CESTAT Delhi Sets Aside Penalty on CHA Under Section 117 of the Customs Act, 1962

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 28.03.2026

CESTAT Delhi Sets Aside Penalty on CHA Under Section 117 of the Customs Act, 1962

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, recently delivered a significant judgment in the case of M/s. ​ H.C. Khanna & Company vs. ​ Principal Commissioner of Customs, Air Cargo Complex (Import), New Delhi. ​ The judgment, pronounced by Hon’ble Member Judicial, on March 24, 2026, addressed the imposition of penalties under Section 117 of the Customs Act, 1962, on the Customs House Agent (CHA) for alleged violations during the filing of Bills of Entry for importers. ​

Background of the Case ​

The case involved four appeals filed by M/s. ​ H.C. Khanna & Company, a Customs House Agent (CHA), against penalties imposed under Section 117 of the Customs Act, 1962. ​ The appeals arose from four separate Orders-in-Original issued by the Principal Commissioner of Customs, Air Cargo Complex (Import), New Delhi. ​ The importers involved were M/s. ​ Jet Airways (India) Ltd. and M/s. ​ Jet Lite (India) Ltd., who had imported aircraft parts and allegedly misdeclared the goods to avail lower rates of IGST and Basic Customs Duty (BCD). ​

The department alleged that the CHA failed to fulfill its responsibility to ensure the accuracy of the information provided by the importers, thereby violating clauses (d) and (e) of Regulation 10 of the Customs Broker Licensing Regulations (CBLR), 2018. ​ Consequently, penalties ranging from Rs. ​ 50,000 to Rs. ​ 2,00,000 were imposed on the CHA under Section 117 of the Customs Act, 1962.

Key Issues in the Case ​

The primary issue before the Tribunal was whether the penalty under Section 117 of the Customs Act, 1962, was justifiably imposed on the appellant/CHA in the given circumstances. ​ Section 117 of the Customs Act provides for penalties in cases where any person contravenes or fails to comply with provisions of the Act, and no express penalty is provided elsewhere. ​

Arguments Presented

Appellant’s Arguments:

1. Limited Role of CHA: The appellant argued that its role was limited to filing Bills of Entry based on the documents and instructions provided by the importers. ​ The responsibility for accurate classification and declaration rested solely with the importers under Sections 17 and 46 of the Customs Act, 1962. ​
2. Lack of Technical Expertise: The CHA contended that it lacked the technical competence to question the classification of specialized goods like aircraft parts. ​
3. No Evidence of Negligence: The appellant argued that there was no evidence to prove that it was aware of any misclassification or that it acted negligently. ​
4. Invalid Show Cause Notice: The appellant highlighted that the importers were undergoing insolvency proceedings, and the National Company Law Tribunal (NCLT) had already approved their resolution plan. ​ As per the Supreme Court’s ruling in Ghanshyam Mishra and Sons Pvt. ​ Ltd. vs. Edelweiss Asset Reconstruction Company Ltd., all claims not part of the resolution plan stand extinguished, making the show cause notice invalid. ​

Respondent’s Arguments:

1. Due Diligence Requirement: The department argued that under Regulation 10(d) of CBLR, 2018, the CHA is obligated to exercise due diligence to ensure the accuracy of information provided to customs authorities, including classification and duty rates. ​
2. Professional Vigilance: The CHA was expected to raise red flags and alert authorities in cases of anomalies, especially when inconsistent classifications were used for the same products during the same period. ​

Tribunal’s Observations and Judgment

After hearing both parties and reviewing the evidence, the Tribunal made the following observations:

1. Role of CHA: The Tribunal emphasized that the CHA’s role is limited to processing documents for customs clearance based on information provided by importers. ​ The CHA is not a technical expert and cannot be held responsible for verifying the accuracy of the classification of specialized goods like aircraft parts. ​
2. Onus on Importers: The Tribunal reiterated that under Section 46(4) of the Customs Act, 1962, the responsibility for providing truthful declarations in the Bills of Entry lies solely with the importers. ​ The CHA cannot be held liable for misdeclarations made by the importers. ​
3. No Evidence of Violation: The Tribunal found no evidence to support the department’s claim that the CHA had violated clauses (d) and (e) of Regulation 10 of CBLR, 2018. ​ Moreover, no proceedings were initiated against the CHA under these regulations. ​
4. Invalid Show Cause Notice: The Tribunal held that the show cause notices were invalid as the importers’ resolution plan had already been approved by the NCLT, extinguishing all claims not included in the plan. ​
5. Precedents: The Tribunal relied on several judicial precedents, including Kunal Travels (Cargo) vs. Commissioner of Customs (Import & General), IGI Airport, New Delhi, which clarified that CHAs are not responsible for verifying the genuineness of information provided by importers.

Final Decision

The Tribunal concluded that the penalty under Section 117 of the Customs Act, 1962, was wrongly imposed on the appellant/CHA. ​ It held that the findings of the adjudicating authority were based on assumptions and lacked evidence. ​ Consequently, the orders under challenge were set aside, and all four appeals were allowed. ​

Key Takeaways

1. Limited Liability of CHAs: This judgment reinforces the principle that Customs House Agents are not responsible for verifying the technical accuracy of the information provided by importers. ​
2. Onus on Importers: The responsibility for accurate classification and declaration of goods lies with the importers, as mandated by Sections 17 and 46 of the Customs Act, 1962. ​
3. Invalid Show Cause Notices: Claims against entities undergoing insolvency proceedings and with approved resolution plans cannot be pursued, as per the Supreme Court’s ruling in Ghanshyam Mishra and Sons Pvt. ​ Ltd.
4. Importance of Evidence: Penalties under Section 117 of the Customs Act require concrete evidence of contravention or failure to comply with the Act. ​ Assumptions and presumptions are insufficient grounds for imposing penalties. ​

This landmark decision by the CESTAT serves as a crucial precedent for cases involving the role and responsibilities of Customs House Agents, emphasizing the need for clear evidence and adherence to legal provisions before imposing penalties.

Source: CESTAT Delhi

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