Sanchayita Lahkar

The High Court of Karnataka, Division Bench of Justice S.G. Pandit and Justice K.V. Aravind partly allowed the Revenue’s appeal, holding that the presence of mens rea is not necessary for the imposition of penalty under Section 117 of the Customs Act, 1962, which governs penalties for contraventions not expressly provided elsewhere in the Act. The Court restored penalties imposed on an authorized courier under Section 117 and Regulation 14 of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010, while maintaining that revocation of the courier licence was disproportionate since the importer’s ownership of the goods had been accepted and the duty duly paid.

The case originated from proceedings against M/s Pigeon International, a licensed authorised courier operating at the International Courier Terminal, Devanahalli, Bengaluru, governed by the Courier Imports and Exports (Clearance) Regulations, 1998 and the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010. The Customs Department’s intelligence unit launched an inquiry upon receiving specific information about irregular imports made in the name of M/s K.T. Technologies. During investigation, it emerged that one of the respondent’s employees, Sri M. Elias, had fraudulently created a GST Identification Number (GSTIN) in the name of Ms. Kajal Thakur and used it to file courier bills of entry for consignments purportedly imported by M/s K.T. Technologies. In her recorded statement, Ms. Thakur disowned the transactions, asserting that her documents were misused without her knowledge or consent.

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Upon further investigation, Sri Elias admitted to fabricating the GSTIN and filing bills of entry without Ms. Thakur’s knowledge. Consequently, the Principal Commissioner of Customs issued a show-cause notice to M/s Pigeon International, alleging contravention of the 2010 Regulations and the Customs Act, 1962. The order-in-original, dated 27 September 2023, revoked the company’s authorised courier licence, enforced the bank guarantee, and imposed penalties of Rs. 50,000 each under Regulation 14 of the 2010 Regulations and Section 117 of the Customs Act, 1962.

M/s Pigeon International challenged the order before the CESTAT, which modified the penalty under Regulation 14 to Rs. 25,000, set aside the penalty under Section 117, and quashed the revocation of the licence. The Revenue then appealed to the High Court under Section 130 of the Customs Act, 1962. The Court admitted the matter to decide whether the respondent was liable for penalties under Section 117 and Regulation 14, whether CESTAT could interfere with the bank guarantee enforcement, and whether the Tribunal could reduce statutory penalties on equitable grounds.

The Revenue argued that the CESTAT erred in removing penalties and revocation despite recording violations of Regulation 12 of the 2010 Regulations. Counsel for the appellant contended that once a contravention was established, the imposition of penalties under both Regulation 14 and Section 117 was justified, citing Commissioner of Customs v. K.M. Ganatra & Co. (2016) 4 SCC 687, where the Supreme Court held that contravention of licensing conditions amounts to serious misconduct. Conversely, counsel for M/s Pigeon International submitted that the violations were limited to the acts of an employee and that revocation of the licence was disproportionate, particularly as the department had released the seized goods after accepting the importer’s claim and payment of duties and fines.

Justice K.V. Aravind stated that the CESTAT erred in holding that “the presence of mens rea is a prerequisite for imposing penalty under Section 117 of the Customs Act, 1962.” The Court clarified that “a plain reading of Section 117 makes it clear that whenever any person contravenes any provision of the Act or fails to comply therewith, a penalty is attracted. Reading a requirement of mens rea into the provision would amount to rewriting the statute, which is impermissible.”

The Court further recorded that the CESTAT had already found M/s Pigeon International in violation of Regulation 12 of the 2010 Regulations, and that finding had not been challenged by the respondent. Therefore, the violation stood established. However, the Bench examined whether the revocation of the licence was warranted, given that the ownership of the disputed goods was later accepted by Ms. Kajal Thakur, who paid duty and penalty, leading to their release. Justice Aravind noted that “by such action, the very basis of the show-cause notice and the proceedings against the respondent ceases to subsist.”

The judgment recorded: “While the contention that the misdeeds of an employee cannot form a basis for revocation may not, in itself, be a wholly sound ground for acceptance, in the absence of any comparable antecedents, the revocation would have a serious impact on the business rights of the respondent.”

It observed that “suspension and revocation are distinct concepts. In the present case, revocation of the authorised courier’s registration would be arbitrary, particularly in light of the subsequent conduct of the Revenue in accepting the ownership of the alleged goods and releasing the same upon payment of duty and penalty.”

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Addressing the penalty under Section 117 of the Customs Act, the Court disagreed with CESTAT’s reasoning that such a penalty could only be imposed when no specific provision existed elsewhere. The Bench held that the penalties under Section 117 and Regulation 14 “operate in different domains.” Quoting the Bombay High Court’s judgement in Container Corporation of India Ltd. v. Commissioner of Customs, Nhava Sheva (Customs Appeal (L.) No. 33496/2023), the Court noted that “Section 117 of the Customs Act is an independent provision inter alia dealing with the contravention of the provisions of the Act.”

The Court  ordered that “the order of the CESTAT is set aside to the extent stated above.” It affirmed that “the penalty of Rs. 50,000/- under Regulation 14 of the 2010 Regulations and the penalty of Rs. 50,000/- under Section 117 of the Customs Act, 1962, as originally imposed by the appellant, are restored.” The Court also clarified that “substantial questions of law Nos.1 and 3 are answered in favour of the appellant and against the respondent.” However, the Court noted that the second substantial question of law, concerning interference with the bank guarantee, did not arise from the CESTAT’s order and therefore was not answered.

Advocates Representing the Parties:
For the Appellant: Sri Unnikrishnan M., Advocate.
For the Respondent: Smt. Maya Menon, Advocate.

Case Title: Principal Commissioner of Customs, Bengaluru v. M/s Pigeon International
Case Number: CSTA No. 7 of 2024
Bench: Justice S.G. Pandit and Justice K.V. Aravind