Customs Broker Not Liable for Penalty u/s 112(a) for Smuggling without Evidence of Abetment: CESTAT Set asides Penalty [Read Order]

The Chennai Bench of the Customs, Excise andService Tax Appellate Tribunal (CESTAT) ruled that a penalty under Section 112(a) of the Customs Act, 1962, was not legally sustainable against a Customs Broker unless there was clear evidence of "abetment," which requires prior knowledge of the wrongful act.

C. Sreepathi (appellant), a partner of M/s. Active Global Logistics, acted as the Customs Broker for an import made by M/s. VKR Impex. The Directorate of Revenue Intelligence (DRI) examined the consignment and discovered that foreign-origin Gudang Garam cigarettes were being smuggled under the cover of declared goods (pampers).

The Revenue Department alleged that the appellant failed to follow Customs Brokers Licensing Regulations (CBLR), specifically regarding KYC verification of the importer, received documents from unauthorized agents rather than the IEC holder and processed clearances for a non-existent entity.

Based on these allegations, the Adjudicating Authority imposed a penalty of ₹25,00,000 on the appellant under Section 112(a) of the Customs Act, 1962, which was later upheld by the Commissioner (Appeals).

The bench comprising Ajayan T.V. ( Judicial Member) noted that the solitary issue was whether the penalty for "abetment" was sustainable and relied on the Delhi High Court decision in Rajeev Khatri v CC (Export), which clarified the distinction between primary offenders and abettors under Section 112(a) of the Customs Act, 1962.

The tribunal observed that abetment necessarily requires knowledge of the offending act. It involves instigation, conspiracy, or intentional aiding. It observed that neither the Show Cause Notice nor the impugned order provided evidence of how the appellant abetted the smuggling.

The bench highlighted that the Revenue relied on statements that were not tested for relevancy under Section 138B of the Act and were not supported by cross-examination. It highlighted that there was no evidence of any hefty monetary consideration gained by the appellant for his purported involvement.

The tribunal noted that while the appellant's conduct regarding KYC might be "negligent" under CBLR 2018, it did not prove "complicity" in smuggling under the Customs Act. It found the lower authority's findings to be based on "surmises and conjectures" rather than actual evidence.

It criticized the Appellate Authority for attempting to apply Section 112(b) when the original charge and penalty were strictly under Section 112(a) of the Customs Act. The tribunal set aside the impugned order. The appeal of the appellant was allowed

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