CESTAT Delhi Overturns Penalty on Customs Broker Liability and Controlled Substance Exports

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 29.05.2026

CESTAT Delhi Overturns Penalty on Customs Broker Liability and Controlled Substance Exports

A recent decision by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Delhi, has significant implications for customs brokers and exporters dealing with controlled substances. The case, involving M/s. Unnati Cargo and the export of pharmaceutical goods containing Ergotamine, clarifies the responsibilities of customs brokers and the interpretation of controlled substance regulations under Indian law.

Background of the Case

M/s. Aprazer Healthcare Pvt. Ltd., through their authorized customs broker M/s. Unnati Cargo, attempted to export various pharmaceutical medicines to Iraq. During customs examination, two key issues were identified:

1. Presence of Ergotamine in the Consignment:
   • The medicine “MIGRAN” contained Ergotamine Titrate, a substance listed as a controlled substance under Schedule-B of the Narcotics Drugs and Psychotropic Substances (NDPS) (Regulation of Controlled Substances) Order, 2013.
   • Export of Ergotamine requires a No Objection Certificate (NOC) from the Narcotics Commissioner, which was not provided.
2. Undeclared Medicine Found:
   • An extra medicine, Ledifos (Ledipasvir 90mg & Sofosbuvir 400mg), was found in the consignment but not declared in the shipping documents.

As a result, the goods were seized, and a penalty of Rs. 50,000 was imposed on Unnati Cargo under Section 117 of the Customs Act, 1962, for failing to ensure compliance with export regulations.

Legal Arguments and Tribunal’s Analysis

Customs Broker’s Defense

• Scope of Controlled Substance:
  • The defense argued that Schedule-B of the NDPS Order covers only “Ergotamine and its salts,” not preparations containing Ergotamine. Since MIGRAN contained only 1% Ergotamine, it should be considered a preparation, not the controlled substance itself.
• Penalty Provisions:
  • The Customs Broker Licensing Regulations (CBLR), 2018, specifically provide for penalties under Regulation 18 for violations. Therefore, imposing an additional penalty under Section 117 of the Customs Act was argued to be unjustified.
• Precedent Cited:
  • The defense relied on the CESTAT decision in M/s Videojet Technologies (I) Pvt. Ltd., where it was held that NOC is required only for the controlled substance itself, not for preparations containing it.

Revenue’s Position

• The Revenue maintained that customs brokers are responsible for ensuring compliance with all statutory requirements, including verifying the need for NOC for controlled substances.
• The presence of undeclared medicines further demonstrated a lack of due diligence by the customs broker.

Tribunal’s Findings

• Interpretation of Schedule-B:
  • The Tribunal agreed that Schedule-B covers only “Ergotamine and its salts,” not preparations. Since MIGRAN was a preparation with only 1% Ergotamine, it did not fall under the controlled substance category requiring an NOC.
• Penalty Under Section 117:
  • Regulation 18 of the CBLR is a self-contained provision for penalties related to customs broker conduct. Section 117 of the Customs Act is a residuary provision and cannot be invoked when a specific penalty provision exists.
• Responsibility of Customs Broker:
  • While customs brokers are expected to be knowledgeable about customs laws, the Tribunal noted that even the authorities sought technical clarifications in this case. Expecting the broker to possess such specialized knowledge was deemed unreasonable.

Outcome

The CESTAT set aside the penalty imposed on Unnati Cargo, holding that:

• The exported product was a preparation, not a controlled substance as per Schedule-B.
• No penalty could be imposed under Section 117 of the Customs Act when Regulation 18 of the CBLR specifically covers such violations.
• The customs broker could not be held responsible for the undeclared medicine, as there was no evidence of knowledge or intent.

Key Takeaways for Exporters and Customs Brokers

• Clarity on Controlled Substances: Only substances explicitly listed in Schedule-B (and their salts) require an NOC for export, not preparations containing small percentages of such substances.
• Penalty Provisions: When specific penalty provisions exist under the CBLR, general penalty provisions under the Customs Act cannot be invoked.
• Due Diligence: Customs brokers must exercise due diligence but are not expected to have technical expertise beyond reasonable expectations, especially when authorities themselves require clarification.

Conclusion

This CESTAT Delhi ruling provides much-needed clarity on the interpretation of controlled substance regulations and the scope of customs broker responsibilities. It underscores the importance of precise legal interpretation and reasonable expectations from compliance professionals in the export sector.

Source: CESTAT Delhi

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