1. In this appeal, the appellants have challenged the validity and correctness of the order-in-original No. 16/87 dated 31.3.1987 passed by the Additional Collector of Customs, New Delhi and has sought for setting aside the imposition of fine of Rs. 1 lakh and penalty of Rs. 25,000/- under Section 112 of the Customs Act, 1962 hereinafter referred to as the Act.
2. The facts of the case as narrated in the order-in-original are that on the basis of specific information, officers of the Directorate of Revenue Intelligence (Nepal Division) New Delhi searched the business premises of the appellants in the presence of the partners of the firm.
As a result, a huge stock of Zip fasteners of foreign origin was recovered. On questioning one partner Shri Som Nath Malik produced the documents of importation and payment of duty. But however, the officers found wide variation between the balance of zip fasteners as shown in the stock register and the balance of a stock as found on physical verification. Another partner Shri Girdhari Lal Malik, informed the officers that they had not made the necessary entries in respect of Gate passes Nos. 426 to 429 all dated 18.1.1986 and one bill No. JM 642/643/644 dated 28.10.1985 of Yoshida Kogyo KK. The officers on verification still found wide difference between the actual stock and recorded balance. The said calculation was brought out in the show cause notice. In brief they found excess in stock of 70,819 metallic and non-metallic zip fasteners against book balance of the Notified Register and of 166362 pieces of zip fasteners of various sizes which were alleged to have been sold without issue of any bill/ voucher in contravention of the provisions of Section 11 of the Act As Shri Somnath Malik could not give any satisfactory explanation for the variations between actual stock and the stock register, zip fasteners of foreign origin were seized on the reasonable belief that the same were liable for confiscation under the Act. The relevant documents were seized.
3. The statements of Shri Somnath Malik, Shri Girdharilal Malik and Arun Malik were recorded on 24.1.1986, 19.2.1986, 13.3.1986, 18.3.1986 and 21.4.1986 respectively.
4. A show cause notice dated 19.6.1986 was issued to M/s Malik Brothers, Delhi, Shri Girdhari Lal Malik, Shri Somnath Malik and Shri Arun Malik under Section 111(d) and (h) of the Act to explain as to why the following confiscation should not be done of (i) 70,819 pieces of zip fasteners of foreign origin (ii) 3,36,688 pieces of zip fasteners of foreign origin They were also asked to explain regarding 1,66,362 pieces of zip fasteners of foreign origin not physically available with them and also to explain why personal penalty should not be imposed. In the show cause notice, they were also informed that under Section 123 of the act the onus to prove that 70,819 pieces of zip fasteners of foreign origin of various sizes found excess in their stock register were not smuggled one, lien on the person(s) from whose possession such goods were recovered.
5. The appellants submitted their written reply dated 11.7.1986 They submitted inter alia that they were dealing both in foreign made zip fasteners and Indian zip fasteners, that both types of zip fasteners have similar type of marking. They admitted that Shri Girdharilal had informed the DRI officers that no entries had been made in the Register by the negligence of the clerk of Gate Passes Nos. 426 to 429 all dated 18.1.1986 and Bill No. JM-642/643/644 dated 28.10.1985; that on checking of the complete Bill wise receipts of the foreign made zip fasteners, it was found that the quantity received and not entered far ex ceded the excess found over the book balance; that as such it was not correct that 70,819 pieces were lying in excess of the quantity actually received or 1,66,362 pieces had been sold out without issuing the bills/invoices-that there were clerical errors in maintaining the accounts only; that all the zip fasteners received or found in excess were purchased under proper vouchers from recognised dealers who had in turn imported them under valid import licences; it was further submitted in reply that they had not acquired a single zip fastener of foreign origin illegally in contravention of Section 11 and 11 D They however, admitted that this was carelessness of their clerk in maintaining proper entries and it merely amounted to technical breach of the provisions of Section 11E of the Act but the firm did not have any mala fide intention and hence sought for condoning the technical breach.
