CESTAT Sets Aside Penalty On Customs Broker, Says CHALR Violation Alone Insufficient

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a penalty imposed on a Customs Broker under Section 112(a)(i) of the Customs Act, holding that mere violation of the Customs House Agents Licensing Regulations, 2004 (CHALR) cannot by itself justify penalty under the Act in the absence of specific allegations and material showing knowledge.

A coram of President Justice Dilip Gupta and Technical Member P.V. Subba Rao allowed the appeal filed by Cargo Placement & Shipping Agencies Pvt. Ltd. and quashed the penalty imposed by the Commissioner of Customs, ICD Tughlakabad.

The appellant-Cargo Placement & Shipping Agencies Pvt. Ltd., a licensed Customs Broker under CHALR, 2004, had been issued a show cause notice alleging failure to properly supervise its G-card holder in terms of Regulation 19. The department alleged that multiple Bills of Entry were filed in the names of fictitious firms, resulting in illegal imports.

While the show cause notice primarily alleged violation of Regulation 19 and proposed action under Regulation 20 of CHALR, it merely stated in paragraph 87(VI) that the appellant was liable to penalty under Section 112 of the Customs Act.

The Commissioner nonetheless imposed penalty under Section 112(a)(i), holding that there was sufficient evidence of “acts of commission and/or omission” on the part of the appellant and that it had failed to discharge its statutory obligations.

The tribunal disagreed.

It noted that the show cause notice “merely alleges violation of regulation 19 of the 2004 Regulations” and “does not make any mention as to why a penalty under section 112(a)(i) of the Customs Act should be imposed upon the appellant.”

Significantly, even the impugned order recorded that “no imputation has been made under the Customs Act” against the appellant. Despite this, a penalty was imposed on the ground that sufficient evidence existed to establish acts of omission and commission.

Rejecting this approach, the tribunal held:

“Therefore, penalty under section 112(a)(i) of the Customs Act could not have been imposed upon the appellant.”

The tribunal relied on the Delhi High Court's decision in Commissioner of Customs (Import & General), New Delhi v. Buhariwal Logistics (2016) which held that breach of Regulation 19 of CHALR may invite action under those regulations but cannot by itself justify a penalty under Sections 112 or 114AA of the Customs Act unless knowledge of the illegal acts of the agent or employee is attributable to the employer.

The tribunal emphasised that in matters of penalty, there must be tangible material to show that the Customs Broker was aware of or involved in the illegal import. In the absence of such specific allegations and imputations in the show cause notice, the penalty under Section 112(a)(i) could not be sustained.

Accordingly, the penalty was set aside, and the appeal was allowed.

For Appellant: Advocates Ashwani Bhatia and Anjali Gupta

For Respondent: Mukesh Kumar Shukla, authorised representative