The Customs, Excise and Service Tax Appellate Tribunal has reaffirmed a foundational principle in enforcement proceedings: liability for penalty cannot be imposed on the basis of surmises, retracted statements, or uncorroborated digital communications. In a significant ruling, the Tribunal restored the exoneration of an NRI businessman who was accused of masterminding a smuggling racket, emphasizing that due process and evidentiary rigor are non-negotiable under the Customs Act, 1962.
Background & Facts
The Dispute
The dispute arose from the seizure of 12 high-end Jacob & Co. watches valued at Rs. 23,21,74,140 from passenger Mr. Yamal Manojbhai Jagada at IGI Airport, New Delhi, on 04.10.2022. The Department of Customs alleged that the watches were smuggled into India without payment of applicable customs duty and that Mr. Hiren Vithaldas Dhakan, an NRI resident of Dubai, was the mastermind behind the operation. The Department sought to impose penalties on Mr. Dhakan under Section 112(a), 112(b)(ii), (iii), (v), and 114AA of the Customs Act, 1962, for abetment and connivance in smuggling.
Key Facts
- The watches were seized from Mr. Yamal Manojbhai Jagada, a passenger, not from Mr. Dhakan.
- Mr. Dhakan, an NRI based in Dubai since over 25 years, does not reside in India and conducts business primarily in the UAE.
- The Show Cause Notice dated 31.03.2023 relied heavily on WhatsApp chats recovered from Mr. Yamal’s phone, alleging Mr. Dhakan directed the smuggling.
- No WhatsApp chat was produced showing Mr. Dhakan instructing Mr. Yamal to import the watches duty-free.
- Mr. Yamal initially claimed in his statement under Section 108 of the Customs Act that the watches belonged to his uncle, Mr. Dhakan.
- On 15.07.2022, Mr. Yamal filed Writ Petition (Crl) No. 2363/2022 before the Delhi High Court, retracting his earlier statement, asserting it was made under coercion.
- Mr. Owais Mohammad Iqbal Merchant, proprietor of M/s Time in Style Jewellery & Watch, stated on 07.11.2022 that he sold the specific watch model (BL115.30) directly to Mr. Dhakan in cash in Dubai.
- Mr. Dhakan responded to all summonses via email and offered to appear via video conference.
- The Department did not examine Mr. Owais Merchant as a witness under Section 138B, rendering his statement inadmissible.
- No independent evidence linked Mr. Dhakan to the act of smuggling on 04.10.2022.
Procedural History
- 04.10.2022: Seizure of watches from passenger Mr. Yamal Manojbhai Jagada at IGI Airport.
- 31.03.2023: Show Cause Notice issued against Mr. Hiren Vithaldas Dhakan proposing penalty under Sections 112 and 114AA.
- 13.09.2024: Adjudicating Authority exonerated Mr. Dhakan, holding no evidence established his involvement.
- 17.04.2026: Commissioner of Customs (Appeals) set aside the exoneration order and remanded the matter for fresh adjudication.
- 05.05.2026: Hearing before CESTAT, Principal Bench, New Delhi.
- 15.05.2026: Final Order passed by CESTAT.
The Parties' Positions
Appellant (Mr. Hiren Vithaldas Dhakan): Argued that the Adjudicating Authority’s findings were based on a meticulous review of evidence, including retracted statements and absence of corroborative proof. He emphasized his remote location, cooperation via email, and lack of any direct link to the smuggling act.
Respondent (Commissioner of Customs): Contended that the Commissioner (Appeals) rightly remanded the matter to re-examine the role of Mr. Dhakan, citing the initial statement of Mr. Yamal and WhatsApp chats as sufficient grounds for suspicion.
Relief Sought
The appellant sought setting aside of the Commissioner’s remand order dated 17.04.2026 and restoration of the Adjudicating Authority’s exoneration order dated 13.09.2024, with a direction that no penalty be imposed on him.