6. A personal hearing was granted and after hearing the appellants, the learned Collector passed the impugned order. The learned Collector found no mala fides on the part of the appellants; that barring 70819 pieces of zip fasteners of particular size found not entered in the register, other quantities had been generally entered in the register though not in complete form and generally had maintained receipts and issued records every year since 1986 and hence for non-maintainance of record, the Collector took a lenient view. He held the charge of 70819 pieces found in excess and 166362 pieces found short of what has been entered in the register and the offence of non-observance of provisions of Chapter IVA as established. He presumed the market value at RS.3,14,959/- Rs. 4,82,466/- and taking into account the duty element and reasonable profit margin and held CiF value of goods as much less. The learned Collector after analysing the statements of the partners and taking into consideration their written reply and the arguments adduced by their Consultant, passed the impugned order. Against this, the present appeal has been preferred.
7. The main grounds of this appeal as urged in the Appeal Memo are That the Collector was unjustified in imposing a redemption fine of Rs. 10.0C0/- even though he was satisfied that they had lawfully acquired it. They were not aware of some pieces being in excess and some in short as their clerk had not made proper entry of the zip fasteners received and sold till their stocks were checked by the DRI officers.
They had removed two of their employees in August 1985 on their suspicion of stealing zip fasteners. They cannot be vicariously made responsible for the acts of their servants by imposing such a heavy fine. They have contended that it is a purely procedural and unintentional act.
8. The appellants explanation regarding shorteage of zip fastners is that they did not have any mala fide intention in not making entries in the register The Indian and foreign zip fasteners look alike having same colour and size with almost same marking. As such, there is no shortage and the lapse is purely procedural. They have further stated that the Collector had accepted the goods as duty paid and since they did not have any mem rea and the goods were lawfully acquired, the imposition of penalty of Rs. 25,000/- under Section 112 was wholly unjustified.
9. As regards 3,36,688 pieces still lying in the stock of which entries were available in the notified goods register, the imposition of Rs. 1 lakh penalty by the Collector is extremely heavy. The Collector has imposed this Rs. 1 lakh fine for non-maintenance of records which is purely due to clerical and procedural lapse when they did not have any mala fide intentions. They have submitted that a warning in this regard would have been sufficient in the facts and circumstances of the case.
The fine under Section 112 of Rs. 25,000/-is without assigning any reasons. The Collector having imposed Rs. 1 lakh fine for non-maintenance of proper account was not justified in ordering for confiscation of 3,36,688 pieces of goods which were found lying in excess but however, were correctly accounted in stock out of book balance. They have questioned the imposition of Rs. 1 lakh fine which according to them is unjustified when penalty had been imposed under Section 112 of the Act.
10. Shri Y. N. Chopra, Consultant argued the case for the appellants and reiterated the grounds of appeal. He submitted that the appellants were notified dealers and that they were having turnover of Rs. 1.5 crores. The offence was highly technical in nature inasmuch as the clerks had not properly maintained the accounts and for that lapse, the appellants had taken action against them by removing them from service.
He further reiterarated that there was no mala fide intention in committing the technical breach in improper maintenance of account and for trivial offence, the imposition of fire of Rs. 25,000/ seizure of goods and redemption fine of Rs. 10,000/- and again imposition of fine of Rs. 1 lakh were wholly unjustified, illegal and in-proper The relied upon the case of Old Village Industries v. Collector of Customs, New Delhi 1988(17)HCR 606 NRB wherein it is laid down that 'men's rea' is required to be established for imposition of fine and penalty which had not been proved in the instant case. He also relied upon the case of Sethi Motor Corporation v. Collector of Customs, Bombay 1989 (20) ECR 252 in which similar ruling had been laid down.
11. Shri R.M. Ramchandani, Departmental Representative appearing for Department submitted that the charges in the show cause notice had been established. The non-maintenance of accounts is an admitted position.
