Case Law Details
Altaf Ahmed Vs Commissioner of Customs (CESTAT Ahmedabad)
Customs Penalty Under Sections 112 and 114AA Set Aside for Lack of Show Cause Notice and Evidence: CESTAT Ahmedabad
The CESTAT Ahmedabad allowed an appeal against an Order-in-Original dated 15.04.2025 whereby the Commissioner had imposed penalties of Rs. 25,00,000 under Section 112(a), Rs. 25,00,000 under Section 112(b), and Rs. 50,00,000 under Section 114AA of the Customs Act, aggregating to Rs. 1 crore.
The case arose from an investigation by the Directorate of Revenue Intelligence (DRI) into the alleged diversion of imported areca nuts warehoused in KASEZ by M/s. Global Enterprises. According to the department, duty-free areca nuts imported into the SEZ were intended to be diverted into the Domestic Tariff Area (DTA) under the guise of an SEZ-to-warehouse transfer. The department also alleged that the goods had been rejected by FSSAI and that the Central Warehousing Corporation (CWC) warehouse space availability certificate had expired before clearance from the SEZ.
The adjudicating authority held that the appellant was to receive a commission of Rs. 10 per kg for delivery of the consignment to M/s. J B Traders, Nagpur, and was an active partner in the alleged diversion. It further alleged that the appellant caused incorrect declarations for transfer to CWC, Okhla, submission of an expired space certificate, and generation of incorrect e-way bills, leading to penalties under Sections 112(a), 112(b), and 114AA of the Customs Act.
The appellant contended that no goods were recovered from him, no incriminating documents were seized, and no statement under Section 108 of the Customs Act establishing his involvement had been relied upon. He argued that there was no evidence showing that he handled, transported, financed, stored, purchased, sold, possessed, or otherwise dealt with the goods and sought setting aside of the penalties.
During the hearing, the departmental representative admitted that no show cause notice had been served upon or even marked to the appellant, but requested that the matter be remanded for fresh adjudication, relying on Balaji Traders vs. The Deputy Commercial Tax Officer, Chidambaram-1, Cuddalore, Tamil Nadu, 2025 (2) TMI 1171 (Madras High Court). The appellant opposed remand, submitting that the cited decision concerned compliance with Section 169 of the GST Act and that no comparable system of uploading show cause notices existed under the Customs Act.
The Tribunal found that neither was a copy of the show cause notice directed to the appellant nor was he named as a noticee. It observed that, at the relevant time, the Customs Act contained no provision for uploading show cause notices on the departmental portal. Accordingly, the penalty order had been passed without issuing a show cause notice and without affording the appellant a proper opportunity of hearing.
The Tribunal further held that the department failed to produce credible documentary evidence linking the appellant with the alleged diversion. No transport documents, invoices, bank transactions, delivery instructions, or correspondence were produced, and no truck drivers, warehouse operators, importers, or Customs Brokers stated that the appellant had instructed or participated in the alleged diversion. The Tribunal also observed that the statements recorded under Section 108 did not attribute any active role to the appellant and that the department failed to establish mens rea.
The Tribunal held that no specific act or omission had been attributed to the appellant to attract Section 112(a); no evidence established possession, handling, transport, or dealing with the goods for Section 112(b); and no false declaration, statement, or document prepared, signed, or used by the appellant was identified for Section 114AA. It further observed that the appellant’s position as a Director of M/s. Future Logs India Pvt. Limited, by itself, could not justify imposition of penalty unless the statutory ingredients of Sections 112(a), 112(b), and 114AA were established through evidence of an active role.
Holding the impugned order unsustainable to the extent of the Rs. 1 crore penalty imposed on the appellant, the Tribunal allowed the appeal and set aside that portion of the Order-in-Original.
Cases Discussed:
- Balaji Traders vs. The Deputy Commercial Tax Officer, Chidambaram-1, Cuddalore, Tamil Nadu, 2025 (2) TMI 1171 (MADRAS HIGH COURT)
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
This appeal is directed again Order-in-Original dated 15.04.2025 passed by learned Commissioner through which he imposed penalty of Rs.25,00,000/- under Section 112(a), Rs.25,00,000/- under Section 112(b) and Rs.50, 00,000/- under Section 114AA on the appellant.
2. The facts of the case are that investigation was conducted by the Directorate of Revenue Intelligence (DRI) regarding alleged diversion of imported Areca Nuts warehoused in KASEZ by M/s. Global Enterprises. The department was of the view that M/s. Global Enterprises had imported Areca Nuts in SEZ without payment of duty, with intention to divert the same into DTA, in the guise of SEZ to warehouse transfer, despite the fact that said goods were rejected by FSSAI and that the space availability certificate issued by CWC warehouse was invalid, having expired before clearance from SEZ.
2.1 The appellant was held liable to penalty by the Adjudicating Authority, who observed in the impugned order that Shri Altaf Ahmed was to get commission of Rs. 10per kg. for delivery of subject consignment of Areca Nuts to M/s. J B Traders in Nagpur. He was an active partner of Shri D. Suresh in this fraudulent diversion of Areca Nuts imported duty free in KASEZ into DTA. Thus, by such acts of commission and omission, Shri Altaf of M/s. Future Logs India Pvt. Limited, Chennai has rendered himself liable for penalty under Sections 112(a) and Section 112(b) of the Customs Act, He has also made M/s. Global Enterprises to sign incorrect declaration of transfer to CWC, Okhla, submission of expired space certificate of CWC, generation of incorrect E-Way bills for movement of goods. For such act of omission, Shri Altaf Ahmed is also liable for penalty under Section 114AA of Customs Act, 1962. Accordingly, learned Commissioner imposed penalty on appellant as mentioned above. Feeling aggrieved from the impugned Order-in-Original dated 15.04.2025, the present appeal has been filed by the appellant.
