Custom, Excise & Service Tax Tribunal
A Mariappan vs Commissioner Of Customs Air ... on 8 May, 2026
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
1. Customs Appeal No. 40309 of 2024
(Arising out of Order-in-Original No. 32/2024-AIR dated 03.02.2024 passed by Principal Commissioner of
Customs (Air Cargo), New Custom House, Meenambakkam, Chennai - 600 016)
Mr. A. Mariappan ...Appellant
No. 51/54, Gokulam Flats,
State Bank Colony Main Road,
Nanganallur,
Chennai - 600 061.
Versus
Commissioner of Customs ...Respondent
Chennai VII Commissionerate,
New Custom House,
Meenambakkam,
Chennai - 600 016.
With
2. Customs Appeal No. 40310 of 2024 (M/s. BSM Logistics)
3. Customs Appeal No. 40323 of 2024 (Commr. of Customs, Chennai VII)
4. Customs Appeal No. 40329 of 2024 (Commr. of Customs, Chennai VII)
5. Customs Appeal No. 40330 of 2024 (Commr. of Customs, Chennai VII)
6. Customs Appeal No. 40331 of 2024 (Commr. of Customs, Chennai VII)
7. Customs Appeal No. 40332 of 2024 (Commr. of Customs, Chennai VII)
8. Customs Appeal No. 40333 of 2024 (Commr. of Customs, Chennai VII)
9. Customs Appeal No. 40334 of 2024 (Commr. of Customs, Chennai VII)
10. Customs Appeal No. 40336 of 2024 (Mr. T. Sankara Kumar)
11. Customs Appeal No. 40365 of 2024 (Mr. Nerella Samueal Deepak Avinash)
12. Customs Appeal No. 40541 of 2024 (Mr. Ashok Jain)
13. Customs Appeal No. 40542 of 2024 (Mr. Narendra Sharma)
14. Customs Appeal No. 40543 of 2024 (Mr. Sunil Sharma)
APPEARANCE:
For the Assessee : Mr. A.K. Jayaraj, Advocate (Sl.Nos. 1,2,13)
Mr. C. Mohan, Mr. M. Kumaresan, Ms. Dhilshath, Advocates (Sl.No. 3)
Mr. A. Ganesh, Advocate (Sl.Nos. 8,11)
Mr. Aliakbar Devjani, Advocate (Sl.Nos. 5,12,14)
Mr. T. Sankara Kumar, Party in-person (Sl.No. 10)
For the Respondent : Mr. Anoop Singh, Authorised Representative
CORAM:
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL)
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
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FINAL ORDER Nos. 40587-40600 / 2026
DATE OF HEARING : 27.11.2025
DATE OF DECISION : 08.05.2026
Per Mr. VASA SESHAGIRI RAO
The present appeals and cross-appeals arise out of
Order-in-Original No. 32/2024-AIR dated 03.02.2024 passed
by the Principal Commissioner of Customs (Air Cargo),
Chennai-VII Commissionerate. Since all the appeals emanate
from the same Order-in-Original, involve common facts,
common evidence and overlapping issues of law, they are
taken up together and disposed of by this common order in
respect of the undermentioned Appeals as tabulated below: -
Appellant
Sl. Appeal Name / Capacity / Duty / Penalty
Appeal No.
No. Filed By Authority Description Involved
S/Shri
Penalty under
CEO, M/s
1 C/40309/2024 Assessee A. Mariappan Customs Act (as per
BSM Logistics
OIO)
M/s BSM Customs Penalty under Section
2 C/40310/2024 Assessee
Logistics Broker Firm 114(iii)
T. Sankara Partner, M/s Penalty under Section
3 C/40336/2024 Assessee
Kumar BSM Logistics 114(iii)
Nerella
Samuel Appraiser of Penalty under Sections
4 C/40365/2024 Assessee
Deepak Customs 112(ii) / 114(iii)
Avinash
Associated
5 C/40541/2024 Assessee Ashok Jain Personal penalty
Person
Narendra Associated
6 C/40542/2024 Assessee Personal penalty
Sharma Person
Proprietor,
M/s Shree Penalty / confiscation
7 C/40543/2024 Assessee Sunil Sharma
Balaji related
Jewellers
Release / liability
Commissioner
8 C/40323/2024 Department HDFC Bank relating to seized
of Customs
goods
Commissioner Shri Zillur Confiscation /
9 C/40332/2024 Department
of Customs Mondal redemption fine
10 C/40329/2024 Department Commissioner Shri Narendra Challenge to dropping
3
of Customs Sharma / reduction of penalty
Commissioner Shri Ashok Challenge to dropping
11 C/40330/2024 Department
of Customs Jain / reduction of penalty
Commissioner Departmental Challenge to dropping
12 C/40331/2024 Department
of Customs Appeal / reduction of penalty
Shri Nerella
Samueal Challenge to
Commissioner
13 C/40333/2024 Department Deepak exoneration under
of Customs
Avinash 114AA
Appraiser
Commissioner Departmental Challenge to dropping
14 C/40334/2024 Department
of Customs Appeal of penalty
The appeals have been filed by exporters, their associated
persons, Customs Broker, job workers and Customs officers,
while the Department has filed appeals challenging non-
imposition of penalty, incorrect invocation of statutory
provisions and non-imposition of redemption fine. The facts
being inter-connected, a consolidated narration is necessary.
2. The case originated from specific intelligence
developed by the Directorate of Revenue Intelligence that
certain exporters were fraudulently exporting gold-plated
copper jewellery as 22 carat gold jewellery with the intent to
divert duty-free gold procured under Notification No.
57/2000-Cus dated 08.05.2000. Acting on this intelligence,
DRI intercepted and recalled an export consignment covered
under Shipping Bill No. 7870940 dated 31.01.2022 filed by
M/s. Shree Balaji Jewellers, declared as 22 carat gold
jewellery. Examination of the consignment in the presence of
independent witnesses, supported by XRF testing and assay
at a BIS-recognised hallmarking centre, revealed that the
goods were copper bangles coated with a thin layer of gold
4
containing only about 7.5% to 10.35% gold. Investigation
further revealed that duty-free gold procured through HDFC
Bank, a nominated agency, was diverted to the domestic
market while fake jewellery was exported to falsely fulfil
export obligations. The manufacturing chain was traced to
M/s. Ashok Jewellers, whose proprietor admitted to
producing gold-coated copper bangles using only a fraction
of the declared gold, thereby establishing the modus
operandi of diversion.
3. The investigation has clearly brought out the
involvement of Customs official and intermediaries,
especially examination of the consignment by a non-rostered
Appraiser and use of another officer's seal, as well as the
role of the Customs Broker in facilitating such an
examination. Consequently, statements recorded under
Section 108 corroborated these findings. Based on the
above, a show cause notice was issued proposing
confiscation of fake jewellery, demand of duty on diverted
gold, and imposition of penalties under various provisions of
the Customs Act. The Adjudicating Authority, after due
process, confirmed confiscation and duty demand, imposed
penalties on the Exporter, Customs Broker, the non-rostered
Appraiser and associated personswhile dropping penalties
against HDFC Bank and certain other noticees.
5
4. Being aggrieved by the findings and conclusions
recorded in the impugned Order-in-Original, the Department,
HDFC, exporter, certain individuals, Customs Brokers and
other noticees have preferred the present appeals before this
Tribunal as detailed above.
5. The Ld. Advocate Shri A.K. Jayaraj appeared on behalf
of the Assessees at Sl. Nos. 1, 2 and 6 of the Table. The Ld.
Advocates Shri C. Mohan, Shri M. Kumaresan and Ms.
Dhilshath, appeared for the Assessee at Sl. No. 8. The Ld.
Advocate Shri A. Ganesh appeared for the Assessee at Sl.
Nos. 4 and 13. The Ld. Advocate Shri Aliakbar Devjani
appeared on behalf of the Assessee at Sl. Nos. 5, 7 and 11.
Shri T. Sankara Kumar appeared in-person at Sl. No. 3. All
the Ld. counsels advanced detailed submissions in support of
their appeals and the cross-appeals filed by the Department.
The Ld. Authorized Representative Shri Anoop Singh
appeared for the Revenue and have ably defended the
impugned order.
6. The Ld. Advocates appearing for the appellants in the
respective appeals, including the importer/exporter,
individuals, Customs Broker, and departmental officer, as
well as the Ld. Authorized Representative appearing for the
6
Revenue in the cross-appeals, made detailed and elaborate
submissions. Since the appeals and cross-appeals arise out
of a common investigation, overlapping facts, and a
composite Order-in-Original, their submissions are
summarised in a consolidated manner as under.
6.1 The appellants, in substance, submitted that the
impugned Order-in-Original suffers from serious infirmities in
law and on facts, is largely non-speaking, and confirms grave
civil and penal consequences without addressing the detailed
replies filed to the Show Cause Notice. It was contended that
the adjudicating authority has mechanically reproduced the
allegations from the Show Cause Notices and has failed to
analyse the defence submissions, documentary evidence,
and binding judicial precedents cited. According to the
appellants, such an approach violates the principles of
natural justice and renders the order unsustainable on this
ground alone.
6.2 In relation to the alleged export of fake gold jewellery,
the appellants contended that the entire case of the
Department is vitiated by serious procedural lapses,
including lack of a proper and unbroken chain of custody of
the recalled export consignment, absence of any
confirmation from foreign authorities regarding recall and
7
integrity of the parcel, and material discrepancies between
the description of goods in the Shipping Bill and the goods
allegedly examined at a later stage. It was argued that the
Shipping Bill has described the export goods as necklaces,
malas and chains, whereas the re-examined parcel contained
bangles, thereby creating a serious doubt as to whether the
same goods were examined at all. The appellants asserted
that in the absence of clear and unimpeachable evidence
establishing identity of goods, confiscation and penalties
cannot be sustained.
6.3 The appellants further submitted that the reliance
placed on statements recorded under Section 108 of the
Customs Act, 1962 is legally untenable and such statements
were either retracted, contradictory, or recorded under
coercive circumstances, and in any event were not
corroborated by independent documentary or circumstantial
evidence. It was emphasised that settled law requires
corroboration of confessional statements, particularly when
they are used to fasten serious penal liability on co-noticees.
The appellants contended that statements of co-noticees
cannot be used as substantive evidence against other
noticees without independent corroboration.
8
6.4 Specific submissions were advanced on behalf of the
Customs Broker, M/s. BSM Logistics, its CEO Shri A.
Mariappan, and its partner Shri T. Sankara Kumar
contending that no specific charge was framed against the
Customs Broker as an entity in the Show Cause Notice, and
that the allegations, even if assumed to be true, were
confined to individuals. It was further contended that a
Customs Broker has no authority to choose, direct, or control
the posting or functioning of Customs officers, and that
routine examination of cargo by an Appraiser or a
Superintendent during peak workload cannot be construed as
abetment. The appellants asserted that there is no evidence
of mens rea, conspiracy, or intentional facilitation of export
of fake jewellery, which is a sine qua non for imposition of
penalty under Section 114 of the Customs Act.
