The responsibility of a Customs Cargo Service provider for goods under Customs Control is proportional in nature

The Customs, Excise and Service Tax Appellate Tribunal, Chennai ('CESTAT') in Commissioner of Customs, Chennai Versus M/s. Chandra CFS Terminal Operators Pvt. Ltd. - 2026 (7) TMI 534 - CESTAT CHENNAI, held that registration of the Customs Cargo Service Provider cannot be revoked as the department has failed to establish deliberate involvement in the misplacement of seized Red Sanders.

Facts:

M/s. Chandta CFS Terminal Operators Pvt. Ltd ('Respondent'), a Customs Cargo Service provider entrusted with custody of a seized container of Red Sanders. The department's investigation revealed that the seized container with Red Sander Wood had been clandestinely removed from the CFS customs area through forged gate passes and an empty container brought from outside got substituted.

The department proposed revocation of custodianship under Regulation 12(1) of the Handling of Cargo in Customs Areas Regulations, 2009 ('the regulation'). Whereas the adjudicating authority only imposed a penalty of Rs. 50,000/- under Regulation 12(8) of HCCAR, 2009 vide Order-in-original dated January 14, 2016 ('the Impugned Order'). Aggrieved by the same, the department appealed before this tribunal.

Issues:

• Whether the Respondent committed violations of HCCAR, 2009, warranting revocation of custodianship approval?
• Whether the Respondent can be held vicariously liable for the illegal removal of the seized container and whether the impugned order warrants appellate interference?

Order:

The Customs, Excise and Service Tax Appellate Tribunal, Chennai in Commissioner of Customs, Chennai Versus M/s. Chandra CFS Terminal Operators Pvt. Ltd. - 2026 (7) TMI 534 - CESTAT CHENNAIheld as under:

• Observed that while the regulation imposes strict obligations regarding custody and security, revocation remains the severest civil consequence under the regulatory framework and cannot be treated as an automatic result of every violation. The discretion under the regulation requires consideration of the nature of the breach, the conduct of the custodian and the surrounding circumstances.
• Noted that no material evidence was shown to prove conscious facilitation by the Respondent's management. It was the Respondent who detected the discrepancy, lodged a police complaint and fully cooperated with authorities. So, the subsequent inspections, corrective measures and continued operations indicate that the Respondent undertook remedial steps. Accordingly, by following the principle of proportionality, penal action was justified, not the revocation of the custodianship.
• Held that in respect of the second issue, there is a clear distinction between negligence in preventing an offence and active involvement in its commission. While the former may justify regulatory action, the latter alone can justify the severest consequences. The actions of the respondent show that remedial steps were taken, hence only liable for supervisory failures.
• The doctrine of vicarious liability cannot be stretched to convert every act of employee's misconduct into a ground for revocation of custodianship irrespective of the surrounding facts.

Hence, the revocation of the custodianship without such degrees of misconduct cannot be ordered under the said regulation. Accordingly, the appeal is dismissed.

Regulations and our comments:

Regulation 12 of HCCAR 2009: Procedure for suspension or revocation of approval and imposition of penalty-

(1) The Commissioner of Customs shall issue a notice in writing to the Customs Cargo Service provider stating the grounds on which it is proposed to suspend or revoke the approval and requiring the said Customs Cargo Service provider to submit within such time as may be specified in the notice not being less than thirty days, to the Assistant Commissioner or Deputy Commissioner of Customs nominated by him, a written statement of defence and also to specify in the said statement whether the Customs Cargo Service provider desires to be heard in person by the said Assistant Commissioner or Deputy Commissioner of Customs

(8) If any Customs Cargo Service provider contravenes any of the provisions of these regulations, or abets such contravention or who fails to comply with any provision of the regulation with which it was his duty to comply, then, he shall be liable to a penalty which may extend to fifty thousand rupees.