The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chandigarh has clarified that a penalty under Section 112(a)(i) of the Customs Act, 1962 cannot be imposed merely because a Customs Broker violated regulatory norms. The penalty is strictly contingent upon a direct act or omission by the broker that renders imported goods liable for confiscation under Section 111. This ruling reinforces the principle that regulatory breaches and penal consequences under the Customs Act are not interchangeable.
Background & Facts
The Dispute
The appellant, Amandeep Singh Bagri, proprietor of Mojos Impex International and a licensed Customs House Agent (CHA), was penalized Rs. 10,00,000 under Section 112(a)(i) of the Customs Act, 1962 for allegedly facilitating the import of prohibited cigarettes concealed within consignments of dry dates. The goods were imported via Bill of Entry No. 3940459 dated 13.05.2021. The Department alleged that the appellant, as CHA, failed to discharge his duties under Regulation 10 of the Customs Brokers Licensing Regulations, 2018 (CBLR), thereby enabling smuggling.
Key Facts
- On 19.05.2021, Customs officials examined the imported consignment of 1120 bags of dry dates and discovered concealed cartons of cigarettes behind the front layers.
- The concealed goods included:
- 120 cartons of ESSE brand cigarettes (12,00,000 sticks)
- 20 cartons of Benson & Hedges (2,00,000 sticks)
- 110 cartons of Gudang Garam (15,84,000 sticks)
- The cigarettes were undeclared and lacked mandatory pictorial and textual health warnings as required under COTPA, 2003 and the 2018 Packaging Rules.
- The appellant, acting as CHA, had filed the Bill of Entry based on documents provided by the importer, M/s Shreyans Appearls & Leatherites.
- The appellant held an F-Card under Mojos Impex International; Jagjeet Singh held the H-Card for the importer.
- No evidence was found linking the appellant to prior knowledge of the concealed goods.
Procedural History
- 19.05.2021: Goods seized under Section 110 of the Customs Act; Seizure Memo issued.
- 15.07.2021: Commissioner of Customs, Ludhiana, revoked suspension of appellant’s CHA licence, holding no mens rea or connivance proven.
- 13.05.2022: Show Cause Notice issued to appellant under Sections 112 and 117 of Customs Act and CBLR, without specifying which CBLR regulation was violated.
- 18.04.2023: Adjudicating Authority imposed penalty of Rs. 10,00,000 under Section 112(a)(i) of the Customs Act.
- 12.03.2024: Commissioner (Appeals) dismissed the appellant’s appeal and upheld the penalty.
- 20.03.2026: Hearing before CESTAT Chandigarh.
- 02.07.2026: Final order passed by CESTAT.
The Parties' Positions
Appellant: Argued that the penalty under Section 112(a)(i) is legally unsustainable because: (1) no act or omission by him rendered the goods liable for confiscation under Section 111; (2) the prior order dated 15.07.2021 conclusively established absence of mens rea; (3) the show cause notice failed to specify the CBLR provision violated; and (4) penalty under Section 112 cannot be imposed for breach of CBLR alone.
Respondent: Maintained that the appellant, as a licensed CHA, had a duty to verify the contents of the consignment and that concealment of prohibited goods constituted a failure to perform duties under CBLR, thereby attracting penalty under Section 112(a)(i).
Relief Sought
The appellant sought setting aside of the penalty order dated 18.04.2023 and the appellate order dated 12.03.2024, and a direction to refund the penalty of Rs. 10,00,000 already paid.
The Legal Issue
Can a penalty be imposed under Section 112(a)(i) of the Customs Act, 1962 solely on the ground of a Customs Broker’s alleged violation of Regulation 10 of the CBLR, in the absence of any finding that the broker’s act or omission rendered the imported goods liable for confiscation under Section 111?
Arguments Presented
For the Appellant
The appellant’s counsel relied on binding precedents including M/s Exim Services v. CC, Ludhiana and P.S. Bedi & Company v. CC, arguing that Section 112(a)(i) is a penal provision that requires a direct nexus between the broker’s conduct and the confiscability of goods under Section 111. The prior order dated 15.07.2021, which revoked the suspension of the appellant’s licence, had already held that there was no mens rea, no connivance, and no evidence of negligence. The show cause notice failed to specify the CBLR regulation breached, and no penalty was imposed under CBLR itself. Therefore, imposing a penalty under Section 112(a)(i) was legally impermissible.
For the Respondent
The authorized representative reiterated the findings of the lower authorities, asserting that the appellant, as an experienced CHA, should have detected the discrepancy in packaging and questioned the nature of the consignment. The concealment of prohibited goods, they argued, amounted to an omission that facilitated smuggling and thus triggered liability under Section 112(a)(i), irrespective of the absence of direct evidence of intent.
The Court's Analysis
The Tribunal conducted a meticulous review of the statutory framework and judicial precedents. It emphasized that Section 112(a)(i) of the Customs Act, 1962, permits penalty imposition only when an act or omission by a person renders goods liable for confiscation under Section 111. The provision does not operate as a general penalty for regulatory non-compliance under the CBLR.
"In the absence of such a finding, penalty cannot be imposed under Section 112(a) of the Act. The adjudicating authority has not even mentioned the provision of law under which the penalty was imposed."
The Tribunal noted that neither the adjudicating authority nor the Commissioner (Appeals) recorded any finding that the appellant’s conduct - whether negligent or otherwise - had rendered the cigarettes liable for confiscation under Section 111. The entire case was built on a breach of CBLR, which is a separate regulatory regime. The Tribunal held that the Department cannot circumvent the specific conditions of Section 112 by invoking it as a catch-all for CBLR violations.
The Tribunal further relied on the prior order dated 15.07.2021, which had conclusively determined that the appellant had no mens rea, no knowledge of the concealed goods, and had acted as a bonafide facilitator based on documents provided by the importer. This order, having attained finality, barred re-litigation of the same facts under a different penal provision.
The Tribunal also criticized the impugned order as non-speaking, noting that the Commissioner (Appeals) failed to engage with the precedents cited by the appellant or explain why they were inapplicable.
The Verdict
The appeal was allowed. The Tribunal set aside the Order-in-Appeal dated 12.03.2024 and the Order-in-Original dated 18.04.2023. The penalty of Rs. 10,00,000 imposed under Section 112(a)(i) of the Customs Act, 1962, was quashed. The appellant is entitled to a refund of the penalty amount already paid, to be processed within 6 weeks from the date of this order.
What This Means For Similar Cases
Penalty Under Section 112 Requires Direct Link to Confiscability
- Practitioners must now insist that adjudicating authorities record a specific finding that the CHA’s act or omission directly caused the goods to become liable for confiscation under Section 111.
- Mere failure to detect concealed goods, without evidence of connivance or negligence, cannot trigger Section 112 liability.
- Show cause notices must clearly articulate the nexus between the broker’s conduct and Section 111 grounds.
Prior Final Orders Bar Re-Adjudication on Same Facts
- A final order by a competent authority (e.g., revocation of licence suspension) on the absence of mens rea or connivance operates as res judicata in subsequent penalty proceedings.
- The Department cannot re-litigate the same factual matrix under a different penal provision.
- Legal representatives should cite prior final orders as conclusive evidence of absence of culpability.
CBLR Violations Are Not Automatic Grounds for Customs Act Penalties
- Breach of CBLR Regulations must be addressed under the CBLR’s own penalty regime, not under Section 112 of the Customs Act.
- Authorities cannot use Section 112 as a proxy for enforcing licensing norms.
- Legal notices must distinguish between regulatory non-compliance and acts rendering goods confiscable.
