The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh has dismissed the department’s appeal against the deletion of penalties imposed in a high-profile cigarette smuggling case, holding that penalties under the Customs Act cannot be sustained merely on the basis of an uncorroborated statement made by a co-accused.

The bench of S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) upheld the order of the Commissioner (Appeals), who had earlier set aside penalties totaling ₹55 lakh imposed on Choudhary under Sections 112(a)(i) and 114AA of the Customs Act, 1962. 

The dispute originated from the import of a consignment declared as 1,120 bags of dry dates through a Bill of Entry filed in May 2021. During examination at the Inland Container Depot (ICD), Customs officers discovered that the containers concealed a large quantity of undeclared foreign cigarettes behind the bags of dry dates.

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The concealed goods included 120 cartons of ESSE cigarettes containing 12 lakh sticks; 20 cartons of Benson & Hedges cigarettes containing 2 lakh sticks; and 110 cartons of Gudang Garam cigarettes containing 15.84 lakh sticks.

Since the imported cigarettes lacked the mandatory statutory pictorial and textual health warnings prescribed under Indian law, the consignment was treated as prohibited goods and seized under the Customs Act. 

The Customs Department alleged that appellant/assessee was actively involved in the smuggling operation despite not being the importer on record.

According to the Department, he assisted in procuring the prohibited cigarettes; financially supported the operation; helped the alleged mastermind, Chander Shekhar, evade investigation by providing ₹5 lakh in cash; attempted to facilitate clearance of the consignment; coordinated container booking through his employee; remained in contact with the alleged mastermind while he was absconding; and visited Dubai during a period overlapping with Chander Shekhar’s travel, suggesting involvement in planning the imports. 

Based on these allegations, the adjudicating authority had imposed penalties of ₹40 lakh under Section 112(a)(i) and ₹15 lakh under Section 114AA of the Customs Act. 

The department argued that the entire case rested solely on the later statements of Chander Shekhar recorded in September 2021.

The department pointed out that Chander Shekhar’s earlier statements made immediately after seizure never implicated appellant. The customs broker who handled the import consistently stated that he dealt only with Chander Shekhar. No documentary evidence established any financial transactions, partnership, or role played by Choudhary in the import. No evidence supported allegations regarding payment of ₹5 lakh, visits to the port for clearance, or involvement in filing import documents. Choudhary neither signed nor submitted any customs declaration that could attract penalty under Section 114AA. 

After examining the evidence, CESTAT found that the Department had failed to produce any independent material linking the respondent to the illegal import.

The Bench observed that the entire case against Choudhary was founded only on the subsequent statements of Chander Shekhar, whereas his earlier statements had acknowledged himself as the real owner and importer without naming Choudhary.

The Tribunal further noted that no corroborative documentary evidence supported the allegations; the customs broker never implicated the respondent in any of his statements; there was no proof that Choudhary attempted to clear the goods from the ICD; the investigation failed to establish any financial linkage or participation in the import process; and the respondent neither imported the goods nor signed any false declaration required for invoking Section 114AA. 

The Bench concluded that the essential ingredients required for imposing penalties under Sections 112(a)(i) and 114AA were absent.

The tribunal held that mere suspicion or an unverified statement of a co-accused cannot substitute legally admissible and corroborated evidence, particularly when the investigation failed to establish the respondent’s role beyond doubt. 

Accordingly, the Tribunal upheld the Commissioner (Appeals)’ decision deleting the penalties and dismissed the department’s appeal. The connected cross-objection was also disposed of.

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