6.5 On behalf of the individual appellants such as Shri
Sunil Sharma, Shri Narendra Sharma and Shri Ashok Jain, it
was contended that the findings against them are based on
presumptions, conjectures, and guilt by association. It was
argued that mere family relationship or business
acquaintance cannot substitute for proof of active
involvement, knowledge, or intentional participation in the
alleged offence. It was further submitted that no
incriminating material was recovered from their premises, no
9
money trail or hawala transaction was established, and no
independent witness was examined to prove their alleged
role in manufacture or export of fake jewellery.
6.6 With regard to HDFC Bank Ltd., appearing as a
respondent in the Department's appeal, it was vehemently
contended that the Bank, as a Nominated Agency under the
Foreign Trade Policy and Notification No. 57/2000-Cus., had
complied with every statutory obligation cast upon it. The
Bank submitted that it had no role whatsoever in the
manufacture, handling, or export of jewellery, and that its
obligations were limited to supply of duty-free gold,
maintenance of records, submission of export documents,
and payment of duty in the event of non-export. It was
argued that compliance with conditions of the Foreign Trade
Policy is within the domain of DGFT and not Customs, and
that no finding of violation has been recorded by DGFT. The
Bank further submitted that duties in respect of non-
exported quantities were already paid through TR-6 challans,
bonds were cancelled by Customs, and therefore no further
demand can survive. The attempt of the Department to
impose vicarious liability on the Bank for the alleged criminal
acts of the exporter and certain Customs officer was
contended to be wholly impermissible in law.
10
7. The Ld. Authorized Representative Shri Anoop Singh,
Joint Commissioner has argued for the Revenue and his
submissions / arguments are as follows: -
7.1 That the impugned Order-in-Original is based on a
detailed investigation conducted by the Directorate of
Revenue Intelligence and is supported by scientific evidence,
expert opinion, documentary records, and statements
recorded under Section 108 of the Customs Act, 1962. It was
contended that the adjudicating authority has correctly
appreciated the evidence in confirming confiscation, duty
demand and penalties against the principal offenders and
that such findings call for no interference.
7.2 The Revenue submitted that the investigation clearly
established a deliberate and well-planned scheme to
fraudulently export copper/brass jewellery with superficial
gold coating by misdeclaring the same as 22 carat gold
jewellery with inflated value, solely to falsely discharge
export obligation under Notification No. 57/2000-Cus. It was
argued that misdeclaration stood conclusively proved
through physical examination, XRF analysis and assay
reports, which were not effectively rebutted by the exporter,
thereby attracting confiscation under Sections 113(i) and
113(ja) of the Customs Act.
11
7.3 It was further contended that diversion of duty-free
gold into the domestic market is evident from the mismatch
between the quantity of gold procured and the gold actually
found in the exported jewellery, which cannot be explained
as normal process loss. The Revenue also relied upon the
statements recorded under Section 108, submitting that such
statements are admissible and retain evidentiary value
unless proved to be obtained under coercion, and that mere
retraction does not dilute their probative value when
corroborated by documentary and scientific evidence.
7.4 The Ld. Authorized Representative has further argued
that the role of various noticees, including the exporter,
intermediaries and the Customs Broker, was clearly
established through statements, records and conduct,
showing active participation and facilitation of the fraudulent
exports. It was submitted that the Customs Broker
consciously deviated from prescribed procedures and
coordinated examination through a particular officer, while
departmental officers who permitted such deviation cannot
escape liability merely on the ground of departmental
proceedings, as statutory penalties under the Customs Act
operate independently.
12
7.5 In respect of HDFC Bank Ltd., the Revenue contended
that as a nominated agency importing duty-free gold, it was
under a statutory obligation to ensure compliance with the
conditions of the exemption notification, and that once
diversion is established, duty liability arises under Section 28
irrespective of whether diversion was direct or through the
exporter. It was further argued that subsequent payment of
duty or cancellation of bond does not extinguish liability
arising from fraud, and that procedural lapses, if any, cannot
override substantive evidence. The Revenue therefore
prayed for dismissal of the appeals filed by the appellants
and for allowing its cross-appeals by levying / restoring
penalties and liabilities dropped by the adjudicating
authority.
8. We have carefully heard the submissions advanced by
all sides, perused the appeal records in detail, examined the
statutory provisions, considered the statements recorded
under Section 108 of the Customs Act, 1962, the
documentary and scientific evidence recovered during the
course of investigation, as well as the written submissions
filed by the parties and the case laws cited.
13
9. Upon such comprehensive consideration of the factual
matrix and the applicable legal provisions, the following
issues arise for our determination in these appeals, namely:-
i. Whether exported goods were liable to confiscation.
ii. Whether diversion of duty-free gold stands established.
iii. Whether duty demand on HDFC Bank is sustainable.
iv. Whether penalties imposed/dropped are legally correct.
v. Whether Revenue Appeals in non -imposition of
redemption fine on the Importer i.e., HDFC Bank merit
acceptance
10. We now proceed to consider the issues seriatim, as
they arise for determination, and record our findings thereon
in the paragraphs that follow: -
Issue No. (i)Whether exported goods were liable to
confiscation
11. The first and foremost issue that arises for our
determination is whether the goods exported by M/s Shree
Balaji Jewellers under Shipping Bill No. 7870940 dated
31.01.2022, declared as 22 CT plain gold jewellery, were
liable to confiscation under the provisions of Section 113 of
the Customs Act, 1962. This issue strikes at the very root of
the controversy, as the consequential liabilities of
confiscation, penalty, and allied proceedings flow from the
determination of this foundational question.
14
12. The factual matrix relevant to this issue is largely
undisputed. The consignment in question was initially
assessed and allowed for export, thereafter recalled based
on specific intelligence received by the Directorate of
Revenue Intelligence. Upon recall, the consignment was
subjected to detailed examination on 08.03.2022 in the
presence of independent witnesses, departmental officers,
and a Government-approved assayer. The examination
process involved physical inspection, scraping of samples,
XRF testing, and spectrometer analysis. The results of these
scientific tests form the bedrock of the Department's case.
13. The examination categorically revealed that the
consignment consisted of 375 bangles, whereas the Shipping
Bill and export documents described the goods as necklaces,
malas, and chains. This discrepancy in the very identity and
form of the exported goods is not a minor clerical or
interpretational difference but a fundamental variance going
to the nature of the goods themselves. Such a mismatch by
itself raises serious doubt about the veracity of the
declaration made at the time of export.
14. More importantly, the scientific analysis established
that the average gold content of the examined jewellery was
approximately 8.74%, with the balance consisting
15
predominantly of copper/brass. This is in stark contrast to
the declared purity of 22 carat gold (91.6%) of jewellery
exported. The magnitude of this variation is so substantial
that it cannot be attributed to trade tolerance, marginal
deviation, or manufacturing imperfection. Instead, it clearly
establishes that the goods were not gold jewellery of the
declared purity but were, in substance, imitation jewellery
with superficial gold plating and the fraud committed to
evade customs duty involved on imported gold.
15. The declaration of the goods as 22 CT plain gold
jewellery was therefore not merely inaccurate but
demonstrably false. Such false declaration had a direct and
immediate nexus with the availment of benefits under
Notification No. 57/2000-Cus, which permits duty-free
import of gold subject to strict conditions, including the
requirement that the imported gold be used for manufacture
and export of gold jewellery of corresponding purity. The
mis-declaration was thus not accidental but was designed to
create an illusion of compliance with the notification.
16. Section 113(i) of the Customs Act, 1962 provides that
goods shall be liable to confiscation if they are attempted to
be exported by means of mis-declaration in value or in any
material particular relating to description. Further, Section
16
113(ja) covers cases where export goods are entered for
export by means of any false or incorrect declaration or
statement. In the present case, the mis-declaration pertains
to description, composition, purity, and value, all of which
are material particulars for the purposes of export and
eligibility under the exemption notification.
17. The cumulative effect of the evidence on record leaves
no manner of doubt that the present case squarely falls
within the mischief contemplated under Sections 113(i) and
113(ja) of the Customs Act. The declaration was not only
incorrect but fundamentally deceptive, rendering the goods
liable to confiscation irrespective of whether the export
ultimately succeeded or not.
18. The appellants have placed considerable emphasis on
alleged procedural infirmities, such as the recall of the
consignment, the sealing and resealing of packages, and the
absence of correspondence with Dubai Customs authorities.
We find these arguments to be devoid of any merit. It is well
settled that procedural lapses, unless shown to cause
prejudice or to vitiate the substantive evidence, cannot
override clear and cogent material establishing mis-
declaration.
17
19. In this regard, the law laid down by the Hon'ble
Supreme Court in Collector of Customs v. D. Bhoormull,
reported in 1983 (13) ELT 1546 (SC), is directly applicable.
The Supreme Court held that proceedings under the Customs
Act are civil in nature and that the Department is not
required to prove its case with mathematical precision or
proof beyond reasonable doubt. The test to be applied is one
of preponderance of probability, and circumstantial evidence
can be relied upon to establish smuggling or mis-declaration.
20. Applying the above principle, once the Department
has established through scientific testing that the goods were
not what they were declared to be, the burden shifts to the
exporter to satisfactorily explain the discrepancies. In the
present case, no credible explanation has been offered as to
how goods declared as 22 CT gold jewellery were found to be
largely composed of copper/brass. The deliberate and
conspicuous silence of the exporter on this critical aspect
further strengthens the Department's case.
21. The contention that absence of confirmation from
Dubai Customs or foreign authorities vitiates the confiscation
proceedings is also unsustainable. The recall of the
consignment was admitted, the seals affixed by Customs
were found intact on 07.02.2022, and there is no evidence
18
whatsoever to suggest that the consignment was tampered
with while in the custody of Customs. Mere conjecture or
hypothetical doubt cannot displace concrete scientific
evidence.
22. It is also pertinent to note that confiscation under
Section 113 does not depend upon the success or completion
of export. The attempt to export goods by mis-declaration
itself attracts confiscation. This position has been
consistently upheld in a catena of decisions, wherein it has
been held that once the attempt to export mis-declared
goods is established, confiscation follows as a natural
consequence.
23. The Exporter's reliance on the argument of lack of
mens rea is misplaced at the stage of confiscation. Mens rea
is not a prerequisite for ordering confiscation of goods under
Section 113. The focus is on the nature of the goods and the
correctness of the declaration made to Customs. The
deliberate nature of mis-declaration, however, becomes
relevant for the purpose of penalty, which is addressed in
detail in succeeding paras of this order.
24. We also take note of the fact that the value of the
goods was grossly inflated to align with the declared purity of
19
22 CT gold. Such inflation of value is intrinsically linked to
the mis-declaration of purity and reinforces the conclusion
that the declaration was not bona fide.
25. In view of the overwhelming evidence on record, the
statutory provisions, and the settled legal position governing
confiscation proceedings, we are of the considered opinion
that the exported goods were correctly held to be liable to
confiscation under Sections 113(i) and 113(ja) of the
Customs Act, 1962.
26. We therefore uphold the findings of the Adjudicating
Authority on this issue and hold that the confiscation of the
goods covered under Shipping Bill No. 7870940 dated
31.01.2022 is legally valid, factually justified, and calls for no
interference.
Issue No. ii Whether diversion of duty-free gold stands
established.
