Madras High Court Quashes ₹4.56 Crore Customs Duty Demand Against Shipping Forwarder

The Madras High Court on 19 August set aside a Rs. 4.56 crore differential customs duty demand, along with interest and penalties, imposed on the proprietor of The Sea Shipping Forwarders.

A Single-Judge Bench comprising Justice Hemant Chandangoudar held that the Customs Department failed to record a specific finding, supported by cogent evidence, that the petitioner had prior knowledge of the concealed goods or knowingly facilitated their concealment and attempted duty evasion. He held:

"These circumstances may, undoubtedly, establish that the petitioner was involved in the clearance of the consignment. However, involvement in the clearance process, by itself, is not sufficient to establish that the petitioner was the owner or beneficial owner of the goods, or that he knowingly participated in the misdeclaration or attempted smuggling"

The case arose from a December 2017 consignment imported in the name of R.M. Enterprises. Acting on specific intelligence, the Directorate of Revenue Intelligence (DRI) intercepted the consignment, which had been declared as containing gas stoves and spare parts.

Examination revealed 2,01,13,000 sewing machine needles of the “Organ” and “Flying Tiger” brands and 70,200 steel measuring tapes concealed behind the declared goods.

The Department alleged that the petitioner had received the import documents, instructed the Customs Broker to file the Bill of Entry, paid customs duty from his firm's bank account, obtained the delivery order and arranged for examination and clearance of the consignment.

It consequently held the petitioner jointly and severally liable for Rs. 4,56,00,374 in differential customs duty, along with interest and an equivalent penalty under Section 114A of the Customs Act. It also imposed a further Rs. 10 lakh penalty under Section 114AA for the alleged use of false documents.

The petitioner argued that he was neither the owner nor beneficial owner of the goods and that the Department had failed to establish that he knew about the concealed goods. He also pointed out that an earlier order of the High Court had specifically directed the Department to determine his knowledge and actual role.

The Court observed that the petitioner's involvement in the clearance process could not, by itself, establish that he was the owner or beneficial owner of the goods or that he knowingly participated in the alleged smuggling.

It further held that the Department had failed to establish the foundational facts required to treat the petitioner as an agent under Section 147(3) of the Customs Act.

The Bench also held that the penalties under Sections 114A and 114AA could not be sustained in the absence of findings establishing the petitioner's liability for duty and his knowledge or intention in relation to any false documents. It noted:

“...there is no specific finding establishing that the petitioner knowingly or intentionally made, signed, used or caused any particular false declaration or document. The impugned order therefore also fails to establish the necessary ingredients for sustaining the penalty imposed upon the petitioner in respect of the alleged false documents.”

Accordingly, the High Court allowed the writ petition and quashed the Order-in-Original insofar as it fastened differential duty, interest and penalties on the petitioner.

For Petitioner: L.Maithili, Advocate

For Respondent: K.Mohana Murali, SSC