Madras HC: In an appeal filed under Section 130, Customs Act, 1944 (1944 Act), the Division Bench comprising N. Anand Venkatesh* and K.K. Ramakrishnan, JJ., set aside the order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, holding that a mere mis-description of the classification will not attribute mens rea to impose penalty under Section 114-AA, Customs Act, 1962 (Customs Act). The Tribunal was wrong in invoking Sections 28 and 28-AAA, Customs Act, and since Merchandise Exports from India Scheme (MEIS) scrips were granted by Directorate General of Foreign Trade (DGFT), the Customs Department did not have jurisdiction to initiate action against the appellant.
Background
The appellant is a licensed Customs Broker under the Customs Brokers Licensing Regulations, 2018, authorised to do business at Chennai and Tuticorin, who filed shipping bills for the export of safety matches. The exported goods covered by such shipping bills were machine made safety matches, classified under CTSH36050090 for a Free on Board (FOB) value of Rs 5,73,80,848. The shipping bills were filed under claim for benefit under MEIS where exporter is eligible to get MEIS scrips based on the FOB value realised, issued by the DGFT Authorities. Freely tradable in the market, an importer, who purchases them can use it for payment of customs duties on the import of any goods by them.
The Customs Department duly assessed and cleared and the exporter also received MEIS scrips to the extent of Rs 11,47,617. Appellant filed 32 shipping bills, where a wrong classification was indicated in the application. The Special Intelligence and Investigation Branch (SIIB) Officers, Tuticorin Customs, conducted an enquiry into excessive MEIS benefits, after which notice was issued to exporter, importer and the appellant for imposition of penalties under Sections 114 and 114-AA, Customs Act for contraventions due to incorrect classification of the safety matches as CTSH36050090 instead of CTSH36050010.
The adjudicating authority confirmed the allegations made in the show-cause notice and imposed the penalty of Rs 10 lakhs on exporter as well as the customs broker.
To this, the appellant filed a statutory appeal before the CESTAT, Chennai. CESTAT modified the penalty to Rs 1 lakh under Section 114-AA, Customs Act and the penalty under Section 114(iii) was set aside. The order was assailed in this appeal.
Issues
1. Whether the Tribunal was right in concluding that the power to incentive vest with the Foreign Trade Authorities and the power to prevent leakage vest with the Customs Authorities when the power exercised by the Foreign Trade Authorities in terms of the Foreign Trade Policy (FTP) to grant the MEIS scrips to the exporter is valid and subsisting thereby entitling the exporter to the continues right to the hold the scrips without revocation of the said grant in the manner known to law?
2. Whether the Tribunal was right in approving the demand made and confirmed by the respondent herein by invoking Section 28, Customs Act against the exporter even when there was no import of the goods into India and also no demand for any duty short paid or short levied or not paid or not levied was involved and when only the provisions of Section 28-AAA operate in such factual situation that too involving obtaining of the scrips by fraudulent means which was not the case of the revenue?
3. Whether the Tribunal was right in recording the finding of guilt on the appellant to sustain the penalty on them under Section 114-AA, Customs Act without considering that the admitted facts do not permit such findings to be reached especially when they only acted as the agent of the exporter and also when the express provision contained in the said section did not at all attracted the case of the appellant in the admitted facts of the case?
Analysis
The Court noted that it is only the DGFT which grants the MEIS rewards/benefits. The appellant had allegedly availed excess rewards/incentives by showing the CTSH number as 36050090 as against MEIS benefit for CTH36050010 which is 3 per cent. The argument was that MEIS rewards/benefits are conferred only by DGFT Authorities and therefore no action can be taken by the Customs Authorities, thus challenging the jurisdiction of the Customs Authorities.
The Court noted the Supreme Court judgment in Titan Medical Systems (P) Ltd. v. Collector of Customs, (2003) 9 SCC 133, which was considered by Kerala High Court in Nitta Gelatin India Ltd. v. Commr. of Customs, 2025 SCC OnLine Ker 4208, which was a case of incorrect classification given by the exporter, similar to this appeal, The Supreme Court in Titan Medical Systems (supra) held that once a license or benefit is granted and not cancelled by the competent authority, customs authorities cannot deny or question it on grounds of alleged misrepresentation.
Applying the reasoning given by the Court in these judgments, the Court observed that the exporter was granted MEIS scrips by the DGFT under the FTP, which continue to be valid and subsisting and was not revoked by the authority concerned, so, if any unfair advantage is taken by the exporter regarding the MEIS scrips, action can be initiated only by DGFT and not the Customs Department.
The Court held that the action initiated by the Customs Department suffers from lack of jurisdiction. Thus, on a purported misuse of MEIS scrips by showing the wrong classification, the Customs Department cannot enter the field occupied by DGFT and initiate proceedings.
Therefore, it was the finding of the Court that the Tribunal was wrong in invoking Section 28, Customs Act against the exporter even when there was no import of the goods into India and no demand for any duty, short paid or short levied or not paid or not levied. Section 28-AAA, Customs Act, which only deals with cases of collusion or wilful misstatement or suppression of facts ought not to have been invoked in a case involving MEIS scrips.
The Court held that a mere mis-description of the classification will not attribute mens rea to impose penalty under Section 114-AA, Customs Act. The appellant had acted only as an agent of the exporter and the wilful intent which is a sine qua non to impose penalty under this provision was absent.
Therefore, the Court held that substantial questions of law framed by the Court were answered in favour of the appellant and against the Department. Hence, the order of CESTAT was set aside by the Court.
[Seaswan Shipping & Logistics v. Commr. of Customs, 2026 SCC OnLine Mad 3627, decided on 15-4-2026]
*Judgment authored by: Justice N. Anand Venkatesh
Advocates who appeared in this case:
For Appellants: N.Viswanathan
For Respondents: R.Gowrishankar
