The Hyderabad Regional Bench of the Customs, Excise and Service Tax Appellate Tribunal has affirmed that a foreign director who orchestrates dual invoicing to evade Indian customs duties can be held personally liable under the Customs Act, 1962, even if the principal entity is incorporated abroad. This ruling clarifies the extraterritorial reach of penal provisions when fraudulent acts are intentionally designed to affect customs clearance within India.
Background & Facts
The Dispute
The appellant, Shri Ashok Kharey, Director of M/s Maxx Access Ltd., a company incorporated in Hong Kong, was issued a Show Cause Notice by the Commissioner of Customs, Hyderabad, proposing a penalty of Rs. 20,00,000 under Sections 112(a) and 114AA of the Customs Act, 1962. The notice alleged that he systematically facilitated the undervaluation of furniture imports from China and Hong Kong into India by issuing two sets of invoices: one reflecting the true transaction value ("LPI Statement") and another with suppressed values ("BPI Statement") for submission to Indian Customs authorities. The differential amounts were allegedly remitted to him or his wife in Hyderabad through private, non-banking channels.
Key Facts
- The appellant coordinated procurement of furniture from Chinese manufacturers between September 2006 and October 2006
- He facilitated visits of Indian importers to Chinese showrooms, finalized pricing, supervised manufacturing, and arranged export logistics
- Chinese manufacturers issued invoices in the name of M/s Maxx Access Ltd. reflecting actual transaction values
- The appellant issued two sets of invoices: one for payment by Indian importers (actual value) and another for customs declaration (suppressed value)
- Differential payments between actual and declared values were transferred to Hyderabad via private channels
- The Directorate of Revenue Intelligence (DRI), Chennai, conducted the investigation and recovered documentary evidence including emails, bank records, and invoice copies
- No Show Cause Notice was issued against M/s Maxx Access Ltd. or the Chinese manufacturers, as they were foreign entities beyond the effective enforcement jurisdiction of Indian authorities at the time
Procedural History
- September 2006 to October 2006: Period of alleged undervaluation transactions
- 25.03.2013: Commissioner of Customs, Hyderabad, passed Order-in-Original No. 03/2013 imposing penalty of Rs. 20,00,000
- 2013: Appellant filed appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad
- 02.02.2026: Hearing conducted before CESTAT Hyderabad
- 15.05.2026: Final Order passed dismissing the appeal
The Parties' Positions
For the Appellant
- Argued that as a director of a foreign company incorporated outside India, he could not be held liable under the Customs Act prior to the 2018 amendment to Section 1(2)
- Contended that the Act had no extra-territorial jurisdiction before 29.03.2018
- Asserted that penalty proceedings must be initiated against the principal offender (the foreign exporter), not merely its director
- Relied on multiple tribunal decisions (C.K. Kunhammed, Guru Electronics Singapore, Shafeek P.K., Seville Products Ltd., and Ashok Kharey & Others) to argue lack of jurisdiction and insufficient evidence
- Claimed no direct evidence proved his conscious involvement in the fraud
For the Respondent
- Maintained that the appellant’s acts were not confined to foreign territory
- Emphasized that the fraudulent invoices were intentionally prepared for use in Indian customs clearance
- Highlighted that the differential payments were received in Hyderabad, establishing territorial nexus
- Cited Amritlakshmi Machine Works v. Commissioner of Customs to argue that liability under Section 112(a) extends to any person whose act renders goods liable to confiscation
- Stressed that the offence was completed within India through the submission of false declarations to Indian Customs
Relief Sought
The appellant sought quashing of the penalty order dated 25.03.2013, arguing that the proceedings were legally unsustainable due to lack of jurisdiction, absence of principal offender as noticee, and absence of evidence establishing personal culpability.
The Legal Issue
Can a foreign director be held personally liable under Sections 112(a) and 114AA of the Customs Act, 1962, for facilitating undervaluation of imported goods through dual invoicing, where the fraudulent acts were executed abroad but the taxable event - customs clearance - occurred within India?
