2026 (1) TMI 533 - AT - Customs

Altered Bills of Lading after LEO to divert port and claim drawback-SCN upheld; broker penalty u/s114(i) set aside

DRI officers were held competent to issue an SCN in drawback fraud cases, the Tribunal following its later decision affirming such jurisdiction; ... Jurisdiction of Directorate of Revenue Intelligence (DRI) officers to issue a SCN in the case of drawback - wrongfully availment of drawback benefits - manipulating Bills of Lading (BL), after obtaining the ‘Let Export Order’ (LEO) - misdeclaration of the Shipping Bills (SB) - export of low cost textiles was done by willfully misusing the Importer Exporter Codes (IEC) of third parties without the knowledge of the actual IEC holders - Unlawfully claim duty drawback benefits - Custom House Agent/ Customs Broker (CHA/ CB) - imposition of penalty under Section 114(i) - Whether the appellant being a Public Company can be held liable as a ‘person’ as provided under Sec 114 Customs Act? - HELD THAT:- We find that the judgment of this Tribunal in Manasa Impex – I (supra) later came to be examined in the said appellants case vide FINAL ORDER NOS. 40832-40840/2025, Dated: 21.08.2025 [Manasa Impex Services Vs Commissioner of Customs (Preventive) - [2025 (9) TMI 263 - CESTAT CHENNAI], and the point of law was held in favour of revenue accepting the issue of SCN by DRI to be legal and proper in a case involving drawback. Have answered the question upholding the issue of SCN by DRI, we now examine the second question. Whether a subsequent act of manipulating BL to a different Port of Discharge, after obtaining the LEO upon completion of the Shipping Bills process, would amount to misdeclaration in the SB.? - Customs Officers examining the export goods accept the details contained in a document or declaration to be prima facie correct and it would be unfair on the part of the exporter or his agent to betray this trust. Unlike a genuine change in destination caused by bonafide business requirements and the department is informed, when a fraud is perpetrated the parameters of consideration will be different. If there is no candid disclosure of relevant and material facts in the BL or the exporter or his agent is guilty of deliberately misleading the officers, then it is a blameworthy act. The act of deliberately altering the BL after LEO is an act of fraud as it is well known that Customs facilitation procedures have different yardsticks of verifications based on the destination of goods as a part of its risk assessment and trade facilitation strategy for export goods. Hence when a subsequent act of manipulating the BL to a different ‘Port of Discharge’ is done to perpetuate a fraud, then even if the act is done after obtaining the LEO upon completion of the Shipping Bills process, it would amount to mis-declaration in the SB. Under Customs Act, ‘person’ does not include juristic persons like a Company. Then whether the appellant being a Public Company can be held liable as a ‘person’ as provided under Sec 114 Customs Act? - It is true that the word ‘person’ has not been defined under the Customs Act, 1962. When a word is not defined under a Central Act, its meaning can be ascertained from the definition given under section 3 of the General Clauses Act, 1897, unless there is anything repugnant in the subject or context. Hence a Public Company is also liable to be held as a ‘person’ for the purpose of the Customs Act. The appellant has mis-guided himself by seeking the definition of the term ‘person’ from the Income Tax Act, more so when law provides for such an eventuality in the General Clauses Act. Imposition of penalty - There is nothing, in this case, to show that the CHA knowingly did or omitted to do an act or abetted an act and consequently rendered the export goods liable for confiscation. Even if there was a failure on the part of the CHA in fulfilling the actions required of him as a CHA it cannot be construed as abetment of offence. Hence no penal action lies against the CHA under the Customs Act in this case and the order imposing penalty on the appellant-CHA merits to be dropped. The findings against the appellant do not reveal that Shri Sainathan and Shri P.K. Arumugam abetted the above persons with the directions or knowledge of the appellant-CHA. The allegation against the appellant is that their utter disregard of the responsibility cast on them by the statute facilitated the fraudsters from availing undue drawback. Action against a CHA for not fulfilling his responsibilities, if any, have to be examined and if necessary acted upon under CHALR, 2004 and not under the Customs Act 1962. Hence the penalty imposed on the appellant merits to be dropped. The allegation against the CHA-appellant is that their utter disregard of the responsibility cast on them by the statute facilitated the fraudsters from availing undue drawback. There are no allegations of the CHA company abetting with anyone in an illegal act or directing their employees, Shri N. Sainathan and Shri P.K. Arumugam to abet with the fraudsters in receiving undue drawback benefits. Hence as stated earlier action against a CHA for not fulfilling their responsibilities, if any, have to be examined and if necessary acted upon under CHALR, 2004 and not under the Customs Act 1962. Therefore the penalty imposed on the appellant merits to be dropped. It was found that CHA failed to verify exporters' credentials or obtain written authorization, contrary to requirements under Section 50(2) of the Customs Act, 1962. The CHA's deliberate neglect of duties contributed to the fraudulent activity, and their argument about physical non-availability of exported goods for confiscation does not negate liability under the relevant sections of the Customs Act. As discussed in the earlier cases there are no allegations of the CHA company abetting with anyone in an illegal act or directing their employees, Shri N. Sainathan and Shri P.K. Arumugam to abet with the fraudsters in receiving undue drawback benefits. Hence action against a CHA for not fulfilling its responsibilities, if any, have to be examined and if necessary, acted upon under CHALR, 2004 and not under the Customs Act 1962. Therefore, the penalty imposed on the appellant merits to be dropped. We find that the department has not succeeded in establishing an