Customs Dept. Can’t Use Confiscation Powers to Enforce FEMA Violations Beyond Airport Seizure Stage: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the customs department cannot use confiscation powers to enforce Foreign Exchange Management Act, 1999 (FEMA) violations beyond the airport seizure stage. The bench of Ajay Sharma (Judicial Member) and C J Mathew, Member (Technical Member) partly allowed appeals filed by a corporate travel services company and its officials, holding that customs proceedings cannot substitute enforcement action under the Foreign Exchange Management Act, 1999 (FEMA), in the absence of specific statutory authority The dispute arose from the interception of foreign currency equivalent to ₹81.01 lakh at the Indira Gandhi International Airport, New Delhi, on 20 August 2018. The currency was found in the possession of an employee of a travel and event management company while he was about to board an international flight. The employee was deputed to manage travel and business arrangements for a senior corporate executive of a major Indian automobile manufacturer. Subsequent investigations by customs authorities expanded the scope of inquiry to previous instances of foreign currency movement. Based on documents, handwritten notes, and electronic records recovered from the company’s premises, the department alleged that foreign currency worth several crores had been carried abroad by company employees over multiple years, allegedly in contravention of Reserve Bank of India (RBI) guidelines. The adjudicating authority ordered absolute confiscation of the seized currency and imposed penalties under Section 114 of the Customs Act, 1962. It also proposed confiscation of additional amounts reflected in internal records and electronic data, imposing redemption fines in lieu of confiscation. The Commissioner (Appeals) partly upheld the order, sustaining absolute confiscation of the seized currency and confirming penalties on company officials while setting aside confiscation of certain past transactions for lack of evidence. Multiple appeals were thereafter filed before the CESTAT by the company and its officials, challenging the jurisdiction of customs authorities, the legality of absolute confiscation, and the imposition of penalties. A key issue before the Tribunal was whether customs authorities could initiate confiscation proceedings for alleged violations of FEMA and RBI instructions. The appellants argued that after the repeal of the Foreign Exchange Regulation Act, 1973, customs officers no longer had independent authority to penalise foreign exchange violations unless specifically empowered under FEMA. The Tribunal observed that FEMA represents a comprehensive and self-contained regulatory framework governing foreign exchange transactions. While customs officers may exercise limited powers delegated under FEMA at airports, such delegation does not automatically permit invocation of confiscation provisions under the Customs Act for FEMA-related contraventions. The Tribunal also examined whether foreign currency could be treated as “prohibited goods” under the Customs Act. It held that although currency is included in the definition of “goods” under Section 2(22) of the Act, mere breach of RBI conditions does not render currency prohibited per se. The Tribunal clarified that the definition of “prohibited goods” does not automatically justify absolute confiscation unless the statute expressly mandates such consequence. The Tribunal cautioned against equating regulatory non-compliance with prohibition warranting absolute confiscation. With respect to foreign currency loaded on travel cards issued in the names of different employees but carried by one individual, the Tribunal noted that while RBI guidelines restrict usage to permissible transactions, the department failed to establish illegality in sourcing or utilisation of funds. The Tribunal therefore set aside confiscation and redemption fines relating to such amounts, citing lack of concrete evidence of unlawful export or misuse. Similarly, amounts inferred from internal records and electronic data were held to be unsustainable for confiscation in the absence of proof that such currency was actually exported or acquired illegally. The Tribunal substantially reduced the severity of penalties imposed on company officials. It observed that the transactions were linked to legitimate business travel arrangements and that the funds had been sourced through authorised channels. The Tribunal held that harsh penalties were disproportionate in the absence of mens rea or demonstrable loss to the exchequer. Case Details Case Title: Salt Experiences & Management Pvt Ltd Versus Customs Commissioner Case No.: Customs Appeal No: 51745 Of 2025 Date: 21/01/2026 Counsel For Appellant: Mohammad Faraz, Advocate Counsel For Respondent: Ranjan Prakash, Commissioner (AR) Click Here To Read Order Read More: Budget 2026: Jewellery Industry Seeks Relief From High Taxes, Rigid Customs

Customs Dept. Can’t Use Confiscation Powers to Enforce FEMA Violations Beyond Airport Seizure Stage: CESTAT

Membership Required

Latest articles

Marble vs Dolomite Dispute: CESTAT Rejects Reclassification Based on Samples of Other Importers

Customs Dept. Loses Rs. 5,000-Crore Adani Valuation Dispute as CESTAT Says Issue Already Settled

Promise-to-Marry Allegations Settled in Lok Adalat Cannot Automatically Disqualify Police Recruit: Supreme Court

Can GST Dept. Demand 1% Cash Payment Under Rule 86B Even After Full Tax Has Been Paid Through ITC? CASE LAWS

More like this

Marble vs Dolomite Dispute: CESTAT Rejects Reclassification Based on Samples of Other Importers

Customs Dept. Loses Rs. 5,000-Crore Adani Valuation Dispute as CESTAT Says Issue Already Settled

Promise-to-Marry Allegations Settled in Lok Adalat Cannot Automatically Disqualify Police Recruit: Supreme Court

About us

Company

Categories