Arguments Presented
For the Appellant
The appellant’s counsel relied on pre-2018 interpretations of the Customs Act to argue that the statute lacked extra-territorial application. He cited C.K. Kunhammed and Guru Electronics Singapore to assert that liability cannot attach to foreign persons without direct presence or incorporation in India. He further contended that the absence of proceedings against the foreign exporter rendered the penalty against him procedurally defective. He argued that the evidence was circumstantial and failed to prove conscious intent to defraud.
For the Respondent
The Department countered that the essence of the offence lay in the submission of false documents to Indian Customs for clearance of goods within Indian territory. It relied on Amritlakshmi Machine Works to establish that liability under Section 112(a) is not confined to the importer of record. It emphasized that the appellant’s active role in designing the dual-invoicing scheme, receiving differential payments in India, and coordinating with Indian importers created a direct nexus with Indian territory, irrespective of his physical location.
The Court's Analysis
The Tribunal rejected the appellant’s jurisdictional argument by distinguishing between acts committed abroad and their consequences within India. It held that while the conspiracy may have originated overseas, the taxable event under the Customs Act is importation into India, and the fraudulent invoices were knowingly prepared and submitted for customs clearance within Indian territory.
"Once fraudulent invoices are knowingly created for use before Indian Customs Authorities and are actually utilized for clearance of imported goods in India, the offence attains territorial nexus with India."
The Court examined each precedent cited by the appellant and found them factually distinguishable. In C.K. Kunhammed, the accused had no connection with Indian importers or customs clearance. In Guru Electronics Singapore, there was no evidence of direct coordination with Indian importers or receipt of funds in India. In Shafeek P.K., the accused resided abroad with no demonstrable link to the specific imports in question. In contrast, the appellant here was shown to have actively coordinated with Indian importers, received payments in Hyderabad, and issued invoices specifically for Indian customs purposes.
The Tribunal further held that Section 112(a) applies to "any person" who abets the commission of an act rendering goods liable to confiscation. The term "any person" is intentionally broad and does not require the person to be an importer or resident of India. Similarly, Section 114AA penalizes any person who knowingly uses false declarations in customs business, regardless of nationality.
The Court emphasized that the appellant’s conduct was not a mere technical violation but a deliberate, systematic scheme to evade substantial customs duty. The recovery of dual invoices, payment trails to Hyderabad, and correspondence with Indian importers constituted conclusive evidence of conscious participation.
The argument that penalty proceedings must first be initiated against the principal offender was dismissed. The Tribunal held that liability under Sections 112(a) and 114AA is independent and personal. The fact that the foreign company could not be prosecuted due to jurisdictional limitations does not immunize an individual who actively participated in the fraud within Indian territory.
The Verdict
The appeal was dismissed. The Tribunal upheld the penalty of Rs. 20,00,000 imposed under Sections 112(a) and 114AA of the Customs Act, 1962. The order dated 25.03.2013 was confirmed. The appellant was held personally liable for abetting undervaluation and submitting false declarations to Indian Customs, irrespective of his foreign incorporation or physical location. No modification or remission of penalty was granted.
What This Means For Similar Cases
Liability Extends Beyond the Importer of Record
- Practitioners must now advise clients that any person - including foreign agents, brokers, or directors - who knowingly facilitates submission of false customs declarations can be penalized under Section 112(a)
- The focus is on the functional role in the fraudulent scheme, not formal designation or nationality
- Due diligence checks must now extend to third-party logistics providers and overseas suppliers who influence invoice values
Territorial Nexus Is Established by Use, Not Just Origin
- Acts committed abroad do not confer immunity if their operative effect is within India
- Key indicators of territorial nexus include: submission of documents to Indian Customs, receipt of payments in India, coordination with Indian importers, or use of Indian banking channels for differential payments
- Legal defenses based on pre-2018 territorial limitations are no longer viable where the fraud is targeted at Indian customs clearance
Independent Liability of Individuals
- Penalty proceedings against a foreign entity are not a prerequisite for action against its officers or agents
- The absence of prosecution against the principal exporter does not bar action against individuals who materially participated
- Practitioners should advise clients to avoid any involvement in dual invoicing, even as intermediaries, as personal liability is now clearly established
