Pranav B Prem

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that customs authorities cannot invoke confiscation powers under the Customs Act, 1962 to enforce alleged violations of the Foreign Exchange Management Act, 1999 (FEMA) beyond the stage of seizure at the airport, in the absence of specific statutory authority. The Tribunal clarified that customs proceedings cannot be used as a substitute for enforcement action under FEMA.

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The Bench comprising Ajay Sharma (Member – Judicial) and C.J. Mathew (Member – Technical) partly allowed a batch of appeals filed by a corporate travel and event management company and its officials, challenging orders of absolute confiscation and penalties imposed by the customs authorities.

The dispute arose from an incident dated 20 August 2018, when customs officers intercepted foreign currency equivalent to ₹81.01 lakh at the Indira Gandhi International Airport, New Delhi. The currency was found in the possession of an employee of the appellant company who was about to board an international flight. The employee had been deputed to manage travel and business arrangements for a senior corporate executive of a major Indian automobile manufacturer.

Following the seizure, the customs department expanded the scope of investigation beyond the airport interception. Searches were conducted at the company’s premises, during which documents, handwritten notes and electronic records were recovered. On the basis of these materials, the department alleged that over several years, company employees had carried foreign currency worth several crores abroad, purportedly in violation of Reserve Bank of India (RBI) guidelines governing foreign exchange transactions.

An order was passed by the adjudicating authority directing absolute confiscation of the seized currency under the Customs Act and imposing penalties on the company and its officials under Section 114. The authority also proposed confiscation of additional amounts reflected in internal records and electronic data, with redemption fines imposed in lieu of confiscation. The Commissioner (Appeals) partly upheld the order, sustaining absolute confiscation of the seized currency and confirming penalties on certain officials, while setting aside confiscation relating to some past transactions for want of evidence.

Aggrieved, the company and its officials approached the CESTAT, primarily questioning the jurisdiction of customs authorities to proceed with confiscation and penalties for alleged FEMA violations and challenging the legality of absolute confiscation of foreign currency.

A central issue before the Tribunal was whether customs authorities could initiate and sustain confiscation proceedings under the Customs Act for alleged contraventions of FEMA and RBI instructions. The appellants contended that after the repeal of the Foreign Exchange Regulation Act, 1973, customs officers no longer possess independent authority to penalise foreign exchange violations, except to the extent specifically empowered under FEMA. It was argued that FEMA provides a complete and self-contained regulatory mechanism, with enforcement vested in designated authorities under that statute.

Accepting this submission, the Tribunal observed that FEMA constitutes a comprehensive framework governing foreign exchange transactions and prescribes its own enforcement machinery, procedures and penalties. While customs officers may exercise limited powers at airports pursuant to delegation under FEMA, such delegation does not automatically authorise them to invoke confiscation provisions of the Customs Act for FEMA-related contraventions beyond the stage of interception and seizure.

The Tribunal further examined whether foreign currency could be treated as “prohibited goods” under the Customs Act so as to justify absolute confiscation. It noted that although currency falls within the definition of “goods” under Section 2(22) of the Act, a mere breach of RBI conditions or FEMA regulations does not render foreign currency prohibited per se. The Tribunal cautioned against equating regulatory non-compliance with statutory prohibition warranting absolute confiscation, holding that such an approach would be legally impermissible unless the statute expressly mandates confiscation.

With respect to foreign currency loaded on travel cards issued in the names of different employees but carried by a single individual, the Tribunal noted that while RBI guidelines regulate permissible usage, the department had failed to establish that the sourcing or intended utilisation of the funds was illegal. In the absence of concrete evidence of unlawful export or misuse, confiscation and redemption fines in relation to such amounts were set aside.

Similarly, the Tribunal held that amounts inferred from internal records, handwritten notes and electronic data could not be subjected to confiscation merely on suspicion. It observed that there was no proof that such currency had actually been exported or acquired illegally, and therefore customs action based on such inferences was unsustainable.

On the issue of penalties, the Tribunal substantially reduced the penalties imposed on the company officials. It observed that the transactions in question were linked to legitimate business travel arrangements and that the funds had been sourced through authorised channels. In the absence of mens rea or demonstrable loss to the exchequer, the Tribunal held that the imposition of harsh penalties was disproportionate.

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In conclusion, the CESTAT held that customs authorities cannot stretch confiscation powers under the Customs Act to police alleged FEMA violations beyond the airport seizure stage. Enforcement of FEMA contraventions must be carried out strictly in accordance with the statutory framework under FEMA. While upholding limited action in respect of the currency actually seized at the airport, the Tribunal set aside confiscation and penalties relating to past transactions and inferred amounts, and granted substantial relief to the appellants.

Cause Title: Salt Experiences & Management Pvt Ltd Versus Customs Commissioner

Case No: Customs Appeal No: 51745 Of 2025

Coram: Ajay Sharma (Member – Judicial) and C.J. Mathew (Member – Technical)