CESTAT Chennai Clarifying Penalty Provisions Under Section 112(a) of the Customs Act

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 25.12.2025

CESTAT Chennai Clarifying Penalty Provisions Under Section 112(a) of the Customs Act

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chennai recently delivered a significant judgment in the case of Customs Appeal No. ​ 40675 of 2025, which has set a precedent in interpreting the scope of Section 112(a) of the Customs Act, 1962. This case involved Appellant, a partner of M/s. ​ Active Global Logistics, who was penalized for alleged involvement in the smuggling of foreign-origin cigarettes under the guise of imported goods declared as pampers. The Tribunal’s decision to set aside the penalty imposed on the appellant has brought clarity to the legal interpretation of “abetment” under Section 112(a) of the Customs Act.

Background of the Case

The case originated from an investigation by the Directorate of Revenue Intelligence (DRI) into goods imported by M/s. ​ V.K.R. Impex, Chennai, under Bill of Entry No. ​ 3054047 dated April 30, 2019. The investigation revealed that Gudang Garam cigarettes of foreign origin were being smuggled under the guise of pampers. ​ The goods were seized, and show-cause notices were issued to various individuals, including the appellant, who was the Customs Broker for the importer. ​

The appellant was accused of failing to comply with the Customs Broker Licensing Regulations (CBLR), 2018, particularly the Know Your Customer (KYC) obligations. ​ The authorities alleged that the appellant facilitated customs clearance for a non-existent entity, M/s. ​ VKR Impex, and accepted documents from unauthorized individuals. ​ Consequently, the Adjudicating Authority imposed a penalty of Rs. ​ 25,00,000 under Section 112(a) of the Customs Act, 1962. ​ The appellant challenged this penalty before the Commissioner of Customs (Appeals-II), Chennai, who upheld the penalty, leading to the present appeal before the CESTAT. ​

Key Legal Issue ​

The primary issue before the Tribunal was whether the penalty imposed on the appellant under Section 112(a) of the Customs Act was legally sustainable. ​ Section 112(a) penalizes individuals who commit acts or omissions that render goods liable to confiscation under Section 111 of the Customs Act or abet such acts. ​

Arguments Presented

Appellant’s Arguments:

• The appellant’s counsel argued that penalties under the Customs Act for alleged violations of the CBLR are not legally sustainable. ​
• The appellant contended that his role as a Customs Broker was limited to facilitating the clearance of goods, and he was not directly involved in the smuggling activities. ​
• The counsel cited several judicial precedents, including Rajeev Khatri v CC (Export), 2023 (7) TMI 218-Delhi High Court, which clarified that mens rea (criminal intent) is not required for imposing penalties under Section 112(a) unless the person is alleged to have abetted the act of smuggling.

Respondent’s Arguments:

• The respondent argued that the appellant’s failure to verify the antecedents of the importer and his acceptance of documents from unauthorized individuals constituted a violation of the CBLR and rendered him liable for penalty under Section 112(a). ​
• The respondent emphasized that the appellant’s actions facilitated the smuggling attempt and demonstrated negligence and complicity. ​

Tribunal’s Observations and Judgment

After hearing both parties and reviewing the case records, the Tribunal made the following key observations:

1. Lack of Evidence for Abetment: The Tribunal noted that neither the show-cause notice nor the impugned order provided evidence to prove that the appellant had abetted the smuggling of cigarettes. ​ The statements relied upon by the authorities were not tested for relevancy under Section 138B of the Customs Act, making them legally untenable. ​
2. No Proof of Intentional Involvement: The Tribunal found no evidence of intentional acts by the appellant that would constitute abetment under Section 112(a). ​ The alleged monetary gains and links to the main accused were not substantiated. ​
3. Negligence vs. Abetment: While the appellant’s failure to verify the antecedents of the importer and comply with KYC obligations under the CBLR was deemed negligent, the Tribunal clarified that such negligence does not equate to abetment of smuggling under Section 112(a).
4. Misapplication of Section 112(b): The Tribunal criticized the Appellate Authority for invoking Section 112(b) in its findings, despite the show-cause notice and the original order only proposing penalty under Section 112(a). ​ This was deemed legally unsound. ​
5. Applicability of CBLR: The Tribunal emphasized that the appellant’s conduct should have been addressed under the CBLR, 2018, which governs the responsibilities of Customs Brokers. ​ However, there was no evidence that the appellant had been proceeded against under these regulations. ​

Final Order

Based on the above findings, the Tribunal concluded that the penalty imposed on the appellant under Section 112(a) was legally unsustainable. ​ The impugned order was set aside, and the appeal was allowed with consequential relief to the appellant. ​

Key Takeaways

This judgment is a landmark decision that clarifies the scope of Section 112(a) of the Customs Act, particularly in cases involving allegations of abetment. ​ The Tribunal’s observations highlight the importance of evidence and the distinction between negligence under the CBLR and abetment under the Customs Act. The decision also underscores the need for customs authorities to adhere to procedural requirements, such as testing the relevancy of statements under Section 138B, before imposing penalties.

Conclusion

The case of Appellant v Commissioner of Customs serves as a reminder of the importance of due process and evidence in adjudicating customs-related offenses. It reinforces the principle that penalties under Section 112(a) require clear evidence of intentional acts or knowledge of wrongdoing, particularly in cases of alleged abetment. ​ This judgment is expected to have a significant impact on similar cases in the future, ensuring that penalties are imposed only when legally justified.

Source: CESTAT Chennai

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