2026 (2) TMI 678 - AT - Customs

Attribution of employer liability requires express imputation and supporting particulars; regulatory breach alone cannot sustain statutory penalty.

Where a show cause notice alleges only breach of the Customs House Agents Licensing Regulations (Regulation 19) without expressly imputing offences under ... Imposition of penalty u/s 112(a)(i) - Violation of Regulation 19 of Customs House Agents Licensing Regulations, 2004 - Requirement of pleading and proof of knowledge for imposition of penal liability - HELD THAT:- The show cause notice, as noticed, merely alleges violation of regulation 19 of the 2004 Regulations. It does not make any mention as to why penalty under section 112(a)(i) of the Customs Act should be imposed upon the appellant. Only in paragraph 87(VI) of the show cause notice it has merely been stated that penalty can be imposed upon the appellant under section 112(a)(i) of the Customs Act. The impugned order notices that there is no allegation against the appellant for imposition of penalty under section 112(a)(i) of the Customs Act, but still it proceeds to impose penalty upon the appellant for the reason that there was enough evidence on record to show that the acts of omission and commission on the part of the appellant would render the appellant for penalty under section 112(a)(i) of the Customs Act. Therefore, penalty under section 112(a)(i) of the Customs Act could not have been imposed upon the appellant. This is what was held by the Delhi High Court in Buhariwal Logistics [2015 (12) TMI 1149 - DELHI HIGH COURT] The Delhi High Court observed that mere violation of the provisions of 2004 Regulations cannot be made a ground to impose penalty under section 112(a)(i) of the Customs Act. Thus, the impugned order dated 31.03.2013 passed by the Commissioner insofar as it imposes penalty upon the appellant under section 112(a)(i) of the Customs Act cannot be sustained and is set aside. The appeal is, accordingly, allowed. Issues: Whether penalty under Section 112(a)(i) of the Customs Act, 1962 could be validly imposed on the customs house agent where the show cause notice substantively alleged breach of Regulation 19 of the Customs House Agents Licensing Regulations, 2004 but did not properly set out or support an imputation under Section 112(a)(i).Analysis: The challenge focuses on whether allegations confined to breach of the licensing regulation can serve as an adequate foundation for penal action under Section 112(a)(i) of the Customs Act without specific imputation and supporting particulars in the show cause notice. Applicable legal framework includes the statutory penalty provision (Section 112(a)(i) of the Customs Act, 1962) and the licensing regime obligations (Regulation 19 and consequences under Regulation 20 of the Customs House Agents Licensing Regulations, 2004). A penalty under Section 112 requires a clear imputation of liability under the Customs Act and tangible material connecting the employer/CHA to the employee/agent's illegal import; mere regulatory breach or supervisory lapse under Regulation 19, absent attribution of knowledge or participation, does not automatically satisfy the requisites for Section 112 penal liability. Authority holding that regulatory contravention alone cannot justify imposition of penal consequences under Section 112 unless the employer's knowledge or participation is attributable is applicable.Conclusion: Penalty under Section 112(a)(i) of the Customs Act, 1962 could not be sustained where the show cause notice only substantively alleged breach of Regulation 19 of the Customs House Agents Licensing Regulations, 2004 and did not properly impute or establish liability under Section 112(a)(i); the impugned penalty is set aside and the appeal is allowed in favour of the assessee.