CESTAT Sets Aside ₹70 Lakh Penalties In Cigarette Smuggling, Faults DRI For Incomplete Investigation

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 2 June held that a penalty for abetment under Section 112(a) of the Customs Act cannot be sustained without identifying and establishing the liability of the actual importer.

Judicial Member P. Dinesha set aside the penalties of Rs.35 lakh each, imposed on B.A. Suresh Kumar, proprietor of Arunachalam Shipping, and C. Solomon Selvaraj, proprietor of Thivya Agencies in an alleged cigarette smuggling case after finding that the Revenue had conducted a one-sided and incomplete investigation. He observed:

“..It is also a mystery that the Revenue has not bothered to check the call history of the phone number before at least drawing a conclusion as to the innocence of the holder of phone number and exonerating the said person. From this itself it appears that the investigation has been carried out as if it is a formality and to give a clean chit to the person whose number was given and to target someone else.”

The case arose from a Directorate of Revenue Intelligence (DRI) investigation into a consignment declared as “Malaysian Core Veneer” that allegedly contained foreign-origin cigarettes. Acting on intelligence inputs, customs authorities intercepted the container at Chennai Port and initiated proceedings against the appellants, alleging that they had abetted the attempted smuggling. The authorities imposed penalties under Sections 112(a) and 114AA of the Customs Act, 1962.

Allowing the appeals, the Tribunal found serious deficiencies in the investigation. It noted that although the shipping documents contained the phone number of a third person, the DRI neither investigated that lead nor examined the call records. It observed that the authorities accepted the denial of the person linked to the phone number without further inquiry while rejecting the appellants' explanations without proper scrutiny.

The Bench further observed that the Revenue failed to establish the identity of the actual importer even though the entire case rested on an alleged act of improper importation. It held that abetment necessarily presupposes the existence of a principal offender and that an alleged abettor cannot be penalised in isolation when the actual importer remains unidentified.

The Tribunal emphasised that “...abetment occurs only when there are at least two persons involved – one committer and the other abetter. Hence, when the actual committer is absent or is not found, then there is no question of abetment since abetter cannot conspire with himself to commit a crime...”

The Bench was also critical of the Revenue's reliance on the statement of one appellant, noting that he had retracted it at the earliest opportunity and that no independent evidence corroborated it. It observed that the investigation denied cross-examination of key witnesses and ignored material facts, including a police complaint alleging misuse of the appellant's Import Export Code (IEC).

On the penalty imposed under Section 114AA, the Tribunal held that the provision was intended to address fraudulent export-related documentation and did not apply to the facts of the present import case. It observed:

“..Section 114AA can be invoked against any person for imposition of penalty only in the case of fraudulent exports where exports take place only on paper and no physical exports take place.”

Accordingly, the CESTAT concluded that the Revenue failed to establish either abetment or the use of false documents attributable to the appellants and set aside the penalties and allowed both appeals.

For Appellant: Ramkumar C. and Maithili. L., Advocates

For Respondent: N. Satyanarayana, Authorized Representative