The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that penalties against the importer under Sections 112 and 114AA of the Customs Act, 1962 cannot be sustained solely on the basis of an uncorroborated statement made by a co-accused, particularly where the affected party was denied the opportunity to cross-examine the maker of the statement. 

The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) has observed that  the appellant functioned as a customs clearance professional who processed Bills of Entry based upon documentation provided by the importer. It noted that if the Customs department had doubts regarding the description or classification of the imported goods, they were fully empowered to draw samples and undertake appropriate classification proceedings. Merely filing documents supplied by the importer could not automatically establish culpability for alleged misclassification. 

The dispute arose from an investigation conducted by Customs authorities into the import of Paraquat, a restricted herbicide, which was allegedly imported under the false declaration of “Industrial Washing Liquid” and “Liquid Industrial Soap.” 

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The investigation began after intelligence inputs suggested deliberate misdeclaration in multiple consignments imported through Kolkata Seaport and the NSCBI Air Cargo Complex. Laboratory testing confirmed that one of the consignments contained Paraquat instead of the declared product. 

Subsequent investigation into earlier imports led the department to examine a Bill of Entry dated February 3, 2017. During this exercise, Customs alleged that Arghya Sengupta, who was associated with the clearance process using the licence of Customs House Agent S. Murugan, had played the role of a middleman by collecting documents from the importer, facilitating customs clearance, and knowingly assisting in the import of Paraquat under a false declaration.

Based on these allegations, the department issued a show cause notice proposing penalties under Sections 112(a), 112(b), and 114AA of the Customs Act. The adjudicating authority eventually imposed penalties of ₹1.5 lakh under Section 112(b) and ₹4 lakh under Section 114AA, which were later upheld by the Commissioner (Appeals), prompting the appeal before CESTAT. 

The appellant challenged the penalties by arguing that he merely processed customs documentation on the basis of documents supplied by the importer and had no independent role in determining the correct description or classification of the imported goods.

It was further contended that the entire case rested primarily upon the statement of one of the importer’s directors, whose cross-examination had been specifically sought but was denied without any valid justification. The appellant argued that such denial amounted to a violation of the principles of natural justice. He also submitted that there was no independent documentary or corroborative evidence establishing his knowledge or involvement in any alleged misdeclaration.

With respect to Section 114AA, it was argued that the provision applies to intentionally making or using false declarations or documents in customs transactions and was intended to cover situations involving false documentation or paper transactions. Since actual goods had been imported and there was no evidence that the appellant himself had fabricated or knowingly used false documents, invocation of Section 114AA was legally unsustainable. 

The Bench further found that the department’s case against the appellant was founded almost entirely on the statement of the importer’s director. Since the appellant’s request to cross-examine that individual had been rejected without assigning any reasonable cause, the Tribunal held that the adjudicating authority had violated the principles of natural justice.

Significantly, the Tribunal reiterated the settled legal principle that the statement of a co-accused, without independent corroborative evidence, cannot by itself constitute the basis for imposing penalties. As the department failed to produce any other evidence linking the appellant to the alleged offence, the essential ingredients required for imposing penalties under Section 112 of the Customs Act were found to be absent. 

The Tribunal separately examined the penalty imposed under Section 114AA of the Customs Act. It observed that the provision targets situations where a person intentionally makes, signs or uses false declarations or documents in customs transactions.

According to the Bench, there was no allegation that the appellant had created or knowingly used false documents, nor was it the department’s case that the imports were merely paper transactions without actual movement of goods. Consequently, none of the statutory ingredients necessary for invoking Section 114AA were established.

The Tribunal also relied upon earlier judicial precedents, including Jai Balaji Industries v. Commissioner of Customs and Sameer Santosh Kumar Jaiswal v. Commissioner of Customs, to conclude that the penalty under Section 114AA was legally unsustainable. 

Allowing the appeal, the Kolkata Bench of CESTAT set aside the penalties imposed under Sections 112(a), 112(b), and 114AA of the Customs Act, 1962. The Tribunal held that uncorroborated statements of a co-accused, coupled with denial of cross-examination and absence of independent evidence, could not justify penal action against the appellant, and granted consequential relief in accordance with law.

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