The Madras High Court has held that mere facilitation of customs clearance cannot establish knowledge of smuggling.

The bench of Justice Hemant Chandangoudar set aside a customs adjudication order fastening liability for differential customs duty of Rs. 4.56 crore, along with interest and penalties, on the ground that mere involvement in the clearance and transportation of an import consignment cannot by itself establish that a person was the owner or beneficial owner of the goods or knowingly participated in their concealment and attempted evasion of duty.

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The bench found that the adjudicating authority had failed to record the specific findings that were required following an earlier remand order.

The case originated from an import consignment covered by Bill of Entry No. 4228874 dated December 1, 2017, filed in the name of M/s. R.M. Enterprises. The consignment had been declared as containing gas stoves and spare parts.

Acting on specific intelligence, the Directorate of Revenue Intelligence (DRI), Chennai Zonal Unit, intercepted and examined the consignment. The investigation allegedly revealed that the container contained 2,01,13,000 sewing-machine needles bearing the brands “Organ” and “Flying Tiger”, besides 70,200 steel measuring tapes. These goods had not been declared in the Bill of Entry, invoice, packing list or other documents submitted for customs clearance.

The investigation further found that M/s. R.M. Enterprises was owned by a person named Ramesh Menon and that the address furnished for the importer was fictitious. Other persons allegedly connected with the transaction, including an individual identified as Vishal, could not be traced.

The petitioner was the proprietor of M/s. The Sea Shipping Forwarders. According to the Customs Department, he had received the import documents from Vishal and handed them over to M/s. Asian Shipping Agencies, the Customs Broker, with instructions to file the Bill of Entry in the name of R.M. Enterprises.

The Department further alleged that the petitioner paid customs duty from his firm’s bank account, obtained the delivery order and arranged for examination and clearance of the consignment. During the investigation, statements of the Customs Broker and other persons were recorded. Reliance was also placed on the petitioner’s statement under Section 108 of the Customs Act, in which he was stated to have admitted undertaking customs clearance and transportation of the consignment on a lump-sum basis at Vishal’s instance.

A show cause notice dated June 18, 2018 was consequently issued alleging, among other things, that the petitioner had facilitated the attempted smuggling and had effective control over the imported goods. The Department also alleged that he was a beneficiary of the transaction and therefore liable to be treated as an “importer” under Section 2(26) of the Customs Act.

Following the show cause notice, the petitioner submitted his reply and additional submissions. An adjudication order dated September 28, 2020 was subsequently passed fastening customs duty and penalty upon him.

The petitioner challenged that order before the Madras High Court in W.P. No. 1738 of 2021. By an order dated October 13, 2023, the High Court set aside the earlier order and remitted the matter for fresh consideration.

The Court had then held that the Department’s inability to trace the actual importer could not, by itself, justify treating the petitioner as the beneficial owner of the goods. The adjudicating authority was specifically directed to examine whether the petitioner was aware of the attempted smuggling and to determine his liability with reference to the actual role played by him.

Despite the remand, the Customs authority once again passed an order dated March 19, 2024, fastening joint and several liability on the petitioner for the differential customs duty and penalties.

Under the impugned Order-in-Original, the petitioner was held jointly and severally liable with the other noticees for differential customs duty of ₹4,56,00,374 under Sections 28(4) read with 28(8) of the Customs Act, together with applicable interest under Section 28AA.

An equivalent penalty was imposed under Section 114A. In addition, a separate penalty of ₹10 lakh was imposed in connection with the alleged use of false documents.

Before the High Court, the petitioner argued that he was neither the owner nor beneficial owner of the imported goods and therefore could not be made liable for the differential duty under Section 28. It was also argued that the earlier High Court judgment had expressly rejected the proposition that the petitioner could be treated as beneficial owner merely because the actual importer could not be traced.

The petitioner further contended that there was no independent material establishing that he knew about the undeclared goods or knowingly participated in their concealment.

The Department defended the adjudication order by emphasizing the petitioner’s extensive involvement in the transaction. According to the Department, he had received the import documents, instructed the Customs Broker to file the Bill of Entry, paid the customs duty from his firm’s bank account, obtained the delivery order and arranged for examination and clearance.

The Department argued that these circumstances demonstrated that the petitioner exercised effective control over the consignment and was therefore liable for the differential duty and penalty. Reliance was also placed on his statement recorded under Section 108 of the Customs Act and his alleged previous involvement in a smuggling case.

The principal question before the Court was whether the material on record was sufficient to fasten liability for the differential customs duty and consequential penalties on the petitioner, particularly in view of the findings and directions issued by the High Court in the earlier round of litigation.

Justice Hemant Chandangoudar noted that the circumstances relied upon by the Department could establish the petitioner’s involvement in the clearance process. However, such involvement, by itself, did not establish that he was the owner or beneficial owner of the goods or that he knowingly participated in the misdeclaration or attempted smuggling.

The Court therefore drew a crucial distinction between participation in customs clearance and knowing participation in an illegal importation. The former could not automatically be treated as proof of the latter.

The High Court examined Section 147 of the Customs Act, which deals with the liability of principals and agents.