27. The second issue for our determination is whether the
duty-free gold imported under the benefit of Notification No.
57/2000-Cus dated 08.05.2000 was diverted instead of
being utilised for the manufacture and export of gold
jewellery, as mandated under the said notification and the
Foreign Trade Policy. This issue is distinct from the question
20
of mis-declaration of export goods and relates to post-import
utilisation of duty-free inputs.
28. The undisputed factual position emerging from the
records is that M/s Shree Balaji Jewellers procured a total
quantity of 9,364.86 grams of duty-free gold from HDFC
Bank, a nominated agency, during January 2022. Against
this procurement, the exporter claimed to have
manufactured and exported jewellery weighing 10,172.53
grams under Shipping Bill No. 7870940 dated 31.01.2022.
However, scientific examination of the recalled export
consignment established that the actual gold content
embedded in the jewellery was only 889.08 grams.
29. Thus, there is an admitted and glaring shortfall of
8,475.78 grams of duty-free gold, for which no plausible or
verifiable explanation has been furnished. This quantitative
mismatch is not marginal or technical but substantial and
decisive, leading to a presumption of diversion unless
convincingly rebutted by the exporter.
30. The primary explanation advanced by the exporter is
that the duty-free gold was sent to Kolkata for job work
through M/s Ashok Jewellers. However, this explanation
remains entirely unsupported by documentary evidence. No
21
transport document such as lorry receipt or airway bill,
courier records, delivery challan, e-way bill, invoice or any
insurance document, or acknowledgment of receipt at the
job worker's premises have been produced. In matters
involving movement of high-value precious metal, such
absence of documentary trail assumes critical significance.
31. The statements recorded from the alleged job workers
themselves further weaken the exporter's version. The
goldsmiths engaged at Kolkata have categorically stated that
the jewellery manufactured by them contained negligible
gold content and was largely composed of base metals. Their
statements corroborate the scientific findings and negate the
claim that duty-free gold bars were actually consumed in the
manufacturing process.
32. It is also relevant that no stock register,
manufacturing account, melting record, wastage statement,
or reconciliation statement has been produced to
demonstrate consumption of the duty-free gold. In schemes
involving conditional exemption, maintenance of such
records is not optional but mandatory. The absence of these
records gives rise to a strong adverse inference against the
exporter.
22
33. We find that the Notification No. 57/2000-Cus is a
conditional exemption notification, permitting import of gold
without payment of duty subject to strict compliance with
specified post-import conditions, foremost among them
being that the imported gold must be used for manufacture
and export of gold jewellery within the prescribed period. It
is settled law that exemption notifications of this nature must
be construed strictly, and the burden of proving compliance
squarely rests on the beneficiary.
34. The Hon'ble Supreme Court in Commissioner of
Customs v. Dilip Kumar & Co., reported in 2018 (361) ELT
577 (SC), has authoritatively held that when an assessee
claims exemption under a notification, it is for the assessee
to strictly satisfy all conditions, and any ambiguity must be
resolved in favour of the Revenue. Applying this principle,
once the Department has shown non-utilisation of duty-free
gold for the intended purpose, the exemption is liable to be
denied.
35. The appellants have argued that mere quantitative
mismatch cannot automatically lead to a finding of diversion
and that there must be direct evidence of sale in the
domestic market. We find this argument to be legally
untenable. Diversion, by its very nature, is often clandestine,
23
and direct evidence of sale is rarely available. The law does
not require the Department to prove diversion with
mathematical certainty or to trace the exact buyer in the
domestic market. Rather, it is incumbent on the part of the
exporter to properly account for the gold which was procured
from M/s. HDFC.
36. Again, we are compelled to refer to the decision in
Collector of Customs v. D. Bhoormull, 1983 (13) ELT 1546
(SC), wherein the Hon'ble Supreme Court held that in cases
involving smuggling or clandestine activities, the Department
can rely on circumstantial evidence and reasonable
inferences drawn from proved facts. Applying the same
principle, when duty-free gold is shown to be unaccounted
for and not reflected in the exported product, diversion can
be legitimately inferred.
37. The exporter's contention that the gold was not
physically seized and therefore cannot be confiscated is also
misconceived. Section 111(o) of the Customs Act provides
for confiscation of goods imported subject to a condition,
when such condition is violated. The violation in the present
case is complete once the gold is not utilised for the
prescribed export purpose.
24
38. The argument advanced on behalf of HDFC Bank that
the diversion, if any, is attributable solely to the exporter
and cannot be visited upon the nominated agency is
addressed separately under Issue No. (iii) & (v). For the
limited purpose of the present issue, the focus is on whether
diversion occurred at all. On this aspect, the evidence
overwhelmingly establishes that the duty-free gold did not
form part of the exported jewellery and diversion of gold
stands established.
39. The appellants have also contended that reconciliation
based on purity analysis is flawed and that manufacturing
loss and wastage must be factored in. We find this
contention to be devoid of merit. Even allowing for
reasonable wastage, the difference between 9,364.86 grams
and 889.08 grams is far beyond any conceivable
manufacturing loss. No industry standard or expert evidence
has been produced to justify such an abnormal depletion.
40. The cumulative effect of the quantitative mismatch,
absence of transport and manufacturing records,
corroborative statements of job workers, and scientific
analysis of the exported jewellery leaves no room for doubt
that the imported duty-free gold was not utilised for the
25
intended export and was instead diverted in violation of the
conditions of Notification No. 57/2000-Cus.
41. We therefore hold that the diversion of 8,475.78
grams of duty-free gold stands conclusively established. The
denial of exemption, coupled with confiscation of the diverted
quantity under Section 111(o) of the Customs Act, 1962, is
legally sound and fully justified.
42. Accordingly, we affirm the findings of the Adjudicating
Authority on this issue and uphold the order of confiscation
of the diverted gold under Section 111(o), while sustaining
the decision not to impose redemption fine due to non-
availability of the goods.
ISSUE No. (iii): Whether the Duty Demand on HDFC Bank Is
Sustainable
43. The present issue about the sustainability of the
customs duty demand raised against HDFC Bank, a
nominated agency importer under Notification No.57/2000-
Cus, and the Department's challenge to the findings of the
adjudicating authority insofar as the adjudicating authority
held that the case would fall under Section 28(1) and not
under Section 28(4) of the Customs Act, 1962. The
Department has further challenged the non-imposition of
penalties upon HDFC Bank on the ground that the duty-free
26
gold imported by the Bank ultimately stood diverted into the
domestic market through fraudulent export transactions
undertaken by M/s Shree Balaji Jewellers.
44. From the impugned Order-in-Original, it emerges that
HDFC Bank had imported duty-free gold bullion under
Notification No.57/2000-Cus under the "Export Against
Supply by Nominated Agencies" Scheme and supplied the
same to M/s Shree Balaji Jewellers against export-linked
documentation and security mechanisms contemplated under
the Foreign Trade Policy, Handbook of Procedures and
Circular No.27/2016-Cus dated 10.06.2016. The allegation of
the Department is that instead of manufacturing and
exporting genuine gold jewellery, the exporter diverted the
duty-free gold into the domestic market and fraudulently
exported gold-plated copper/brass jewellery through
fabricated shipping bills and false export documentation.
45. The adjudicating authority has specifically recorded
that upon detection of non-fulfillment of export obligation
and diversion of duty-free gold, HDFC Bank discharged the
entire customs duty together with applicable interest even
prior to issuance of the Show Cause Notice. The records
establish that customs duty amounting to Rs.66,45,643/-
together with interest of Rs.4,27,399/- stood paid through
27
TR-6 challans dated 08.06.2022 and 09.06.2022, whereas
the Show Cause Notice came to be issued only subsequently
on 04.02.2023. The adjudicating authority appropriated the
said amounts and further recorded absence of collusion,
wilful suppression or conscious involvement on the part of
HDFC Bank in the fraudulent exports undertaken by the
exporter.
46. The Departmental Appeal however proceeds on the
footing that once export obligation stood fraudulently
violated, the nominated agency importer automatically
became liable not only for customs duty but also for
invocation of Section 28(4) of the Customs Act, 1962.
According to the Department, the expression "either by itself
or through other exporters" occurring in Notification
No.57/2000-Cus fastens ultimate responsibility upon the
nominated agency importer for fulfillment of export
obligation and consequently the fraud committed by the
exporter becomes attributable to the importer itself.
47. We are unable to accept the aforesaid contention in
the broad manner canvassed by the Department. Notification
No.57/2000-Cus undoubtedly casts obligations upon the
nominated agency importer and specifically requires
execution of bonds, undertaking to export jewellery either by
28
itself or through exporters within the stipulated period. The
notification further binds the importer to pay customs duty
on the quantity representing the shortfall in export
obligation. Circular No.27/2016-Cus correspondingly provides
that where proof of export is not produced within the
prescribed period, the nominated agency shall deposit the
customs duty together with applicable interest. The FTP and
Handbook of Procedures similarly contemplate recovery of
customs duty from the nominated agency importer in the
event of export default. Thus, the statutory framework
clearly creates a recovery mechanism founded upon the
exemption notification, FTP obligations and the bond
executed before Customs authorities.
48. We find that the Coordinate Bench of the CESTAT,
New Delhi in M/s HDFC Bank Ltd. v. Commissioner of
Customs (Adjudication), Delhi Zone, Final Order Nos.51571-
51574/2025 dated 09.10.2025 [2025 (10) TMI 825 - CESTAT
NEW DELHI], while dealing with an identical controversy
arising under Notification No.57/2000-Cus, extensively
examined the legal framework governing duty-free gold
imports by nominated agencies. The Coordinate Bench relied
upon the decisions of the Hon'ble Supreme Court in Munjal
Showa Ltd. v. Commissioner of Customs & Central Excise,
2009 (246) E.L.T. 18 (S.C.) and Afloat Textiles (India) Pvt.
29
Ltd. v. Union of India, 2009 (235) E.L.T. 587 (S.C.) and
reiterated the settled principle that exemption notifications
operating through export obligation schemes create
independent statutory obligations enforceable through bonds
and undertakings executed before Customs authorities and
that recovery of customs duty upon breach of export
obligation fundamentally flows from the terms of the
notification and the bond conditions themselves.
49. In Munjal Showa Ltd., (Supra) the Hon'ble Supreme
Court recognized that where an exemption notification is
conditional in nature and operates through execution of
bonds securing export obligations, the liability to discharge
customs duty upon breach of such conditions flows directly
from the statutory undertaking executed by the importer and
the exemption notification itself. Similarly, in Afloat Textiles
(India) Pvt. Ltd., (Supra) the Hon'ble Supreme Court
emphasized that export obligation schemes under the
Foreign Trade Policy constitute a complete statutory
framework and that obligations arising thereunder remain
enforceable through the bonds and undertakings executed
under the scheme. Relying upon the aforesaid principles, the
Coordinate Bench held that the nominated agency importer
under Notification No.57/2000-Cus remains liable to
discharge customs duty through the statutory bond
30
mechanism once export obligations fail, irrespective of the
subsequent conduct of the exporter.