offence committed by the appellant M/s Sanco Trans Ltd. under the Customs Act 1962. Hence a penalty imposed on them under section 114(i) of the said Act, as per the impugned orders, cannot sustain and are set aside. The appellant is eligible for consequential relief as per law. The appeals are disposed of accordingly. Issues: (i) Whether officers of the Directorate of Revenue Intelligence (DRI) have jurisdiction to issue show cause notices for recovery of drawback amounts under Sections 75 and 76 of the Customs Act read with Rules 16 and 16A of the Drawback Rules, 1995; (ii) Whether a subsequent manipulation of the Bill of Lading (BL) to alter port of discharge after obtaining Let Export Order (LEO) amounts to mis-declaration in the Shipping Bill; (iii) Whether a public company qualifies as a 'person' for liability under Section 114 of the Customs Act; (iv) Whether action can be taken against a Customs House Agent/Customs Broker (CHA/CB) under the Customs Act for omissions/commissions under CHALR 2004; (v) Whether an employer-CHA can be held liable for wrongful acts of its employees.Issue (i): Whether officers of the Directorate of Revenue Intelligence (DRI) have jurisdiction to issue show cause notices for recovery of drawback amounts under Sections 75 and 76 of the Customs Act read with Rules 16 and 16A of the Drawback Rules, 1995.Analysis: Applicable statutory provisions and binding precedents concerning appointment and powers of officers under Sections 4 and 5 of the Customs Act and the Drawback Rules were examined. Administrative notifications conferring customs officer status on DRI officers and higher-court decisions confirming that administrative directions cannot oust statutory jurisdiction were considered. Authorities addressing the power to investigate, issue SCNs and adjudicate in drawback matters were applied to the relevant statutory framework and rules governing recovery of drawback where export proceeds are not realized.Conclusion: DRI officers have jurisdiction to issue show cause notices in respect of recovery of drawback amounts under the cited statutory provisions and rules.Issue (ii): Whether a subsequent manipulation of the Bill of Lading (BL) to alter port of discharge after obtaining Let Export Order (LEO) amounts to mis-declaration in the Shipping Bill.Analysis: The legal standard for documents produced in customs procedures requires truthful disclosure of material facts. Manipulation of BLs to change port of discharge that is intended to deceive customs verification and risk-assessment procedures was examined against established principles on fraud and misrepresentation, including the allocation of burden where facts are especially within the knowledge of a party.Conclusion: Deliberate post-LEO manipulation of the BL to alter the port of discharge for the purpose of perpetrating fraud constitutes mis-declaration in the Shipping Bill.Issue (iii): Whether a public company qualifies as a 'person' for liability under Section 114 of the Customs Act.Analysis: Where a central statute omits a definition, recourse to the General Clauses Act is permissible unless repugnant. Section 3(42) of the General Clauses Act defines 'person' to include companies; this definition was applied to determine whether corporate entities fall within statutory references to 'person'.Conclusion: A public company is encompassed within the term 'person' for the purposes of liability under Section 114 of the Customs Act.Issue (iv): Whether action can be taken against a CHA/CB under the Customs Act for omissions/commissions under CHALR 2004.Analysis: The interaction between a general penal statute and a special regulatory regime was considered. The principle that a special regulation governs conduct within its domain was balanced with the position that penal provisions under the Customs Act may apply where blameworthy conduct involves collusion, conspiracy, or abetment affecting revenue. Precedents distinguishing disciplinary/regulatory consequences under CHALR from penal liability under the Customs Act were applied to the legal standards for proving culpability under either regime.Conclusion: Action under the Customs Act is permissible against a CHA/CB for culpable acts falling within the penal provisions of the Act; regulatory proceedings under CHALR 2004 remain the appropriate mechanism for breaches of regulatory obligations absent culpable collusion or common intent to defraud.Issue (v): Whether an employer-CHA can be held liable for wrongful acts of its employees.Analysis: Standards governing vicarious liability and distinctions between acts within the scope of employment and acts beyond such scope were applied. The legal effect of a rebuttable presumption that acts done in the course of employment are authorized, the shifting of onus, and exceptions where employees act solely for personal benefit were analyzed with reference to accepted evidentiary principles.Conclusion: An employer-CHA may be held liable for wrongful acts of employees where those acts are shown to have been committed in the course of employment and for the employer's benefit; liability is fact-specific and subject to the employer's opportunity to rebut the presumption.Final Conclusion: The Tribunal concluded that the department failed to establish penal liability of the CHA-company under the Customs Act on the facts before it; penalties imposed under Section 114(i) were not sustainable and were set aside, while established legal principles on DRI jurisdiction, mis-declaration, company-personhood, CHA liability, and employer responsibility were affirmed as guiding standards for future adjudication and regulatory action.Ratio Decidendi: Where statutory provisions and valid notifications confer customs officer status on investigative officers, those officers may lawfully issue show cause notices for recovery of drawback; deliberate post-LEO manipulation of shipping documents to mislead customs constitutes mis-declaration; a corporate entity is a 'person' under the General Clauses Act for Customs Act liability; penal liability of a CHA under the Customs Act requires evidence of culpable common intent or collusion beyond mere regulatory breach, and employer liability for employee misconduct depends on whether the wrongful act was committed in the course of employment for the employer's benefit.