[Cites 10, Cited by 0]
Madras High Court
M/S.Seaswan Shipping And Logistics vs The Commissioner Of Customs on 15 April, 2026
Author: N.Anand Venkatesh
Bench: N.Anand Venkatesh
CMA(MD)No.755 of 2025
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved on 09.04.2026
Pronounced on 15.04.2026
CORAM:
THE HONOURABLE Mr.JUSTICE N.ANAND VENKATESH
AND
THE HONOURABLE Mr. JUSTICE K.K.RAMAKRISHNAN
CMA. (MD)No.755 of 2025
M/s.Seaswan Shipping & Logistics
16/3 Chidambara Nagar, 1st street,
Tuticorin 628 008 .. Appellant
Vs.
The Commissioner of Customs
Tuticorin, Custom House
New Harbour Estate,
Tuticorin 628 004 ..Respondent
Appeals filed under Section 130 of the Customs Act, 1944 against the
final order No.FO/A/40008/2024-CU(SM) dated 03.01.2024 in Appeal
C/40255/2025 on the file of the Customs, Excise and Service Tax Appellate
Tribunal, Chennai.
1/19
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CMA(MD)No.755 of 2025
For Appellant : Mr.N.Viswanathan
For Respondent : Mr.R.Gowrishankar
Senior standing counsel
COMMON JUDGMENT
(Judgment of the Court was delivered by N.ANAND VENKATESH, J.)
This Civil Miscellaneous Appeal has been filed under Section 130 of
the Customs Act against the final order passed by the Customs Excise and
Service Tax Appellate Tribunal (CESTAT), Chennai in Final order No
No.FO/A/40008/2024-CU(SM) dated 03.01.2024 in Appeal C/40255/2025.
2. The appellant is a licensed Customs Broker under the Customs
Brokers Licensing Regulations 2018. They are authorised to do business at
Chennai and Tuticorin. The appellant filed shipping bills for the export of
safety matches for about 17 exporters during the period from 2017 to 2019,
which included one of the exporter named M/s.Shivam Exports. The
exported goods is covered by such shipping bills were machine made safety
matches which were classified under CTSH36050090 for a FOB value of
Rs.5,73,80,848/-. The shipping bills were filed under claim for benefit under
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MEIS scheme. Under this scheme, the exporter is eligible to get MEIS
scrips based on the FOB value realized, which is issued by the DGFT
authorities. This MEIS groups is freely tradable in the market and an
importer, who purchases them can use it for payment of customs duties on
the import of any goods by them.
3. In respect of the above exports, it was duly assessed and cleared by
the customs department and the exporter also received MEIS scrips to the
extent of Rs.11,47,617/- from the DGFT authorities.
4. The officers attached to SIIB of the Tuticorin customs conducted an
enquiry with the exporter for whom the appellant had filed 32 shipping bills.
Notice was issued and explanation was sought for on the ground that there
was excess availment of MEIS benefits, since a wrong classification had
been indicated in the application.
5. On conclusion of enquiry, while issuing notices to the exporter and
the importer, notice was also issued to the appellant, who are customs
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brokers for imposition of penalties under section 114 and 114AA of the
Customs Act ('the Act' in short) for contraventions due to incorrect
classification of the safety matches as CTSH36050090 instead of
CTSH36050010.
6. The appellant submitted a reply dated 29.09.2022 and contested the
charges levelled against them.
7. The adjudicating authority passed an order dated 30.09.2022 and
confirmed the allegations made in the show cause notice and sustained the
penalty of Rs.10 lakhs, which was imposed on exporter as well as the
customs broker.
8. The appellant filed a statutory appeal before the CESTAT, Chennai.
The tribunal pronounced its final order dated 03.01.2024 and modified the
penalty to Rs.1 lakh under Section 114AA of the Act and the penalty under
Section 114(III) was set aside. Aggrieved by the same, the present appeal
has been filed before this court.
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9. When the notice was ordered by this Court, substantial question of
law was not framed.
10. After service of notice, when the matter was came up for final
hearing today, this Court had considered the submissions made on either
side and framed the following substantial questions of law:
“1. Whether the learned 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 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 learned Tribunal was right in approving
the demand made and confirmed by the respondent herein by
invoking Sec. 28 of the Customs Ac 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
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not levied was involved and when only the provisions of Sec.
28AAA 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 learned Tribunal was right in recording
the finding of guilt on the appellant to sustain the penalty on
them under Sec. 114 AA of the 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?
11. This Court heard the learned counsel on either side on the above
substantial questions of law framed by this court.
12. The main ground that was urged by the learned counsel for the
appellant is that the appellant filed the shipping bills indicating CTSH as
36050090 for the machine made safety matches exported on the basis of the
instructions and advice of the exporter. The officers of the customs of
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Tuticorin port accepted the same along with the similarly placed exports and
granted the permission.
13. It was further submitted that MEIS benefits/rewards are given by
the Ministry of Commerce/DGFT under the Foreign Trade policy to the
exporter. The foreign trade office has not raised any dispute with regard to
the correct classification of the goods or initiated any proceedings in this
matter against the exporter, who have been granted the scrips. However, the
customs authority on the assumption that the exporter had made a wrong
classification to claim additional or extra benefit has overstepped their
jurisdiction and that the very premise on which the demand was made is
illegal and unsustainable.
