Summary: The Customs Act assigns importers and exporters parallel duties that do not usually converge. Yet Indian authorities have started to rope foreign exporters into importers’ alleged violations in the wake of the Act’s extraterritorial reach. This approach treats the supply chain as a single unit of liability. The Hon’ble Bombay High Court’s (“HC”) ruling in the case of Karl Mayer[1] firmly rejects such approach. Unless there is evidence of complicity, the exporter’s responsibility ends when the goods are shipped. What changes, however, when the exporter controls the importer? This blog attempts to shed light on this controversy, among many others.
Introduction
Tax authorities in customs import cases frequently look ‘upstream’. The department often dresses exporters as abettors, reaches for offences given in the Customs Act, 1962 (“the Act”), and the show-cause notice writes itself. But can it always be said that the exporter was in on it? The HC recently answered this precise query in the case of Karl Mayer.
A German manufacturer exported warp knitting machines to Indian importers between 2014 and 2017. The importers allegedly mis-declared those machines to claim certain exemption benefits. The Directorate of Revenue Intelligence (“DRI”) served show-cause notices (“SCNs”) alleging that the importers have mis-declared the details and claimed exemptions that were not available and hence, proposed to levy taxes, interest, as well as penalties – not just on the importers, but also on the German manufacturer. The HC quashed those notices. But the manner in which it did so matters more than the outcome: it maps where a foreign exporter’s liability begins and ends.
Jurisdiction as the Starting Point
Applicability of statute begins with territorial jurisdiction. Originally, Section 1(2) extended the Act only “to the whole of India.”. However, Finance Act, 2018, amended this to make the Act applicable also to any offence or contravention committed outside India by “any person”: a prospective operation that brought the procedures and responsibilities on “persons” hitherto regarded as non-residents, under the Act within the sweep of the newly enacted extraterritorial dimension.
In Karl Mayer, the alleged mis-declarations predated 2018 and the amended provisions could not be made as applicable. The HC held the SCNs were issued without jurisdiction on this ground alone. However, it also observed that even assuming that the post-2018 amendment was applicable, no material evidence was produced to establish the foreign exporter’s liability. This is immensely consequential – because even when the jurisdictional shield is gone, what replaced it was an evidentiary bar.
Two Parties, Two Set of Duties
With the issue of applicability being settled, the next question that becomes relevant is what does the Act require, and from whom? Section 46 requires importers to file a bill of entry and subscribe to a declaration as to its truth, placing an express duty of care to ensure accuracy and completeness of every detail, authenticity of supporting documents, and compliance with all applicable restrictions. Self-assessment of duty is also assigned to the importer. Goods are liable for confiscation where they do not correspond with the entry made under the Act.
Section 50 of the Act places similar duties and responsibilities on the exporter, but only for export entry! Confiscation and penalty are prescribed even for export-side mis-declarations. These responsibilities run parallelly and do not converge. The HC in Karl Mayer held that a foreign exporter cannot be made liable for the wrongdoings of the importer, whose privity qua the goods being exported from a foreign country would end on the goods being shipped to the satisfaction of the Indian importer.
Navigating Offences and Evidentiary Standards
Whenever import or export procedures fail to meet statutory requirements, legal violations occur. Customs Officers are required to adjudicate contraventions through confiscation of goods and imposition of penalties. These offences can be categorised into the following areas:
- offences related to importation and exportation,
- documentation and fraud,
- logistics and conveyance,
- and other procedural defects.
These offences, make “persons” responsible wherever violations occur. The personhood criteria creates the pathway for exporter liability: an exporter who abets an importer’s improper importation, for instance, by preparing false documents may squarely be held liable under the Act.
The penal proposals failed on their own terms in Karl Mayer. The Act requires an act or omission rendering goods liable to confiscation or knowing dealing with goods so liable. The Act also prescribes that any person, knowingly or intentionally making, signing, or using any false declaration in customs business may also be held liable. The HC found that neither ingredient i.e. (i) the manufacturer had filed no document before Indian customs; and (ii) it played no role in the import declaration was fulfilled and hence, the SCNs were held to be invalid and did not survive.
Shield that Doesn’t Fit a Parent?
Establishing these ingredients may be difficult when the exporter is independent. But what happens when the exporter is the holding company of the importer? The related party status fundamentally alters the legal framework across valuation, liability and thus, the evidentiary burden.
The value of imported goods shall be the transaction value, where buyer and seller are not related and price is the sole consideration. When parties are related, the transaction value is no longer presumptively valid. Their relationship triggers a mandatory alternative valuation framework, and non-disclosure is itself a misdeclaration. The Act catches persons knowingly involved in misdeclaration of value and fraudulent evasion of duty.
In a related party arrangement, a holding company that controls, prices, ships, and invoices goods to its own subsidiary might find it difficult to credibly deny knowledge. The “knowingly or intentionally” threshold, for instance, in the Act is met by the structural reality of corporate relationships, not merely by inference from conduct.
The Act prescribes penalty for improper importation of goods on individuals who by definition, are “in any way concerned in… dealing with” the goods it ships. The knowledge of the transaction may be inherent and not imputed. A holding company that controls, prices, ships, and invoices goods to its subsidiary can sit squarely within it.
Concluding Remarks
Global supply chains increasingly draw foreign entities into India’s customs enforcement net. The decision of the HC in the case of Karl Myers draws lines practitioners cannot ignore. An exporter’s commercial relationship with an Indian importer does not, by itself, make it a party to that importer’s customs violations. The authorities cannot treat the supply chain as a single unit of liability without hard evidence of complicity. Abetment charges are not merely labels. The department is also required to and must demonstrate a knowingly false declaration or a deliberate act facilitating evasion. SCNs must be audited not just on merits but the legal foundation on which they rest, because a structurally defective notice is not a starting point for negotiation. It is a nullity.
[1] [1] Karl Mayer STOLL Textilmaschinenfabrik GmbH v. Union of India 2026 (4) TMI 957 – BOMBAY HIGH COURT (“Karl Mayer”)