There were clear mala fides on the part of the appellants inasmuch as they having sold the zip fasteners without vouchers had been established and further the appellants had not given convincing reasons for non-accounts and they had not placed proper evidence to clear the charges against them and hence the order of the learned Collector was sustainable in law. He justified the imposition of the penalty, fine and redemption fine in the impugned order.
12. We have heard both sides, perused the records and were given our thoughtful consideration to the same. The main question that arises for our consideration is as to whether the appellants have committed any violations of Chapter IV A or is it a mere technicality in maintenance of accounts as contended by them and as to whether they are entitled for lenient action of a mere warning or lesser punishment in absence of mala fides and mens rea on their part as urged by them. The admitted facts of this case are that the raid at the premises on 20.1.1986 leading to the seizure of zip fasteners, snap fasteners (press buttons) sliders, zipper roll, plastic measuring tapes of foreign origin. As per the panchnama dated 20/21.1.1986 the goods of Indian origin were nut seized but seizure was confined to foreign goods and documents produced at the time of seizure were listed in Annexure B of the panchnama and details of seized goods were listed in Annexure A of panchnama. The seized goods were packed in 125 gunny bags. The search was conducted in the presence of Shri Som Nath Malik partner of the appellants firm. As per the Panchnama, his statement was recorded and he could not give satisfactory explanation for the numerous variations in different categories of zip fasteners of foreign origin between the actual stock and stock as shown in the stock register. Hence, it resulted in seizure of the impugned goods. The voluntary statements of partners Shri Arun Kumar Malik and Shri Girdharilal Malik were recorded on various dates.
There has been no resilement of any of the statements of the partners of the firm or the contents of the panchnamas disputed. Both partners Shri Somnath Malik and Shri Arun Kumar Malik have stated that their brother Shri Girdharilal Malik is having full knowledge of the business affairs of firm and with regard to differences of foreign goods seized from the business premises. So it follows that the statement of Shri Girdharilal Malik recorded on various dates viz. 24.1.1986 and 19.2.1986, 10.3.1986, 13.3.1986 and 18.3.1986 assumes great importance for the determination of this case. The show cause notice dated 19.6.1986 had been issued after thorough analysis of these statements and complete verification of the stocks, accounts and registers of the firm. The appellants firm through their consultant had filed their objections to show cause notice also. The impugned order has been passed after taking into full consideration of all these statements and arguments adduced by the consultant. In fact the reply to the show cause notice clearly shows that they have confirmed all the statements made by partners and no dispute is raised regarding it from reading of the statements and the reply to show cause notice the following admitted facts emerge for our consideration namely (i) the appellants did not have any in-port licence for the import of the impugned goods but have only notified under Customs Act about zip fasteners. They had been maintaining accounts regarding it from 11.8.1984. They buy against bills and sell the same to Garment exporters and hag manufacturers against bills and cash memos and against gate passes. They did not effect retail sales. It was admitted that on 20.1.1986 the officers lad found Gate pass book bearing S. Nos. 401 to 450 dated 3.12.1986 from which Gate passes for the sale of zip fasteners were issued. Gate pass Nos. 426 to 429 all dated 18.1.1986 were not brought in the that he was not well and due to that he did not enter it in the Mock register. (ii) In the statement on 19.2.1986, Shri Girdharilal Malik had submitted that he was aware that as per notification No. 4/85 Customs dated 7.1.1985 regarding amendment of 'Notified goods' (Presentation of Illegal gal import) Rules, 1967 the accounts of zip fasteners had to be maintained lengthwise teeth material wise and colourwise by them as notified dealers. They were maintaining stock as per lengthwise and teeth material wise which is metallic and non-metallic but were not maintaining the stock of zip fastners colour wise on account of eighty colour range and practical difficulty involved in it. He had admitted that certain entries were not recorded in the stock invoice Nos.
JM-642, 643, 644 dated 28.10.1985 and Gate Pass Nos. 426 to 429 were also not entered in the stock register. These entries were not entered in stock register as they had a family function and due to oversight these entries were not made. He admitted shortage of 9543 pieces of zip fasteners and in regard to difference of 2.13 lakhs of pieces of zip fasteners, he explained that it may be due to counting mistake and could be that it was possibly due to mix up with Indian zip fasteners.
