Introduction

This decision of the Delhi High Court addresses the extent of liability of employees of a Customs House Agent (now Customs Broker) under the Customs Act, 1962 when their failure to discharge due diligence obligations facilitates an attempted smuggling operation. The case arises from the interception of a consignment declared as mattresses but found to conceal foreign-origin cigarettes valued at Rs. 3.40 crores. The consignment was being cleared using the license of a Customs House Agent (CHA), M/s Dilip Kumar Thakur, through its staff.

Two salaried employees—Shekhar (an ‘H’ card holder) and Sushil Kumar Sharma (the supervisor)—were penalized by the adjudicating authority under Section 112(a) and 112(b) for acts/omissions that rendered the goods liable to confiscation under Section 111(d) and 111(m). The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) reduced their penalties from Rs. 50 lakhs to Rs. 10 lakhs each, while waiving penalty on the ‘G’ card holder, Shakti Nath Jha. The present appeals under Section 130 of the Customs Act challenged the CESTAT order.

The central issues were: (i) whether, in the absence of direct connivance or signing authority, salaried CHA employees could be penalized for due diligence failures that facilitated the attempted smuggling, and (ii) whether the High Court should interfere with CESTAT’s factual findings and penalty quantification in a Section 130 appeal.

Summary of the Judgment

• The Delhi High Court dismissed the appeals, holding that no substantial question of law arose under Section 130.
• It affirmed CESTAT’s finding that the H-card holder (Shekhar) and the supervisor (Sushil Kumar Sharma) failed in their due diligence obligations under the Customs House Agents Regulations, 2004 (now reflected in the Customs Brokers Licensing Regulations, 2018), justifying penalties under Section 112(a) and (b).
• The Court noted CESTAT’s sympathetic reduction of penalties to Rs. 10 lakhs each based on the appellants’ status as salaried employees with limited means and refused to reduce the penalty further.
• Relying on its recent decision in Commissioner of Customs (Airport & General) v. Jaiswal Import Cargo Services Ltd., 2025 DHC 7566-DB, the Court reiterated the significant responsibility of customs brokers under CBLR 2018 and endorsed regulatory expectations of diligence.
• The appellants were directed to deposit the penalties within three months.

Detailed Analysis

I. Factual and Procedural Background

• Inspection and seizure: The consignment imported by M/s Digital Exports under Bill of Entry No. 8358278 was inspected on 30 October 2012 and found to conceal foreign-origin cigarettes inside declared cargo (mattresses), valued at Rs. 3,40,74,000.
• Show Cause Notice (SCN): Issued on 23 April 2013 by DRI (F. No. 50D/59/2012/C.I/1085), alleging violations leading to confiscation (Section 111(d) and 111(m)) and proposing penalties under Section 112(a) and (b).
• Order-in-Original (06 September 2017): Absolute confiscation of goods. Penalties imposed on seven noticees, including Rs. 50 lakhs each on the CHA staff—Shekhar (H-card), Sushil Kumar Sharma (supervisor), and Shakti Nath Jha (G-card).
• CESTAT (10 July 2018): Waived penalty on the G-card holder (no involvement; forged signatures; no knowledge). Reduced penalties on Shekhar and Sushil to Rs. 10 lakhs each, finding they failed due diligence though direct connivance was absent.
• High Court (06 October 2025): Affirms CESTAT; dismisses appeals; instructs deposit within three months.

II. Statutory Framework Applied

• Section 111(d) and 111(m), Customs Act: Grounds for confiscation for goods imported contrary to prohibitions and for misdeclaration.
• Section 112(a) and (b), Customs Act: Penalty for acts/omissions rendering goods liable to confiscation (or abetment thereof), and for knowingly dealing with goods liable to confiscation.
• Custom House Agents Regulations, 2004 (CHALR 2004) / Customs Brokers Licensing Regulations, 2018 (CBLR 2018): Prescribe due diligence duties of brokers, including verification of client credentials, oversight of clearance, and maintenance of records.
• Section 130, Customs Act: Appeal to High Court lies only on “substantial questions of law,” not to reappreciate facts or revisit penalty quantification premised on factual findings.

