The Customs Appellate Tribunal has affirmed that a customs broker who knowingly facilitates the diversion of duty-free imported goods in violation of advance authorization conditions commits an offence under Section 112(b) of the Customs Act, 1962. This ruling clarifies the extent of liability for intermediaries who act with awareness of regulatory breaches, even if they are not the primary beneficiaries of the fraud.
Background & Facts
The Dispute
The appellant, M/s. K. C. Jacob & Company, is a licensed Customs House Agent (CHA) that facilitated the import of raw cashew nuts in shell by M/s. Thankam Cashew Factory (TCF), a proprietorship concern of Shri Jose Samuel. TCF imported the goods under Notification No. 18/2015-Customs dated 01.04.2015, which granted duty-free concessions under Para 4.16 of the Foreign Trade Policy (FTP) 2015-2020, subject to strict conditions.
Key Facts
- The imported goods were eligible for duty exemption only if used exclusively for processing at two specified factory addresses in Kollam: (i) Kunnathoor Village, Anayadi P.O., and (ii) Sooranad North, Anayadi P.O.
- The Advance Authorization Licences explicitly prohibited transfer of goods to any other premises or third parties.
- The appellant filed eight Bills of Entry for import of raw cashew nuts from Ivory Coast between 2016 and 2017.
- The appellant arranged transportation of the imported goods via its own transport company, M/s. JCD Transport.
- The importer provided sales tax delivery notes and Form 15/Form 8FA to the appellant, indicating delivery addresses different from those specified in the Advance Authorizations.
- The appellant’s representative, Mr. Rapheal Vinisten, admitted in his statement dated 19.12.2016 that he was aware of the licence conditions but transported goods to other premises as directed by the importer.
- The appellant received direct payments from the importer for transportation services.
- The Directorate of Revenue Intelligence (DRI) investigated and found diversion of goods to unauthorized locations for local sale.
- The importer admitted to diversion and paid a partial amount of evaded duty.
Procedural History
- 19.12.2016: Statement recorded by the appellant’s representative admitting awareness of licence conditions and compliance with importer’s directions.
- 15.03.2018: Commissioner of Customs, Cochin, passed Order-in-Original No. COC-CUSTOMS-000-COM-65/17-18, imposing:
- Duty demand of Rs. 2,55,65,855/- on the importer
- Penalty of Rs. 2,00,000/- on the appellant under Section 112(b) of the Customs Act, 1962
- 27.03.2026: Hearing before CESTAT Bangalore
- 30.04.2026: Final Order No. 20588/2026 dismissing the appeal
Relief Sought
The appellant sought quashing of the penalty of Rs. 2,00,000/- imposed under Section 112(b), arguing that it had no role in the diversion and acted only as a facilitator under the importer’s instructions.
The Legal Issue
The central question was whether a customs broker, who knowingly arranges transportation of duty-free imported goods to locations outside those specified in the Advance Authorization Licence, can be held liable for abetment under Section 112(b) of the Customs Act, 1962, despite not being the importer or beneficiary of the duty evasion.
Arguments Presented
For the Appellant
The appellant’s counsel contended that:
- The appellant acted solely as a CHA and transporter, with no control over the destination of goods.
- All transport documents (Form 15, Form 8FA, sales tax delivery notes) were generated by the importer.
- Section 112(b) requires the person to have knowingly acquired, possessed, or dealt with goods liable to confiscation; the appellant merely transported goods cleared by customs officers.
- There was no evidence the appellant had independent knowledge of diversion beyond the importer’s representations.
- The penalty was disproportionate and not supported by the statutory requirements of Section 112(b).
For the Respondent
The Revenue’s Authorized Representative argued that:
- The appellant’s representative admitted in writing that he was aware of the licence conditions prohibiting diversion.
- The appellant arranged transport through its own company and received direct payments from the importer, indicating active participation.
- The appellant knowingly used falsified delivery documents to conceal the diversion.
- The act of transporting goods to unauthorized locations, with full knowledge of the legal restrictions, constitutes abetment under Section 112(b).
- The Revenue had established mens rea through the appellant’s own admission.
The Court's Analysis
The Tribunal examined the language of Section 112(b), which imposes penalty on any person who "acquires, possesses, or in any manner deals with any goods which he knows or has reason to believe are liable to confiscation under Section 111." The Court noted that Section 111(1)(a) renders goods liable to confiscation if imported in contravention of any condition of a notification.
The Tribunal emphasized that the appellant’s representative, Mr. Vinisten, explicitly admitted in his statement: "I was aware of the fact that as per the provisions of the Advance Authorization Licences the goods had to be processed only at the units mentioned... but despite that the goods were sent to the premises other than those mentioned... as per the directions of the importer."
"The appellant having violated the conditions, implicated himself to attract penalty under Section 112(b) of the Customs Act, 1962."
The Court held that knowledge of the restriction, coupled with active participation in its circumvention - even as a facilitator - satisfies the threshold for liability under Section 112(b). The fact that the appellant arranged transport through its own company and received direct payment established a financial stake in the process, distinguishing it from a passive agent.
The Tribunal further noted that the use of falsified delivery documents to mislead transport personnel and conceal the true destination demonstrated intent. The Court rejected the argument that customs clearance by officers absolved the appellant of responsibility, observing that clearance does not validate subsequent violations.
The precedent in M/s. S. R. Transport v. Commissioner of Customs was cited to affirm that abetment does not require direct benefit; mere active assistance with knowledge suffices.
The Verdict
The appeal was dismissed. The penalty of Rs. 2,00,000/- imposed on M/s. K. C. Jacob & Company under Section 112(b) of the Customs Act, 1962 was upheld. The Tribunal confirmed that the appellant’s conduct constituted abetment of duty evasion through deliberate diversion of goods in violation of Advance Authorization conditions. No modification or remission of penalty was granted.
What This Means For Similar Cases
Customs Brokers Cannot Claim Innocence Through Blind Compliance
- Practitioners must advise CHAs that reliance on importer instructions does not shield them from liability if they are aware of regulatory violations.
- Any involvement in transport, documentation, or logistics for goods under restricted authorizations requires independent verification of compliance.
- Written admissions, even in internal statements, are admissible and binding in penalty proceedings.
Knowledge + Active Participation = Liability Under Section 112(b)
- Merely filing Bills of Entry is insufficient to establish liability; however, arranging transport, handling delivery documents, and receiving direct payments create a nexus of active participation.
- The burden shifts to the intermediary to prove lack of knowledge or absence of intent when diversion patterns are evident.
- This ruling reinforces that intermediaries are not immune from penalties merely because they are not the importer.
Documentation Is Not a Shield - It Can Be Evidence of Complicity
- Use of Form 15, Form 8FA, or sales tax documents to justify diversion will be viewed as evidence of collusion, not defence.
- Customs authorities will scrutinize the chain of documentation for inconsistencies between licence conditions and actual movement.
- CHAs must maintain audit trails showing due diligence in verifying destination compliance, especially for duty-free imports.