50. The Coordinate Bench however simultaneously drew a
clear distinction between enforcement of statutory duty
liability arising under the exemption notification and
invocation of fraud-based proceedings under Section 28(4)
and the penal provisions of the Customs Act. The Tribunal
categorically held that while recovery of customs duty may
independently arise under the notification, FTP framework
and bond obligations, fraud, suppression or wilful
misstatement cannot automatically be imputed to the
nominated agency importer merely because the exporter
subsequently committed fraud. The Tribunal specifically
observed that once the nominated agency had deposited the
customs duty together with applicable interest prior to
issuance of the Show Cause Notice and the corresponding
bond obligations stood discharged, "the matter should have
ended there" insofar as substantive revenue recovery was
concerned.
51. We find that the ratio of the aforesaid Coordinate
Bench decision squarely applies to the facts of the present
case. The records before us clearly establish that HDFC Bank
imported the gold within the statutory framework
31
contemplated under Notification No.57/2000-Cus, Circular
No.27/2016-Cus, FTP and HBP; executed the prescribed
bonds; released bullion only against export-linked
documentation; and upon detection of export default,
discharged the entire customs duty together with applicable
interest through the bond mechanism even prior to issuance
of the Show Cause Notice. The adjudicating authority itself
has categorically recorded that no evidence exists showing
collusion, fabrication of documents, manipulation of export
process, or conscious participation by HDFC Bank in
diversion of duty-free gold.
52. It is also significant that Section 28(2) of the Customs
Act, 1962, as applicable during the relevant period,
specifically contemplated that where the person chargeable
with duty voluntarily pays the duty together with applicable
interest and informs the proper officer in writing,
proceedings in respect of such duty and interest stand
concluded to that extent. In the present case, the
Department itself quantified the duty liability through the
bond mechanism and accepted payment of the entire
customs duty together with applicable interest prior to
issuance of the Show Cause Notice. The substantive revenue
liability arising under Notification No.57/2000-Cus, FTP, HBP,
Circular No.27/2016-Cus and the executed bonds therefore
32
already stood fully discharged even before commencement
of adjudicatory proceedings.
53. The Department's reliance upon Section 28(4) is
therefore misconceived. The allegations against HDFC Bank
at the highest relate to alleged failure to detect or prevent
the subsequent fraud committed by the exporter. Such
allegations, even if assumed, cannot by themselves satisfy
the stringent jurisdictional ingredients of collusion, wilful
suppression or intentional misstatement necessary for
invocation of Section 28(4). The distinction between
statutory recovery liability flowing from the exemption
notification and quasi-criminal consequences flowing from
fraud-based provisions cannot be obliterated in the manner
suggested by the Department.
54. There is no dispute that the nominated agency
importer remains liable to discharge customs duty where
export obligation fails. In fact, HDFC Bank has already
discharged the entire customs duty together with interest
under the statutory mechanism contemplated by Notification
No.57/2000-Cus, Circular No.27/2016-Cus and the executed
bonds. Once the entire substantive duty liability together
with applicable interest already stood discharged prior to
issuance of the Show Cause Notice itself, no surviving
33
dispute regarding recovery of customs duty substantially
remained for adjudication before us insofar as HDFC Bank is
concerned. The question of penalties and other consequential
liabilities are being separately dealt with in the later portion
of this order.
55. Consequently, the findings recorded by the
adjudicating authority treating the case as one falling under
Section 28(1) and not under Section 28(4) call for no
interference. The Departmental Appeal on this issue is
therefore liable to be rejected.
ISSUE No. (iv): Whether the Penalties Imposed, Dropped,
or Not imposed upon the various noticees are legally
Sustainable
56. The fourth issue for determination concerns the
correctness, legality, proportionality, and sustainability of the
penalties imposed by the Adjudicating Authority upon various
noticees as also the legality of dropping or non-imposition of
penalties against certain noticees, which has been challenged
by the Department. The issue requires an independent
evaluation of the role, conduct, degree of involvement, and
mens rea attributable to each category of noticee in the light
of the statutory requirements under Sections 112, 114,
114AA and 117 of the Customs Act, 1962.
34
(A) Penalties on Exporter - M/s. Shree Balaji Jewellers and
Shri Sunil Sharma (Noticee Appeal No. C/40543/2024)
57.1 At the outset, it is necessary to note that M/s Shree
Balaji Jewellers is a proprietary concern of Shri Sunil Sharma
and therefore the proprietary concern and the proprietor are
not distinct legal entities for the purpose of adjudication
under the Customs Act, 1962. Consequently, the acts,
declarations, omissions, and liabilities attributable to Shri
Sunil Sharma as proprietor are intrinsically attributable to
M/s Shree Balaji Jewellers itself. Accordingly, the penalties
imposed upon Shri Sunil Sharma are deemed to operate
against the proprietary concern M/s Shree Balaji Jewellers as
well, the proprietary concern having acted only through its
sole proprietor Shri Sunil Sharma.
57.2 As regards M/s. Shree Balaji Jewellers and its
proprietor Shri Sunil Sharma, the record clearly establishes
deliberate misdeclaration, false representation of gold purity,
and attempted export of goods fundamentally different from
those declared in the export documents. The impugned
Order-in-Original records that the consignments declared as
"22 CT plain gold jewellery" including necklace and haram
were, upon examination and scientific testing, found to be
copper/brass articles with superficial gold coating. The export
documents including shipping bills, invoices and declarations
originated from M/s. Shree Balaji Jewellers under the control
35
and authority of Shri Sunil Sharma and the misdeclaration
arose at the very source of export documentation. Penalties
were accordingly imposed upon M/s. Shree Balaji Jewellers
and Shri Sunil Sharma under Sections 114(iii), 114AA and
112(ii) of the Customs Act, 1962.
58. The misdeclaration in the present case is not confined
to valuation or minor compositional variation but extends to
the very identity and nature of the exported goods. The
evidence on record establishes that Shri Sunil Sharma, being
the proprietor and controlling person of the exporting entity,
was directly responsible for procurement, presentation,
declaration and attempted export of the impugned
consignments. The role attributed to him is therefore central
to the fraudulent scheme involving diversion of duty-free
gold and attempted discharge of export obligations through
export of fake jewellery.
59. Section 114(iii) applies where goods liable to
confiscation are knowingly attempted to be exported
improperly, while Section 114AA penalises knowing use of
false declarations and documents. The shipping bills, invoices
and declarations filed by the exporter contained
demonstrably false particulars relating to purity, composition
and nature of the exported goods. The evidence further
36
establishes nexus between export of fake jewellery and
diversion of duty-free imported gold obtained under the
exemption scheme. The cumulative circumstances therefore
establish deliberate abuse of the export promotion scheme
and conscious use of fabricated export declarations.
60. The Hon'ble Supreme Court in Collector v. D.
Bhoormull, 1983 (13) E.L.T. 1546 (S.C.), has held that in
customs matters mens rea can legitimately be inferred from
conduct and surrounding circumstances. Applying the said
principle, the sustained pattern of misdeclaration and use of
fabricated export declarations conclusively establish
conscious involvement on the part of the exporter. We
therefore find no reason to interfere with the findings or
penalties imposed in the impugned Order-in-Original against
M/s. Shree Balaji Jewellers and Shri Sunil Sharma and
consequently Noticee Appeal No. C/40543/2024 is liable to
be dismissed.
(B) Penalties on Shri Narendra Sharma (Noticee Appeal No.
C/40544/2024)
61. Shri Narendra Sharma has contended that he neither
physically handled the export consignments nor participated
in preparation of export documents and that the allegations
against him are founded merely on acquaintance with the
exporter. We are unable to accept the said contention.
37
62. The impugned Order-in-Original records specific
findings regarding the active involvement of Shri Narendra
Sharma in coordinating operational aspects of the export
activity undertaken through M/s. Shree Balaji Jewellers. The
investigation revealed that he acted as a vital link between
the exporter, intermediaries and persons connected with
manufacture and movement of the impugned consignments.
The statements recorded during investigation, call detail
records and surrounding circumstances establish that he was
actively involved in arranging and facilitating the export
process and was not a peripheral participant.
63. The contention that penal liability under Section 114
requires physical handling of goods or direct filing of export
documents is legally untenable. Section 114(iii) specifically
covers acts of abetment, facilitation and intentional
assistance rendering export goods liable to confiscation. In
Jeena & Co. v. Additional Collector, 1992 (58) E.L.T. 276
(Tri.), it was held that active facilitation or assistance in the
offending transaction, even without direct execution of
export formalities, is sufficient to sustain penalty. Applying
the above principles, we are satisfied that the cumulative
evidence on record clearly establishes conscious facilitation
38
and operational involvement on the part of Shri Narendra
Sharma in the fraudulent export scheme.
64. We therefore find no infirmity in the findings recorded
in the impugned Order-in-Original insofar as Shri Narendra
Sharma is concerned. The penalty imposed upon him under
Section 114(iii) of the Customs Act, 1962 is justified,
proportionate and legally sustainable.
(C) Departmental Appeal insofar as Shri Narendra Sharma
is concerned (Appeal No. C/40542/2024)
65. The grievance of the Revenue is that the adjudicating
authority, despite recording findings that Shri Narendra
Sharma orchestrated the offending transactions by roping in
Shri Sunil Sharma of M/s. Shree Balaji Jewellers and Shri A.
Mariappan of M/s. BSM Logistics, failed to impose penalties
under Sections 114AA and 112(ii) of the Customs Act, 1962.
66. However, insofar as penalty under Section 112(ii) is
concerned, we find that the evidence against Shri Narendra
Sharma principally relates to facilitation and coordination of
export activities and not to direct dealing with the imported
duty-free gold alleged to have been diverted. No recovery of
imported gold was effected from him and no material has
been produced establishing that he physically dealt with,
possessed, transported, concealed, or handled imported gold
39
liable to confiscation under Section 111 of the Customs Act,
1962. While the cumulative circumstances clearly justify
penalties relating to the fraudulent export and use of false
declarations, the evidentiary threshold necessary for
sustaining penalty under Section 112(ii) is not satisfied.
Accordingly, penalty under Section 112(ii) is held not
invocable against Shri Narendra Sharma.
67. As regards, penalty under section 114AA of Customs
Act, we have examined the contentions of the Department.
The evidentiary record clearly establishes that Shri Narendra
Sharma was not a peripheral participant but a key
operational coordinator in the execution of the fraudulent
export scheme involving diversion of duty-free gold and
export of fake jewellery under cover of false export
documentation. The materials on record, including the
statements of co-noticees and the surrounding
circumstances, demonstrate his active involvement in
coordinating the exporter, intermediaries and customs
clearance process. Though the export documents may have
been physically filed through the exporter and Customs
Broker, the cumulative evidence establishes that Shri
Narendra Sharma consciously facilitated and caused the use
of materially false declarations and export documents in the
course of customs business. The export documents, invoices
40
and declarations describing gold-plated copper/brass
jewellery as "22 CT plain gold jewellery" were knowingly
used in customs proceedings for obtaining export clearance
and fulfillment of obligations under Notification No.57/2000-
Cus. Section 114AA is not confined only to the person who
physically prepares or signs the false declaration, but
extends to any person who knowingly uses or causes such
false declarations or documents to be used. In the present
case, the fraudulent exports and the use of false export
declarations formed an integral part of the coordinated
scheme in which Shri Narendra Sharma played a significant
and conscious role. The cumulative evidence therefore
establishes conscious and intentional use and facilitation of
materially false declarations attracting Section 114AA of the
Customs Act, 1962
We therefore hold that the ingredients necessary for
invocation of Section 114AA stand satisfied against Shri
Narendra Sharma. We therefore impose a penalty of Rs
20,00,000/- on Narendra Sharma under Section 114AA of
Customs Act 1962 as imposed in the case of Shri Sunil
Sharma.
