The Customs, Excise and Service Tax Appellate Tribunal, Kolkata, has reaffirmed a foundational principle in administrative penal law: penalties under the Customs Act cannot be imposed based on suspicion, circumstantial inference, or uncorroborated allegations. In two consolidated appeals, the Tribunal quashed penalty orders against a customs broker for alleged involvement in fraudulent IGST refund schemes, emphasizing the absolute necessity of direct evidence to establish culpability.
Background & Facts
The Dispute
The appellant, Sri Kousik Nundy, proprietor of M/s. SSS Sai Forwarders, a customs brokerage firm, was issued two show cause notices dated 25.11.2020 under the Customs Act, 1962. The notices alleged that the appellant conspired with M/s. Asian Enterprises and M/s. Sai Trading to fraudulently overvalue export consignments shipped on 10.06.2019, 11.06.2019, and 12.06.2019, with the intent to fraudulently avail IGST refunds. The Revenue charged that the appellant, though not the authorized customs broker for these shipments, provided contact details and documentation to M/s. Advent Shipping Agency - the actual customs broker - and that employees of the appellant’s firm actively facilitated the exports.
Key Facts
- The export consignments were declared by M/s. Asian Enterprises and M/s. Sai Trading, with M/s. Advent Shipping Agency as the authorized customs broker.
- The goods were seized on 18.12.2019 under Section 110(1) of the Customs Act for gross misdeclaration of value.
- The Revenue alleged that Sri Ramkrishna Kole, a former employee of M/s. SSS Sai Forwarders, had joined M/s. Advent Shipping Agency to facilitate the exports and later rejoined the appellant’s firm.
- The Revenue claimed that two individuals, Shri Babu Samanta and Shri Subrata Laha, were employees of M/s. SSS Sai Forwarders who contacted Becharam Das of M/s. Advent Shipping Agency.
- The appellant categorically denied that Samanta and Laha were his employees at the material time.
- The appellant’s firm was not listed as the customs broker on any shipping bill or documentation related to the impugned exports.
- The appellant’s Customs Broker Licence was suspended during the investigation but later restored after inquiry.
Procedural History
- 25.11.2020: Two show cause notices issued under Sections 114(iii) and 114AA of the Customs Act.
- 07.02.2023: Commissioner of Customs (Appeals) upheld penalties in Order-in-Appeal No. KOL/CUS/PORT/KS/86/2023.
- 14.02.2023: Commissioner of Customs (Appeals) upheld penalties in Order-in-Appeal No. KOL/CUS/PORT/KS/122/2023.
- 25.03.2026: Hearing before CESTAT Kolkata.
- 21.04.2026: Final order passed by CESTAT.
The Parties' Positions
For the Appellant
- Denied any involvement in the exports or knowledge of overvaluation.
- Asserted that Samanta and Laha were not employees at the relevant time.
- Clarified that M/s. SSS Sai Forwarders (proprietorship) is a legally distinct entity from M/s. SSS Sai Forwarders Pvt. Ltd. (private limited company), and Ramkrishna Kole’s prior employment with the latter does not establish liability.
- Argued that merely providing contact details or documents to a third party, without proof of intent or connivance, cannot attract penal liability.
- Contended that the Revenue’s case was built on speculation and uncorroborated statements.
For the Respondent
- Relied on statements recorded from Ramkrishna Kole, Samanta, and Laha.
- Argued that the appellant’s firm acted as a conduit between exporters and the customs broker.
- Asserted that the appellant’s denial of knowledge was implausible given the pattern of conduct.
- Cited Para 63 of the impugned orders, which inferred collusion from circumstantial evidence.
Relief Sought
The appellant sought setting aside of the penalty orders dated 07.02.2023 and 14.02.2023, and complete exoneration from liability under Sections 114(iii) and 114AA of the Customs Act.
The Legal Issue
Can a customs broker be held liable for penal action under Sections 114(iii) and 114AA of the Customs Act, 1962 for fraudulent export conduct based solely on circumstantial evidence and unverified statements, when the broker is not named on shipping documents and has no proven knowledge of or intent to participate in the fraud?