(iii) In his statement of 18.3.1986, Shri G. L. Malik admitted after explaining certain queries that he was presenting on that date Bill of Entry for purchase of zip fasteners from M/s. Unique Fashions Bombay and the stocks mentioned in the Bill of Entry invoice presented was not taken into account as the goods were received only on 20.1.1986, on the date of raid by DRI officers on their premises.
As explained the regarding invoice No. 62 dated 27.12.1985 of M/s.
Kusum Sales Corporation, it had not been entered in stock register due to oversight of the Accountant. He had stated as "this mistake might have been committed by my employees but as a partner I take the responsibility". He further stated that only a few days back he learnt that some of his present staff were indulging in theft from his shop and "finally we came to the conclusion that the shortage must have been due to theft of zip fasteners from our shop".
(iv) In his further statements of 18.3.1986, Shri G. L. Malik stated that they do not dispute the counting of zip fasteners done on 21.1.1986. Regarding shortage of zip fasteners he submitted that it came to their knowledge a few days back that his staff were stealing and selling zip fasteners in small quantity over a period of time.
On questioning, he submitted that he heard about it from the market in general that his goods were being stolen and sold to parties at a lower rate. He stated that his employees who were stealing and selling it to various parties had left his employment a few months ago. He did not know about their whereabouts. He submitted that from the market he learnt that his present staff were also stealing and selling zip fasteners but he had not lodged any police complaint or taken action on the staff On further questioning, he stated that on suspicion he had removed two employees Mishri and Beechoo from employment.
(v) His further statement was again recorded in the course of the day on 18.3.1986, in which he made improvements regarding his employees by saying that in the register maintained under Shops and Establishment Act, their names were given as Mishrilal and that of the other employees was shown in the register as Sai Dass who was supervisor also known as Sethi. He knew him only by the name of Beecho.
(vi) In their reply dated 11.7.1986, to the show cause notice, the counsel had put the following defences: (a) The firm had employed Narinder Kumar on part time basis to write daily accounts of purchase and sales of the zip fasteners "and as it now seems he was careless in not entering all the zip fasteners that (sic) (b) They submitted that on rechecking they found that entries had not been done but therefore, it was not correct that 70819 pieces were lying in excess or 1,66,362 pieces had been sold without issuing bills/invoices.
(c) "The shortage is due to the fact that the foreign marked zips and the Indian zips of the same size look alike having almost similar trade marks and colour. It seems that the staff, some of them are not literate, issued the foreign marked zips in place of Indian zips to the customers who had come to buy Indian made zips.
Further it was stated "it seems that some of the zips found short were stolen by our staff employees which could come to our notice only when the customs officers checked our stocks of zips on 20.1.1986".
(d) It further stated that "it is also correct that Gate passes No. 426 to 429 dated 18.1.1986 due to the mistake of the part time clerk, could not be entered in the stock register. Similar is the case for not making entry of invoice No. JM-642, 643 and 644 dated 28.10.1985 of M/s. Yoshida Kogyo K K Japan. These are clerical errors due to negligence, carelessness or oversight of the staff".
It is further submitted that "the shortage may be due to counting mistake". The differences as explained by Shri Girdharilal could also be due to counting mistake of such a large quantity of zips and the shortage partly also due to the fact that their staff may have been stealing some zips during all this period which came to their notice only on 20.1.1986 when the Customs officers checked their stocks". In the written objection to the show cause notice, they "admitted that due to the carelessness of their clerk proper entries of the zips when received under proper vouchers or sold to different customers were not made & these may have a been technical breach of the provisions of Section 11E of the Act." In the written objection to show cause notice, the Consultant on behalf of the Appellant firm prayed that the only lapse of the firm in not maintaining complete account of the zips acquired lawfully and sold was sought to be condoned.
