physical loss, no mens rea is required. The relevant paras 6 to 8 of the Hon'ble High Court's judgement are produced below :-

"6.?We have gone through the order of the Tribunal. It is true that the Tribunal has recorded a finding of fact that it is inclined to accept the reasons given by the assessee that it was the supplier who by mistake loaded tin sheets waste which were not ordered by the assessee and that the Revenue has not shown that there was any flow back of funds for the purpose of tin sheets waste. However, a perusal of the order impugned shows that the Tribunal proceeded on the basis that the assessee had no intention to evade duty. We are deliberately quoting the order of the Tribunal in the following words :

.... the Revenue has not shown that appellant had wilfully suppressed the facts and had mis-declared the goods with intention to evade duty and the fact that he had consciously committed the act of misdeclaration...

7.?It is oft-repeatedly held that mens rea is not an essential ingredient for contravention of the provisions of a civil law. The Apex Court recently in Chairman, SEBI v. Shriram Mutual Fund [(2006) 5 SCC 361] held as under :-

Mens rea is not an essential ingredient for contravention of the provisions of a civil Act. Unless the language of the statute indicates the need to establish the element of mesn rea, it is generally sufficient to prove that a default in complying with the statute has occurred and it is wholly unnecessary to ascertain whether such a violation was intentional or not. The breach of a civil obligation which attracts a penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not.

8.?Applying the above ratio to the facts of the case, we find that though the Tribunal has recorded a finding of fact that it was the supplier who by mistake loaded tin sheets waste which were not ordered by the assessee, the Tribunal rendered its decision on the basis that the Revenue has not shown that the assessee had wilfully suppressed the facts and had misdeclared the goods with intention to evade duty. The order of the Tribunal mainly proceeded on the footing of intention of the assessee to evade duty, which, in our view, is not correct in the matter of breach of a civil obligation attracting levy of penalty. Therefore, the order of the Tribunal is liable to be set aside."

The ratio of above judgement is squarely applicable to the present case.

13.1 Further that Honble Supreme Court in the case of Pine Chemical Suppliers Vs CC (supra) has held that in para 10 & 11 the question of mens rea is not relevant for liability to confiscation and penalty and the adjudicating authority has clearly relied the Apex Court's decision in this case. Therefore, by respectfully applying the ratio of judgements of Honble High Court and Apex court (supra), I hold that appellant failed to deliver the sealed container from their CFs safely to the gateway port. Therefore, the adjudicating authority had rightly imposed penalty under Section 114 of the Customs Act. However, taking into overall facts and circumstances of the case, the penalty imposed on the appellant is reduced from Rs.5 lakhs to Rs.2,50,000/- (Rupees Two lakhs fifty thousand only). The impugned order in respect of this appellant is modified to this extent. Accordingly, appeal No.C/26/2009 is partially allowed by reduction in penalty as above.

14. In view of above discussion and findings, the appeal No.C/12/2009 is allowed. Appeal No.C/26/2009 is partially allowed.

The appeals are disposed in the above terms.

(Pronounced in open court on 15.6.2015)

(R. PERIASAMI) TECHNICAL MEMBER

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