Provisions of penalties and offences are quite similar to Excise Law. Like Excise, Customs Law envisages two types of punishments i.e. (a) Civil Liability : Penalty for violation of statutory provisions involving a penalty of money and confiscation of goods. (b) Criminal Liability : Criminal punishment is of imprisonment and fine; which can be granted only in a criminal court after prosecution. Both penalty and punishment can be imposed for same offence.
Penalties are imposed on any person who, in relation to any goods, does or omits to do an act which renders such goods liable for confiscation. Hence, it is necessary to first understand what are goods liable for confiscation. Broadly, goods are liable for confiscation in case of improperly importing goods or improperly attempting to export goods. Section 111 provides goods liable for confiscation for improper imports while section 113 contains details of goods liable for confiscation for attempt of improper export.
Smuggling - Smuggling, in relation to any goods, means any act or omission which will render such goods liable for confiscation under section 111 or 113. [section 2(39)].
Thus, * improper importation * attempting improper importation or * attempting improper export will amount to ‘smuggling’. Thus, ‘smuggling’ is much broader term than we normally understand. Since ‘smuggling’ has been specifically defined, normal or dictionary meaning is not applicable. - N K Bapna v. UOI - 1992 (60) ELT 13 (SC) = (1992) 75 Comp. Cas. 745 (SC).
Improper imports - As per section 111, goods improperly brought in Indiafrom a place outside India are liable to confiscation. In brief, importing or attempting to import prohibited goods, avoiding duty payment, mis-declaring goods or violating rules regarding movement, storage, unloading or use of imported goods will make them liable for confiscation under section 111. This is covered in the definition of ‘smuggling’.
PROHIBITED GOODS - Section 2(33) of Customs Act defines - 'prohibited goods means any goods the import or export of which is prohibited under Customs Act or any other law for the time being in force, but does not include any such goods in respect of which the conditions subject to which the goods are permitted to be imported or exported have been complied with.
Improper exports - As per section 113, ‘goods attempted to be improperly exported’ are liable to confiscation. In brief, attempting to export goods in violation of law, mis-declaring goods, export under false claim of duty drawback or violating rules regarding movement, storage or loading of export goods will make them liable for confiscation under section 113. This is all covered in the definition of ‘smuggling’.
NON-DUTIABLE AND NON-PROHIBTED GOODS CAN ALSO BE CONFISCATED – Section 113 earlier provided for confiscation only in case of ‘dutiable or prohibited’ goods. Now these words have been deleted w.e.f. 14-5-2003. Hence, attempt to export any goods illegally or mis-declaring any goods (whether dutiable or prohibited or not) shall be liable to confiscation.
Over Invoicing / mis-declaration for export - Some times, exports are made at inflated prices to avail export benefits.
In Om Prakash Bhatia v. CC 2001(127) ELT 81 (CEGAT 5 member bench), it was held that over invoicing for export is an offence under Customs Act. [Appeal of importer admitted by SC, but no stay. – (2002) 141 ELT A278].
Persons who can be penalised - Customs authorities are empowered to impose (a) monetary penalty (b) confiscation of goods, conveyance etc. These are separately provided as, if, the smuggled goods are abandoned, smuggler may not be traceable. In such cases, it is not possible to impose penalty, but goods can be confiscated. Penalty can be imposed for improper import as well as attempt to improperly export.
PENALTY FOR IMPROPER IMPORT - Section 112 of Customs Act provide that penalty can be imposed on any person : (a) who does or omits to do any act which act or omission would render such goods liable for confiscation under section 111 of Customs Act or who abets in doing or omission of such act (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.
Liability of Ship Owner/Airlines - If goods are unloaded without including in ‘Import manifest’ or loaded without entering in ‘export manifest’, the shipper is liable. The ‘mens rea’ is not relevant. Thus, when five packages were sent to New York without entering in ‘Export manifest’, penalty was imposed on ‘Air India’.
Monetary Penalty in Customs - The Customs Act provides for following monetary penalties.
