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Application of Section 112 of the Customs Act, 1962- The Proper & Just Way!


When it comes to proper application of Section 112 of the Customs Act, 1962 one has to keep into mind the both subsections i.e, 112(a) and 112(b) and the intricacies both have within.

Read the post right till the end so that you get the complete understanding of what I mean in the opening statement.

Section 112 – which is a penal provision is invoked for contravention of conditions of Section 111 in respect of confiscation of improperly imported goods, etc.  Section 112 can also be invoked in case of non -payment of duty along with applicable interest or merely for non-payment of amount of interest demanded under Section 28(1) if the same is not paid within 30 days from the receipt of Notice. {First Proviso to section 28(1)}. However, this depends upon the discretion of the Proper Officer, who is determining the duty or interest.

For the ease of reference, application of Section 112 is mentioned in above paras, however this discussion mainly revolves around vagueness of its application during investigation and adjudication proceedings, which sometimes becomes fatal to the proceedings.

Bare Quoting of Section 112 is Not in Conformity of Principal of Natural Justice

It is observed that there is only bare quoting of Section 112 of the Act in the SCN and there is no reference to either to Clause (a) or (b) or both of Section 112 of the Act. Hence, it can be inferred  that there is no making up of mind thereon as to which of the clauses would be attracted in the  case at hand . This denotes the ambiguity in respect of the proposal/invocation of  charging section. This also makes the task of the adjudicating authority difficult in respect of imposition of penalty, as he has to rely on facts of the case, to arrive at correct penal provisions.  Had charging paras were containing precise penalty provisions, adjudicating authority would not have to go to facts of the case and apply his mind regarding invocation of correct sub-section of 112.   The Court/Tribunal often comes in the support of the Revenue inspite of non-mentioning of specific clause but sometimes Department found to  be at  receiving end as issue  is controverted by  appellant/party, as they raises this issue that they were not  informed or put to notice  regarding specific charges  about the  penal provisions/ clauses of Section 112, so their opportunity to  defend the  allegation levelled in the SCN have been taken away and this caused miscarriage of justice and violated the doctrine of principal of natural justice and this sometimes  led to de novo proceedings and sometimes  even setting aside of the case.

As per the requirement of doctrine of principal of natural justice, importer/exporter/ beneficial owner or any other person is required to put up to specific charges so that they can afford opportunity to defend themselves in adjudication proceedings. Lets dive into a relevant case law:

LAKSHMICHAND Versus GOVERNMENT OF INDIA

In LAKSHMICHAND Versus GOVERNMENT OF INDIA, 1983 (12) E.L.T. 322 (Mad. HC) W.P. No. 2943 of 1978, decided on 18-9-1981, it was held that charges against the accused should be clear and not ambiguous – Section 112 of Customs Act, 1962. If the penal action is proposed to be taken and proceedings initiated which are likely to culminate in the imposition of penalty, then the authorities must be clear in their mind as to whether clause (a) or clause (b) of section 112 will apply or both failing which proceedings were liable to be quashed. [para 2]

The provisions of Section 112 would only apply to persons who engage themselves in physical act of improper importation of goods, which contravenes the conditions of import given under Section 111 of the Customs Act. It is having two clauses 112(a) and 112(b).

Section 112 reads as under;

Penalty for improper importation of goods etc

As per Section 112 of Customs Act, 1962,

Any person, –

(a)who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under Section 111, or abets the doing or omission of such an act, or

(b)who acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under Section 111,

Is Mens rea an Absolute Necessity for Application of Section 112(a)? 

Issue requires to be determined whether for application of Section 112(a), mens rea is an absolute necessity.

Clause (a) of Section 112 of the Customs Act, provides for penalty against the person who in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under Section 111, or abets the doing or omission of such an act.

It is repeatedly held in various judicial pronouncement that mens -rea is not an essential ingredient for contravention of the provision of civil law, until and unless it is mandated by statute itself. The Supreme Court in Chairman SEBI versus Shri Ram Mutual Fund, (2006), SCC,361 has affirmed  this view, wherein it was  held that;

 “In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligations as contemplated in the Act and regulation is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must made by the defaulter with guilty intention or not.” 