13. The allegation of unauthorised import of 70819 of zip fasteners and the charge of unauthorised importation rendering its confiscation under Section 11l(d) of the Act was held unsustainable by the Collector as the invoices and gate passes had not been disputed by DRI and also because the Collector held that the statement of the party regarding purchase of zip fasteners from various importers and import of zip fasteners against REP licences had not been countered by DRI.14. The other charge held against the party was non-observance of Chapter IV A provisions. In terms of 11E and the Rules made thereunder persons possessing notified goods are required to maintain records of the goods in the specified manner. The Collector held that the party had not made any entry in respect of 70819 pieces of zip and held liable for confiscation under Section 11l(p) of the Customs Act. The defence of the lapse on the part of their employees and that they came to know of this lapse only when the DRI had defected it was not accepted in view of earlier statement dated 18.3.1986 to the effect that they had removed 2 of their employees in August 1985 from the service on account of suspected theft. The Collector held their act as an act of negligence and lapse of employees as lapse on the part of the employer and further held that the firm cannot get away with the plea that they were not aware of the lapse of their employee.
15. With regard to charge of shortage of 16,6363 pieces of zip fasteners. (sic) 11(F) of the Customs Act. The Collector held that the plea that some quantity had been stolen by their employees and some might have been sold as Indian goods was not satisfactory and the same cannot absolve the party of their liability for violation of the provisions of Section 11F of the Act. The Collector held that in the eye of the law, wrongful act done by his employee is wrongful act done by employer and hence held the party having violated provisions of Chapter IVA of the Customs Act. He noted the admission of the lapse by the pary in his statements.
16 With regard to non-maintainance of proper accounts in respect of 33 6688 pieces of imported zip fasteners as required under Section 11E of the Customs Act, the Collector held that this figure was arrived at after deducting excess 70819 pieces from the total of 407507 pieces found by DR1. He held that the provisions of Chapter IV A had not been observed properly in respect of these pieces and held liable for confiscation under Section 111(f) of the Act. However the Collector held that as there was no mala fide intention on their part that barring 70319 pieces of zips of particular size found not entered in Register other quantity had been found to have been entered in the register though not in complete form and hence the Collector took lenient view insofar as the offence of non-maintaining the complete records in respect of the goods seized was concerned. The Collector found the charges of 7081 9 pieces found in excess and 166362 pieces found short and the offence of not observing of Chapter IV A as established. He held the seized goods liable for confiscation under Section 11l(p) of the Act read with Section 11D, 11E and 11F of the Act He gave option to redeem the seized goods under Section 125 of the Act and imposed redemption fine of Rs. 10,000/- and also on account of non-maintenance of complete records of 3,36,688 pieces of zip fasteners. He imposed a fine of Rs. 1 lakh on account of failure to keep records in respect of 70819 pieces found in excess and 1,66,362 pieces found short valued and imposed a penalty of Rs. 25,000/-on the firm M/s. Malick Bros, under Section 112 of the Act.
17 Let us examine the entire case from this back ground and admitted facts and findings given by the learned Collector and see if the imposition of penalty fine and redemption fine is justified in law from the tacts and circumstances of the case and whether it calls for leniency as contended by the appellants. As can be seen the DRI had dropped the charges of illegal importation of 336688 pieces of imported zips. The learned Collector has expressed his displeasure at the DRI not going into its detail by calling the party to produce the documents which they had claimed to have with them. When the DRI had shown so much exuberance and enthusiasm in raiding the premises and seizing the entire foreign stocks in 125 gunny bags, it was not open to them to have exonerated this charge before issue of show cause notice when satisfactory reply and records had not been placed by the appellants However, the learned Collector could have still amended the show cause notice and called upon the party to explain the possession of such huge stocks since the same has not been done and its seizure and confiscation has been held bad by the learned Collector, the imposition of the redemption fine of Rs. 10,000/ regarding it is also unsustainable when separate penalty and fine for nonaccountal has been imposed. Hence, we set aside the imposition of the redemption fine of Rs. 10,000/- imposed for seizure and confiscation of imported goods.
