Pranav B Prem

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld the penalty imposed on Rajiv Sahni, Business Development Associate (BDA) of M/s. Essar Oil Limited, for his role in the diversion of 460 KL of High Speed Diesel (HSD) valued at ₹89,13,340 with a corresponding duty liability of ₹23,08,357. At the same time, the Tribunal quashed the penalty imposed on customs broker Mahendra N. Thacker, finding no sustainable grounds for penal action against him.

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The case stems from a search operation carried out by the Directorate of Revenue Intelligence (DRI), Ahmedabad, at various premises of M/s. Essar Oil Limited. During the investigation, it was revealed that M/s. Agarwal (JV), a joint venture engaged in civil construction and awarded a World Bank-aided government contract, was entitled to customs duty exemption under Notification No. 84/97-Cus. dated 11.11.1997, based on a Project Authority Certificate (PAC) issued by the Gujarat Government. M/s. Dineshchandra R. Agarwal, Deesa (part of M/s. Agarwal (JV)), procured 460 KL of HSD from M/s. Essar Oil Ltd by using the “In Bond transfer” facility and filed three ex-bond Bills of Entry dated 24.12.2004, 09.02.2005, and 16.03.2005 to claim the exemption under the said notification.

However, investigation revealed that out of the total quantity, 132 KL of HSD was diverted to projects unrelated to the PAC, and discrepancies were noted in the destination details for the remaining quantity. Consequently, the customs duty benefit availed, amounting to ₹23,08,356, became recoverable. Penalties of ₹50,000 and ₹2,00,000 were imposed on Mahendra N. Thacker, the customs broker, and Rajiv Sahni, respectively.

Mahendra N. Thacker challenged the penalty, contending that there was no collusion between him and the importer or customs authorities and that he had complied with all documentary requirements at the time of filing the Bills of Entry. He argued that the penalty imposed under Section 117 of the Customs Act, 1962, was without basis since no violation of any specific provision of the Act was established against him. He further cited the decision in Glory Agencies v. Commr. of Cus. (Seaport-Exports), Chennai, which held that a customs broker’s responsibility ceases once goods are handed over to the transporter and that brokers cannot be held liable for subsequent diversions.

The Tribunal accepted these arguments, noting that no proceedings had been initiated against Thacker under the Customs House Agents Licensing Regulations, 2004, and that Section 117 of the Customs Act does not empower penalties for such licensing infractions. The Tribunal observed, “It is clear that the learned Adjudicating Authority has imposed penalty upon the appellant M/s. Mahendra N. Thacker arbitrarily without proper justification,” and set aside the penalty.

Conversely, the Tribunal upheld the penalty against Rajiv Sahni, finding that he played a pivotal role in facilitating the diversion. Evidence revealed that Sahni, as Business Development Associate, actively assisted in the procurement and subsequent delivery of the duty-exempted HSD, and that he was aware of its diversion to unauthorized sites. The Tribunal noted that Sahni’s employee, Dharmendrasinh Zala, acted under his instructions to arrange transport and delivery of the HSD to sites not covered by the PAC. Sahni’s involvement was corroborated by multiple statements, including his own, in which he admitted knowledge of the diversions.

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The Tribunal concluded that “Shri Rajiv Sahni played a key role in the diversion of the imported HSD cleared under PAC in collusion with the importer and the PAC holder M/s. Agrawal (J.V.) and thus aided and abetted in the diversion for 460 KL HSD valued at ₹89,13,340 and having a duty liability of ₹23,08,357,” and confirmed the ₹2,00,000 penalty imposed on him.

In its final decision, the Tribunal allowed Customs Appeal No. 12304 of 2019, quashing the penalty against Mahendra N. Thacker, while dismissing Customs Appeal No. 12587 of 2019, thereby upholding the penalty against Rajiv Sahni.

Appearance

Shri Vikas Mehta, Consultant appeared for the Appellant

Shri Sanjay Kumar, Superintendent (AR) appeared for the Respondent

Cause Title: Mahendra N Thacker V. Commissioner Of C.-Mundra

Case No: Customs Appeal No. 12304 Of 2019 – SMB

Coram: Hon'ble Dr. Ajaya Krishna Vishvesha [Member (Judicial)]

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