14. It is further submitted that mensrea is required while imposing
penalty under Section 114AA of the Act and merely because there was an
error while mentioning the classification of the goods that by itself does not
import mensrea. Therefore the very penalty imposed is bad.
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15. Per contra, the learned Senior Standing counsel submitted that the
goods declared by mentioning the classification as CTSH36050090 instead
of CTSH36050010, on the face of it, was intentional since there was only
one specific head for safety matches. The appellant being an exporter is
aware about the same and in spite of it declared a wrong CTSH. It was
further submitted that MEIS scrips was received by means of wilful
misstatement in respect of the classification of goods and a huge revenue
loss was caused to the Government. Therefore, there is every justification
for imposing penalty.
16. There is no dispute that it is only the DGFT which glants the
MEIS rewards/benefits in terms of Chapter III of the foreign trade policy.
The allegation against the appellant/customs broker is that the exporter had
availed excess rewards/incentives by showing the CTSH number as
36050090 as against MEIS benefit for CTH36050010 which is 3%.
17. The principle ground that has been raised is that MEIS
rewards/benefits are conferred only by DGFT authorities and therefore no
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action can be taken by the customs authorities. Thus, the very jurisdiction
of the customs authorities has been put to challenge in the present case.
18. At this juncture, it will be relevant to take note of the judgment of
the Apex Court in Titan Medical Systems Pvt. Ltd., v. Collector of
Customs, New Delhi reported in 2003 (151) ELT 254. That was also a case
where advance license was granted to the manufacturer and later a show
cause notice came to be issued on the ground that the petitioner therein had
not complied with the conditions of the exemption notification. The
relevant portions in the judgment are extracted hereunder:
“13.As regards the contention that the appellants were
not entitled to the benefit of the exemption notification as they
had misrepresented to the licensing authority, it was fairly
admitted that there was no requirement, for issuance of a
license, that an applicant set out the quantity or value of the
indigenous components which would be used in the
manufacture. Undoubtedly, while applying for a license, the
appellants set out the components they would use and their
value. However, the value was only on estimate. It is not the
respondents' case that the components were not used. The
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only case is that the value which had been indicated in the
application was very large whereas what was actually spent
was a paltry amount. To be noted that the licensing authority
having taken no steps to cancel the license. The licensing
authority have not claimed that there was any
misrepresentation. Once an adverse license was issued and
not questioned by the licensing authority, the customs
authorities cannot refuse exemption on an allegation that
there was misrepresentation. If there was any
misrepresentation, it was the licensing authority to take steps
in that behalf.”
19. The above judgment of the Supreme Court was considered by the
Division Bench of the Kerala High Court in Nitta Geletin India Ltd., v.
Commissioner of Customs in Customs Appeal No.2/2025 by order dated
26.06.2025. That was also a case where an incorrect classification was
given by the exporter, who had availed of advance authorisation scheme
from DGFT which enables duty free import of inputs. Later the authorities
found out that there was wrong classification and hence demanded
differential duty notwithstanding the fact that the goods imported were
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governed under the advance authorisation scheme. The Kerala High Court
held as follows:
“8. On a consideration of the rival submissions, we find
that the question that essentially arises for consideration is
whether, on the facts of the instant case, a mis-description of
the inputs imported under cover of an advance authorization
is really relevant for the purposes of levy and collection of
import duty under the Customs Act read with the Customs
Tariff Act. It is significant that under the Foreign Trade
(Development and Regulation) Act, the issuance of advance
authorization and monitoring of the imports effected under
cover of such advance authorization is within the regulatory
jurisdiction of the DGFT. In the instant case, the authorities
entrusted with the administration of the advance
authorization scheme do not have a case that there was a
breach of any of the conditions of the advance authorization
issued to the assessee. That apart, we note from the provisions
of the Foreign Trade Policy, 2009 to 2014 issued by the
Central Government under Section 4 of the Foreign Trade
(Development and Regulation) Act, that the object of the
advance authorization scheme is only to ensure that what is
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imported is an input that is used for the manufacture of a final
product that is exported. We also find that the import of items
under Chapter 5 and Chapter 35, to the extent relevant for the
instant cases, are both restricted in terms of the Foreign
Trade Policy, and the limited condition under which products
under the said Chapters can be imported is that they have to
be covered by an advance authorization granted by the
Central Government. It is not in dispute in the instant case
that the advance authorization was in fact granted to the
assessee, and under cover of the same, the assessee had
imported the very same item albeit under different names for
many years. For the period between 2012 and 2016, the very
same product was imported as 'fish protein' whereas it is only
in respect of 9 Bills of Entry filed thereafter that the item
imported was shown as 'decalcified fish scale'. The Revenue
does not have a contention that the items imported earlier and
now were, in any manner different, except for the differential
description of the same in the import documents. It is
presumably by noting that the item imported was the same
that the authorities under the advance authorization scheme
did not view the imports of the same goods under a different
name as a breach by the assessee of any of the conditions of
the advance authorization granted to them. We also note that
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under the advance authorization scheme, whether the goods
are classifiable under Chapter 5 or Chapter 35, they are
liable to only a nil rate of duty so long as they are covered by
the advance authorization scheme.
