The customs authorities lack jurisdiction over MEIS benefits granted by DGFT; misclassification does not imply mens rea necessary for imposing penalties under the Customs Act.

JUDGMENT :

N. ANAND VENKATESH, J.

1. 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 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 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 114 AA 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.

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 respon