Recently, the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) of Kolkata reduced the penalties imposed on a customs broker firm and an intermediary involved in an attempted smuggling of Red Sanders logs. The case which arose from a customs transit consignment from Nepal to South Korea, was observed to contain serious lapses in following due procedures, including Know Your Customer (KYC) norms, resulting in the attempted illegal export of a prohibited species.
The consignment, intercepted by the Directorate of Revenue Intelligence (DRI) in March 2014, was declared as Nepalese cane handicrafts. However, upon inspection, it was found to contain 210 logs of Red Sanders, a species listed under the Convention on International Trade in Endangered Species (CITES) and protected under the Wildlife Protection Act, 1972. The logs, valued in the black market for their rarity and high demand, were concealed in the guise of handicrafts, raising alarms of a larger smuggling operation. The attempted smuggling was foiled at the Kolkata port, where customs officials discovered the misdeclaration.
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Following investigations, the customs authorities issued a Show Cause Notice to the appellants, the customs broker firm, M/s. Bose Enterprises, and the intermediary, Shri Arup Mukherjee, proprietor of M/s. Shiva Trading Company, for their failure to comply with their statutory duties. The authorities argued that both parties had played a crucial role in facilitating the export without adhering to required customs procedures. Notably, they failed to verify the credentials of the Nepal-based exporter, M/s. Bhadrakali Exports Pvt. Ltd., or obtain the necessary KYC documents.
The customs broker firm, which was responsible for clearing the consignment, admitted to having taken up the job from a middleman, Shri Srikanta Adhikary. However, the firm did not have any direct contact with the exporter and had relied solely on verbal agreements. Similarly, the intermediary, Shri Arup Mukherjee, had sourced the consignment from another party, Arihant Logistics, but also failed to verify the exporter’s identity or background. Both parties claimed they had no knowledge of the illegal contents of the shipment.
After examining the case facts, in the Order-in-Original, the Commissioner of Customs (Port), Kolkata, imposed a penalty of Rs. 50 lakh on each appellant, citing gross negligence in their duties and the attempted illegal export of prohibited goods. The customs authorities stressed that their omission in verifying the exporter’s details and obtaining necessary authorizations directly contributed to the smuggling attempt. They emphasized that such lapses, especially in cases involving banned items like Red Sanders, are treated as serious offenses under the Customs Act, 1962.
Challenging the penalties, the appellants brought their case before the CESTAT.
Before CESTAT, the appellants argued that the Show Cause Notice did not explicitly charge them with abetment in the smuggling operation. They contended that the seals on the container were intact at the time of inspection, and the customs authorities had no grounds to penalize them under Section 114(i) of the Customs Act, which governs penalties for attempts to export goods improperly.
After hearing the contentions, the bench of Mr R Muralidhar and Mr Rajeev Tandon agreed that while the appellants were not directly involved in the smuggling, their failure to meet statutory obligations warranted penalties. The Tribunal clarified that Section 114(i) of the Customs Act covers not only abetment but also any act of omission or commission that results in goods being liable for confiscation. The Tribunal found that the customs broker and intermediary had exhibited gross negligence by not fulfilling their duties to verify their clients’ credentials and obtain proper documentation.
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However, considering the circumstances and the nature of their involvement, the CESTAT decided to reduce the penalties. The Tribunal ruled that a fine of Rs. 4 lakh each would be appropriate, balancing the need for accountability with the extent of their role in the smuggling attempt.
In result, the appeal was disposed of.
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