2025 (10) TMI 459 - AT - Customs

Rs.1,00,000 penalty under s.117 upheld for courier mis-declaration; matter remanded for s.114 and Regulation 13 adjudication

FedEx Express Transportation and Supply Chain Services India Pvt Ltd Versus Commissioner of Customs, New Delhi

CESTAT upheld imposition of Rs.1,00,000 penalty under s.117 of the Customs Act against the courier entity for mis-declaration and failure to comply with ... Levy of penalties on Courier Agency under section 117 of Customs Act, 1962 - mis-declaration by the appellant as a courier agency while filing the shipping bills with respect to the export consignment - consignments declared as copper wire were found to contain red sandalwood - prohibited goods - failure to fulfill the obligations of Regulations 12 (iii), (iv) and (v) of CIER, 2010 - Merger of order with regard to penalty u/s 114 of CA - HELD THAT:- No doubt there is no allegation of Aadhar Card being forged and that there is presumption of correctness to the documents being issued by the Government Authority. Also there is no dispute with respect to the case laws relied upon by the appellant in this respect, specifically decision of this Tribunal in the case of S. Prakash Kushwaha & Co. versus Commissioner of Customs (Airport & General), New Delhi [2022 (8) TMI 181 - CESTAT NEW DELHI]. However, the facts of the present case are found different from these cases as is apparent from the above quoted admitted facts. It is perused from the appellant’s own letter dated 20.03.2020 that the appellant has acknowledged that its ASPs are instructed to do 100 percent open check of shipments as a due diligence measure when they are picking up the consignments from their customers after duly collecting KYC document - The red sandalwood is a prohibited product in terms of section 2(33) of the Customs Act, 1962. This admitted fact clearly establishes that the appellant had failed to comply with the mandate of Regulation 12(1)(iii) of CIER, 2010. The order under challenge, to the extent of imposing penalty of Rs. One Lakhs under section 117 of Customs Act, 1962 on appellant is hereby upheld. Further due to the observation that the goods found in the consignment were prohibited goods (Red sandalwood), it is opined that the penalty under section 114 of Customs Act also gets attracted. But Commissioner (Appeals) has not given any categorical finding about said section. Since the Order in original has been upheld by the impugned order, same gets merged with the present order - Refraining from imposing the penalty under section 114 of the Customs act upon the appellant despite those findings is held to be an incorrect conclusion of the original adjudicating authority. Matter remanded for deciding penalty as was proposed to be imposed under section 114 of Customs Act, 1962 and also regarding proposal recommending action as per regulation 13 of the CIER, 2010. Commissioner (Appeals) shall provide appropriate opportunity of hearing to the appellant vis-a-vis said two proposals of the show cause notice. Department is also set at liberty to agitate all the respective grounds afresh on those two proposals. The order under challenge is confirmed w.r.t. penalty imposed under section 117 of Customs Act. However, the remaining order is set aside. Appeal is disposed off with the directions of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether imposition of penalty under Section 117 of the Customs Act is sustainable for alleged contraventions of Regulation 12(1)(iii), (iv) and (v) of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 (CIER, 2010) where consignments declared as copper wire were found to contain red sandalwood (a prohibited good) or sandalwood-wrapped copper wire. 2. Whether collection of a single government-issued identity/address document (Aadhar Card) satisfied the verification obligation under Regulation 12(1)(iv) in the factual matrix where the pickup location differed from the address on KYC and the exporter was not traceable at the KYC address. 3. Whether the registered courier is liable for non-compliance by its Authorised Shipper Participant (ASP)/agents and whether compliance steps taken (instructions to ASP; 'said to contain' acceptance) absolve the courier of responsibility under CIER, 2010. 4. Whether penalty under Section 114 of the Customs Act (and related findings on confiscation/prohibited goods) should have been imposed on the registered courier and whether recommendation of action under Regulation 13 CIER, 2010 ought to have been made - and whether these matters require reconsideration by the appellate authority. 5. Whether imposing penalty under Section 117 for violation of CIER regulations is legally permissible. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of penalty under Section 117 for contravention of Regulation 12(1)(iii),(iv),(v) (mis-declaration; due diligence) Legal framework: Section 117 empowers imposition of penalty for contraventions of the Customs Act; CIER, 2010 Regulation 12(1)(iii) requires that consignments be correctly described, (iv) requires verification of antecedents/identity/IEC/address using reliable documents, and (v) requires exercise of due diligence regarding correctness and completeness of information submitted. Precedent treatment: The adjudicating authority relied on prior tribunal decisions upholding penalties under Section 117 for violations of CIER; the appellant relied on cases where KYC via Aadhar was held adequate and where courier accepted 'said to contain' consignments. Interpretation and reasoning: The Court held that admitted facts - consignments picked up from a location different from KYC address, exporter not traceable at KYC address, ASP admission that only one of two consignments was physically checked, and Wildlife Inspector's report showing sandalwood (prohibited) in one AWB and sandalwood-wrapped copper in the other - demonstrate mis-declaration and failure of due diligence. Joint reading of Regulations 12(1)(iv) and (v) requires not just collection of documents but active verification and due diligence to ascertain correctness/completeness. The appellant's post hoc notification to Customs after x-ray did not discharge the obligation to verify at time of booking/filing. The Tribunal treated these findings as establishing contraventions amounting to breaches attracting Section 117 penalty. Ratio vs. obiter: Ratio - where the courier's record shows pickup from an address different to KYC, absence of contact with consignor at KYC address, and admission of incomplete physical