The Legal Issue
Can a person be held liable for penalty under Section 112 and 114AA of the Customs Act, 1962, based solely on a retracted statement, unverified WhatsApp chats, and circumstantial surmises, without any corroborative evidence linking them to the act of smuggling?
Arguments Presented
For the Appellant
The appellant’s counsel relied on the Adjudicating Authority’s detailed findings, which concluded that the initial statement implicating Mr. Dhakan was retracted under oath before the Delhi High Court. The WhatsApp chats, though referenced, contained no communication from Mr. Dhakan directing or assisting in the smuggling. The Department failed to examine key witness Mr. Owais Merchant under Section 138B, making his statement inadmissible. The appellant demonstrated cooperation by responding to summonses and offering video testimony. The absence of any material evidence rendered the penalty proposal legally unsustainable.
For the Respondent
The Department argued that the Commissioner (Appeals) exercised lawful discretion under Section 128A(3) to remand the matter for fresh adjudication, as the initial exoneration allegedly ignored the significance of the initial statement and the WhatsApp evidence. The Department contended that the Tribunal should not interfere with the remand order, as it was a procedural step to ensure proper adjudication.
The Court's Analysis
The Tribunal examined the legal standard for imposing penalties under Section 112 and 114AA, which require proof of active participation, abetment, or connivance in smuggling. It held that suspicion, however strong, cannot substitute for evidence. The Adjudicating Authority had correctly noted that the initial statement implicating Mr. Dhakan was retracted and declared involuntary by the Delhi High Court. The WhatsApp chats, though referenced in the Show Cause Notice, contained no message from Mr. Dhakan, nor any indication of his knowledge or intent regarding the smuggling.
"There is no evidence from the chats proving Mr. Dhakan's involvement in the smuggling or any assistance given."
The Tribunal further emphasized that the Department’s failure to examine Mr. Owais Merchant under Section 138B rendered his statement legally irrelevant. The mere fact that Mr. Dhakan did not physically appear before the Department was not evidence of guilt, especially since he responded to summonses and offered remote testimony.
The Tribunal rejected the Department’s argument that the remand order was a mere exercise of discretion. It held that remand under Section 128A(3) cannot be used to override a well-reasoned exoneration order in the absence of any demonstrable error, perversity, or legal flaw in the original order. The Commissioner’s order was summary, unreasoned, and lacked any basis to doubt the Adjudicating Authority’s findings.
The Tribunal observed that the principle of audi alteram partem and the requirement of proof beyond reasonable doubt are integral to customs adjudication. The burden of proof lies squarely on the Department, and it cannot rely on conjecture or uncorroborated assertions.
The Verdict
The appellant succeeded. The Tribunal set aside the Commissioner of Customs (Appeals)’s order dated 17.04.2026 and restored the Adjudicating Authority’s order dated 13.09.2024. No penalty shall be imposed on Mr. Hiren Vithaldas Dhakan under Section 112 or 114AA of the Customs Act, 1962. The Department is directed to close all proceedings against him with immediate effect.
What This Means For Similar Cases
Evidence Must Be Corroborated, Not Conjectured
- Practitioners must challenge penalty notices based on retracted statements or unverified digital messages unless independently corroborated.
- The mere existence of WhatsApp chats referencing a third party is insufficient to establish liability.
- The burden remains on the Department to prove active involvement, not on the accused to disprove suspicion.
Non-Appearance Does Not Equal Guilt
- Absence from in-person hearings cannot be treated as evasion if the person has responded to summonses and offered alternative means of cooperation (e.g., video conferencing).
- Remote cooperation must be accepted as valid, especially for NRIs or persons residing abroad.
Remand Orders Require Reasoned Justification
- A remand under Section 128A(3) cannot be used as a tool to circumvent a well-reasoned exoneration.
- Tribunals will intervene where remand orders are summary, unreasoned, or lack any prima facie basis to question the original findings.
- Practitioners should file appeals against remand orders where the original order is factually sound and legally tenable.