68. Accordingly, while we uphold the penalty imposed
upon Shri Narendra Sharma under Section 114(iii), we also
hold that penalty under Section 114AA of the Customs Act,
41
1962 is legally sustainable against him. However, penalty
under Section 112(ii) is held not invocable. Consequently,
the connected Departmental appeal is partly allowed to the
above extent.
(D) Penalties on Shri Ashok Jain (Noticee Appeal No.
C/40545/2024)
69. Shri Ashok Jain has contended that he was neither the
exporter nor the importer and that his association with
manufacture of jewellery does not establish conscious
involvement in export fraud or diversion of duty-free gold.
70. On careful examination of the impugned Order-in-
Original, we find that Shri Ashok Jain has been specifically
identified as one of the principal operational persons involved
in arranging manufacture and movement of fake jewellery
ultimately exported in the guise of genuine 22-carat gold
jewellery. The Order-in-Original records that the gold-plated
copper jewellery was manufactured through job workers
under his supervision and instructions and that he
maintained continuous coordination with the exporter and
associated persons involved in the export chain.
71. The plea that Shri Ashok Jain did not personally file
shipping bills or physically present the goods before Customs
does not absolve him from liability under Section 114(iii)
42
once active facilitation and intentional assistance stand
established. The cumulative evidence discussed in the Order-
in-Original, including statements of job workers, linkages
with exporter entities and coordination in movement of
consignments, sufficiently establishes conscious involvement
on his part in the fraudulent export scheme.
72. The reliance placed upon decisions concerning
absence of mens rea does not advance the appellant's case
because the present matter involves sustained and
coordinated activity relating to manufacture and export of
fake jewellery under cover of export promotion benefits.
Applying the ratio laid down in Collector v. D. Bhoormull and
Jeena & Co. (Supra), we hold that the surrounding
circumstances and cumulative evidence sufficiently establish
intentional facilitation and abetment.
73. We therefore concur with the findings recorded in the
impugned Order-in-Original regarding the role and
involvement of Shri Ashok Jain and hold that the penalty
imposed upon him under Section 114(iii) of the Customs Act,
1962 is legally sustainable and proportionate to the gravity
of the offence.
(E) Departmental Appeal insofar as Shri Ashok Jain is
concerned (Appeal No. C/40541/2024)
43
74. The grievance of the Revenue is that the adjudicating
authority, despite recording findings regarding the active role
played by Shri Ashok Jain in arranging manufacture and
movement of fake jewellery, failed to impose penalty under
Section 112(ii) of the Customs Act, 1962.
75. We have carefully examined the above contention.
The materials on record clearly establish that Shri Ashok Jain
played an important operational role in arranging
manufacture of gold-plated fake jewellery and coordinating
movement of such goods for export under the guise of
genuine gold jewellery. However, the evidence principally
relates to manufacture and movement of fake jewellery
intended for export and not to direct handling, possession,
concealment or disposal of imported duty-free gold bars.
76. No recovery of imported gold bars was effected from
Shri Ashok Jain and no material has been produced
establishing that he physically dealt with or possessed
imported duty-free gold liable to confiscation under Section
111 of the Customs Act. The distinction between facilitation
of fraudulent export and direct dealing with imported goods
assumes significance in the context of Section 112(ii). While
the evidence sufficiently establishes the former, it falls short
of conclusively establishing the latter.
44
77. Accordingly, while we uphold the penalty imposed
upon Shri Ashok Jain under Section 114(iii), we do not find
sufficient legal or evidentiary basis to interfere with the
adjudicating authority's decision insofar as non-imposition of
penalty under Section 112(ii) is concerned. The connected
Departmental appeal therefore stands rejected.
(F) Penalties on Customs Broker: M/s. BSM Logistics, Shri
A. Mariappan and Shri T. Sankara Kumar (Noticee Appeals
Nos. C/40546/2024, C/40547/2024 and C/40548/2024)
78. We shall now examine the appeals filed by M/s. BSM
Logistics, licensed Customs Broker, Shri A. Mariappan, CEO
of M/s. BSM Logistics, and Shri T. Sankara Kumar, Partner of
the said Customs Broker firm, challenging the penalties
imposed upon them under Section 114(iii) of the Customs
Act, 1962 in terms of the impugned Order-in-Original No.
32/2024-AIR dated 03.02.2024 passed by the Principal
Commissioner of Customs, Air Cargo, Chennai. The
consistent contention advanced by the appellants is that they
merely acted in the ordinary course of customs clearance
activities as licensed Customs Brokers and that no evidence
exists to establish conscious involvement, mens rea, or
intentional facilitation of export of fake jewellery. It has
further been contended that the appellants neither
45
manufactured the jewellery nor had any knowledge
regarding the alleged substitution of gold jewellery with gold-
plated copper articles.
79. We have carefully examined the findings recorded in
the impugned Order-in-Original, the evidentiary materials
relied upon by the Department, and the submissions
advanced on behalf of the appellants. A Customs Broker
licensed under the Customs Brokers Licensing Regulations
occupies a position of trust within the customs clearance
mechanism and functions as a crucial interface between
importers/exporters and the Customs Department. Such a
licensed intermediary is expected to maintain heightened
standards of diligence, neutrality, and adherence to statutory
safeguards, particularly in transactions involving export of
sensitive commodities such as gold jewellery exported under
duty exemption schemes.
80. The impugned Order-in-Original records specific
findings that M/s. BSM Logistics and its key personnel
consciously facilitated examination of the export
consignments through a particular officer despite the
existence of a roster system governing jewellery
examination. The adjudicating authority has noted that the
examination of the impugned consignments was repeatedly
46
routed through Shri N.S.D. Avinash, who was not rostered as
the Jewellery Examiner on the relevant dates, and that such
routing was facilitated through the active involvement and
coordination of the Customs Broker firm and its personnel.
The materials on record, including statements recorded
under Section 108 of the Customs Act, reveal admissions
regarding repeated routing of consignments and coordination
of examination procedures outside the prescribed roster
discipline.
81. The conduct attributed to the Customs Broker and its
personnel cannot be brushed aside as mere procedural
convenience or routine discharge of brokerage functions. The
roster system governing examination of jewellery exports is
not an empty formality but an institutional safeguard
intended to ensure transparency and integrity in customs
examination of sensitive export consignments involving
precious metals. Conscious deviation from such safeguards
by repeatedly routing consignments through a non-rostered
officer directly facilitated the fraudulent export of mis-
declared goods. The cumulative circumstances therefore
establish active facilitation and conscious assistance in the
process by which fake jewellery passed through customs
control under the guise of genuine 22-carat gold jewellery.
47
82. The Ld. Counsel for the appellants has relied upon
Fast Cargo Movers v. Commissioner of Customs [2018 (362)
E.L.T. 184 (Tri.-Del.)], Guru Ispat Ltd. v. CCE [2003 (151)
E.L.T. 384 (Tri.-Kol.) affirmed at 2003 (157) E.L.T. A87
(S.C.)], Sawroop Shipping Services v. Commissioner of
Customs [2008 (227) E.L.T. 555 (Tri.-Chennai)],
Commissioner v. Vaz Forwarding Ltd. [2011 (266) E.L.T. 39
(Guj.)], and Jeena & Co. v. Additional Collector [1992 (58)
E.L.T. 276 (Tri.)] to contend absence of mens rea and to
argue that intermediaries such as Customs Brokers cannot
be penalised in the absence of direct evidence showing
knowledge of the offending transaction. There can be no
dispute regarding the legal proposition laid down in the
aforesaid decisions that penalty cannot be imposed in cases
involving mere routine discharge of statutory functions
without evidence of conscious involvement or facilitation.
83. However, we find that the said decisions are clearly
distinguishable on facts. In the present case, the evidence
does not disclose passive or routine compliance with customs
formalities but indicates conscious coordination of
examination through a non-rostered officer and repeated
facilitation of deviation from prescribed safeguards in relation
to sensitive exports linked to duty-free gold. Even assuming
reliance is placed on the decision of the Tribunal in Fast
48
Cargo Movers v. Commissioner of Customs, 2018 (362)
E.L.T. 184 (Tri.-Del.), the same does not advance the case of
the appellants, as it neither lays down an absolute
proposition that intermediaries can never be penalised nor
does it override the binding law declared by the Hon'ble
Supreme Court. In Fast Cargo Movers, the Tribunal
specifically found absence of prior knowledge, conscious
facilitation, or intentional aid and further recorded that there
was no allegation regarding manipulation of examination
procedure, selection of officers, or bypassing of institutional
safeguards. The present case stands on an entirely different
footing, where the evidence establishes positive acts
facilitating circumvention of statutory controls through
coordinated routing of consignments for examination outside
the roster mechanism.
84. In the above factual and legal background, we are of
the considered view that the findings recorded in the
impugned Order-in-Original regarding the role and
involvement of M/s. BSM Logistics, Shri A. Mariappan and
Shri T. Sankara Kumar do not suffer from any infirmity
warranting interference by this Tribunal. The cumulative
evidence on record sufficiently establishes conscious
facilitation and active assistance in the export of misdeclared
goods rendering the consignments liable to confiscation
49
under Section 113 of the Customs Act, 1962. The penalties
imposed upon M/s. BSM Logistics, Shri A. Mariappan and
Shri T. Sankara Kumar under Section 114(iii) of the Customs
Act, 1962 are therefore legally sustainable, proportionate to
the gravity of the misconduct established on record, and
liable to be confirmed. Consequently, Noticee Appeal Nos.
C/40546/2024, C/40547/2024 and C/40548/2024 are liable
to be dismissed and the penalties imposed in the impugned
Order-in-Original No. 32/2024-AIR dated 03.02.2024 passed
by the Principal Commissioner of Customs, Air Cargo,
Chennai are upheld.
(G) Penalties on Departmental Officer - Shri N.S.D.
Avinash, Appraiser, (Noticee Appeal C/40365/2024)
85. The next aspect requiring examination concerns the
sustainability and extent of penalties imposed or proposed
against departmental officers despite findings regarding
procedural deviation and facilitative conduct in the export
clearance process. It is settled law that public office does not
confer immunity from penal consequences under the
Customs Act where acts or omissions facilitate export of
goods liable to confiscation. Sections 112 and 114 apply to
"any person" and do not carve out any blanket exception in
favour of departmental officers. At the same time, the
degree of culpability necessary for invoking each penal
50
provision must independently satisfy the statutory
ingredients prescribed therein.
86. The Ld. Counsel for Shri N.S.D. Avinash has relied
upon Boria Ram v. Commissioner of Customs [2005 (190)
E.L.T. 496 (Tri.-Del.)], Ruchika International v.