checks by ASP, penalty under Section 117 for failure to comply with Regulation 12(1)(iii),(iv),(v) is justified. Obiter - discussion of alternative defenses such as 'said to contain' acceptance when active facts of mis-declaration and lack of diligence exist. Conclusion: Penalty of Rs. 1,00,000 under Section 117 was upheld as sustainable on the facts; no infirmity in finding contravention of Regulation 12(1)(iii),(iv),(v) by the registered courier. Issue 2 - Adequacy of Aadhar-only KYC under Regulation 12(1)(iv) Legal framework: Regulation 12(1)(iv) requires verification of antecedents, identity and functioning at declared address using reliable, independent, authentic documents/data. Precedent treatment: Authorities accept Aadhar as valid proof of identity and address for individuals in many contexts; appellant relied on circulars and precedents holding single document KYC sufficient for individuals. Interpretation and reasoning: The Court acknowledged the presumption of correctness for government-issued documents and relevant circular clarifications on Aadhar. However, it held that where contemporaneous facts (different pickup location, consignor not found at KYC address, lack of personal contact, and ASP admission of inadequate physical checks) create suspicion, mere possession of an Aadhar does not satisfy the statutory duty of due diligence under Regulation 12(1)(iv). Verification must include steps to ascertain correctness and the functioning of the client at the declared address; passive reliance on the document alone is inadequate in such circumstances. Ratio vs. obiter: Ratio - Aadhar alone may be insufficient where objective contradictions exist between KYC and operational facts; active verification/due diligence is required. Obiter - general statements affirming Aadhar's utility absent contrary facts. Conclusion: Collection of Aadhar did not absolve the courier of its verification/due diligence obligations on the present facts; confirmation of contravention of Regulation 12(1)(iv) stands. Issue 3 - Liability of registered courier for acts/omissions of ASP/agents; sufficiency of instructions to ASP Legal framework: CIER registration and obligations are on the registered courier; ASPs act as agents/participants of the registered courier. Precedent treatment: Adjudicating authority and Tribunal referenced prior holdings that responsibilities under CIER rest with the registered courier, who cannot absolve itself of compliance by delegating to ASPs. Interpretation and reasoning: The Court relied on appellant's own admission that ASP was instructed to conduct 100% open checks and to collect KYC but that in the present case only one AWB was examined by ASP and neither the appellant nor ASP met the consignor. Where a registered courier's systems or instructions are not effectively carried out, the registered entity remains responsible. The appellant's contention of acting as a carrier accepting 'said to contain' shipments does not relieve it when its agents performed inadequate checks and factual indicators pointed to deception. Ratio vs. obiter: Ratio - registered courier liable for compliance failures of ASPs and cannot avoid responsibility by delegation when statutory duties remain with the registrant. Obiter - emphasis on contractual/operational distinctions between courier and ASP where full compliance is demonstrably performed. Conclusion: Liability of the registered courier for its ASP's lapses is established; reliance on instructions to ASP insufficient to negate statutory responsibility in this case. Issue 4 - Imposition of penalty under Section 114 (prohibited goods) and recommendation under Regulation 13 CIER - need for remand Legal framework: Section 114 and Section 113 provisions address confiscation and penal consequences for prohibited goods; Regulation 13 permits departmental action against registered couriers for contraventions under CIER. Precedent treatment: Original authority had opined that exporter acted with mala fide to export prohibited goods and recommended penalty under Section 114(i), but appellate order under challenge did not give categorical findings on Section 114 nor recommend action under Regulation 13; Tribunal noted earlier precedents upholding Section 117 for CIER breaches but treated Section 114 and Regulation 13 as distinct proposals requiring separate adjudication. Interpretation and reasoning: The Tribunal found the original adjudicating authority's reasoning supporting penalty under Section 114 and recommendation under Regulation 13 to be cogent but observed the appellate authority was silent or non-categorical on these proposals. Given the significance (penalty under Section 114 and regulatory action under Regulation 13) and that those proposals were not conclusively decided on appeal, the Tribunal remanded these two discrete proposals to the Commissioner (Appeals) for fresh adjudication with opportunity of hearing. The Department is permitted to agitate grounds afresh. Ratio vs. obiter: Ratio - where significant penalty/regulatory proposals remain unresolved at appellate stage, remand for fresh consideration and hearing is appropriate. Obiter - comment that findings pointing to prohibited goods make Section 114 arguable. Conclusion: Endorsement of remand: the confirmed Section 117 penalty remains, but proposals regarding Section 114 penalty and Regulation 13 action are remitted for fresh decision with hearing; appellate silence on these matters was incorrect. Issue 5 - Legality of imposing Section 117 penalty for violation of CIER regulations Legal framework and precedent: Prior tribunal decisions have upheld use of Section 117 for contraventions involving CIER non-compliance where the contravention amounts to breach of Customs Act obligations. Interpretation and reasoning: The Tribunal accepted that contraventions of CIER which amount to breaches of obligations under the Customs Act can attract penalty under Section 117; the contraventions in this case (mis-declaration, lack of due diligence leading to attempted export of prohibited goods) were viewed holistically as breaches of Customs law permitting Section 117 penalty. Ratio vs. obiter: Ratio - Section 117 may be validly invoked where CIER non-compliance also constitutes contravention of the Customs Act. Obiter - the degree of penalty may be mitigated depending on circumstances (noted in cited precedents). Conclusion: Imposition of penalty under Section 117 for proven CIER violations that constitute breaches of the Customs Act is permissible; upheld on present facts.