The Court observed that under Section 147(3), a person expressly or impliedly authorised by the owner, importer or exporter to act as an agent may, subject to the statutory requirements, be deemed to be the owner, importer or exporter for the purposes of the Act.

However, the provision cannot be invoked merely because an individual facilitated customs clearance. According to the Court, the foundational facts establishing the agency contemplated under Section 147(3) must first be established.

The Court relied upon the Supreme Court’s decision in Collector of Customs, Cochin v. Trivandrum Rubber Works Ltd., reported in (1999) 106 E.L.T. 9 (S.C.), for the proposition that duty liability under Section 28 ordinarily rests upon the person chargeable with the duty and that an agent’s liability arises only in circumstances specifically contemplated by Section 147(3).

Applying this principle, the Madras High Court found that the Customs authority had not recorded a clear finding, supported by cogent material, that the petitioner had been expressly or impliedly authorised by the actual owner or importer to act as an agent in the manner contemplated by Section 147(3).

The Court also noted that the identity of the actual importer or owner behind R.M. Enterprises and Vishal had remained unestablished during the investigation.

More importantly, there was no specific and reasoned finding that the petitioner had prior knowledge that the container contained the undeclared sewing-machine needles and measuring tapes or that he knowingly facilitated their concealment and attempted duty evasion.

The Court held that undertaking customs clearance and transportation on a lump-sum basis, receiving documents from Vishal, dealing with the Customs Broker, paying assessed duty and arranging examination and clearance could not, without more, establish knowledge of the concealed goods.

The Court also considered the distinction between a person who directly commits an act rendering goods liable to confiscation and a person alleged to have abetted such an act.

Referring to the Delhi High Court’s decision in Rajeev Khatri v. Commissioner of Customs (Export), reported in (2023) 9 Centax 412 (Del.), the Court noted that while an act or omission rendering goods liable to confiscation may attract Section 112(a), an allegation of abetment necessarily requires knowledge of the offending act.

Mere facilitation, without the requisite knowledge, cannot by itself constitute abetment.

In the present case, the High Court found that the impugned order substantially proceeded on the petitioner’s role in arranging clearance and the statements recorded during investigation, but failed to make the crucial finding that he had knowledge of the concealed goods and had knowingly participated in the attempted smuggling.

Another important aspect concerned the Department’s reliance on an earlier alleged smuggling incident involving the petitioner.

The petitioner had brought to the Court’s attention an order dated June 2, 2026 passed by the CESTAT, Chennai in Customs Appeal No. 42293 of 2018. In that proceeding, the Tribunal had observed that abetment involves actively assisting or facilitating an offence and that where the actual person who committed the offence is not found or his involvement in improper importation is not established, another person cannot be penalised merely on an allegation of abetment.

The CESTAT consequently set aside the penalties in that earlier matter.

The Madras High Court held that the earlier proceedings relied upon by the Customs Department had subsequently been set aside by the CESTAT. Consequently, reliance upon those proceedings in the impugned adjudication order could not be sustained.

The High Court separately examined the statutory requirements for the penalty under Section 114A.

It observed that Section 114A applies to a person liable to pay duty or interest where non-levy or short-levy arises by reason of collusion, wilful misstatement or suppression of facts. Therefore, the foundational requirement of establishing the petitioner’s liability to pay the duty had to be satisfied before the consequential penalty could be sustained.

Since the Department had failed to establish the petitioner’s liability for the underlying differential duty, the penalty founded on that liability could not independently survive.

The Court also considered the separate penalty imposed in relation to alleged false or incorrect documents.

It noted that Section 114AA requires a finding that the concerned person knowingly or intentionally made, signed, used or caused to be made, signed or used a declaration, statement or document that was false or incorrect in a material particular.

Thus, the mere existence of a false document is not sufficient. The necessary knowledge or intention of the person sought to be penalised must also be established.

In the case before it, the High Court found no specific finding establishing that the petitioner knowingly or intentionally made, signed, used or caused any particular false declaration or document. The ingredients necessary to sustain the penalty were therefore not established.

The High Court acknowledged that writ jurisdiction is ordinarily not exercised to re-appreciate disputed questions of fact or assess the evidentiary value of statements recorded during investigation.

However, the Court found the present case different because the matter had already been remitted in the earlier writ proceedings with a specific direction to determine the petitioner’s knowledge and actual role.

The adjudicating authority, according to the Court, had failed to record the findings required by that earlier order and had substantially proceeded on the very basis that had previously been found insufficient—namely, the petitioner’s involvement in the clearance process.

The Madras High Court held that the finding making the petitioner jointly and severally liable for the entire differential duty of ₹4,56,00,374 could not be sustained.

Since the interest and penalties were consequential to the same underlying finding, they too could not survive.

The Court set aside Order-in-Original insofar as it fastened differential customs duty, interest and penalties upon the petitioner. The writ petition was allowed and the connected miscellaneous petition was closed, with no order as to costs.

The Court clarified that its decision was confined to the petitioner’s liability and would not affect any proceedings that may be pending or initiated against the other noticees in accordance with law.

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