18. The charges of unaccountal of excess of 70819 and 166362 [pieces found short had been established. The appellants have not seriously disputed these charges. They have clearly admitted it as can be seen, by reading the admitted position of their statements extracted above.
But they are asking for condonation and clemency on the ground of technical(sic) by their employees. The learned Collector had disbelieved these defence and versions as he found it unsubstantiated and the party having shifted from this stand again and over again and also on the failure on the part of the party to place clear and cogent evidence in this regard. We are in clear agreement with the findings of the learned Collector on this count. A plain reading of the statement of Girdharilal Malik given on various dates along with his written explanation to the show cause notice makes it very clear that the appellants had been making out fresh pleas in variance to the earlier pleas. The pleas are neither definite nor clear cut. It is vague and misleading. In the first instance, Shri. G. L. Malik had admitted that the accounts are entered by him, then he said that it could not be done as he was unwell, then he changed it to say that as there was family function it could not be. Then again it was changed and for the first time stated in their reply dated 11.7.1986 that the firm had employed one Narinder Kumar on part time basis to write down daily accounts of purchase and sale of the zip fasteners and it is interesting to note that even this is not clear when they mentioned that "it now seems he was careless in not entering all the zip fasteners that had been received/sold by the firm, in the notified goods register" (emphasis supplied). Through out the statements of Shri Girdharilal Malik and in the written reply, the stand is slippery and on vague terms by using words like "it seems". As regards shortage, the explanation is equally shifting and changing. He initially explained that it could be due to counting mistake, then he said that it could be due to mix up with Indian zip fasteners due to its similarity. Then in the end, he stated that after the raid, they learnt from market that their staff was committing theft. Even this is not clear. They presumed that the theft could have been done by the employees who had left the employment a few months ago. The names of the employees furnished initially did not tally with the Register of employment. This discrepancy, they tried to explain by stating that the employees were referred to by more than one name but he knew by another name. Again, another stand was taken that their employees were selling foreign zips as Indian zips as the employees were illiterate and unable to differentiate between them.
Even this stand is not clear as they have put it by using words "it seems that some of the zips found short were stolen by our staff employees which could come to our notice only when the customs officers checked our stocks of zips on 20.1.1986". Again by use of words "the shortage partly also due to the fact that their staff may have been stealing some zips". Such incoherant and vague replies are evasive and no conclusion can be based on these type of answers and replies. The party has not placed any material or proof to substantiate these pleas of technical breach or of negligence of staff. Therefore, the learned Collector was justified in disbelieving the version of the party and holding the charges of non-observance of Chapter JVA as held by them liable under various provisions of the Act. The appellants had explained that they had no mala fides on their part in committing these breaches and they were of technical nature. The defences taken by them are vague, in variance with each other and indefinite and unclear and hence they having not brought forth any evidence to show that it was due to negligence and a mere technical breach, their plea has to be rejected and the order passed by the lower authorities has to be upheld. Hence the rulings relied upon by the learned Consultant in the course of arguments is not of any help to him.
19. The only other question which remains to be answered is the question of penalty and fine. We have already set aside the redemption fine of Rs. 10,000/- as the charge pertaining to it had been dropped.
The learned Collector has imposed a redemption fine of Rs. 1 lakh on account of failure to keep records in respect of 70,819 pieces found in excess and 1,66,362 pieces found short Viewing from the entire facts and circumstances of the case, this fine for two counts appears to be excessive. We reduce the same to Rs 20. As regards the imposition of penalty of Rs. 25,000/- under Section 112 of the Act, we are unable to agree with the appellants. Penalty under Section 112(a) is liable to be imposed for any action or omission which renders the goods liable for confiscation under Section 111, Confiscation under that section has already been upheld for 70,819 pieces. Accordingly, imposition of some penalty is justified. However, having regard to the facts and circumstances of this case, penalty is reduced from Rs, 25,000/-to Rs. 5,000/-. Appeal disposed off accordingly.