IMPROPER IMPORTS - Section 112 provides penalties for improper imports : (i) Not exceeding the value of goods or Rs 5,000 whichever is greater, if these are prohibited for imports under Customs Act or any other law (ii) Not exceeding the duty sought to be evaded in case of dutiable goods, which are not prohibited goods or Rs 5,000 whichever is greater (iii) If actual value is higher than the value declared in Bill of Entry or declaration of contents of baggage, not exceeding the difference in actual value and declared value or Rs 5,000 whichever is greater (iv) If the goods are prohibited and the value is mis-declared, penalty not exceeding the value of goods or the difference between actual value and declared value, or Rs 5,000, whichever is higher. (v) If the goods are not prohibited but duty is sought to be evaded and the value is mis-declared, penalty not exceeding the duty sought to be evaded orthe difference between actual value and declared value, or Rs 5,000whichever is higher.
In each case, minimum penalty is Rs. 5,000/-.
ATTEMPT TO IMPROPERLY EXPORT - Section 114 provides for penalty for attempt to improper export (i) If goods are prohibited for export under any law, not exceeding the value of goods or Rs 5,000 whichever is higher (ii) if goods are liable to export duty but not prohibited goods, penalty not exceeding duty sought to be evaded or Rs 5,000 whichever is higher (iii) In case of other goods, penalty not exceeding the value of goods, as declared by exporter, or as value determined under Customs Act, whichever is greater.
The last clause i.e. (iii) is amended w.e.f. 14-5-2003, to cover cases where export value is inflated. The export value is inflated, so that exporter is entitled to higher export benefits. [The excess amount collected in invoice is sent back through havala]. - - In case of (i) or (ii), minimum penalty is Rs. 5,000.
RESIDUAL PENALTY - Section 117 of Customs Act provide general penalty to a person who contravenes any provision of the Act or abets in contravention and if no penalty has been prescribed, the penalty would be upto Rs. 10,000.
PENALTY IS MANDATORY - Sections 112, 114 and 117 use the words 'shall be liable to penalty'. In Indo-China Steam Navigation v. Jasjit Singh1983(13) ELT 1392 = 1984 ECR 467 (SC), it was held that if the word used is 'shall', some penalty must be imposed, though amount can be lower if there are extenuating circumstances. - followed in CC v. Swastik Woollen Mills - 1999(112) ELT 156 (CEGAT).
Procedure for imposing penalty - Section 124 of Customs Act provide that before imposing a penalty, show cause notice must be issued to the person, informing grounds for confiscation and he should be given opportunity to make representation and being heard. Such notice and representation can be oral at the request of the person concerned. [This provision has been made to speed up the clearing process].
Penalty for short landing - If the goods were loaded for importation in India, but they were not unloaded in India - partly or fully - the Shipping Agent must explain the reason for deficiency. If it is not satisfactorily explained, Assistant Commissioner can impose penalty upto twice the amount of duty normally payable on the imported goods, under section 116. The penalty is payable by the 'person in charge of conveyance' i.e. carrier of goods. This provision is to make sure that carrier unloads goods at authorised places only and that there is no smuggling with connivance of the carrier.
Confiscation of Goods
In addition to penalty on the person liable, some goods can be confiscated. ‘Confiscation’ means the goods become property of Government and Government can deal with it as it wants. On the other hand ‘seizure’ means goods are in custody of Government, but the property of goods remains with the owner.
Goods that can be confiscated - Goods improperly imported - (Goods liable for confiscation under section 111 of Customs Act) and goods attempted to be improperly exported (Goods liable for confiscation under section 113 Customs Act) can be confiscated. In addition, following can be confiscated - * conveyance for transport of smuggled goods * packages * Goods used for concealing * sale proceeds of contravening goods. The proceedings of confiscation are in rem against goods. Procedure for confiscation, effect of wrong confiscation and provisions of redemption fine in lieu of confiscation are identical to provisions under Central Excise Act. These aspects are already discussed under Central Excise.
Confiscation of goods after clearance from port - It is permissible to take action under section 28 of Customs Act and confiscate the goods, even after goods are cleared from customs. This can be done by issuing a show cause notice cum demand.
