Penalty Under Section 114A Customs Act Disentitles Applicant From Private Warehouse Licence Even Without Criminal Conviction: CESTAT Allahabad
Pranav B Prem
The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has dismissed the appeals filed by Bhagwati Products Ltd., upholding the Customs Department’s decision to reject its applications for grant of a private warehouse licence under Section 58 of the Customs Act, 1962 and permission to carry out manufacturing and other operations under Section 65. The Tribunal held that imposition of penalty under Section 114A of the Customs Act amounts to being “penalised for an offence” within the meaning of Regulation 3(2)(c) of the Private Warehousing Licensing Regulations, 2016 (PWLR), thereby disentitling the applicant from grant of licence, even in the absence of criminal prosecution or conviction under Chapter XVI of the Act.
The Bench comprising S.K. Mohanty, Judicial Member, and Sanjiv Srivastava, Technical Member, was hearing two appeals arising out of orders passed by the Commissioner (Appeals), Customs, Noida, which had rejected Bhagwati Products’ applications for private warehouse licences at its Greater Noida facilities. The applications, filed in December 2024, were made for undertaking manufacture of mobile phones under the Manufacture and Other Operations in Warehouse Regulations (MOOWR) scheme.
During scrutiny of the applications, the Customs authorities noted that Bhagwati Products had earlier been subjected to a substantial penalty under the Customs Act. An order-in-original dated October 4, 2017 had confirmed a customs duty demand of over ₹4.45 crore and imposed an equal penalty under Section 114A of the Act for violation of the conditions of a concessional duty notification. The said penalty had been upheld by the Tribunal in 2018, and the assessee’s appeal against that order was pending before the Supreme Court.
Relying on Regulation 3(2)(c) of the PWLR, which bars issuance of a private warehouse licence to an applicant who has been “penalised for an offence” under the Customs Act, the Department rejected the applications. The assessee challenged this decision, contending that the penalty imposed on it was only for a civil contravention and not for a criminal offence under Chapter XVI of the Customs Act. It was argued that unless there was a criminal prosecution and conviction, the bar under Regulation 3(2)(c) would not apply.
The Tribunal rejected this contention and held that the expression “penalised for an offence” in Regulation 3(2)(c) cannot be narrowly construed to mean only criminal offences resulting in conviction. It observed that the Customs Act contemplates two categories of offences—customs offences dealt with through adjudication and penalties, and criminal offences tried by criminal courts. Referring to binding Supreme Court jurisprudence, the Bench noted that penalties imposed under the Customs Act are also punishments for offences, even when they arise from adjudication proceedings and not from criminal prosecution.
The Bench held that once a penalty imposed under Section 114A has been upheld by the Tribunal, which is the final fact-finding authority, the assessee cannot claim that it has not been “penalised for an offence” merely because an appeal is pending before the Supreme Court. Until the penalty order is set aside by a competent court, it continues to operate and cannot be ignored for the purpose of licensing decisions.
The Tribunal further observed that the grant of a private warehousing licence is based on trust and the compliance history of the applicant. When an applicant’s antecedents disclose that a serious penalty under the Customs Act has been imposed and upheld, the licensing authority is justified in denying the licence in terms of Regulation 3(2)(c). The Bench also noted that accepting the assessee’s interpretation would render Regulation 3(2)(c) redundant, which is impermissible in law.
Distinguishing the decisions relied upon by the assessee, including those where penalties had either been set aside or where the factual context was materially different, the Tribunal held that such precedents could not override the clear bar contained in the PWLR when read in light of Supreme Court rulings on the nature of customs penalties.
In conclusion, the CESTAT found no infirmity in the orders passed by the Customs authorities and the Commissioner (Appeals). It held that Bhagwati Products Ltd. was not eligible for grant of a private warehousing licence or permission under Section 65 in view of the penalty imposed under Section 114A of the Customs Act. Accordingly, both appeals were dismissed, and the rejection of the licence applications was upheld.
Appearance
Appearance for Appellant: Shri B.L. Narsimhan
Appearance for Respondent: Shri A.K. Coudhary
Cause Title: M/s Bhagwati Products ltd. Vs. Commissioner of Customs (Pre.), Noida
Case No: Customs Appeal No. 70604 of 2025
Coram: S.K. Mohanty, Judicial Member, Sanjiv Srivastava, Technical Member
