By TIOL News Service
MUMBAI, JULY 26, 2011: THE following questions of law were before the High Court:-
++ Whether in view of the findings by the Collector of Customs, Ahmedabad, in his order dated 16/11/1989, imposition of penalty on the Appellant amounts to double jeopardy;
++ Whether imposition of a penalty on the partnership firm as well as on the partners under Section 112 of the said Act is permissible and justified.
The appellant made the following submissions:-
++ A partnership firm has no existence in law and is not a juristic entity. Hence, there would be no occasion to levy a penalty on the firm.
++ Alternatively, it was urged that once the firm has been penalized, there would be no occasion in law to impose a penalty upon adjudication upon a partner of the firm. Commissioner of Customs vs. Jupiter Exports ( 2007-TIOL-329-HC-MUM-CUS ) relied upon.
These are the submissions of the Revenue:-
++ In view of the law laid down by the Supreme Court in Standard Chartered Bank vs. Directorate of Enforcement ( 2006-TIOL-16-SC-FERA-LB ) , the expression “offence” means the commission of an act contrary to or forbidden by law and is not confined only to the commission of a crime;
++ There is no reason to confine the provisions of Section 140 of the Customs Act, 1962 only to a criminal prosecution and to exclude a firm from the purview of the provisions in the matter of a penalty;
++ Both, a partnership firm and its partners are liable to be proceeded with for the purposes of adjudication even independently under the relevant provisions of the Customs Act, 1962, including Section 112.
The Bench after visiting the various penal provisions contained in Chapter XIV of the Customs Act, 1962, sections 117, 135 and section 140 of the Act made the following observation:-
“Subsection (1) of Section 140 creates a deeming fiction by which, where a person committing an offence under the Chapter is a Company, every person who, at the time of the commission of the offence was in charge of, and was responsible to the Company for the conduct of the business of the Company, as well as the Company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. However, by the proviso, a locus is granted to the person concerned to prove that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. Under subsection (2), which is prefaced by a non obstante clause, it has been enunciated that where an offence under the Chapter has been committed by a Company and it is proved that it has been committed with the consent or connivance of, or is attributable to any negligence on the part of any one of the officers named therein, such other person shall be deemed to be guilty of the offence. The explanation to Section 140 has further expanded the scope of the provision by bringing within the purview of the expression “Company”, a firm or an association of individuals. Similarly, the ambit of the expression “director” has been expanded to mean in relation to a firm, a partner of the firm.”
The High Court then summarized the principles enunciated by the Supreme Court in the case of Standard Chartered Bank vs. Directorate of Enforcement ( 2006-TIOL-16-SC-FERA-LB ) as under:-
(i) Both, in the matter of a criminal prosecution and in the imposition of a penalty, following a process of adjudication, the essential basis for the proceeding is a contravention of the provisions of the Act;
(ii) The expression “offence” cannot be narrowly confined to a commission of a crime alone, but would comprehend within its purview, the commission of an act which is prohibited by law;
(iii) The deeming fiction which is created in the case of an offence by a Company so as to bring within its purview, a person in charge of or responsible for the affairs of the Company as well as its stated officers would apply not only to a criminal prosecution, but to an adjudication as well.
Thereafter, the High Court concluded that the submission of the appellant cannot be accepted for the following reasons:-
“…This would in our view necessarily extend to a situation where in terms of the explanation the ‘Company' as defined is a partnership firm. In the case of a partnership firm, the expression ‘Director' is extended by the explanation to mean a partner of a firm. The principles which have been enunciated by the Supreme Court were sought to be distinguished, however, on the ground that unlike in the case of the FERA, the Customs Act, 1962 contains a separate Chapter on offences and prosecutions and that hence, the deeming fiction can only be confined for the purposes of prosecutions under the Chapter. Hence, it was urged that where an adjudication proceeding is commenced against a partnership firm, it would not be permissible to impose a penalty both upon a firm and its partner. The submission cannot be accepted. Acceptance of this submission would lead an anomalous situation where, for the purposes of a criminal prosecution, a partner of a partnership firm as well as a person who was in charge of and was responsible for the conduct of the business would be held responsible whereas a much narrower construction would have to be imposed while construing who could be proceeded with for the purposes of an adjudication. There is no logical reason why Parliament would intend to make a stricter provision in the matter of an adjudication leading up to the imposition of a penalty as compared to a proceeding in the nature of a criminal prosecution. Secondly, even as a matter of first principle, we have already analysed the provisions of Chapter XIV of the Customs Act, 1962 dealing with the imposition of a penalty and we see no reason or justification to confine the imposition of a penalty only upon a partnership or its partner. The Customs Act, 1962 is inter alia intended to regulate the levy of the duty of Customs. Obligations for exacting compliance in revenue legislation are cast upon diverse sets of persons or entities. For the purposes of revenue legislation, it is open to the Legislature to cast an obligation for compliance upon, as in this case, an importer or other person. An importer includes a person who is the owner or one who holds himself out as the importer of the goods. As a matter of first principle, there is no reason to exclude the exercise of power by the enacting Legislature to penalise a partnership, particularly when it is consistent with the overall scheme and object of the Act. Moreover, every person who was in charge of and was responsible to the firm for the conduct of the business of the firm, as well as the firm can be proceeded against. Where the contravention has been committed with the consent of or connivance of or is attributable to the negligence of the partner of a partnership firm, such partner can also be proceed against. This legal position emerges from the overall scheme of the Act. Section 140 only constitutes a statutory recognition of the position and is clarificatory….”
The High Court also noted that judgment of the Supreme Court in the case of Standard Chartered Bank was not brought to the notice of the Division Bench of the High Court which delivered the judgment in the case of Jupiter Exports. ( 2007-TIOL-329-HC-MUM-CUS ) and moreover the decision was a binding one .
In fine, the High Court held thus:-
“18. …, we dispose of the appeal by holding that for the purpose of imposing a penalty, the adjudicating authority under the Customs Act, 1962 may in an appropriate case impose a penalty both upon a partnership firm as well as on its partners. Whether the facts and circumstances of a case warrant the imposition of a penalty both on a firm and its partners should be decided upon the facts of each case . On this factual issue, we would remand the proceedings back to the Tribunal for a fresh determination….”
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