Re-export of offending goods
Often it is found that goods are not eligible for import as per Import Policy. In such cases, re-export of such goods is permitted as per EXIM Policy. However, in such cases, penalty and redemption fine is payable. In CC v.Elephanta Oil 2003(152) ELT 257 (SC), it was held that even if goods are confiscated and goods are allowed to be re-exported, penalty can be levied. Power to levy penalty u/s 112 is different from power of confiscation of goods u/s 125 and giving option to pay fine in lieu of confiscation.
Permission for re-export in such cases may be given - Collector v. N Patel - 1992 (62) ELT 674 (GOI). In Kusumbhai Dahyabhai Patel v. CC (P) - 1995 (79) ELT 292 (CEGAT) also, it was held that even if goods are allowed to be re-exported, redemption fine can be imposed. In K&K Gems v. CC 1998(100) ELT 70 (CEGAT), it was held that fine in lieu of confiscation i.e. redemption option can be imposed.
Re-export by foreign exporter or sale to another buyer - If the Indian importer does not release the goods, the foreign exporter continues to be owner of the goods and can apply for re-export or sale to other eligible buyer in India if (a) At the time of importation, the import was legal (b) The foreign exporter was not party to fraud (c) The Indian importer has not paid for the goods or has not made arrangements for payment of goods (like letter of credit) to foreign exporter- UOI v. Sampat Raj Dugar - 1992 (58) ELT 163 (SC) = (1993) 88 STC 176 = AIR 1992 SC 1417 = JT 1992 (1) SC 554 = (1992) 2 SCC 66 = 1992 AIR SCW 1420 (SC - 3 member bench) - followed in Savitri Electronics Co. v. CC - 1992 (62) ELT 395 (CEGAT) * J P Electronics v. UOI 2001(133) ELT 32 = 45 RLT 609 (Bom HC DB) * Grand Prime v. CC 2001(137) ELT 795 (CEGAT) * Pacific International Traders v.UOI 2002(142) ELT 544 (Bom HC DB).
Departmental Adjudication
Monetary penalties and confiscation can be ordered by departmental authorities themselves. These are ‘quasi-judicial’ powers. The powers are as follows : (a) Gazetted officer lower in rank than Assistant Commissioner (like Appraiser) : when the goods liable to confiscation does not exceed Rs. 10,000 (b) Assistant Commissioner / Dy Commissioner : when the goods liable to confiscation does not exceed Rs. 2,00,000 (c) Additional Commissioner or Joint Commissioner : Rs. 10 lakhs - as per Board circular(d) Additional Commissioner or Joint Commissioner : without limit in cases of baggage and duty drawback (e) Commissioner : without limit. - - All notices pertaining to demands on account of collusion, wilful mis-statement or suppression of facts will be issued only by Commissioner if demand is over Rs 5 lakhs, even if demand is issued within six months/one year. In case of demand upto Rs 5 lakhs, show cause notice for collusion, fraud, mis-statement etc. can be issued by Additional Commissioner / Jt Commissioner. [CBE&C circular No 47/97-Cus dated 6.10.97]
It may be noted that as per section 122 of Customs Act, Additional Commissioner or Joint Commissioner is authorised to adjudicate the cases without any limit of amount. Restriction of Rs. 10 lakhs is only by an administrative instructions. Further, as per section 28 (1) of Customs Act, show cause notice can be issued by ‘proper officer’ i.e. an officer of customs who is assigned the functions to be performed under Customs Act, by Board or Commissioner of Customs. (Chief Commissioner, Commissioner, Additional Commissioner, Joint Commissioner, Deputy Commissioner, Assistant Commissioner and Appraiser are all ‘officers of Custom’ and hence authority can be given to them by Board).
ADJUDICATING POWERS TO CUSTOMS / EXCISE OFFICERS IN SOME FEMA MATTERS – In respect of following offences, adjudication powers have been conferred on customs /excise officers. – (a) Offenses u/s 6(3)(g) of FEMA. This section related restrictions / prohibitions on export, import or holding of currency or currency notes (2) Offenses u/s 7(1)(a) of FEMA. This section relates to furnishing of export value of goods exported. The adjudication powers are as under – (a) Commissioner of Customs / CE – Cases where amount involved exceeds Rs one crore (b) Additional Commissioner of Customs / CE – When amount involved in between Rs 75 lakhs and Rs one crore (c) Joint commissioner of Customs / CE – When the amount involved is less than Rs 75 lakhs. – MF(DR) Order SO No. 1155(E) dated 5.1.2001.
