Declaration by the Company of tax arrears does not cover the tax arrears of the Directors: SC upholds HC judgment [Read Order]

A two member bench of the SC has dismissed the Special Leave Petition requesting for the waiving the liability of the Directors of Seville Products Ltd. The bench has held the proposal to impose penalties/liability were separate and severable. The appellant had been aggrieved by the levy of penalty under Section 112( a ) of the Customs Act, 1962 . The Adjudicating Authority had imposed penalties of ₹13,00,000/- ( Rupees Thirteen Lacs ) and ₹23,00,000/- ( Rupees Twenty- three Lacs Only ) under Section 112( a ) of the Customs Act, respectively.The aforesaid orders dated 29.04.2016 and 06.05.2016 were rendered pursuant to the show cause notices dated 11.08.2014 and 16.06.2014 issued by the Additional Director, DRI, respectively. The assessee, Seville Products Ltd is an entity located in Dubai and is engaged in the business of supplying confectionary items such as wafers, cookies, toffees etc. The appellant had been exporting the said goods to various importers in India. It is stated that the officers of Directorate of Revenue Intelligence had gathered intelligence that certain importers importing confectionary items from the appellant and M/s Kelsen Group AS, Denmark were evading customs duty by under-invoicing the goods and mis-declaring the transaction value and the retail sales price. The assessee had argued before the High Court that no penalty can be imposed under the Customs Act against an overseas supplier as the Customs Act does not have extra-territorial operation. Revenue contended that the levy of penalty under Section 112( a ) of the Customs Act is thus wholly illegal and beyond the jurisdiction conferred under the Customs Act. The assessee had further contended that since the proceedings against the importers and other co-noticees have been dropped pursuant to the said parties approaching the Settlement Commission, no proceeding for abetment and evasion of customs duty can be maintained against the assessee who is merely a co-noticee. Revenue had contended before the High Court that the contentions made by the assessee that no penalty under Section 112( a ) of the Customs Act can be imposed as it is an overseas entity and the Customs Act does not have any extra-territorial operation is wrong. Revenue further contended that the assessee was found to be complicit in clearance of the goods on the basis of false invoices issued by the appellant. Revenue further contended that the appellant had collected part of the consideration for the goods in India, which was sent to it through hawala. The alleged offences had been committed within the territory of India. Revenue contended that the contention that the levy of penalty under Section 112( a ) of the Customs Act on the appellant was beyond the purview of the Customs Act was wholly misconceived. Revenue had argued that the modus operandi for such evasion was that the exporters involved issuing two invoices: one for a value lower than the actual consideration, which would be used for clearance of the goods; and the second invoice for the full amount of consideration. The Bills of Entries would be filed on the basis of the lower value invoice. The invoice for the entire consideration would not be disclosed. The consideration reflected in lower value invoices, on the basis of which goods were imported, were remitted through normal banking channels and reflected in the books of accounts of the exporters. However, the invoices issued for the balance portion were collected by agents of the assessee and the Kelsen Group, in India. The Court had held that although the show cause notices were issued to various noticees, the proposal to impose penalties/liability were separate and severable. Discharge of liability of one of the noticees either by making payment without a contest, or by settlement before the Settlement Commission would not absolve the other noticees from their liability. The two judge bench of the Supreme Court consisting of Justice Pamidhigantam Sri Narasinha and Justice Aravind Kumar dismissed the Special Leave Petition and upheld High Court judgment on the matter.Assesse was represented by Charanya Lakshmikumaran, Apeksha Mehta, Falguni Gupta, and Neha Choudhary.Revenue was represented by Umang Motyani Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates