-An article by Lavanya Goinka

Introduction

The import and export of goods and passengers to and from a country are governed by laws that adhere to international standards. The cornerstone of these regulations is the Customs Act of 1962, which prescribes the procedures and rules for the entry and exit of various vessels, products, individuals, and other items across national borders. The Department of Customs is dedicated to upholding compliance with a range of national and international statutes, in addition to the Customs Act, as it efficiently manages international traffic. This ensures that all goods and passengers crossing borders conform to state laws.

In essence, all goods entering or leaving a country must pass through designated entry and exit points and be declared to Customs. Importers and exporters must adhere to the legal and procedural requirements outlined in the Customs Act of 1962 and related legislations, including the payment of any applicable duties. Consequently, the Customs Act provides an elaborate framework for addressing unlawful activities and omissions, along with the penalties that departmental authorities and courts can impose. It also grants customs officers the authority to conduct searches, make arrests, and prosecute individuals engaged in such unlawful acts. The enforcement of penalty-related provisions for violations necessitates the adherence to specific procedural requirements to ensure due legal process is followed before taking action against offenders, illicit goods, and vehicles involved in violations.

Penalties Specified in the Customs Act

The Customs Act distinguishes between two categories of penalties:

• Civil Liability: These penalties encompass fines and the confiscation of goods, as determined by departmental authorities, for violations of enacted provisions. Chapter XIV of the Customs Act (Sections 111 to 127) covers the seizure of goods, and conveyances, and the enforcement of penalties.
• Criminal Liability: Criminal penalties involve jail sentences and monetary fines, which can only be imposed after a trial in a criminal court. In some instances, both a civil penalty and a criminal punishment may apply for the same offense. Other violations under the Act are addressed in Chapter XVI (Sections 132 to 140A).

Penalties for Violation of Customs Regulations

Sanctions for improper imports of goods are outlined in Section 112 of the Customs Act of 1962. The severity of the punishment varies depending on the nature of the offense. For instance:

• When prohibited goods, as per the Customs Act or other prevailing laws, are imported, a penalty of Rs. 5,000 or the value of the goods (whichever is greater) is imposed.
• For the import of dutiable goods, excluding prohibited items, the penalty does not exceed the duty to be evaded on such goods or Rs. 5,000, whichever is greater.
• If the declared value of imported goods exceeds their actual value, the penalty should not exceed the difference between the declared and actual value or Rs. 5,000, whichever is greater.

In cases where the import falls under both categories (a) and (c), the penalty does not exceed the value of the goods or the difference between declared and actual value, or Rs. 5,000, whichever is greater. As for imports falling under categories (b) and (c), the penalty should not surpass the duty to be evaded or the difference between declared and actual value, or Rs. 5,000, whichever is the higher amount.

Penalties for improper exports are specified in Section 114 of the Customs Act of 1962

• Criminal Penalties

When prohibited goods or any other items covered by the Customs Act or other existing laws are exported, the penalty does not exceed three times the declared value of the goods or the value determined under the Act, whichever is greater. The penalty for exporting dutiable goods, other than prohibited items, should not exceed the duty to be evaded on those goods or Rs. 5,000, whichever is greater. For other types of goods, the penalty does not exceed the declared value or the value determined under the Customs Act, whichever is greater. Additionally, the Finance Act of 2015 introduced an amendment to Sections 112 and 114, allowing for a penalty of up to ten percent of the evaded duty or Rs. 5,000, whichever is greater.

Penalties for evading service tax and central excise duty have been rationalized. Knowingly evading central excise duty results in a penalty equal to the evaded duty, while avoiding central excise duty leads to a penalty equal to 100 percent of the service tax amount. Paying the service tax, interest, and a reduced penalty within 30 days of receiving a notice reduces the penalty to 15 percent of the service tax. If these amounts, along with interest, are paid within 30 days of receiving a show cause notice, no penalty is imposed on the assessee.

• Mandatory Penalty

Section 114A of the Customs Act, 1962, mandates a penalty in specific cases:

1. Non-levy or short-levy of duty.
2. Failure to charge interest or partial payment of interest.
3. Mistaken refund of duty or interest due to conspiracy, misrepresentation, or fact suppression.

Section 114A states that the duty or interest payable under Section 28(2) of the Act should be accompanied by a penalty equal to the duty or interest amount determined. A recent amendment provides a reduction of the penalty to 15 percent of the duty or interest amount if paid within 30 days of the notice. Notably, confusion existed regarding whether the penalty under Section 114A would be equivalent to the duty or both duty and interest due to the use of the conjunction “or.” To resolve this, the board consulted the Ministry of Law, which suggested using the Maxwell interpretation of Statutes to understand and interpret “or” and “and.”

Following the Supreme Court’s observations in two key cases, namely The State of Bombay vs. R. M. D. Chamarbaugwala (1957) and Tilkayat Shri Govindlalji … vs. The State of Rajasthan and Ors. (1963), which clarified that “or” and “and” can be interchanged to discern legislative intent, it was established that the penalty under Section 114A should be equivalent to both duty and interest. If the amount, along with interest and penalty, is paid within 30 days, there is a 25 percent reduction in duty or interest.

Notably, no penalties are levied under Section 112 or 114 of the Act if a penalty has already been imposed under Section 114A.

Penalty for Intentional Use of Incorrect Material

Under Section 114AA of the Customs Act, 1962, any person intentionally using false or incorrect material in the course of business for the Act can incur a penalty not exceeding five times the value of the goods. The Finance Minister has reduced penalties by ten percent in cases of customs duty fraud.

Penalties for Persons in Charge of Conveyance

If goods loaded in a conveyance for import into India or shipped under the Act are not unloaded at their destination in India or the quantity unloaded is less than the required amount, the person in charge of the conveyance may be penalized. The penalty should not exceed twice the duty that would have been levied on the goods not unloaded or the substandard goods if they were imported. For coastal goods, the penalty should not surpass the export duty that would have been levied on the goods if they were exported.

Penalty for those provisions for which there is no prescription or express penalty

Section 117 of the Customs Act of 1962 is a blanket clause that states that the person guilty can be fined up to one lakh rupees for any other violation of the Customs Act for which no express punishment has been given elsewhere.

Conclusion

In conclusion, the primary law that controls the importation and exportation of products and people into and out of the country is the Customs Act of 1962. Compliance with this law and other national and international laws is the responsibility of the Department of Customs. All merchandise entering or leaving the country must do so through authorised entry/exit ports, report to Customs, and follow all applicable laws and regulations, including paying any customs that may be due. Infractions are also subject to civil and criminal fines, according to the Customs Act. Criminal liability can result in incarceration and financial penalties, while civil liability can result in monetary fines and the seizure of property. The nature of the punishment depends on the gravity of the offence, with penalties for improper import or export of goods outlined in Sections 112 and 114 of the Customs Act. Overall, the Customs Act plays a crucial role in regulating international traffic and ensuring compliance with national laws.