The Calcutta High Court has set aside a penalty of ₹5 lakh imposed on an employee of a Customs House Agent (CHA) in connection with an attempted export of prohibited red sanders, holding that negligence or failure to produce a person before investigators cannot, by itself, establish abetment under Section 114(i) of the Customs Act, 1962.
The Bench of Justice Rajarshi Bharadwaj and Justice Chaitali Chatterjee Das observed that there was no material showing that the employee had intentionally aided, incited or knowingly participated in the alleged smuggling conspiracy.
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The bench consequently held that the Customs, Excise and Service Tax Appellate Tribunal had wrongly treated the employee as being on the same footing as persons allegedly responsible for arranging the illegal export.
The substantial question of law before the High Court was whether sufficient material existed to justify the Tribunal’s finding that the appellant was actively involved in the racket concerning the smuggling of red sanders and white powder.
The dispute arose from information received by the Kolkata Zonal Unit of the Directorate of Revenue Intelligence that five containers loaded with red sanders, a prohibited item for export, were likely to be smuggled out of India through Haldia Dock.
Acting on the information, DRI officers reached Haldia on May 7, 2007. Two trucks carrying export containers were found parked inside the dock. The investigation revealed that the goods had purportedly been exported by Druk Wongden Export of Phuentsholing, Bhutan, and were intended for shipment to Singapore.
Balmer Lawrie & Co. Ltd., a Government of India undertaking, had been engaged to transport the consignments to the Haldia Dock Complex and was also functioning as the Customs House Agent.
On examination, red-coloured wooden logs were recovered from the containers. Subsequent testing confirmed that the logs were red sanders. White powder found inside the containers had allegedly also been misdeclared as talcum powder under Customs Tariff Heading 2526, whereas the authorities claimed that it fell under Chapter 33 of the Customs Tariff.
The Customs authorities alleged that certain persons had conspired to replace the declared Bhutanese export goods with prohibited red sanders during transit and had used a reputed public-sector undertaking as the Customs House Agent to provide an appearance of legitimacy to the transaction.
The appellant was working as a manager with Balmer Lawrie at the relevant time. During the investigation, his statement was recorded under Section 108 of the Customs Act.
According to the authorities, a person named Sanjay Singh, associated with Jamphel Clearing & Logistics of Bhutan, used to coordinate with Balmer Lawrie concerning the transportation of consignments to Singapore. The appellant had introduced Sanjay to Bappa Mishra, a junior cargo officer of Balmer Lawrie, who thereafter dealt with Sanjay’s requests for containers and export documentation.
The appellant informed investigators that Sanjay used to visit the Balmer Lawrie office to provide documents and had approached him for export-forwarding business. Balmer Lawrie had arranged several containers for him, of which 12 had already sailed, and payments had been received against the corresponding bills.
The Customs authorities placed considerable reliance on the appellant’s assurance that he would produce Sanjay before the DRI. Since Sanjay did not appear before the investigating officers, the appellant was accused of acting negligently and hindering the investigation. It was also alleged that he failed to provide information concerning the delivery of earlier consignments in Singapore or Malaysia.
On that basis, the Commissioner concluded that the appellant had acted negligently and casually while accepting the export work of a foreign concern and imposed a penalty of ₹5 lakh under Section 114(i).
The CESTAT affirmed the penalty. It observed that the appellant had failed to honour his assurance to produce Sanjay and had not supplied details relating to the delivery of previous consignments. The Tribunal concluded that the appellant was actively involved in the smuggling racket.
Before the High Court, the appellant contended that the proceedings did not disclose any act demonstrating his participation in, or knowledge of, the alleged smuggling operation.
It was submitted that Balmer Lawrie’s role as a Customs House Agent was confined to checking documents, arranging empty containers, facilitating shipment and issuing bills of lading against negotiated charges.
The containers coming from Bhutan had allegedly been examined and sealed in the presence of the customs authorities of Bhutan and India. Therefore, the appellant had no reason to suspect that the containers held anything different from what was disclosed in the supporting documents.
