V.K. Agrawal, Member (T)
1. These are two appeals arising out of a common order dated 3-8-1986 passed by the Collector of Customs (Preventive), Bombay and as such are being disposed of by one common order. The issue involved is whether penalty is imposable on each of them under Section 112(a) of the Customs Act.
2. Briefly stated the facts are that M/s. Swastika Fashions, New Delhi, cleared 37000 Yards in 99 cartons and 13,406 yards in 49 cartons of 100% Polyester fabrics from Customs in August – September, 1984 against Advance licence under Duty Exemption Entitlement Certificate Scheme (DEEC). The goods were cleared by M/s. Saindas Kishandas, Customs House Agent, who were engaged by Shri J.P. Singh, partner of M/s. Kays International and Shri H.S. Wadhwa, representative of Swastika Fashions. Investigation conducted by the Department revealed that Shri J.P. Singh, appellant No. 2, had arranged for import of these goods by opening letter of credit, placing orders with foreign supplier and as letter of authority holder of Swastika Fashions. The Collector, in the impugned order, confiscated the 100% Polyester fabrics measuring 50406 yards valued at Rs. 5,33,640 under Section 111(O) and 111 (P) of the Customs Act and imposed penalty under Section 112 (a) as under :-
(i) M/s. Kays International Rs. 5,00,000/-
(ii) Shri J.P. Singh Rs. 5,00,000/-
(iii) M/s. Swastika Fashion Rs. 15,00,000/-
(iv) Shri V.M. Maithal Rs. 15,00,000/-
(v) Shri H.S. Wadhwa Rs. 1,00,000/-
holding that a major part of the imported goods had been illegally stored at Bombay and illegally disposed of; that the provisions of Notification No. 117/78-Cus. had been violated under which the goods were allowed to be imported without payment of duty; that a whole lot of evidence was sought to be created by Swastika Fashions regarding receipt of goods, manufacture and sale of articles made out of imported goods to M/s. Kays International; that the imported goods were notified goods under Chapter IVA of the Customs Act, the provisions of this Chapter were not observed. The Collector also gave his findings in the impugned order that J.P. Singh opened the letter of credit, placed the order, indented and sold imported goods, engaged clearing agent, supervised the clearance of goods from the Customs, stored goods in Bombay and disposed of the goods illegally; that he also introduced H.S. Wadhwa to Shri V.M. Maithal, Proprietor of Swastika Fashions; that Shri H.S. Wadhwa has not been traced; and that Swastika Fashions and M/s. Kays International had been accusing each other of mis-appropriating the goods.
3. Shri Harbans Singh, learned Advocate, submitted on behalf of both the appellants that M/s. Kays International, appellant No. I, is a partnership concern having two partners, K.P. Singh and J.P. Singh, appellant No. 2, engaged in the business of import of goods; that they were given a letter of authority by Swastika Fashions to import the impugned goods; that he referred to agreement at page 123 of paper book; that it was stipulated that the goods imported would be subsequently sold by them to Swastika Fashion on high sea sale basis; that their connection with the imported goods ceased to exist after sale on high sea; that this is evident also from the fact that the Bill of Entry was submitted in the name of M/s. Swastika Fashion, who had also addressed letters to the Assistant Collector, Customs confirming the purchase of goods on high sea basis from them; that they had also addressed a similar letter to the Assistant Collector; that the goods have been confiscated under Section 111(P) of the Customs Act which provides for confiscation of the goods for violation of provisions of Chapter IVA; that they did not posses the goods and as such the question of complying with the provisions of Chapter IVA of Customs Act by them does not arise at all and accordingly no penalty can be imposed on them; that it is not the case of the Department that the goods in question were imported illegally as the goods had not been confiscated under Section 111(d) of the Customs Act, though the said Section was invoked in the show cause notice. He also mentioned that the presumption is that M/s. Swastika Fashions came into possession of impugned goods as Bill of Entry was filed by them for clearance of the goods and they have been penalised for violations of post importation conditions. The learned Advocate emphasised that the appellant No. 2 has committed no offence by introducing Wadhwa, who is the person of M/s. Swastika Fashion. He also contended that there is no evidence on record to show that J.P. Singh played a part in subsequent storage of the goods in Bombay and illegal disposal thereof. The learned Advocate finally pleaded that both the firm and the partner could not be penalised and penalty, if imposable, could be imposed only on either of them. He relied upon the decision in Shree Tirumala Udyog and Ors. v. C.C., Bangalore -1998 (77) ECR169 (T), wherein it was held that “the levy of penalty on both the partners and partnership concern separately is not maintainable in law as partnership concern is a compendium of the partners and penalty could be levied, therefore, either on the partnership concern or the partners. By making a reference to Section 140 of the Customs Act, the learned Advocate submitted that wherever legislative wanted to treat the firm as a separate entity, specific provisions have been made; and that penalty cannot be imposed on a partnership firm under Section 112(a) of the Act as it is not a person.
