CESTAT Chennai Sets Aside Penalty on Chartered Accountant

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 21.02.2026

CESTAT Chennai Sets Aside Penalty on Chartered Accountant

In a significant judgment, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chennai, has set aside penalties imposed on Chartered Accountant under Section 112(a) of the Customs Act, 1962. ​ This decision, delivered on February 19, 2026, highlights the importance of due diligence in professional practices while also emphasizing the need for a fair assessment of liability in cases involving alleged abetment of customs duty evasion.

Background of the Case

The case revolves around two appeals filed by appellant, a Chartered Accountant and partner at M/s. ​ Rana & Shah Associates, Surat. ​ The appeals were filed to challenge the Orders-in-Original No. ​ 24497/2014 and 24494/2014, issued by the Commissioner of Customs, Chennai, on March 27, 2014, and March 26, 2014, respectively. ​ These orders imposed penalties of ₹3,00,000 and ₹2,00,000 on Appellant under Section 112(a) of the Customs Act, 1962. ​

The penalties were imposed on the grounds that Appellant had issued certificates certifying the consumption of raw materials and production capacity of installed machinery for two firms—M/s. ​ Minerva Tex Fab and M/s. ​ N.S. Textiles, both based in Surat. ​ These certificates were allegedly used by the firms to obtain Advance Authorizations from the Directorate General of Foreign Trade (DGFT) for duty-free import of goods. ​ However, the imported goods were later found to have been diverted to the local market in Bangalore, violating the conditions of the Advance Authorizations and rendering the goods liable for confiscation under Sections 111(d) and 111(o) of the Customs Act, 1962. ​

Appellant’s Defense

Represented by Advocate, Appellant argued that he had issued the certificates in good faith and without any knowledge of their misuse. ​ He contended that the certificates were issued free of charge at the request of his friend, Advocate, who claimed they were required for bank loan purposes. ​ Appellant further stated that he had verified the documentary evidence provided to him, including PAN numbers, Small Scale Industries (SSI) registration, rental agreements, and books of accounts, before issuing the certificates. ​ He emphasized that Chartered Accountants are not required to physically verify premises or machinery for issuing such certificates. ​

The appellant also pointed out that the Advance Authorizations were issued by the DGFT three months before he issued the certificates, making it impossible for the certificates to have been used to obtain the licenses. ​ He argued that the responsibility for verifying the genuineness of the documents submitted for Advance Authorizations lay with the issuing officer at the DGFT, not with him. ​

Revenue’s Argument

The Revenue, represented by Authorized Representative, argued that Appellant had issued certificates without verifying the existence of the units or machinery. ​ The certificates were later used by M/s. ​ Minerva Tex Fab and M/s. ​ N.S. Textiles to obtain Advance Authorizations for importing goods under the actual user condition, which were subsequently diverted to the local market. ​ The Revenue contended that Appellant’s actions facilitated the fraudulent activities of the two firms, making him liable for penalties under Section 112(a) of the Customs Act, 1962. ​

Tribunal’s Observations and Judgment ​

After hearing both sides and reviewing the evidence, the Tribunal concluded that the penalties imposed on Appellant were not justified. The key points of the judgment are as follows:

1. No Evidence of Collusion or Abetment: The Tribunal found no evidence to suggest that Appellant had colluded with M/s. ​ Minerva Tex Fab or M/s. ​ N.S. Textiles to facilitate their fraudulent activities. ​ The certificates were issued based on documentary evidence provided to him, and there was no indication that he knowingly aided or abetted the illegal importation and diversion of goods. ​
2. Timing of Certificates: The Tribunal noted that the Advance Authorizations were issued by the DGFT three months before Appellant issued the certificates. ​ This timeline clearly demonstrated that the certificates were not used to obtain the licenses. ​
3. Professional Negligence: While the Tribunal acknowledged that Appellant had acted negligently in issuing the certificates without adequate verification, it emphasized that negligence alone does not attract penalties under Section 112(a) of the Customs Act, 1962. The section requires evidence of abetment or direct involvement in the illegal activities, which was absent in this case. ​
4. Precedents: The Tribunal referred to the judgment of the Hon’ble Bombay High Court in Mahesh P. Patel vs. ​ The Commissioner of Customs (EP) [2018 (12) TMI 883 – Bombay High Court], which held that mere issuance of certificates without due diligence does not constitute abetment under Section 112(a) of the Customs Act, 1962. ​
5. Leniency and Future Conduct: While setting aside the penalties, the Tribunal advised Appellant to exercise greater caution in issuing certificates in the future to avoid similar situations.

Conclusion

The CESTAT’s decision to exonerate Appellant underscores the importance of distinguishing between professional negligence and active abetment in cases involving customs duty evasion. ​ While the Tribunal acknowledged the appellant’s lack of due diligence, it ruled that the requirements of Section 112(a) of the Customs Act, 1962 were not met, as there was no evidence of collusion or direct involvement in the illegal activities.

Source: CESTAT Chennai

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