Commissioner of Customs [2006 (198) E.L.T. 360 (Tri.-
Del.)], A.P. Sales v. Commissioner of Customs [2007 (216)
E.L.T. 161 (Tri.-Del.)], Hargovind Exports v. Commissioner of
Customs [2010 (259) E.L.T. 362 (Tri.-Del.)], Commissioner
v. M. Vasi [2015 (325) E.L.T. 255 (Mad.)], Fast Cargo
Movers v. Commissioner of Customs [2018 (362) E.L.T. 184
(Tri.-Del.)], Gobinda Das v. Commissioner of Customs [2017
(352) E.L.T. 583 (Tri.-Kol.)] and G-Tech Industries v. Union
of India [2016 (339) E.L.T. 209 (P&H)] to contend that
negligence or procedural lapse cannot by itself amount to
abetment. There can be no dispute regarding the legal
proposition laid down in the aforesaid decisions. However,
those cases arose in factual situations where officers acted
within the scope of assigned duties without evidence of
conscious procedural deviation, misuse of official authority,
or facilitation of export contrary to statutory safeguards.
87. From the records, it is evident that Shri N.S.D.
Avinash examined the export consignment covered under
51
Shipping Bill No. 7870940 dated 31.01.2022 despite not
being rostered as the Jewellery Examiner on the relevant
date. The examination was conducted in clear deviation from
prescribed roster instructions and established examination
protocol. The goods physically presented for examination
were gold-coated copper bangles whereas the export
documents described the goods as "22 CT plain gold
jewellery" including necklace and haram. The discrepancy
was apparent even on ordinary visual inspection. Despite
such discrepancy, the consignment was facilitated for export
by use of official endorsement and examination seal.
Conscious deviation from prescribed safeguards by a non-
rostered officer undertaking examination through use of
official authority cannot be brushed aside as a mere
procedural lapse or innocent error of judgment.
88. The appellant Shri N.S.D. Avinash has further relied
upon Commissioner of Customs, New Delhi v. M.I. Khan
reported in 2000 (120) E.L.T. 542 and the judgment of the
Hon'ble Supreme Court in Costao Fernandes v. State
reported in 1996 (84) E.L.T. 577 (S.C.) to contend that
protection under Section 155 of the Customs Act extends to
officers discharging official functions. We are unable to
accept the said contention in the factual context of the
present case. The decisions in M.I. Khan and Costao
52
Fernandes arose in situations where the acts attributed to
the officers were intrinsically connected with bona fide
discharge of official functions and where no evidence existed
of conscious facilitation or deliberate procedural deviation. In
the present matter, however, the evidence specifically
discloses examination of export consignments by a non-
rostered officer, use of official endorsement contrary to
roster discipline, and facilitation of export clearance despite
obvious discrepancy between declared description and
physical nature of goods. The controversy therefore extends
beyond mere erroneous discharge of official duty and enters
the realm of conscious procedural deviation facilitating
export of misdeclared goods. Consequently, the statutory
protection under Section 155 of the Customs Act cannot, in
the facts of the present case, be extended to exclude
examination of penal liability under the Customs Act where
conscious procedural deviation facilitating export of mis-
declared goods is prima facie established. This is particularly
so when the very manner of discharge of official functions
forms part of the facilitative conduct alleged by the
Department
89. In the above factual background, we are of the
considered view that the cumulative circumstances on record
establish conscious disregard of statutory safeguards and
53
active facilitation of export of mis-declared goods rendering
the export consignments liable to confiscation. The conduct
of Shri N.S.D. Avinash therefore squarely attracts penalty
under Section 114(iii) of the Customs Act, 1962 and the
same calls for no interference. However, insofar as penalty
under Section 112(ii) is concerned, we find no evidence
showing that the said officer dealt with, handled,
transported, concealed, possessed, or otherwise abetted
diversion of imported gold bars liable to confiscation under
Section 111 of the Customs Act. Invocation of Section 112(ii)
against him is therefore not legally sustainable.
(H) Departmental Appeal against Shri N.S.D. Avinash
Appraiser (Appeal No. C/40333/2024):
90. We shall now examine the Department's grievance
insofar as non-imposition of penalty under Section 114AA of
the Customs Act, 1962 upon Shri N.S.D. Avinash is
concerned. The materials on record establish that Shri
Avinash, though not rostered as Jewellery Appraiser on the
relevant date, undertook examination of the export
consignments, applied official endorsement and facilitated
export clearance despite apparent discrepancy between the
declared description of goods and the physical nature of the
articles presented for export.
54
91. The evidence discussed hereinbefore demonstrates
that the export goods declared as "22 CT plain gold
jewellery" were in fact gold-coated copper/brass bangles
with very low gold purity. The discrepancy was not technical
or microscopic in nature but was sufficiently apparent to
attract immediate suspicion during examination. The nature
of discrepancy between the declared description and the
physical goods presented for examination was such that
endorsement and clearance could not reasonably have
occurred without conscious acceptance of materially false
declarations used in the customs process. Despite this, Shri
Avinash proceeded to facilitate export clearance by using
official endorsements in the customs process. The conscious
deviation from roster protocol coupled with authentication of
export examination materially contributed to the use of false
declarations and documents in customs proceedings. The
cumulative circumstances therefore sufficiently establish the
ingredients necessary for invocation of Section 114AA of the
Customs Act, 1962.
92. Accordingly, apart from penalty under Section 114(iii),
we hold that penalty under Section 114AA of the Customs
Act, 1962 is also legally sustainable against Shri N.S.D.
Avinash. A penalty of Rs 20,00,000/_ is imposed on Shri
N.S.D. Avinash Appraiser under Section 114AA of Customs
55
Act 1962. Consequently, the Departmental appeal against
Shri N.S.D. Avinash is partly allowed to the above extent.
(I) Departmental Appeal against SHRI P. Thulasi Ram,
Superintendent (Appeal No. C/40334/2024):
93. We have carefully considered the submissions of the
Department as well as the defence taken by Shri P. Thulasi
Ram Superintendent in light of the findings recorded in the
Order-in-Original. The adjudicating authority itself has noted
that the actual examination of the impugned consignments
was carried out by Shri N.S.D. Avinash, Appraiser, and not
by Shri Thulasi Ram, though the latter's name/seal appeared
in the system records. It is also on record that due to heavy
workload and administrative constraints in the export shed,
Shri Thulasi Ram had permitted use of his brass seal by a
fellow officer who was also functioning as a jewellery
appraiser. The Order-in-Original, while discussing the role of
various noticees, does not bring out any independent or
corroborative evidence to establish that Shri Thulasi Ram
had physically examined the goods or had any role in
certifying the nature of the consignment. Thus, the
foundational fact emerging from the record is that the
alleged lapse is not one of active involvement, but at best
one of procedural irregularity arising in the course of official
functioning by allowing the use of his official seal and signing
56
the documents for a fellow officer in good faith being
rostered officer.
94. The Departmental Appeal seeks to attribute abetment
to Shri Thulasi Ram on the ground that he signed documents
without examination. However, this contention does not
withstand legal scrutiny. The very evidence relied upon by
the Department, including statements of the Customs Broker
and the Appraiser, indicates that the examination and
processing of the consignment, including XRF testing and
grant of Let Export Order, were handled by Mr. Nerella
Samueal Deepak Avinash, Appraiser. In such a situation, the
primary responsibility for verification of goods rests with the
officer who actually undertook examination and clearance.
The mere fact that Shri Thulasi Ram's credentials were used,
cannot by itself establish knowledge of misdeclaration or
conscious facilitation of fraud. The Order-in-Original also
records that there is no evidence of collusion, no evidence of
any pecuniary benefit, and no material indicating any nexus
between Shri Thulasi Ram and the exporter or other co-
noticees. In the absence of these essential elements, the
statutory requirement of mens rea for invoking penalty
under Section 114(iii) is clearly not satisfied.
57
95. In view of the above, we find that the attempt of the
Department to elevate a procedural lapse into an act of
abetment is legally unsustainable. The facts on record, as
also appreciated in the Order-in-Original, only indicate that
Shri Thulasi Ram, faced with administrative exigencies,
permitted use of his seal in good faith without any
knowledge of the fraudulent export. There is no evidence of
conscious involvement, intentional omission, or active
facilitation on his part so as to render him liable to penalty
under the Customs Act. It is well settled that negligence or
error in discharge of official duties, without accompanying
mens rea, cannot attract quasi-criminal liability. Accordingly,
we hold that Shri P. Thulasi Ram is eligible to be fully
absolved of penal proceedings under the Customs Act, 1962.
96. In view of the foregoing findings, we hold that the
exoneration of Shri P. Thulasi Ram, Superintendent of
Customs, in the impugned Order-in-Original is legally proper
and sustainable, inasmuch as the material available on
record does not establish any conscious involvement, mens
rea, collusion, or active facilitation on his part in the
fraudulent export of mis-declared jewellery. The acts
attributed to him, even if accepted in entirety, are in the
nature of procedural or administrative lapses arising in the
course of discharge of official duties and do not satisfy the
58
essential statutory ingredients necessary for imposition of
penalty under Sections 114(iii) or 112(ii) of the Customs Act,
1962. We therefore find no infirmity in the conclusion
reached by the adjudicating authority in declining to impose
penalties upon Shri P. Thulasi Ram. Consequently,
Departmental Appeal No. C/40334/2024 filed by the
Revenue against Shri P. Thulasi Ram is liable to be rejected
and accordingly stands dismissed.
(J) Penalties on Goldsmiths / Job Workers (Departmental
Appeal No. C/40331/2024)
97. We shall now examine Departmental Appeal No.
C/40331/2024 whereby the Revenue has challenged the
decision of the adjudicating authority dropping penal
proceedings against Shri Zillur Rehman Mondal and Shri
Mainuddin Rehman Mondal. The impugned Order-in-Original
records that both the said noticees were engaged as
goldsmiths/job workers in relation to manufacture of gold-
plated imitation jewellery and that the Department alleged
their involvement in the larger fraudulent export scheme
concerning export of fake jewellery in the guise of 22-carat
gold jewellery. The adjudicating authority, however, after
analysing the evidentiary material available on record, came
to the conclusion that the role attributable to the said
noticees was confined to labour-oriented manufacturing
activity undertaken on job-work basis and that no material
59
existed establishing their conscious participation in diversion
of duty-free gold or fraudulent export of misdeclared
jewellery. Consequently, the adjudicating authority declined
to impose penalties upon them under the provisions of the
Customs Act, 1962.
98. The Department in its Appeal has contended in the
present appeal that the adjudicating authority failed to
appreciate that the said goldsmiths actively participated in
manufacture of fake jewellery which ultimately formed part
of the export consignments and therefore ought to have
been visited with penalties under Section 117 of the Customs
Act, 1962. According to the Revenue, the very fact that the
goldsmiths manufactured gold-plated imitation jewellery
subsequently exported in place of genuine gold jewellery is
sufficient to establish conscious involvement in the offending
transaction.