An Analysis into Section 112 of the Customs Act 1962

Section 112(a) has two part and it is separated from word “or”. First part is as follows;

provides for penalty against the person who in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under Section 111.

As per intention of the legislature, this part of clause (a) is applicable to importer, exporter and/or beneficial owner, as any omission/ commission of conditions of Section 111, by them rendered the goods liable to confiscation.

Perusal of the first part of Section 112(a) i.e. “who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under Section 111”  revealed that any act or omission would render goods liable to confiscation under Section 111. Presence of mens rea is not the requirement for the first part of this Section, as obvious from the language of Section. So any violation of law calls for imposition of penalty regardless of whether mens-rea is in existence or otherwise.

It is always disputed by the Parties that for invocation of this part of clause(a) mens rea is necessary requirement. But judgement of Chairman SEBI versus Shri Ram Mutual Fund, which has been discussed above  has settled the issue. Further  the Honourable Supreme Court judgment in the case of Indian Aluminium Company limited v/s Thane Municipal Corp-1991 (55) ELT 454 (SC), has also affirmed this view   that “Even non observance of a procedural condition is not to be condoned if it is likely to facilitate commission of fraud or introduce administrative inconvenience.”

Second Part of Section 112 (a)

Coming to the second part of this clause 112(a) which is separated by word or “ abets the doing or omission of such an act” which  has mention of the word “abet” implying presence of knowledge.

Abetment is defined under   Section 107 of IPC and Section 3(1) of the General Clauses Act, 1987 and the same has not been defined in the Customs Act, 1962 and the rule made thereunder. The Section 107 of IPC says that the abetment is constituted by;

(1)Instigating a person to commit an offence or

(2)Engaging in a conspiracy to commit it, or

(3)Intentionally aiding a person to commit it

Perusal of this Section, revealed that for abetting an offence existence of mens rea is an essential ingredient due to mention of word” abet”. Second part is applied to other persons such Customs Broker (CB), Shipping-line, Custodian, Courier  etc or any other person, who facilitate or assist  principal offender (importer, exporter and/or beneficial owner) in improper  Customs clearance work as stated above.

Therefore, for invocation of second part of Section 112(a) on stakeholders, who assist importer/exporter/beneficial owner in customs clearance and rendered the goods liable for confiscation, mens rea is an absolute necessity.  Without animus on the part of such stakeholders, it is difficult to invoke Section 112(a) or bring them under the four corners of this penal provisions.

In this regard reliance is placed on the case of AMRITLAKSHMI MACHINE WORKS Versus COMMR. OF CUS. (IMPORT), MUMBAI, 2016 (335) E.L.T. 225 (Bom.) wherein it was held that;

(i) Normally where Section 112(a) of Customs Act, 1962 is invoked, (except for cases of abetment on part of person),

(ii)  In cases other than abetment falling under Section 112(a) ibid liability for penalty is strict without any reference to mens rea/knowledge unlike Section 112(b) ibid, mens rea/knowledge is irrelevant (except in cases of abetment),

(iii) Parliament has specifically included abetment in Section 112(a) of the Act, to include acts done with knowledge, otherwise the first portion thereof “Any person – (a) who in relation to any goods does or omits to do any act ……” would cover acts done or omitted to be done on account of instigation and/or encouragement without knowledge. However, the first portion of Section 112(a) of the Act is only to make person of first degree in relation to the act or omission strictly liable. Persons who are not directly involved in the act or omission to act, which has led the goods becoming liable for confiscation cannot be made liable unless some knowledge is attributed to their act. Therefore, it is to cover such cases that Section 112(a) of the Act also includes a person who abets the act or omission to act which has rendered the goods liable to confiscation. Imposing penalty upon an abettor without any mens rea on his part would bring all business to a halt as even innocent facilitation provided by a person which has made possible the act or omission to act possible could result in imposing of penalty. [paras 25, 27, 29]

Above case law make abundantly clear that in what conditions Section 112(a) is applied on principal offender and on stakeholders or any other person.

Analysis of Section 112(b)

From the perusal of this sub- section, it will be seen that for imposition of penalty on a person under Section 112(b), the following conditions must be satisfied.

