Setback for FedEx: CESTAT upholds ₹1 Lakh Penalty for Lack of Due Diligence after Red Sandalwood Misdeclared as Copper Wire [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) upheld a penalty of Rs. 1 lakh against FedEx Express Transportation and Supply Chain Services India Pvt. Ltd. for failure to exercise due diligence when consignments declared as copper wire were found to contain prohibited red sandalwood.

FedEx had filed two shipping bills in October 2019 declaring copper wires valued at ₹10,000 and Rs. 20,000. On x-ray screening, the consignments appeared suspicious and were later confirmed by a Wildlife Inspector to contain sandalwood logs weighing over 90 kilograms.

The exporter, P. Dhanaraj, was not traceable at the address provided in the KYC document, and the consignments had been collected from a different location through sub-agents of FedEx.

Customs authorities seized the goods and issued a show cause notice proposing penalties under Sections 114 and 117 of the Customs Act, 1962, along with proceedings under the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010.

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The appellant’s counsel argued that the company had collected a valid Aadhar card and invoices as KYC, which were sufficient under CBIC circulars, and that it had voluntarily informed Customs about the consignments.

They explained that physical checks were the responsibility of their authorised shipper participant and sub-agents, and pointed out that there was no allegation that the KYC documents were false or forged. They further argued that the penalty under Section 117 was wrongly imposed since misdeclaration was entirely attributable to the consignor.

The revenue counsel countered that FedEx had failed to verify the antecedents of the exporter as required by Regulation 12 of CIER, 2010, and that its agents had conducted only partial checks despite FedEx’s own standard operating procedures.

They argued that FedEx, as the registered courier, was responsible for its agents’ lapses and that the misdeclaration amounted to serious negligence.

The single-member bench comprising Dr. Rachna Gupta (Judicial Member) observed that the consignments were collected from an address different from the exporter’s declared address, and the exporter was not found at the KYC location.

It also observed that one consignment contained no copper at all but only red sandalwood, showing lack of proper due diligence. The tribunal explained that FedEx, being the registered courier, could not shift responsibility onto its agents and remained liable for compliance under the Customs Act and CIER, 2010.

The tribunal upheld the Rs. 1 lakh penalty under Section 117 but remanded the matter to the Commissioner (Appeals) to reconsider the proposals for penalty under Section 114 and action under Regulation 13 of CIER, 2010. The appeal was disposed of with these directions.

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