9. It is against the backdrop of the above factual
position that we need to consider the case of the Revenue that
the assessee was not entitled to the benefit of the Notification
No.96/2009 dated 11.09.2009 that granted the benefit of nil
rate of duty in respect of inputs imported under the advance
authorization scheme. In view of the discussion above, we
have to hold that in as much as the classification of the
imported items had no bearing on the legality of imports for
the purposes of the advance authorization scheme, and the
authorities entrusted with the administration of the said
scheme have not viewed the different descriptions used by the
assessee at the time of import of the product under the
advance authorization scheme to be in breach of the terms
and conditions of the advance authorization, the stand of the
Revenue that the assessee would lose the benefit of the
notification in question, cannot be accepted. It is relevant in
this connection to notice the judgment of the Supreme Court
in Titan Medical Systems Pvt. Ltd. v. Collector of Customs,
New Delhi [2003 (151) E.L.T. 254 (SC)] where in almost
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identical circumstances, where the customs authorities had
demanded a differential duty alleging a mis-representation of
facts to the licensing authority, the Supreme Court, while
rejecting the said contention, found as follows:
"As regards the contention that the
appellants were not entitled to the benefit of the
exemption notification as they had misrepresented
to the licensing authority, it was fairly admitted
that there was no requirement. for issuance of a
licence, that an applicant set out the quantity or
value of the indigenous components which would
be used in the manufacture. Undoubtedly, while
applying for a licence, the appellants set out the
components they would use and their value
However, the value was only an estimate. It is not
the respondents' case that the components were
not used. The only case is that the value which had
been indicated in the application was very large
whereas what was actually spent was a paltry
amount. To be noted that the licensing authority
having taken no steps to cancel the licence. The
licensing authority have not claimed that there
was any misrepresentation. Once an advance
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licence was issued and not questioned by the
licensing authority, the Customs authorities cannot
refuse exemption on an allegation that there was
misrepresentation. If there was any
misrepresentation, it was for the licensing
authority to take steps in that behalf."
10. We also find that in view of the fact that it is not in
dispute that the assessee has been importing the same product
during the previous transactions covered by 42 Bills of Entry
[in respect of which, the Tribunal had set aside the demand of
differential duty] and the subsequent transactions covered by
9 Bills of entry [which are under provisional assessment),
there is no justification for demanding a differential duty
payment for the latter transactions alone. We are also told at
the time of hearing by the learned senior counsel
Sri.V.Sridharan that during the period subsequent to the
period covered by the show cause notice, the assessee has
obtained advance authorization for importing the same
product this time under the nomenclature 'decalcified fish
scale' and no objection has been taken by the Revenue to such
import.
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We are of the view that the imports effected by the
assessee had to be seen as covered by the notification
aforementioned that permitted an import at nil rate of duty so
long as the goods were imported in terms of the advance
authorization scheme. In the absence of any objection by the
licensing authority or cancellation of the advance
authorization, the Department could not have denied the
benefit of the notification to the assessee. We therefore allow
Customs Appeal No.2 of 2025 preferred by the assessee and
dismiss Customs Appeal No.5 of 2024 preferred by the
Revenue.”
20. In the case on hand, there is no dispute that the exporter was
granted MEIS scrips by the DGFT under the foreign trade policy.
Therefore, if at all any unfair advantage is taken by the exporter regarding
the MEIS scrips action can be initiated only by DGFT and not the customs
department. In such an event, the very action initiated by the customs
department suffers from lack of jurisdiction. There is also no dispute
regarding the fact that the MEIS scrips given by the DGFT continue to be
valid and subsisting and it was not revoked by the concerned authority. In
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such an event, 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.
21. The tribunal went wrong in invoking Section 28 of the 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. In such an event, the tribunal ought not to have invoked
Section 28AAA of the Customs Act, which only deals with cases of
collusion or wilful misstatement or suppression of facts and that too in a
case involving MEIS scrips.
22. This Court also finds that a mere mis-description of the
classification will not attribute mens rea to impose penalty under Section
114AA of the Act. This is more so since 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.
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23. In the light of the above discussions, the substantial questions of
law framed by this Court are answered accordingly in favour of the
appellant and against the department. In view of the same, the impugned
proceedings No.FO/A/40008/2024-CU(SM) dated 03.01.2024 in Appeal
C/40255/2025 on the file of the Customs, Excise and Service Tax Appellate
Tribunal, Chennai is hereby set aside and the Civil Miscellaneous Appeal
stands allowed. No costs.
[N.A.V, J.] & [K.K.R.K, J.]
15.04.2026
NCC : Yes
Index : Yes
RR
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N.ANAND VENKATESH, J
AND
K.K.RAMAKRISHNAN, J.
RR
Pre Delivery Judgment made in
15.04.2026
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