III. Roles Found by CESTAT and Accepted by the High Court

The High Court reproduced and relied upon CESTAT’s granular fact-finding, which drew the following distinctions:

• G-card holder (Shakti Nath Jha): Did not sign documents; did not interact with principal accused; his signatures had been forged by Shekhar; unaware of the impugned clearance. Penalty waived.
• H-card holder (Shekhar): Responsible for clearances at ICDs; involved in prior consignments; knew “everything was not legal”; participated in clearance and concealed the dealings from the license holder; instrumental with a co-accused. Penalty upheld (quantum reduced).
• Supervisor (Sushil Kumar Sharma): Though lacking authorization to sign customs documents, he supervised the CHA staff and was aware of prior and current consignments; clearances could not proceed without his concurrence; he failed to ensure proper verification of the importer and proper use of the CHA license. Penalty upheld (quantum reduced).

CESTAT explicitly recorded that the “element of connivance” was absent but still found both appellants liable under Section 112 for omissions in their regulatory duties that facilitated the attempted smuggling. The High Court endorsed this approach.

IV. Precedents and Authorities Cited

The High Court cited and applied its recent ruling in Commissioner of Customs (Airport and General) v. Jaiswal Import Cargo Services Ltd., 2025 DHC 7566-DB, observing:

13. The appeal filed by the Department now seeks to reinstate the revocation against the Customs broker which this Court is not inclined to do. There is no doubt that Customs Brokers do have significant responsibility under the CBLR 2018 which ought to be performed with diligence and commitment. The fact that the Respondent did not oversee the clearance and the warehousing of the goods leading to diversion of the goods in the domestic market is a clear infraction.

By invoking Jaiswal, the Court reinforced that customs brokers—and, by necessary implication, those acting under their license—carry affirmative obligations of client verification and oversight. Even when the ultimate sanction (like revocation) may not be restored, breaches of CBLR duties remain infractions that attract consequences, including penalties under the Customs Act where such lapses enable violations.

V. The Court’s Legal Reasoning

• Anchoring on regulatory duties: The Court accepted CESTAT’s reliance on CHALR 2004 duties (now mirrored in CBLR 2018) to measure the appellants’ conduct. The expectation that CHA staff verify importer credentials and prevent misuse of the license underpins liability.
• Section 112 penalties despite absence of connivance: The Tribunal found no “connivance” in the sense of active conspiracy. Nevertheless, penalty under Section 112(a) and (b) was justified by the appellants’ omissions and knowledge indicators—e.g., instructions to “keep the name of the importer a secret,” prior clearance history, and suppression from the license holder. The High Court did not disturb this legal application.
• Scope of Section 130 appeal: The Court emphasized that appellate interference under Section 130 is confined to substantial questions of law. Here, the imposition and quantum of penalty flowed from factual findings on roles, knowledge, and omissions. Consequently, no question of law arose, and further reduction on sympathetic grounds was outside the Court’s remit.
• Proportionality and mitigation: The Court recognized CESTAT’s calibrated approach—acknowledging salaried status and limited means to reduce quantum to Rs. 10 lakhs while maintaining liability. This balanced enforcement objective with individual circumstances, obviating need for further appellate intervention.

VI. How the Court Applied These Principles to the Record

• Shekhar (H-card): Repeated involvement in prior consignments and awareness that “everything was not legal,” along with conspiratorial elements such as forging signatures and secrecy from the license holder, directly linked his omissions and acts to the goods’ liability to confiscation, satisfying Section 112.
• Sushil Kumar Sharma (Supervisor): Even without signing authority, his supervisory control and admitted discussions about sensitive consignments established that the clearances proceeded with his knowledge and without mandated diligence, attracting penalty for omissions under Section 112.
• Contrast with G-card holder: The G-card holder’s exoneration underscores that liability is role- and evidence-specific: mere designation is not enough; the liability attaches where evidence shows involvement, knowledge, or culpable omission.