(i)      The person must have acquired possession of or must be in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing or in any other manner dealing with any goods which are liable for confiscation under Section 111 of Customs Act, 1962.

(ii)      The person must have knowledge or have reason to believe that the goods acquired by him or dealt with by him in the manner as mentioned above, are liable for confiscation under Section 111 i.e. he is having  knowledge or has reason to believe that any one or more of the contraventions mentioned in Clause (a) to (p) of Section 111 have been committed in respect of the imported goods acquired or dealt with by him.

Thus, in contrast to first part of Section 112(a), wherein mere act or omission by a person (Importer/Exporter/ Beneficial Owner) would render the goods liable for confiscation under Section 111, is sufficient to attract penalty.

For imposition of penalty under Section 112(b) of Customs Act, 1962, it is also necessary to prove that the person had knowledge or had reason to believe that the goods acquired or dealt with by him are liable for confiscation under Section 111.

As evident from the above, generally it is understood , Section 112(a) is applied to those acts which are committed prior to customs clearance of the imported goods, whereas  Section 112(b) is invoked for the act committed post importation in relation to goods , which rendered the goods liable for confiscation.

Thus scope of Section 112(b), Customs Act, 1962 is wide enough to penalize even a person acquiring possession or in any way dealing with the goods which he knows or has reason to believe that are liable to confiscation under section 111 of the Customs Act, 1962. Lets check the relevant case laws:

MAYEEN UDDIN Versus COMMISSIONER OF CUSTOMS (PREV.), SHILLONG

In MAYEEN UDDIN Versus COMMISSIONER OF CUSTOMS (PREV.), SHILLONG, 2020 (371) E.L.T. 779 (Tri. – Kolkata, Section 112 came for scrutiny

Section 112 deals with penalty of improper importation of goods etc. Section 112(b)(i) provides any person who acquires possession of or is in any way concerned in carrying removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under Section 111 of the Customs Act, 1962, shall be liable to penalty. The expressions “which he knows or has reason to believe are liable to confiscation” in Section 112(b) are very crucial. It has to be ascertained as to whether such person knows or has reason to believe that the goods are liable for confiscation for imposition of penalty under Section 112(b) of the Act.

 VIKRAM SINGH Versus COMMISSIONER OF CUSTOMS, 2007

In case of  VIKRAM SINGH Versus COMMISSIONER OF CUSTOMS, 2007 (207) E.L.T. 373 (Del.), decided by Delhi HC ,  it was held that case of appellant fell under Clause (b) of Section 112 ibid since he was involved in carrying, removing, depositing, harbouring, keeping, concealing of goods which he must have known or had reason to believe (being a close aide of master mind, involved in illegal activities) to be liable for confiscation under Section 111 ibid.

NABA KUMAR SAHAV versus COLLECTOR OF CUSTOMS

In NABA KUMAR SAHAV versus COLLECTOR OF CUSTOMS Order No. 382/Cal./90-382, dated 10-8-1990 in C. Appeal No. 205 of 1989 (Cal.),- It was held that foreign currencies are liable for confiscation for violation of Section 13 (1) of the Foreign Exchange Regulation Act, 1973 and appellant liable for penalty under Section 112 (b) of the Customs Act, 1962 as they were  seized from the counter of the shop of the appellant. The counter of the appellant cannot be said to be a place where the public had any access. The counter belongs to the appellant and it is presumed that whatever is seized from there belongs to him inasmuch as he can satisfactorily give explanation

DINESH ISHWARLAL PATEL  Versus  COLLECTOR OF CUSTOMS, BOMBAY

Further in DINESH ISHWARLAL PATEL  Versus  COLLECTOR OF CUSTOMS, BOMBAY, 1988 (34) E.L.T. 382 (Tribunal), it was held that mere custody of wrist watches of foreign make without knowledge or reason to believe that they are smuggled goods and  liable to confiscation under Section 112(b) is  not sufficient to impose penalty.

DASS PHOTO ELECTRONICS Versus COLLECTOR OF CUSTOMS

In DASS PHOTO ELECTRONICS Versus COLLECTOR OF CUSTOMS, NEW DELHI, 1987 (30) E.L.T. 988 (Tribunal) , it was held that under Section 112(b) of the Customs Act, penalty can be imposed upon a person if he acquires possession of or in any way concerned is knowingly, acquiring, possessing etc. or in any other manner dealing with the goods which the appellants know or had reasons to believe were liable to confiscation under Section 111 of the Customs Act, 1962.

