In Customs Appeal No. 9 of 2021 -BOM HC- Bombay High Court rules in favour of Air India, holds penalty under Section 112(a) of the Customs Act not applicable
Justice G.S. Kulkarni & Justice Jitendra Jain [18-07-2023]

Read Order: The Commissioner of Customs v. Air India Ltd.

Chahat Varma

New Delhi, August 2, 2023: The Bombay High Court has ruled in favour of Air India Ltd., in a case related to the importation of aircraft parts. The Court held that the penalty imposed under Section 112(a) of the Customs Act was applicable only to goods that were liable for confiscation. Since the confiscation order was set aside by the Customs, Excise & Service Tax Appellate Tribunals (CESTAT), the penalty under Section 112(a) was not applicable in this case.

Briefly stated, Air India, engaged in air cargo and passenger transportation, imported various aircraft parts falling under heading 8802, availing exemption under Notification No.21/2002 dated 01.03.2002, as amended by Notification No.37/2007 dated 07.03.2007. During the period 2010-11 and 2011-12, the import records showed shortages and excess of parts. The Commissioner of Customs alleged that the short-found parts were utilized for purposes other than specified in the exemption notification, and the excess parts were not declared in the import documents. On 28.04.2016, the Commissioner of Customs issued an Order-in-Original, rejecting Air India's contention and confirming a custom duty demand of Rs. 1,47,94,926. The Commissioner also ordered the confiscation of excess goods valued at Rs. 3,08,18,771. Air India was given the option to redeem the goods by paying a fine of Rs. 50,00,000 under Section 125 of the Customs Act. Additionally, a penalty of Rs. 25,00,000 was imposed under Section 112(a) of the Customs Act. On 25.09.2019, the CESTAT upheld the duty demand, but they set aside the confiscation order and redemption fine. The CESTAT also nullified the penalty imposed under Section 112(a).

The division bench of Justice G.S. Kulkarni and Justice Jitendra Jain held that since the Commissioner of Customs had accepted the order of setting aside the confiscation of goods, the question of applying the provisions of Section 125, which deal with redemption fine in lieu of confiscation, would not arise. The bench also the noted that there was no actual physical excess stock found by the revenue authorities.

The bench further emphasized that the Commissioner of Customs had accepted that the goods were not required to be confiscated. As a result, the penalty under Section 112(a) of the Customs Act, which was applicable to goods liable for confiscation, became irrelevant. With the confiscation order being set aside, the penalty under Section 112(a) was consequently not applicable in this case. Additionally, the bench observed that the CESTAT had also deleted the penalty, considering the enormity of the inventory managed and handled by Air India, taking into account the fact that it was a Public Sector Undertaking. Also, importantly, the CESTAT had found that there was no deliberate act on the part of Air India to evade customs duty.

Based on the aforementioned considerations, the division bench held that no substantial question of law arose for the court's consideration. As a result, they decided to dismiss the appeal filed by the Commissioner of Customs.