VII. Impact and Likely Influence on Future Cases

• Clarified exposure of CHA employees: H-card holders and supervisors are not insulated from Section 112 penalties merely because they lack final signing authority or are salaried. Supervisory acquiescence or omission to perform diligence duties can attract liability.
• Due diligence as a substantive duty: The decision strengthens the jurisprudential link between regulatory obligations under CHALR/CBLR and penal consequences under the Customs Act when breaches facilitate violations like smuggling or misdeclaration.
• Section 130 threshold emphasized: Litigants should note that the High Court will not recast factual assessments or quantum decisions of CESTAT absent a demonstrable question of law. Appeals centered on factual reappraisal or sympathetic reduction are likely to fail.
• Penalty calibration remains at Tribunal level: CESTAT’s role in balancing culpability with mitigating factors (e.g., employee status, financial capacity) is affirmed. This encourages careful argumentation on mitigation before the Tribunal.
• Compliance pressure on brokers: Expect stricter expectations for KYC, client credential verification, transparent record-keeping, and real-time supervision by customs brokers over staff actions at ICDs and ports.

VIII. Practical Compliance Takeaways for Customs Brokers and Staff

• Institute rigorous KYC and importer credential verification before accepting consignments; document checks and verification outcomes.
• Ensure only authorized personnel (typically G-card holders) sign customs documents; prohibit H-card holders from signing or forging signatures.
• Maintain comprehensive statutory records for all clearances; prohibit “off-the-books” transactions and secret client handling.
• Establish protocols mandating escalation to the license holder for sensitive consignments; document supervisory approvals.
• Regular training on CHALR/CBLR obligations, including reporting obligations and consequences of non-compliance.

IX. What the Decision Does Not Decide

• It does not redefine the mens rea threshold under Section 112; rather, it affirms that culpable omissions tied to regulatory duties can ground penalties even absent proof of conspiracy.
• It does not alter standards for revocation of broker licenses; Jaiswal was cited only to underscore diligence obligations, not to prescribe license sanctions in this case.
• It does not address proportionality ceilings for penalties as a pure question of law; quantum remained a fact-specific, discretionary determination by CESTAT.

Complex Concepts Simplified

• CHA/Customs Broker: A licensed intermediary authorized to transact business with customs on behalf of importers/exporters. Under CHALR/CBLR, they must verify clients and ensure compliant clearances.
• G-card vs H-card: A G-card holder is authorized to represent before customs and sign documents; an H-card holder is typically a subordinate employee with limited functions and no independent signing authority.
• Section 111(d)/(m): Grounds to confiscate imported goods that contravene prohibitions (e.g., smuggling) and goods misdeclared as to value/description.
• Section 112(a)/(b): Penalty on persons who, by acts or omissions, render goods liable to confiscation (or abet such acts), and on those dealing with such goods knowing or having reason to believe they are liable to confiscation.
• Absolute confiscation: Goods are forfeited to the state without option of redemption if no lawful claimant appears or the violation is grave.
• CESTAT: The appellate tribunal hearing appeals from customs adjudications; may reappraise facts and adjust penalties.
• Section 130 appeal: Limited to “substantial questions of law.” High Courts do not reweigh evidence or recalibrate penalties based on factual matrices already examined by CESTAT.
• Connivance vs omission-based liability: Connivance implies active participation; however, under Section 112, negligent or deliberate omissions in regulatory duties that enable violations can also attract penalties.

Conclusion

This judgment consolidates a clear compliance message: the obligations imposed by CHALR 2004/CBLR 2018 are substantive, and their breach—especially where it enables misdeclaration or smuggling—carries penal consequences under Section 112 for both customs brokers and their staff. The Delhi High Court’s affirmation of CESTAT’s nuanced approach—exonerating the uninvolved G-card holder, penalizing the H-card holder and supervisor for due diligence failures, and calibrating quantum in light of salaried status—strikes a pragmatic balance between accountability and proportionality.

Equally significant is the Court’s reinforcement of the Section 130 standard: appellate scrutiny in the High Court is confined to questions of law, and it will not unsettle fact-based penalty determinations of CESTAT absent a clear legal misdirection. For the customs brokerage ecosystem, the decision amplifies the imperative of robust KYC, supervision, and documented compliance controls. For litigants, it signals that mitigation arguments must be marshaled effectively at the Tribunal level, while the High Court remains a forum for genuine questions of law rather than factual re-litigation.

As directed, the penalties of Rs. 10 lakhs each on Shekhar and Sushil Kumar Sharma are to be deposited within three months, closing a litigation arc that began with a 2012 seizure and culminating in a 2025 affirmation of regulatory accountability in customs clearance operations.