Opinion of other departments - As per EXIM policy, In case of interpretation of EXIM policy, decision of Director General of Foreign Trade (DGFT) is final. Hence, the decision of DGFT in this regard is binding on customs authorities - R N Rajan and Co. v. CC 1995 (77) ELT 600 (CEGAT). Similarly, license issued by DGFT cannot be questioned by customs authorities. [case law discussed in earlier chapter].
Prosecution for Offences
Customs Law provides stiff punishments of imprisonment and fines for violation of Customs Act. These can be imposed only by Court of Law and these are independent of monetary penalties and confiscation of goods that can be ordered by Customs Authorities through departmental adjudication. Hon. Supreme Court have held that both can be imposed simultaneously for same offence.
Evasion of Duty and prohibited goods - Main penal provision contained in section 135 of Customs Act is in respect of evasion of duty and breaking prohibitions under the Act.
WHO CAN BE PUNISHED - The punishment is imposable on a person (a) who is knowingly concerned in mis-declaration of value or in any fraudulent evasion or attempt to evasion of duty or of any prohibition imposed on the imports/export of such goods (b) who acquires possession or is any way concerned with carrying, harbouring, keeping, concealing, selling or purchasing, or otherwise dealing with goods which he knows or has reason to believe are liable to confiscation under section 111 i.e. improper imports or under section 113 i.e. attempt to improperly export (c) who attempts to export any goods which he knows or has reason to believe are liable to confiscation u/s 113. [section 135(1)]
PUNISHMENT THAT CAN BE IMPOSED - Punishment imposable is (a)Goods under section 123 : In case of goods covered under section 123 ( i.e. gold, watches, synthetic yarn and metallised yarn, fabrics of synthetic yarn, electronic calculators, zip fasteners and silver bullion) : imprisonment upto seven years and fine (without limit) except in exceptional cases, the imprisonment cannot be less than three years (b) In other cases : three years or with fine or both [second part of section 135(1)] (c) repeat conviction : a person already convicted for offence under Customs Act is convicted again, the imprisonment punishment can be seven years and fine and in absence of special and adequate reasons, the punishment shall not be less than one year. [section 135(2)]
PUBLICATION OF NAME - If a person is convicted under this Act, Court can order publication of names, place of business or residence, nature of contravention etc., under section 135B. Such publication will be at the cost of accused and in newspaper or otherwise as directed by Court.
Other minor Offences - Other minor offences under Customs Act are as follows.
FALSE DECLARATION - Person making, signing or using any statement, declaration or document knowing or having reason to believe that such statement, declaration or document is false in any material particular, shall be punishable with imprisonment upto six months or fine or both (section 132 of Customs Act).
OBSTRUCTION OF OFFICERS OF CUSTOMS - If any person intentionally obstructs any officer of Customs in exercise of any powers conferred under the Customs Act, he shall be punishable with imprisonment upto six months or fine or both (section 133 of Customs Act).
REFUSAL TO BE X-RAYED - If any person refuses to take X-ray picture of his body in accordance with order of Magistrate or refuses to allow suitable action to be taken to bringing out goods from his body under supervision of a doctor, he shall be punishable with imprisonment upto six months or fine or both (section 134 of Customs Act). This provision is mainly in respect of persons smuggling goods by hiding the same in their body.
PREPARATION FOR IMPROPER EXPORT - Attempting to make exports in contravention of Customs Act is punishable with imprisonment upto three years or fine or both.