ANA JAMIL Versus COMMISSIONER OF CUSTOMS (PREV.)

As held in the ANA JAMIL Versus COMMISSIONER OF CUSTOMS (PREV.), SHILLONG, 2016 (342) E.L.T. 248 (Tri. – Kolkata), it is observed that post importation , knowledge of goods being of smuggled nature, essential element for imposing penalty under Section 112(b) of Customs Act, 1962

SHANKESHWAR METAL CORPORATION Versus COMMR. OF CUS. (IMPORTS)

It was held in SHANKESHWAR METAL CORPORATION Versus COMMR. OF CUS. (IMPORTS), MUMBAI, 2014 (312) E.L.T. 344 (Tri. – Mumbai) –  that  mens rea is an important ingredient for imposing a penalty under Section 112(b) of Customs Act, 1962 – Goods may be liable to confiscation for contravention of provisions of Customs Act but the person who is in possession of goods need not necessarily have anything to do with either smuggling or dealing with them knowingly.

Going by the ratio of judgements, it can be adduced that omission/commissin as stated above  which rendered goods liable for confiscation under Section 111 has to be  coupled with mens rea in relation to the goods,  then only it attracts penalty under Section 112(b).

Aspect relating to Simultaneous Invocation of 112 (a) & 112(b)

It is also stated that simultaneously these two clauses can be imposed. For example, if a CHA is knowingly involved in customs clearance of goods and then found to be involved in transportation of goods or storage, he will be charged under both the clauses.

Concluding Words on Application of Section 112 of the Customs Act, 1962

During investigation and adjudication proceedings, it must be ensured that sub -Section 112(a) or 112(b) may be distinctly mentioned for invoking penal provisions as non- mentioning of merely sub- Section 112 brings vagueness and ambiguity and deprive the Noticee for making suitable defence.

As regards Mens rea, it is not an essential ingredient for invoking Section 112(a) against the importer/exporter/ beneficial owner but the same is required when Section 112(a) is invoked against the stakeholders (Customs Broker, Custodian, Shipping Line etc) who assist the principal offender (importer/exporter/ beneficial owner) in customs clearance of imported/export goods.  However, for imposition of penalty under Section 112(b) against other person who has dealt with the goods post-clearance in any manner as mandated under Section 112(b), knowledge is an essential ingredient.  Any such ambiguity concerning invocation of Section 112 in SCN or in adjudication proceedings may cause severe blow to such proceedings.

If you enjoyed learning the proper application of Section 112 of C.A. 1962, you might like the following too :

Also, speak your mind in the comment section below and let us know how could I help you understand thins better.


Shekhar

5 Comments

  1. Excellent article on Section 112 of Customs Act. Very useful and all intricacies of the section 112 has been discussed beautifully

  2. Very useful article presented in a lucid manner along with minute details involved around it. The way of invocation of this important Section of Customs Act has been very well explained vis-a-vis plethora of relevant case laws. Learned Adjudicating authorities and Defence Counsel can also take a cue from this in order to justify in their case and they will definitely come to know what are Sine-qua-non condition for the forceful presentation of their case. In nutshell I must say It is very useful for all of us dealing with Customs matter in understanding this Section in minute details.
    Thank you.

  3. Very well explained, the person who is eager to learn must read this article.

  4. As usual, it was a wonderful article. You have mastery in discussing intricasies of Customs Act in such a simple manner. This shows your dedication and hard work for creating such kind of informative article. I got to understand the motive behind this section and how to execute these in our case. Thank you so much for enlightening us. Expect regular write up from you. It is always a good read.

  5. Very well written article on section 112 of Customs Act 1962.
    I suggest you should also write on the intricacies of clauses (i) to (v) of Section 112. Adjudicating authorities generally write ‘so much of penalty under Section 112(a) or (b)’ but do not specify which of the clause out of (i) to (v). It becomes very important while challenging the imposition of penalty, say in respect of confiscation under Section 111(m).

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