Authorised Courier Not Liable For Export Of Prohibited Goods Without Proof Of Knowledge: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 9 September held that an authorised courier cannot be penalised merely because prohibited goods are found concealed in an export consignment, unless the Revenue establishes the courier's knowledge, participation or a specific act or omission connecting it with the attempted improper export.

A Division Bench comprising Judicial Member P. Dinesha and Technical Member M. Ajit Kumar allowed an appeal filed by FedEx Express Transportation and Supply Chain Services (India) Pvt. Ltd. against penalties imposed on its predecessor TNT India Pvt. Ltd. after pseudoephedrine hydrochloride was discovered concealed inside garments forming part of an export consignment. It held:

“Mere filing of the courier declaration on the consignor's information, followed by discovery of prohibited goods, does not establish a knowing false declaration. Installation of the Appellant's software at another entity's premises, or receipt of the consignment through an intermediary, does not by itself establish the nature of the Agency arrangement, the Appellant's knowledge and control.”

TNT had filed Courier Shipping Bill No. 21109 dated 22 December 2012 for export of 106 Churidhar Tops. Examination of the consignment revealed white crystalline powder concealed in the stitched and embroidered portions of the garments.

The Central Revenue Laboratory subsequently identified the substance as pseudoephedrine hydrochloride, the export of which required a No Objection Certificate from the Central Bureau of Narcotics.

The consignment had been booked through Universal Worldwide Express Courier & Cargo and routed through Worldwide Express, which had an account and business arrangement with TNT.

The Department alleged that TNT had accepted the parcels on the basis of only one identity document and had permitted sub contracting or outsourcing without obtaining the Commissioner's permission.

It alleged violations of Regulations 13(i) and 13(j) of the Courier Imports and Exports Regulations. Consequently, penalties of Rs. 40 lakh under Section 114(i) of the Customs Act (penalty for improper export in specified circumstances) and Rs. 60 lakh under Section 114AA of the Customs Act (penalty for use of false or incorrect material) were imposed.

TNT, represented by advocates T. Viswanathan and D. Santhana Gopalan, argued that the adjudicating authority had travelled beyond the show cause notice by subsequently treating it as the consignor or exporter and attributing knowledge of the concealed substance to it.

The Revenue, represented by Rajini Menon, maintained that TNT had violated its obligations as an authorised courier by accepting the consignment through intermediaries and failing to comply with the prescribed requirements.

The Tribunal found merit in TNT's contention that the adjudicating authority had travelled beyond the show cause notice. It noted that the notice proceeded against TNT in its capacity as an authorised courier and alleged know your customer and outsourcing violations, whereas the impugned order introduced allegations that TNT was the consignor or exporter and had knowingly participated in the attempted export of prohibited goods.

On the alleged know your customer violation, the Bench held that Regulation 13(i) required verification of the client's identity and antecedents through reliable and authentic material, but did not itself mandate production of two identity documents. Since the consignor's identity and address could be verified from the genuine driving licence, the mere absence of a second document did not establish a breach. It observed:

“Non-production of a second document may be a procedural lapse, but, absent evidence that the consignor's identity or address could not be verified from the undisputedly genuine driving licence, it does not establish breach of Regulation 13(i).”

The Tribunal also rejected the alleged violation of Regulation 13(j), holding that the provision applies to outsourcing of functions required or permitted to be performed by an authorised courier under the Regulations. It held that physical collection or pick up of an export consignment was not an assessment or clearance function covered by the provision.

On the penalties under Sections 114(i) and 114AA of the Customs Act, the Bench found no evidence that TNT knew of, participated in or facilitated the misdeclaration or concealment of pseudoephedrine. It held that the essential ingredients necessary to sustain the penal action had therefore not been established.

Accordingly, the CESTAT held that the Revenue had failed to establish through cogent evidence that the appellant had knowledge of or was privy to the prohibited export, or that it had breached its obligations as an authorised courier. It set aside the impugned order insofar as it related to the appellant, with consequential relief in accordance with law.

Counsel for the Appellant: T. Viswanathan; D. Santhana Gopalan

Counsel for the Respondent: Rajini Menon, Authorized Representative