The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside the penalty imposed on a Customs Broker’s Director, holding that penalty under Section 112 of the Customs Act, 1962 cannot be sustained in the absence of knowledge or involvement in the alleged undervaluation of imported goods.
The bench of Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) observed that the adjudicating authority had largely reiterated the allegations made in the show cause notice without providing independent reasoning or evidence to justify the penalty. Earlier proceedings involving the Customs Broker firm had already concluded that there was no evidence to establish knowledge of undervaluation on part of the broker or its officials.
The case arose from investigations conducted by the Directorate of Revenue Intelligence (DRI), which alleged that certain importers had indulged in evasion of customs duty by undervaluing goods such as wood treatment chemicals, resins, varnishes, and lacquers. The investigation led to issuance of a show cause notice not only against the importing entities but also against the Director of a Customs Broker firm, proposing imposition of penalty.
The adjudicating authority had confirmed the penalty against the Director. However, during the course of proceedings, it was noted that the main noticees had settled their disputes before the Settlement Commission, while the Director contested the penalty independently.
The appellant argued that he had neither handled nor dealt with the goods in a manner that would attract liability under Section 112(b) of the Customs Act. It was contended that the role of a Customs Broker is limited to processing documentation based on information provided by clients, and mere handling of documents or facilitating clearance does not amount to involvement in undervaluation. The appellant also emphasized that there was no evidence to establish that he had knowledge of any alleged misdeclaration.
The Tribunal found that the case against the appellant relied heavily on statements recorded during investigation. However, these statements were not tested in accordance with the requirements of Section 138B of the Customs Act, thereby depriving them of evidentiary value. The Tribunal also noted that no incriminating documents were recovered from the appellant or the Customs Broker firm during searches conducted by the authorities.
The Tribunal held that for imposition of penalty under Section 112, the department must establish that the person had knowledge or reasonable belief that the goods were liable for confiscation. In the present case, there was no such evidence. The Tribunal categorically observed that when the charge of undervaluation itself was not proved against the appellant, and there was no material to show his involvement, the penalty could not be sustained.
The Bench further clarified that prior proceedings relating to revocation of the Customs Broker licence or forfeiture of security deposit do not automatically establish liability for penalty under the Customs Act.
The Tribunal concluded that the impugned order failed to justify the imposition of penalty either on facts or in law. The penalty was therefore set aside, and the appeal was allowed with consequential relief.
Case Details
Case Title: Lalit Mange Versus Commissioner of Customs, Nhava Sheva
Citation: JURISHOUR-1027-CES-2026(MUM)
Case No.: Customs Appeal No. 86945 of 2016
Date: 27.04.2026
Counsel For Appellant: Mihir Mehta
Counsel For Respondent: Krishna Azad, Authorised Representative
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