Mere Introduction To Freight Forwarder Does Not Prove Intent To Evade Customs Duty: CESTAT Chennai

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, on 15 October held that merely introducing an importer to a freight forwarder does not establish involvement in customs duty evasion or justify a penalty under the Customs Act, 1962.

Technical Member M. Ajit Kumar set aside the Rs. 1 lakh penalty imposed on Chirag Jayant Shah, an assistant manager at A.E. Logistics Pvt. Ltd., Mumbai, for allegedly facilitating the import of undervalued branded glass stones. The Bench observed:

“...Introducing Freight Forwarders to an importer is not a violation of the Customs Act. The role of the Appellant in actually procuring the license is also not brought out with any evidence.”

The Directorate of Revenue Intelligence (DRI) investigated the alleged import of branded glass chatons through Chennai, declared as artificial or imitation stones, involving suspected undervaluation and misuse of Importer-Exporter Codes (IECs).

During the investigation, Shah was alleged to have introduced Jatin Bachani to Rajesh Jhaver of Sky Speed Freight Forwarders, Chennai, for customs clearance. He was also accused of providing a contact who could arrange an IEC on rent.

The Customs Commissioner imposed a consolidated penalty of Rs. 1 lakh on Shah under Sections 112(a) and 114AA of the Customs Act, 1962. Challenging the penalty, Shah argued that his role was limited to making introductions and that there was no evidence that he owned, financed or knowingly facilitated the imports.

The Tribunal observed that the allegations did not establish any blameworthy act by Shah. It noted that discussions about obtaining an IEC on a loan basis did not, by themselves, establish a violation of the Customs Act.

It referred to a Directorate General of Foreign Trade policy circular clarifying that an IEC allotted to a person cannot ordinarily be used by another person. However, it held that this issue was not decisive because the impugned order did not establish that Shah had imported goods using another person's IEC.

Further, the Bench observed that there was no evidence that Shah had actually procured the IEC or knowingly participated in any illegal activity. Merely introducing a freight forwarder to an importer could not establish a conspiracy to facilitate undervaluation or customs duty evasion.

It also examined the concept of criminal conspiracy, noting that it requires an agreement between two or more persons to commit an illegal act or a lawful act through illegal means. It held:

“The term 'conspiracy' is not defined under the Customs Act, 1962. Its closest statutory definition is under Section 120-A of the erstwhile Indian Penal Code (IPC)......This definition though not directly applicable would help us understand the allegation made”

Accordingly, the CESTAT found no evidence that Shah had participated in an illegal act or knowingly engaged in unlawful activity, allowed his appeal, and set aside the penalty.

For Appellant: N. Balaji, Advocate

For Respondent: P. Sree Ramamurthy, Authorized Representative