99. We are unable to accept the above contention in the
broad manner canvassed by the Department. The evidence
on record establishes that Shri Zillur Rehman Mondal and
Shri Mainuddin Rehman Mondal functioned only as job
workers carrying out labour-oriented activities such as
melting, moulding, soldering, polishing and preparation of
jewellery items under the instructions of Shri Ashok Jain
60
using locally arranged material. The materials available on
record do not establish that they were importers, exporters,
financiers, beneficiaries, or persons exercising any
operational control over procurement of duty-free gold, filing
of shipping bills, preparation of export declarations,
valuation, purity declaration, customs clearance formalities,
or movement of export consignments through Customs. Nor
is there evidence to show that they had any interaction with
Customs authorities or participated in export documentation.
100. The distinction between participation in manufacturing
activity and conscious involvement in customs fraud assumes
considerable significance in the present case. Mere
manufacture of imitation jewellery, by itself, cannot
automatically lead to the inference that the goldsmiths were
aware of diversion of imported duty-free gold or of the
subsequent fraudulent export of such imitation jewellery
under the guise of genuine gold jewellery. The evidentiary
record does not disclose any pecuniary benefit linked to
export incentives, any financial flow-back, any recovery of
diverted imported gold from them, or any material showing
that they knowingly participated in the export fraud. The
Department has also not produced any evidence establishing
that the said noticees were aware that the goods
61
manufactured by them would ultimately be exported by mis-
declaring them as genuine 22-carat gold jewellery.
101. It is well settled that penal liability under Sections 117
of the Customs Act, 1962, being quasi-criminal in nature,
necessarily requires existence of conscious knowledge,
intentional involvement, collusion, or active abetment. Mere
labour-oriented participation in a manufacturing process,
absent evidence of mens rea or conscious facilitation of
customs fraud, cannot by itself justify imposition of penalties
under the Customs Act. The adjudicating authority has
therefore correctly distinguished between the principal
conspirators who orchestrated the export fraud and the job
workers who merely carried out manufacturing activities
without evidence of conscious participation in the larger
scheme.
102. In the above factual and legal background, we find no
infirmity in the findings recorded in the impugned Order-in-
Original insofar as Shri Zillur Rehman Mondal and Shri
Mainuddin Rehman Mondal are concerned. The material
available on record does not establish conscious
involvement, collusion, mens rea, or active abetment on
their part so as to attract penal liability under Section 117 of
the Customs Act, 1962. Consequently, the decision of the
62
adjudicating authority dropping penalties against the said
noticees is upheld and Departmental Appeal No.
C/40331/2024 is liable to be rejected.
(K) HDFC Bank Ltd. - Penalties Correctly Dropped?
(Departmental Appeal C/40323/2024)
103. The position of HDFC Bank Ltd. stands on an entirely
distinct footing. As already discussed, while deciding Issue
No. (iii), the liability of the Bank arose only within the
framework of Notification No.57/2000-Cus, the Foreign Trade
Policy, Handbook of Procedures, Circular No.27/2016-Cus
and the bond obligations executed by it as a nominated
agency importer. The records clearly establish that upon
detection of non-fulfillment of export obligation and diversion
of duty-free gold by M/s Shree Balaji Jewellers, HDFC Bank
discharged the entire customs duty together with applicable
interest even prior to issuance of the Show Cause Notice.
The adjudicating authority specifically appropriated the
amounts so paid and further recorded absence of collusion,
wilful suppression, conscious misstatement or intentional
involvement on the part of HDFC Bank in the fraudulent
export transactions undertaken by the exporter.
104. The Show Cause Notice had proposed penalties upon
HDFC Bank under Sections 112, 114(iii) and 114A of the
Customs Act, 1962 principally on the ground that the duty-
63
free gold imported by the Bank ultimately stood diverted into
the domestic market through fraudulent exports of fake
jewellery. The Departmental Appeal specifically challenges
the findings of the adjudicating authority insofar as penalty
under Section 114A came to be dropped and the case was
held to fall under Section 28(1) and not under Section 28(4)
of the Customs Act. However, we find no statutory basis,
factual foundation, or evidentiary material to attribute mens
rea, abetment, conscious omission, collusion, or knowing
facilitation to HDFC Bank. Penal provisions under Sections
112, 114 and 114A necessarily require conscious
involvement, intentional facilitation, wilful suppression, or
knowing participation in the offending acts. None of these
essential ingredients stand established against the Bank.
105. The Department has contended that being the
importer and nominated agency under Notification
No.57/2000-Cus, HDFC Bank remained absolutely liable for
all consequences arising from export of fake jewellery and
diversion of duty-free gold. We are unable to accept the said
contention in the broad manner canvassed by the Revenue.
While a nominated agency may remain answerable for
discharge of customs duty flowing from the exemption
notification and the executed bond obligations, the Customs
Act does not create automatic penal or vicarious liability
64
upon a nominated agency for every subsequent fraudulent
act independently committed by exporters, job workers,
intermediaries, or examining personnel unless knowledge,
collusion, wilful suppression, or conscious failure of statutory
obligations is established against the nominated agency
itself. To hold otherwise would effectively convert a regulated
intermediary functioning under statutory supervision into an
insurer against all downstream criminal acts, a consequence
neither contemplated under Notification No.57/2000-Cus nor
supported by any express statutory provision.
106. It is also significant that the adjudicating authority
specifically recorded that none of the persons whose
statements were recorded during investigation implicated
any official of HDFC Bank in the fraudulent export activity
and further held that there existed no evidence establishing
collusion between the Bank and the exporter in commission
of the fraud. The adjudicating authority therefore rightly
concluded that the fraud had been perpetrated by M/s Shree
Balaji Jewellers without the knowledge of HDFC Bank and
consequently held that the demand, if any, would fall under
Section 28(1) and not under Section 28(4) of the Customs
Act, 1962. Once the substantive customs duty liability
together with applicable interest already stood discharged
prior to issuance of the Show Cause Notice itself, the
65
foundational jurisdictional requirements necessary for
invoking Section 114A also remained wholly absent in view
of the provisions of Section 28(2) of Customs Act . It is also
significant that Section 28(2) of the Customs Act, 1962, as
applicable during the relevant period, contemplated
conclusion of proceedings where the person chargeable with
duty voluntarily pays the customs duty together with
applicable interest prior to issuance of the Show Cause
Notice. In the present case, HDFC Bank discharged the entire
customs duty liability along with applicable interest through
the statutory bond mechanism even before issuance of the
SCN and the said payments were accepted and appropriated
by the Department. Once the adjudicating authority itself
recorded absence of collusion, wilful suppression, or
conscious involvement on the part of HDFC Bank and further
held that the case would fall under Section 28(1) and not
Section 28(4), the foundational requirement for sustaining
penalty under Section 114A also ceased to survive
107. We also find considerable force in the reliance placed
upon the decision of the Coordinate Bench of this Tribunal in
HDFC Bank Ltd. v. Commissioner of Customs (Adjudication),
Delhi Zone, 2025 (10) TMI 825 (CESTAT-New Delhi),
wherein it was held that a nominated agency cannot be
penalised for fraudulent acts independently committed by
66
exporters in the absence of evidence establishing knowledge,
connivance, or conscious involvement of the importer. The
factual matrix in the present case stands materially similar.
The Bank had no role in manufacture of jewellery, export
processing, or diversion of gold and no evidence of collusion
or wilful breach of statutory obligation has been brought on
record. Accordingly, we hold that no penalty is imposable
upon HDFC Bank Ltd. under Sections 112, 114 or 114AA of
the Customs Act, 1962 and the Departmental appeal seeking
imposition of penalty upon the Bank is rejected.
Conclusion on Issue No.(iv) Penalties
108. We also find that the adjudicating authority has
correctly distinguished between principal participants in the
fraudulent scheme and those against whom the evidence
merely establishes procedural lapse, labour-oriented activity,
or absence of conscious involvement. Accordingly, the
exoneration/dropping of penalties in respect of Shri P.
Thulasi Ram, Shri Zillur Rehman Mondal, Shri Mainuddin
Rehman Mondal and HDFC Bank Ltd. is found to be legally
proper and supported by the evidentiary record, there being
no material establishing the requisite mens rea, conscious
abetment, collusion, wilful suppression, or direct nexus
necessary for invocation of penal provisions under Sections
112, 114, 114A ,114AA or 117 of the Customs Act, 1962.
67
Consequently, the respective Departmental appeals
challenging such exoneration or seeking imposition of
additional penalties against the aforesaid noticees stand
rejected.
109. In view of the foregoing discussion and upon
comprehensive consideration of the respective roles, degree
of involvement, evidentiary materials, and statutory
requirements governing penal liability under the Customs
Act, 1962, we hold that the penalties imposed upon the
principal noticees directly connected with orchestration,
facilitation, and execution of the fraudulent export of fake
jewellery are legally sustainable and warrant confirmation.
The evidence on record clearly establishes conscious
involvement, active facilitation, deliberate misdeclaration,
diversion of duty-free gold, knowing use of false export
documentation, and intentional circumvention of statutory
safeguards on the part of M/s Shree Balaji Jewellers, Shri
Sunil Sharma, Shri Narendra Sharma, Shri Ashok Jain, M/s
BSM Logistics, Shri A. Mariappan, Shri T. Sankara Kumar and
Shri N.S.D. Avinash to the extent discussed hereinabove.
Accordingly, the penalties imposed upon the aforesaid
noticees under the respective provisions of the Customs Act,
1962 call for no interference except to the limited extent
specifically modified hereinabove insofar as non-applicability
68
of penalty under Section 112(ii) against Shri N.S.D. Avinash
and non-applicability of penalty under Section 112(ii) against
Shri Narendra Sharma and Shri Ashok Jain are concerned.
Further, for the reasons separately recorded hereinabove,
penalty under Section 114AA against Shri Narendra Sharma
and Shri N.S.D. Avinash stands upheld. Consequently, the
respective noticee appeals challenging the confirmed
penalties stand dismissed except to the limited extent
indicated hereinabove, and the connected Departmental
appeals stand disposed of in terms of the findings recorded
hereinabove.
(v). Whether Revenue Appeals on non-imposition of
redemption fine on the Importer i.e., HDFC Bank merit
acceptance C/40323/2024 : -
110. We have carefully examined whether redemption fine
under Section 125 of the Customs Act, 1962 can be
sustained in respect of goods which are admittedly not
available for physical confiscation, having already been
cleared and utilised. We find merit in the appellants'
contention that redemption fine is not legally leviable in such
circumstances. Section 125 contemplates an option to
redeem confiscated goods in lieu of confiscation. The
statutory precondition for exercise of such option is the
physical availability of goods which can either be confiscated
or released on payment of fine. Where confiscation itself is
69
incapable of execution due to non-availability of goods, the
legal foundation for offering redemption necessarily fails.
111. The Department has placed reliance on the decisions
in Weston Components Ltd. v. Commissioner of Customs
(Supreme Court), Visteon Automotive Systems India Ltd. v.
CESTAT (Madras High Court) to contend that, even though
the goods are not physically available, confiscation and
consequential proceedings are sustainable.
112. The learned counsel for the appellants has relied upon
the decisions in Commissioner of Customs (Import), Mumbai
v. Finesse Creation Inc. [2009 (248) E.L.T. 122 (Bom)] as
affirmed by the Hon'ble Supreme Court [2010 (255) E.L.T.