The appellant also maintained that he had cooperated with the investigation, supplied Sanjay’s available contact details and attempted to secure his appearance. Sanjay’s employer had also assured that he would join the investigation, but he ultimately failed to do so.
It was argued that the failure of a third person to appear before the DRI could not make the appellant liable for abetting smuggling. To establish abetment, the requirements underlying Section 107 of the Indian Penal Code—such as instigation, conspiracy or intentional aid—had to be satisfied.
The Customs Department contended that the red sanders had been concealed under the guise of quartzite chips and that the white powder had also been misdeclared. The persons behind the operation had allegedly used mobile numbers obtained with false names and addresses to avoid detection.
The Department maintained that Sanjay had played a crucial role in arranging transportation and had supplied the Customs House Agent with the work. Since the appellant had undertaken to produce him but failed to do so, his conduct hindered the investigation and assisted the persons behind the attempted export.
Reliance was placed on Section 114(i), which provides for a penalty where a person, in relation to goods, does or omits to do an act that renders the goods liable to confiscation under Section 113, or abets such an act or omission.
Examining the Customs House Agents Licensing Regulations, 2004, the High Court noted that the obligations of a Customs House Agent included ensuring that Bills of Entry and shipping bills prominently disclosed the importer or exporter and the Customs House Agent. The regulations also required verification of the client’s antecedents, Importer Exporter Code, identity and functioning at the declared address through reliable documents or information.
The Court, however, found nothing in the relevant obligations that placed a duty upon the Customs House Agent to physically inspect goods inside a container.
In the present case, the consignments had been examined and sealed by customs officials in Bhutan and India. The appellant had no role in examining their contents and had only dealt with the routine business of arranging containers.
The Bench observed that the material on record showed only that Bappa Mishra became acquainted with Sanjay through the appellant. Nothing demonstrated that the appellant knew about the prohibited goods or participated in their substitution or attempted export.
The Court further noted that the Customs Tribunal itself found that a middleman named Rajesh, along with Sanjay and another person, had arranged the export transaction. A report from the Royal Bhutan Customs also indicated that Rajesh had played an important role in the attempted export.
The High Court held that the appellant’s failure to ensure Sanjay’s appearance before the DRI could not legally establish that he had abetted the alleged crime.
It observed that the investigating authorities possessed the legal machinery necessary to trace or compel Sanjay’s appearance. The failure of Sanjay to honour an assurance could not be converted into evidence of the appellant’s participation in smuggling.
The show-cause notice also failed to identify any specific role allegedly played by the appellant in the conspiracy. The accusation against him ultimately remained confined to negligence in failing to fulfil his assurance to produce Sanjay.
Referring to the principles governing abetment, the Court explained that a person may abet an act through instigation, intentional aid or conspiracy. The alleged abettor must possess a mental state involving intention, knowledge or wilful omission.
Negligence did not, by itself, establish any of those mental elements. For a finding of intentional aid, it had to be shown that the person acted to facilitate the commission of the offence. Merely showing that the alleged offence might not have occurred without an intermediary’s involvement was insufficient.
The Court also found no intentional avoidance or delay on the appellant’s part during the inquiry. He had responded to the show-cause notice, appeared before the authorities, made a statement under Section 108 and explained how he became acquainted with Sanjay in the course of business.
He had also supplied the contact number that was available to him through the business transactions.
The Bench observed that employees of Balmer Lawrie could not be described as active participants merely because the company acted as the Customs House Agent. They had no opportunity to inspect the contents of containers that had been sealed in the presence of Bhutanese and Indian customs authorities and were opened only during examination at Haldia Port.
The High Court concluded that the Tribunal proceeded on an erroneous assumption that the appellant and Sanjay were both active participants in the smuggling operation.
The appellant, the Court said, could not be placed on the same footing as Sanjay when the record disclosed fundamentally different roles. There was no material connecting the appellant with the alleged conspiracy, knowledge of the prohibited goods or any intentional act facilitating their attempted export.
Holding that the finding of negligence was itself unsupported and could not substitute the legal ingredients of abetment, the Court ruled that the penalty order was unsustainable.
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