CESTAT Ahmedabad Says Director's Position Alone Cannot Attract Customs Penalty Quashes ₹1 Cr Levy

On 9 July, the Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that a company director cannot be penalised under the Customs Act, 1962 merely because of his position in the company unless the Department proves his active involvement in the alleged offence.

Judicial Member Dr. Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh allowed the appeal filed by Global Enterprises' director Altaf Ahmed and set aside the Rs. 1 crore penalty imposed on him. The Bench observed:

“Merely because the appellant was a Director of the above mentioned Company, penalty cannot be imposed unless ingredients of Section 112(a), 112(b) and 114AA of the Customs Act are present. The Director can only be held personally liable and ordered to pay penalty only when it is established that appellant played an active role in the alleged offence but no such role has been assigned to the appellant in the present case.”

The case arose from a Directorate of Revenue Intelligence (DRI) investigation into the alleged diversion of areca nuts imported by Global Enterprises without payment of customs duty.

The adjudicating authority had imposed penalties on the director under Sections 112(a), 112(b), and 114AA of the Customs Act, 1962. Section 112 provides for penalties for improper importation of goods liable for confiscation, while Section 114AA penalises the use of false or incorrect declarations or documents in customs matters.

The Department alleged that the director had facilitated the diversion of duty-free imported areca nuts from a Special Economic Zone (SEZ) into the Domestic Tariff Area (DTA). Ahmed argued that the Department had not recovered any goods from him, seized any incriminating documents, or produced any evidence showing that he had transported, possessed, financed, stored, purchased, sold, or otherwise dealt with the imported goods. He further submitted that there was no evidence linking him with the alleged diversion. The Department admitted that no show cause notice had been served on the appellant. It, however, sought a remand of the matter.

Rejecting the request, the Tribunal held that the impugned order had been passed in violation of the principles of natural justice. It held:

“We agree with the learned Counsel for the appellant that under Customs Act, there was no provision of uploading the Show Cause Notice on the portal of the department at the relevant time. Therefore, impugned order imposing penalty of Rs. One Crore upon the appellant Shri Altaf Ahmed has been passed against the provisions of Customs Act, without affording proper opportunity of hearing to the appellant and without issuing Show Cause Notice.”

It also found that the Department failed to produce any documentary evidence, including transport records, invoices, bank transactions, or correspondence, connecting the director with the alleged diversion. It noted that none of the statements recorded under Section 108 of the Customs Act, which empowers customs officers to record statements during an inquiry, attributed any active role to the director.

Further, the Bench held that the requirements for imposing penalties under Sections 112(a), 112(b), and 114AA of the Customs Act were not satisfied. It observed that no specific act or omission by the director had been identified to show that the goods became liable for confiscation and found no evidence that he knowingly dealt with the goods or used any false declaration or document.

Accordingly, the CESTAT allowed the appeal and set aside the penalty imposed on the director.

For Appellant: Shri Abhishek Malvi, Advocate

For Respondent: Shri Aakash Singh, Superintendent (AR)