A120 (S.C.)], and Union of India v. Raj Grow Impex LLP
[2021 (377) E.L.T. 145 (S.C.)], to contend that confiscation
is not sustainable where the goods are not physically
available.
113. In the present case, we find that HDFC Bank Ltd.
stands on a fundamentally different footing. It is not the user
of the gold, not the manufacturer, not the exporter, and not
the beneficiary of the diversion. The Bank functioned as a
nominated agency operating under a statutory framework,
releasing gold to exporters against margin money and
70
documentary safeguards. Crucially, the Adjudicating
Authority has recorded a categorical finding that there is no
evidence of collusion, wilful misstatement, or suppression
attributable to HDFC Bank especially where the importer is
demonstrably not complicit.
114. Further, applying the binding ratio of the Coordinate
Bench in M/s. HDFC Bank Limited v. Commissioner of
Customs (Adjudication), Delhi Zone, 2025 (10) TMI 825
(CESTAT-New Delhi), we hold that redemption fine under
Section 125 of the Customs Act is wholly inapplicable to
HDFC Bank Ltd., as the Bank neither had physical custody
nor control over the export goods, nor any culpable role in
the fraudulent export by the jeweller. Redemption fine being
purely consequential to confiscation, and confiscation itself
being unsustainable against the Bank in the absence of
knowledge, mens rea, or dominion over the goods, the
Revenue's attempt to impose redemption fine amounts to
penalising a non-offending nominated agency for third-party
criminality. Accordingly, the Revenue's appeal seeking
imposition of redemption fine on HDFC Bank Ltd. is rejected
in toto.
115. In view of the above, we hold that while the goods
may be held liable to confiscation under Section 111(o) for
71
violation of Notification No. 57/2000-Cus., no redemption
fine under Section 125 can be imposed in respect of past
clearances where the goods are admittedly not available for
confiscation. The reliance placed by the Department on the
above case laws is therefore misplaced, and the Adjudicating
Authority's decision not to impose redemption fine calls for
affirmation, the impugned order to that extent is sustainable
and is so, upheld.
CONCLUSION
116. At the same time, while deciding Issue Nos. (iii) and
(iv), we have drawn a clear distinction between the liability
arising under Notification No.57/2000-Cus and the bond
obligations executed by HDFC Bank Ltd. on the one hand and
the fraud-based allegations raised by the Department on the
other. The records clearly establish that HDFC Bank Ltd.,
functioning as the nominated agency importer, discharged
the entire customs duty together with applicable interest
prior to issuance of the Show Cause Notice and the
adjudicating authority itself recorded absence of collusion,
conscious involvement, or wilful suppression on the part of
the Bank in the fraudulent export transactions undertaken by
M/s Shree Balaji Jewellers. We have therefore upheld the
findings of the adjudicating authority insofar as HDFC Bank
72
Ltd. is concerned and found no justification to interfere with
the dropping of further proceedings against the Bank.
117. With regard to penalties, we have undertaken a role-
specific analysis of the conduct attributable to each noticee
and have confirmed penalties only where the evidence
establishes conscious involvement, active facilitation,
deliberate procedural deviation, intentional misdeclaration,
or knowing use of false documentation satisfying the
statutory requirements of the Customs Act, 1962. The
materials on record clearly establish deliberate
misdeclaration, fraudulent intent, diversion of duty-free gold,
and active facilitation on the part of the principal exporter
entities and key operational participants connected with the
offending transactions.
118. The evidence further establishes that certain
intermediaries, including the Customs Broker M/s BSM
Logistics and its key personnel, consciously facilitated
circumvention of prescribed safeguards by coordinating
examination of export consignments outside the roster
mechanism and thereby enabled export of mis-declared
goods. In customs jurisprudence, abetment is not confined to
physical handling of goods and extends to conscious
facilitation or intentional omission enabling commission of
73
the offending act. The plea of absence of mens rea cannot
therefore be accepted where the cumulative conduct and
surrounding circumstances themselves establish conscious
facilitation.
119. Insofar as departmental officers are concerned, we
find that the case against Shri N.S.D. Avinash, Appraiser, is
supported by material establishing active involvement in
examination and clearance of the impugned consignments
and consequently the penalty imposed upon him under
Section 114(iii) stands affirmed. We have also partly allowed
the connected Departmental Appeal and imposed penalty
under Section 114AA upon Shri N.S.D. Avinash to the extent
recorded hereinabove. However, insofar as penalty under
Section 112(ii) is concerned, we have found no evidence
establishing his involvement on the import side or any
dealing with imported duty-free gold liable to confiscation
under Section 111 of the Customs Act, 1962 and
consequently the penalty under Section 112(ii) against Shri
N.S.D. Avinash stands set aside. Similarly, the evidence on
record establishes that Shri Narendra Sharma played a
significant operational and coordinating role in the fraudulent
export scheme and consciously facilitated use of false export
documentation. Accordingly, while the penalty imposed upon
him under Section 114(iii) stands affirmed, we have also
74
upheld imposition of penalty under Section 114AA against
Shri Narendra Sharma to the extent recorded hereinabove.
In the case of Shri P. Thulasi Ram, the evidentiary record
does not establish conscious involvement, collusion, or
intentional facilitation and therefore the adjudicating
authority was justified in declining to impose penalties upon
him. Likewise, in the case of the goldsmiths/job workers and
HDFC Bank Ltd., the evidence falls short of establishing the
statutory threshold necessary for imposition of penal
consequences under the Customs Act, 1962.
120. We have also remained conscious of the settled
principle that penal provisions under fiscal statutes, being
quasi-criminal in nature, require strict construction and
cannot be invoked merely on the basis of suspicion,
institutional association, or retrospective inference
unsupported by legally sustainable evidence. The conclusions
recorded herein therefore represent a careful balance
between enforcement of fiscal discipline and protection
against unwarranted penalisation.
121. Taken as a whole, the present case reveals a carefully
orchestrated attempt to misuse a beneficial export promotion
scheme intended for genuine exports, resulting in loss to the
exchequer and erosion of regulatory trust. Such conduct
75
warrants firm action under the Customs Act, 1962 both to
neutralise the economic advantage derived through misuse
of the scheme and to deter recurrence of similar fraudulent
practices. At the same time, entities against whom the
evidence does not establish conscious involvement or
facilitation cannot be subjected to penal consequences
merely because they formed part of the broader commercial
or institutional framework within which the fraud occurred.
122. In conclusion, we hold that the impugned Order-in-
Original substantially merits affirmation subject only to the
limited modifications and clarifications specifically recorded
hereinabove. The findings recorded in the present Final
Order reflect a comprehensive appreciation of facts,
evidence, statutory provisions, exemption notification
conditions, FTP obligations, CBEC Circular framework, and
binding judicial precedents including the Coordinate Bench
decision in M/s HDFC Bank Ltd. v. Commissioner of Customs
(Adjudication), Delhi Zone. All judgments relied upon by the
respective parties have been considered in the context of the
issues framed and have either been applied or distinguished
depending upon their applicability to the factual matrix of the
present case.
76
ORDER
123. In view of the foregoing discussion, findings and conclusions recorded hereinabove, the following order is passed: -
i. The confiscation of the exported goods weighing 10,172.53 grams covered under Shipping Bill No.7870940 dated 31.01.2022 under Sections 113(i) and 113(ja) of the Customs Act, 1962, together with the option of redemption on payment of fine as ordered in the impugned Order-in-Original, is affirmed. ii. The finding regarding diversion of 8,475.78 grams of duty-free gold imported under Notification No.57/2000- Cus rendering the same liable to confiscation under Section 111(o) of the Customs Act, 1962 is upheld. Inasmuch as the said gold is not physically available for confiscation, the decision of the adjudicating authority refraining from imposing redemption fine in respect thereof is also upheld.
iii. The penalties imposed upon Shri Sunil Sharma proprietor of M/s Shree Balaji Jewellers under Sections 114(iii), 114AA and 112(ii) of the Customs Act, 1962 are upheld and consequently Noticee Appeal No. C/40543/2024 stands dismissed.77
iv. The penalty imposed upon Shri Narendra Sharma under Section 114(iii) of the Customs Act, 1962 is upheld. Further, the Departmental Appeal seeking imposition of penalty under Section 114AA is allowed and penalty of Rs.20,00,000/- (Rupees Twenty Lakhs only) is imposed upon Shri Narendra Sharma under Section 114AA of the Customs Act, 1962. However, the Departmental Appeal seeking imposition of penalty under Section 112(ii) against Shri Narendra Sharma is rejected. Consequently, Noticee Appeal No. C/40544/2024 stands dismissed and the connected Departmental Appeal stands partly allowed to the above extent. v. The penalty imposed upon Shri Ashok Jain under Section 114(iii) of the Customs Act, 1962 is upheld. However, the Departmental Appeal seeking imposition of penalty under Section 112(ii) against Shri Ashok Jain is rejected. Consequently, Noticee Appeal No. C/40545/2024 stands dismissed and the connected Departmental Appeal stands rejected.
vi. The penalties imposed upon M/s BSM Logistics, Shri A. Mariappan and Shri T. Sankara Kumar under Section 114(iii) of the Customs Act, 1962 are upheld and 78 consequently Noticee Appeal Nos. C/40546/2024, C/40547/2024 and C/40548/2024 stand dismissed. vii. The penalty imposed upon Shri N.S.D. Avinash under Section 114(iii) of the Customs Act, 1962 is upheld. However, the penalty imposed upon him under Section 112(ii) is set aside and consequently his Noticee Appeal stands partly allowed to the said limited extent. Further, the Departmental Appeal seeking imposition of penalty under Section 114AA against Shri N.S.D. Avinash is allowed and penalty of Rs.20,00,000/- (Rupees Twenty Lakhs only) is imposed upon Shri N.S.D. Avinash under Section 114AA of the Customs Act, 1962.
viii. The dropping of penalties against Shri P. Thulasi Ram is upheld and consequently Departmental Appeal No. C/40334/2024 stands rejected.
ix. The dropping of penalties against Shri Zillur Rehman Mondal and Shri Mainuddin Rehman Mondal is upheld and consequently Departmental Appeal No. C/40331/2024 stands rejected.79
x. The findings of the adjudicating authority holding that the customs duty liability together with applicable interest stood discharged prior to issuance of the Show Cause Notice in terms of Notification No.57/2000-Cus, Circular No.27/2016-Cus, FTP/HBP provisions and the executed bond obligations is also upheld. Consequently, the dropping of proceedings relating to further duty demand, interest, redemption fine, and penalties against HDFC Bank Ltd. is affirmed and Departmental Appeal No. C/40323/2024 stands rejected in toto. xi. The impugned Order-in-Original No.32/2024-AIR dated 03.02.2024 passed by the Principal Commissioner of Customs, Air Cargo, Chennai is accordingly upheld subject to the limited modifications and clarifications recorded hereinabove.
124. All appeals and connected Departmental appeals stand disposed of in the above terms.
(Order pronounced in open court on 08.05.2026) Sd/- Sd/-
(VASA SESHAGIRI RAO) (P. DINESHA) MEMBER (TECHNICAL) MEMBER (JUDICIAL) MK