3. Learned Counsel for the appellant submitted that no goods were recovered from the possession of the appellant and no incriminating documents were seized from him. No statement under Section 108 of the Customs Act, establishing his involvement, has been relied upon. There is no evidence showing that the appellant handled, transported, financed, stored, purchased, sold, possessed or dealt with the impugned goods. He prays that the impugned Order-in-Original may be set-aside to the extent of imposing penalty of Rs. One Crore on the appellant.
4. Learned AR fairly admitted during arguments that no Show Cause Notice was ever served upon the appellant nor even marked to him. However, he submitted that matter may be remanded to the Commissioner for re-adjudication. He has relied upon the law laid down in Balaji Traders vs. The Deputy Commercial Tax Officer, Chidambaram-1, Cuddalore, Tamil Nadu reported at 2025 (2) TMI 1171 (MADRAS HIGH COURT) in which Hon’ble Madras High Court set-aside the impugned order for violation of principles of natural justice for not serving the Show Cause Notice upon the appellant effectively and remanded it for fresh reconsideration.
5. Learned Counsel for the appellant vehemently opposed the averment of the learned AR and submitted that the department cannot take any benefit of the judgment referred to by learned AR because in that case, the issue involved was pertaining to compliance of the provisions of Section 169 of the GST Act in which there is a system of uploading the Show Cause Notice on the GST portal under the column, “View Notices/Orders” whereas no such system has been adopted under Customs Act.
6. We have heard the learned Counsel for the appellant and learned AR for the department and perused the record.
6.1 From perusal of record, it emerges that neither copy of Show Cause Notice was directed to be issued to the appellant Shri Altaf Ahmed nor his name has been mentioned as a noticee in the Show Cause Notice. We agree with the learned Counsel for the appellant that under Customs Act, there was no provision of uploading the Show Cause Notice on the portal of the department at the relevant time. Therefore, impugned order imposing penalty of Rs. One Crore upon the appellant Shri Altaf Ahmed has been passed against the provisions of Customs Act, without affording proper opportunity of hearing to the appellant and without issuing Show Cause Notice.
6.2 We are also of the view that department has failed to produce any credible documentary evidence linking the appellant with the alleged diversion of goods. No transport documents, invoices, bank transactions, delivery instructions or correspondence have been produced by the department to prove that the appellant has played any role in the alleged diversion of goods. None of the truck drivers, warehouse operators, importers or Custom Brokers have stated that the appellant instructed them or participated in any way in the alleged diversion. Therefore, without any credible and cogent evidence, no penalty could have been imposed against the appellant.
6.3 It is also pertinent to note here that the department has solely relied upon the statements recorded under Section 108 of the Customs Act but none of the statements relied upon by the department attribute any active role to the appellant. The department has also failed to establish mens rea on the part of the appellant therefore, the impugned order imposing penalty upon the appellant is bad in law and is not sustainable.
6.4 Section 112(a) of the Customs Act can be attracted when it is proved that any person rendered the goods liable to confiscation by an act or omission. However, in the impugned order no specific act or omission has been assigned to the appellant and it has not been clarified that when, where and how the appellant participated in the alleged diversion of goods. Therefore, no penalty under Section 112(a) can be imposed upon the appellant.
6.5 Section 112(b) of the Customs Act is attracted when a person knowingly acquired possession, transported, removed, deposited, harboured, kept, concealed, sold or purchased goods liable to confiscation. However, no evidence has been placed on record that appellant ever possessed, handled or dealt with the subject goods. No goods were recovered from the appellant nor were any goods transported at his instruction. Therefore, no penalty under Section 112(b) can be imposed upon the appellant.
6.6 Similarly, Section 114AA of the Customs Act is attracted when a person knowingly uses, signs or causes to be made a false or incorrect declaration, statement or document. In the impugned Order-in-Original it has not been clarified as to which declaration made by the appellant was false or which false document was prepared and signed or used by the appellant making him liable for penalty. There is no allegation that the appellant filed any Bill of Entry, invoice, declaration, transport document or Customs document. In the absence of any of such evidence, penalty under Section 114AA could not have been imposed upon the appellant.
6.7 From the record, it appears that the sole basis for implicating the appellant is that he had associated himself with M/s. Future Logs India Pvt. Limited. Merely because the appellant was a Director of the above mentioned Company, penalty cannot be imposed unless ingredients of Section 112(a), 112(b) and 114AA of the Customs Act are present. The Director can only be held personally liable and ordered to pay penalty only when it is established that appellant played an active role in the alleged offence but no such role has been assigned to the appellant in the present case
7. In view of the above observations, we are of the view that the impugned order is not sustainable and is liable to be set-aside to the extent of imposing penalty of Rs. One Crore on the appellant and the appeal deserves to be allowed.
8. Consequently, the appeal is allowed and the impugned Order-in-Original dated 15.04.2025, to the extent of imposing penalty of Rs. One Crore on the appellant, is set-aside.
(Pronounced in the open court on 09.07.2026)
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