Penalty Under Section 114AA of Customs Act Requires Proof of Knowledge and Intention: CESTAT
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), has held that knowledge and intention are essential prerequisites for imposing a penalty under Section 114AA of the Customs Act, 1962. The Tribunal found that the department had failed to establish that the shipping line, M/s Evergreen Shipping Agency India Private Limited, had acted with the requisite knowledge or intent to assist in the alleged fraudulent export transaction, and therefore set aside the penalties imposed on it.
Background
The appellant, M/s Evergreen Shipping Agency India Private Limited, a shipping line, challenged the order passed by the Commissioner of Customs, Inland Container Depot (ICD), Tughlakabad, which had imposed penalties of ₹10 lakhs each under Section 114(iii) and Section 114AA of the Customs Act.
The case originated from an alleged misuse of the Focus Market Scheme (FMS) by the exporter, M/s Colour Cottex Pvt. Ltd., which had exported garments under 211 shipping bills. Out of these, Evergreen Shipping was involved in only five shipping bills. The exports were officially destined for Panama—a country notified under the FMS to provide incentives to exporters shipping to remote markets.
However, it was later discovered that the containers under the five shipping bills were ultimately discharged at Jebel Ali, United Arab Emirates—a non-notified country under the FMS. The department alleged that this diversion was deliberate and carried out with the connivance of the exporter, freight forwarders, and the appellant.
Department's Allegation
The department’s case was that although the Export General Manifest (EGM) filed by Evergreen mentioned Panama as the port of discharge, the cargo was actually delivered at Jebel Ali. Statements recorded under Section 108 of the Customs Act from various individuals, including those from Concorde Shipping (the primary freight forwarder), Safewater Lines (the intermediate forwarder), and the appellant’s Assistant Manager, were used to suggest that the diversion was orchestrated and that Evergreen had played an active role in facilitating the redirection of goods in violation of the customs procedure. On this basis, the Commissioner concluded that the appellant had assisted the exporter in fraudulently availing export benefits under the FMS and imposed penalties under both Section 114(iii) and Section 114AA.
Appellant's Defence
The appellant submitted that it acted merely as a shipping line and had no knowledge of any fraud. It contended that it followed instructions from the intermediate freight forwarder, Safewater Lines, which had received directions from Concorde Shipping on behalf of the exporter. It further clarified that the container had initially reached Colon Free Zone, Panama, and was only then redirected to Jebel Ali upon request from the exporter and buyer due to a commercial dispute. Supporting documents, including e-mail communications and container tracking records, were submitted to corroborate this.
The appellant also disputed the authenticity of a reply dated 19.01.2019, which was allegedly relied upon by the Commissioner to establish its knowledge of the diversion. The appellant asserted that its actual response was dated 24.01.2019 and did not contain any such admission. It was emphasized that the shipping bills and TR-1/TR-2 forms had not been amended and that the delivery to Jebel Ali occurred after reaching Panama, not in contradiction of the original manifest.
Tribunal's Findings
The Tribunal closely examined whether the conditions for penalty under Sections 114(iii) and 114AA were met. It noted that:
Section 114(iii) requires a finding that the goods are liable for confiscation under Section 113. However, the Tribunal had already set aside the confiscation of goods in a connected appeal filed by M/s Colour Cottex. Accordingly, the basis for penalty under Section 114(iii) ceased to exist.
Section 114AA imposes penalty where a person knowingly or intentionally makes or uses false material particulars. The Tribunal found that the department failed to prove the appellant had acted with the required mens rea (knowledge and intent). The appellant had merely followed forwarding instructions and was not shown to have participated in any conspiracy to defraud customs authorities.
The Tribunal stated: “Knowledge and intention is sine qua non for imposing penalty under section 114AA of the Customs Act. The department has not been able to establish knowledge on part of the appellant or intention on the part of the appellant to help the exporter in obtaining the alleged undue export advantage.” It was also observed that the redirection to Jebel Ali occurred only after the cargo reached Panama, and that Evergreen had issued invoices for the second leg of the journey, reflecting it as a new, separately charged shipment.
Also Read: Actual Book Figures Can Be Used to Assess Service Tax If Higher Than Returns: CESTAT
Verdict
The Tribunal allowed the appeal, quashing both penalties imposed on the appellant. It held that there was no basis to conclude that the appellant had knowingly assisted in fraudulent exports or intended to facilitate the misuse of the Focus Market Scheme. The order passed by the Commissioner of Customs, Tughlakabad, was set aside to the extent it imposed penalties on M/s Evergreen Shipping Agency India Pvt. Ltd.
Appearance
Shri G.K. Sarkar and Shri Prashant Shrivastava, Advocates for the appellant
Shri Rakesh Kumar, Authorised representative of the department
Cause Title: Evergreen Shipping Agency India Pvt Ltd. V. Commissioner of Customs (Export)
Case No: Customs Appeal No. 51117 of 2022
Coram: Hon’ble Mr. Justice Dilip Gupta [President], Hon’ble Mr. P. V. Subba Rao [Member (Technical)]
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