Arguments Presented
For the Appellant
The appellant’s counsel relied on the principle that penal provisions must be strictly construed and that mens rea is an essential ingredient for liability under Section 114(iii) and Section 114AA. He cited State of U.P. v. Krishna Kumar and Commissioner of Customs v. M/s. R.K. Enterprises to argue that mere association or passive facilitation without proof of active connivance or knowledge cannot sustain a penalty. He emphasized that the Revenue had failed to produce any documentary evidence linking the appellant to the overvalued invoices, nor had it established that the appellant received any benefit from the fraud. The statements of Samanta and Laha were challenged as unsubstantiated and contradicted by the appellant’s denial of employment.
For the Respondent
The Revenue’s authorized representative contended that the appellant’s firm served as a nexus between the exporters and the customs broker, and that the movement of Ramkrishna Kole between firms indicated a coordinated scheme. He argued that the appellant’s denial of knowledge was self-serving and that the recovery of documents from his office, coupled with employee statements, created a prima facie case of collusion. He relied on the adjudicating authority’s finding in Para 63 that the appellant’s conduct “appears to be indicating towards his collusion,” suggesting that inference alone suffices.
The Court's Analysis
The Tribunal conducted a meticulous review of the evidence and found the Revenue’s case fundamentally deficient. It noted that the adjudicating authority itself had explicitly found in Para 62 of both orders that the gross misdeclaration was committed by the exporters and their authorized customs broker, M/s. Advent Shipping Agency. The Tribunal held that this finding was fatal to the case against the appellant, as it absolved him of direct responsibility.
"The only basis as made out by the lower authorities for imposition of penalty is what is stated in para 63... that 'the documents recovered during the search of his office premises and recorded statements of the employees of M/s. SSS Sai Forwarders appears to be indicating towards his collusion...'
The Tribunal emphasized that the word ‘appears’ is not a substitute for proof. It observed that the lower authority’s reliance on unverified statements and speculative inferences violated the cardinal rule of natural justice and the requirement of proof beyond reasonable doubt in penal proceedings. The Tribunal further noted that the Revenue failed to establish that Samanta and Laha were employees of the appellant at the material time, nor did it prove that Ramkrishna Kole’s prior employment with a similarly named entity created any legal link.
The Tribunal held that Section 114(iii) requires proof of active participation, connivance, or knowledge of the fraudulent intent. Mere provision of contact details or documents to a third party, without evidence of shared intent or benefit, cannot constitute an offence. The Tribunal rejected the notion that circumstantial suspicion, however strong, can replace direct evidence in penal law.
The Verdict
The appellant succeeded. The Tribunal set aside the penalty orders dated 07.02.2023 and 14.02.2023 under Sections 114(iii) and 114AA of the Customs Act, 1962 in both appeals. No penalty, fine, or monetary liability was upheld. The appellant was fully exonerated.
What This Means For Similar Cases
Penalties Require Direct Evidence of Intent
- Practitioners must insist that the Revenue produce concrete, corroborated evidence of knowledge or active participation before any penalty under Section 114(iii) or Section 114AA is sustained.
- Mere association with a third party who is involved in fraud is insufficient; the link must be proven with documentary or testimonial evidence.
- Statements from individuals whose employment status is disputed cannot form the sole basis for liability.
Judicial Caution Against Speculative Findings
- Tribunals and courts will not uphold penalties based on phrases like “appears to be indicating” or “it is suspected.”
- Adjudicating authorities must clearly distinguish between findings of fact and speculative inferences.
- Where the primary offender (exporter or authorized broker) is identified, liability cannot be extended to peripheral actors without direct proof of collusion.
Distinction Between Legal Entities Matters
- Proprietorship firms and private limited companies with similar names are legally distinct entities.
- Employment history with one entity cannot be automatically imputed to another, even if the names are nearly identical.
- Practitioners must challenge the Revenue’s conflation of separate legal persons unless a clear corporate or employment link is established.
