While quashing the penalty imposed on FedEx Express Transportation, the Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the courier agency cannot be held liable for concealed narcotics without knowledge. The Tribunal asserted that the treatment of the Appellant as consignor/exporter, and attribution of knowledge or conscious participation in the attempted export, travelled beyond the SCN and could not be sustained.
On the merits, the Tribunal held that Regulation 13(i) of the Courier Imports and Exports (Clearance) Regulations, 2010 (CIER) does not mandate two identity documents, and non-production of a second document, absent evidence that the consignor’s identity or address could not be verified from the genuine driving licence, does not establish breach of Regulation 13(i). Regulation 13(j) prohibits outsourcing only of a regulatory function which the Regulations themselves contemplate as a function of the Authorised Courier, and mere outsourcing of physical pick-up does not violate Regulation 13(j).
On penalty, the Tribunal held that Section 114(i) of the Customs Act, 1962 requires an act or omission rendering goods liable to confiscation, while Section 114AA requires use of false material with knowledge or intent, and neither ingredient was present in the absence of evidence of knowledge, connivance or collusion.
The Division Bench comprising P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) observed that the impugned order travelled beyond the scope of the Show Cause Notice. The SCN was confined to non-obtaining of permission from the Commissioner of Customs for sub-contracting/outsourcing services and alleged non-compliance with KYC obligations under Public Notice No. 32/2010. The SCN did not allege that the Appellant had failed to obtain authorisation from Shri A. Thameem Ansari, nor did it allege contravention of Regulations 13(a) and 13(c) of the CIER, 1998. The SCN identified Shri A. Thameem Ansari as the consignor and proceeded against the Appellant only in its capacity as Authorised Courier; it did not allege that the Appellant was itself the consignor/exporter. The SCN also did not allege that the Appellant knew of the concealed pseudoephedrine hydrochloride, knowingly prepared or adopted a false declaration, or knowingly aided or abetted the attempted export.
On Regulation 13(i), the Tribunal observed that the provision requires an authorised courier to verify the antecedents, identity and functioning of its client through reliable, independent and authentic material, but does not mandate two identity documents. The requirement for two documents arose only from the Board’s KYC instructions. Circular No. 7/2015-Cus., though prospective, supports this distinction by recognising that one prescribed document may serve as proof of both identity and address.
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On Regulation 13(j), the Tribunal observed that the prohibition on outsourcing applies only to functions required or permitted under the CIER, namely assessment and clearance-related functions. The outsourced activity was only collection or pick-up of the export consignment, which the CIER does not treat as an assessment or clearance function.
On the question of liability for concealed contents, the Tribunal observed that there was no evidence that the Appellant knew of, participated in, or facilitated the misdeclaration or the ingenious concealment of the narcotic substance in pouches embedded within the embroidery, which could be detected only by cutting it open. Mere filing of the courier declaration on the consignor’s information, followed by discovery of prohibited goods, does not establish a knowing false declaration. Installation of the Appellant’s software at another entity’s premises, or receipt of the consignment through an intermediary, does not by itself establish the nature of the agency arrangement, the Appellant’s knowledge and control, or failure to discharge a specific regulatory obligation.
Briefly, the case arose from a courier export consignment filed by M/s. TNT India Pvt Ltd. (TNT), an authorised courier under the Courier Imports and Exports (Clearance) Regulations, 2010. TNT filed Courier Shipping Bill for export of three packages containing 106 Churidhar Tops, declaring Shri A. Thameem Ansari as consignor and Shri Bala, Malaysia as importer. Examination revealed white crystalline powder concealed in the stitched/embroidered portions of the garments. While the initial test indicated Methaqualone (16,500 grams), the Central Revenue Laboratory, Chennai subsequently identified the substance as pseudoephedrine hydrochloride, export of which required a ‘No Objection Certificate’ (NOC) from the Central Bureau of Narcotics.
Investigation further alleged that the consignment had not been directly booked with TNT. It was booked with M/s. Universal Worldwide Express Courier & Cargo, Egmore, and routed through M/s. Worldwide Express, Ashok Nagar, Chennai, which had an account and business arrangement with TNT. The Appellant had not obtained any permission from the Commissioner of Customs for sub-contracting/outsourcing the services. The consignor’s address was also found to be false. Searches of the premises of the courier intermediaries did not yield any contraband or incriminating documents.
The Show Cause Notice (SCN) alleged that TNT had accepted the parcels from Worldwide Express on the basis of only one identity document and had permitted sub-contracting/outsourcing without obtaining the Commissioner’s permission, thereby violating KYC norms under Public Notice No. 32/2010 and Circular No. 33/2010-Cus, and Regulations 13(i) and 13(j) of the Courier Imports and Exports (Clearance) Regulations, 2010 (CIER).
After due process, the Adjudicating Authority in the Order-in-Original (OIO) imposed penalties of Rs 40 lakhs under Section 114(i) and Rs 60 lakhs under Section 114AA of the Customs Act, 1962 on TNT. The Commissioner (Appeals) rejected TNT’s appeal. Pursuant to the Business Transfer Agreement, TNT’s operations were transferred to FedEx Express Transportation and Supply Chain Services (India) Pvt Ltd.