4. Countering the arguments, Shri S. Srivastava, learned DR, submitted that the Supreme Court in the case of Agarwal Trading Corporation v. Assistant Collector, 1983 (13) E.L.T. 1467 (S.C.) has settled the issue that firm is a legal person. It was held by the Apex Court that the definition in Section 2(42) of the General Clauses Act, 1897, or Section 2(3) of the Act of 1868 would be applicable to Sea Customs Act and FERA; that in both Acts, ‘person’ has been defined as including any company or association or body of individuals whether incorporated or not. The Hon’ble Court further held that the partners who are in charge of its business cannot escape liability unless it is proved by them that the contravention took place without their knowledge. Reliance was also placed on the decision in the case of B. Subba Rao v. U.O.I. -1987 (32) E.L.T. 648 (A.P.). He, further, submitted that it was M/s. Kays International which placed order for importation of the impugned goods; letter of authority was given to them by Swastika Fashions; they approached the clearing agent and on their instance, one letter of authority was given to Wadhwa whose address was only given by appellant No. 2; that goods made out of imported material were sold to them; that original DEEC Book was with Kays International as per the statement dated 20-11-1984 of Shri V.M. Mai that who also deposed that H.S. Wadhwa is Kays International’s man and he only happened to know Wadhwa’s name from face of photocopy of letter of authority given and filled in by Kays International. The learned DR, further, submitted that it was M/s. Kays International who were controlling the goods which is apparent from letter dated 25-9-1984 of Swastika Fashion addressed to appellant No. 1. It was mentioned in the letter that though the goods had been imported and cleared by Kays International, no goods had been sent to them; that in letter dated 26-9-1984 Kays International informed Swastik Fashions about release of consignment of 50 cases received under G.R. No. 3156 of M/s. All India Transport, Bombay. Learned DR referred to pages 15, 18 and 19 of the impugned order and submitted that this shows that the high sea sale, was a fake one. He also mentioned that from the contents of statement dated 24-9-1984 of Shri Maithal, it was clear that he was unaware of the fact of import and that Kays International were responsible to import the goods. He finally reiterated the findings of the Collector that the goods were disposed of and contended that the penalty is required to be deterrent in economic offences to check illegal operations whenever such offences are discovered and proved as observed by the Supreme Court in Indo China Steam Navigation Co. Ltd. v. Jasjit Singh, -1983 (13) E.L.T. 1392 (S.C.).
5. The learned Advocate, in reply, mentioned that the defence taken by Shri Maithal was that the imported goods had reached Delhi and this fact was intimated to Customs Officers. Regarding letter dated 26-9-1984 in which 50 cases sent to Swastika Fashions, he contended that Collector himself in the impugned order has given the findings that these cases were not the impugned goods; that transfer of goods was not fake and there is no finding in the impugned order that high sea-sale was fake and no appeal has been filed by the Department; that Department should prove beyond doubt that the appellants came into possession of goods; that they were not privy to storage and sell (sic) of goods in question.
6. We have considered the submissions of both the sides. Chapter IVA of the Customs Act provides that having regard to the magnitude of the illegal import of goods, the Govt. may take special measures for the purpose of checking the illegal import, circulation or disposal of such goods by specifying these goods by Notification. Sections 11C to 11F of the Act required persons possessing notified goods to intimate the place of storage, to acquire the goods only with vouchers, etc. to maintain accounts and sale of such goods to be evidenced by vouchers. Any violation of any provisions of Chapter IVA makes the goods liable for confiscation under Section 111(p) of the Customs Act. We observe that though the show cause notice was issued to confiscate the goods under Sections 111(d), (O) and (p) of the Act, the Commissioner had only confiscated the goods under Sections 111(O) & (p) only, i.e. for violation of condition of exemption and for violation of provisions of Chapter IV only. The goods have not been confiscated under Section 111(d), which applies to import of goods contrary to prohibition imposed under law. It has been shown by the appellants that B/E was filed in the name of Swastika Fashions who had purchased the goods on High sea-sale basis from appellant No. 1. It is also seen from the statement dated 20-11-1984 of Shri V.M. Maithal that as they were not having funds to open letter of credit and could not import goods themselves, they gave a letter of authority in the name of M/s. Kays International who were introduced to them by one I.C. Chopra, a liason man. In view of this position, the import work was done by Kays International. Further, as in impugned order, goods have not been confiscated for violation of any prohibition the penalty on account of import by appellants cannot be imposed. We also observe from the statement that Mr. Maithal deposed that as soon as they delivered the goods to him, he got the goods notified by Customs (Prev.) Delhi. Though this fact has been noticed by the adjudicating authority in the impugned order (internal page 33) there is no finding recorded by him on this aspect. There is no evidence on record to prove that both the appellants did or omit to do any act which has rendered the goods liable for confiscation under Sections 111(o) and (p) of the Act. As per the findings of the Collector, Shri J.P. Singh, appellant No. 2, played the part in opening the letter of credit, placement of order, indenting and selling the goods imported, engaging clearing agents, subsequent storage in Bombay and illegally disposing of the goods. There is no evidence brought on record to prove beyond doubt that appellant No. 2 has disposed of the goods at Bombay and accordingly penalty under Section 112(b) of the Customs Act cannot be imposed on either of the appellants. Accordingly, we allow both the appeals and set aside the penalty imposed on them.