Offence in case of Company - Though Company is an independent legal person, it works through Managing Directors, directors and employees. Personal penalty can be imposed on person in-charge or responsible to pay customs duty. If an employee is involved in fraud, penalty can be imposed on him. In case of Company or partnership firm, every person who was in-charge of or was responsible to affairs of the Company/firm is deemed to be guilty [section 140 (1) of Customs Act]. Normally, a Managing Director (partner in case of firm) or other person specially authorised is deemed to be in-charge. However, such person can prove that offence was committed without his knowledge or he had taken due care to prevent the offence. In addition, if it is proved that the offence in relation to Company is committed with consent or connivance of, or due to neglect on part of any director, Manager or Secretary or other officer of Company, such person shall be deemed to be guilty [section 140 (2) of Customs Act]. Difference between provisions of section 140 (1) and 140 (2) is that in former case, the person in charge is deemed to be guilty and burden of proof is on him to prove that he had no knowledge; while in later case, burden of proof is on prosecution to prove that offence was committed with knowledge or connivance of the director, manager, secretary or other officer.
Offence by Officers of Customs - If an Officer of Customs enters into any agreement to do or abstains from doing or permits any act or connives at any act or thing, whereby any fraudulent export is effected, or by which duty of customs is evaded or prohibited goods are allowed to enter India or go out of India, he shall be punishable with imprisonment upto a term of three years or with fine, or both. [section 136(1)].
If any customs officer (a) requires a person to be searched for goods without any reason to believe that he has such goods (b) Arrests a person without any reason to believe that he has committed an offence u/s 135 or (c) Searches or authorises search without any reason to believe that any goods, documents or things are secreted in the place; he shall be punishable with imprisonment upto 6 months or fine upto Rs 1,000 or both. [section 136(2)].
If an officer of customs discloses any information obtained by him in official capacity, he shall be punishable with imprisonment upto 6 months or fine upto Rs 1,000 or both. Of course, he can disclose the information in discharge of his duties on in compliance with any law in force. [section 136(3)].
The prosecution can be launched in Court only with previous sanction of Central Government in case of prosecution against officer of rank of Assistant Commissioner and above. In lower ranks, previous sanction of Commissioner is required. [section 137(2)]
Proof in Customs Law
Burden of Proof of Offence is on Department - In Customs law, the commitment of offence has to be proved by department beyond reasonable doubt. However, the accused has to prove beyond reasonable doubt that there was no culpable state of mind like intention, knowledge, belief etc. In case of goods covered under section 123, burden of proof is on person from whom goods are seized as explained below.
MENS REA PRESUMED - Section 138A of Customs Act provides that ‘mens rea’ shall be presumed by Court ‘burden of proof regarding non-existence ofMens rea is on the accused’. This proof has to be ‘beyond reasonable doubt’. Thus, department has to prove the offence beyond reasonable doubt. However, the accused has to prove that he had no ‘culpable state of mind’. - validity of this provision upheld in Devchand Kalyan Tandel v. State of Gujarat 1997(89) ELT 433 (SC) = AIR 1996 SC 2787.
Burden of proof in case of goods covered under section 123 - Section 123 of Customs Act makes special provisions in respect of certain sensitive goods like Gold, Synthetic yarn and metallised yarn, fabrics made of synthetic yarn, Electronic calculators, watches, watch movements, zip fasteners and Silver bullion. In case of these items, if these are seized in the reasonable belief that they are smuggled goods, the owner or possessor has to prove that these are not smuggled goods. In other words, ‘burden of proof’ that these are not smuggled is on accused. Validity of this section (section 178A of earlier Act) has been upheld in CC v. Nathella Sampathu Chetty AIR 1962 SC 316 = 110 ELT 157 (SC 5 member bench).
Statement before Customs is relevant as evidence - Statement made and signed before any Customs Officer of gazetted rank is allowed as evidence in the prosecution as follows : (a) in case of a person who is dead or if he cannot be found or whose presence cannot be obtained without undue delay or expenses, the statement will be allowed as evidence (b) In case of person who is present before the Court and is examined as witness, Court mayadmit the statement if it is of the opinion that the statement should be admitted in the interest of justice. Thus, discretion is given to Court in case of statements made before Customs Officer, only if such person is examined as witness. This provision is applicable to departmental adjudication also. –section 138.
Question of relevancy of statement made before customs officer, retraction of statement etc. has been discussed in relevant chapter in Central Excise.
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