The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has upheld customs proceedings and the personal penalty imposed on an individual accused of conspiring with importers and a customs broker to smuggle prohibited R-22 refrigerant gas by concealing it behind other goods in two containers.
The bench of Dr. Rachna Gupta (Judicial Member) rejected the appellant’s challenge to the jurisdiction of the Directorate of Revenue Intelligence (DRI), holding that DRI officers appointed as customs officers and assigned the functions of a “proper officer” are competent to issue show cause notices under Section 28 of the Customs Act, 1962.
The Tribunal relied on the Supreme Court’s November 7, 2024 review judgment in the Canon India matter, which recognised the authority of properly appointed DRI officers to initiate proceedings for the recovery of customs duty.
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“Officers of Directorate of Revenue Intelligence, when appointed as officers of customs and assigned the relevant functions of a ‘proper officer’, are competent to issue show cause notices for recovery of customs duty under Section 28 of the Customs Act, 1962,” the CESTAT observed while rejecting the jurisdictional objection.
The dispute originated from a DRI investigation into goods imported through two containers at ICD Tughlakabad, New Delhi.
One Bill of Entry was filed in the name of Mahadev Trading House, while another was filed in the name of Avtar International. Both Bills of Entry, dated June 18, 2012, were submitted through a common customs house agent.
When DRI officers opened and examined the containers, they allegedly discovered cylinders of Refrigerant R-22 gas in addition to the goods declared in the import documents. R-22 is an ozone-depleting substance whose import was prohibited or restricted under the applicable regulatory framework.
Samples taken from the cylinders were sent to the Defence Research and Development Organisation’s Centre for Fire, Explosive and Environment Safety for chemical analysis. The laboratory’s report dated December 10, 2012 confirmed that the cylinders contained R-22 gas.
The examination also revealed consumer goods such as paper table napkins, decorative items and AA cells. According to the investigation, these goods had been used to conceal the prohibited refrigerant cylinders placed deep inside the containers.
The DRI seized the goods and commenced a detailed investigation into the alleged smuggling arrangement.
The investigation alleged that three individuals had devised a scheme to import prohibited or restricted goods through entities created in the names of other persons in return for monetary consideration.
Four proprietary firms were allegedly established under this arrangement, two of which—Mahadev Trading House and Avtar International—were used for the consignments involved in the case.
The persons identified as the de facto importers were accused of financing the imports, travelling to China to purchase the contraband in cash and arranging for the cylinders to be loaded in a manner that concealed them behind other goods. The bank accounts opened in the names of the proprietary concerns were also allegedly operated by these individuals.
The customs broker was accused of filing the Bills of Entry without properly verifying the genuineness of the importers. According to the DRI, the broker had agreed to receive twice the amount ordinarily charged to clients for facilitating the misdeclaration.
The investigation further alleged that the appellant and the customs broker had agreed to facilitate the clearance of the concealed R-22 cylinders on instructions from the de facto importers in return for ₹10 lakh.
A show cause notice was consequently issued on December 19, 2012.
The adjudicating authority ordered the absolute confiscation of the R-22 gas cylinders.
The assessable value of the remaining declared and undeclared goods was redetermined, and those goods were also confiscated. Their redemption was, however, permitted on payment of the prescribed fine.
Penalties were imposed upon the two importers, while personal penalties were imposed on several persons found to have participated in the alleged smuggling operation.
Before the CESTAT, the appellant primarily challenged the penalty imposed under Section 114AA of the Customs Act.
It was argued that he had neither made nor signed nor used any false declaration or document. According to his counsel, the appellant had merely collected documents from one of the persons involved and handed them over to the customs broker, who subsequently filed the documents before the customs authorities.
The appellant submitted that Section 114AA could apply only to an importer or customs broker whose acts or omissions occurred in the course of business under the Customs Act. His alleged participation, it was contended, could not be described as an act committed “in the course of business under the Act.”
It was also argued that separate penalties under Sections 112 and 114AA were unjustified. Reliance was placed on the Tribunal’s ruling in Achiever International v. Commissioner of Central Excise, where it was held that there was no justification for imposing separate penalties under the two provisions in the circumstances of that case.
The appellant further alleged that the adjudicating authority had travelled beyond the scope of the show cause notice by imposing separate penalties, thereby violating the principles of natural justice.
The Customs Department defended the adjudication order and reiterated its findings.
The CESTAT noted that the connected appeals had previously been decided by the Tribunal through a common final order dated November 2, 2017.
In that decision, the Tribunal had found that the appellant and the customs broker conspired with the de facto importers to secure the clearance of contraband concealed in the containers.
The Tribunal took note of statements indicating that the persons concerned had agreed to facilitate the clearance in return for a cash payment of ₹10 lakh. These statements, along with the other evidence collected during the investigation, demonstrated that the appellant had played a serious role in the smuggling of prohibited R-22 gas, it held.
Accordingly, the CESTAT found the personal penalty to be justified and declined to interfere with it.
Addressing the jurisdictional challenge, the Tribunal referred to the Supreme Court’s original March 9, 2021 judgment in Canon India Private Limited, which had held that the DRI officer involved in that case was not the proper officer competent to initiate recovery proceedings under Section 28 of the Customs Act.
The legal position was subsequently reconsidered by the Supreme Court in review proceedings. In its November 7, 2024 judgment, the Court held that DRI officers appointed as customs officers and assigned the relevant functions of a proper officer could validly issue notices under Section 28.
The Supreme Court found that the earlier ruling had overlooked relevant notifications and circulars, particularly Notification No. 44/2011-Customs (N.T.), through which functions under Sections 17 and 28 of the Customs Act had been assigned to DRI officers.
It also clarified that assessment under Section 17 and recovery of duty that had not been levied, had been short-levied or had been erroneously refunded under Section 28 were distinct statutory functions.
Applying the Supreme Court’s review ruling, the CESTAT rejected the appellant’s contention that the DRI lacked jurisdiction to issue the show cause notice. It consequently refused to set aside the proceedings on jurisdictional grounds.
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