Section 137 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 137 does two jobs. It says that a court may not take cognizance of the main offences in Chapter XVI without the previous sanction of the named authority, and it lets the Principal Chief Commissioner of Customs or Chief Commissioner of Customs compound offences on payment of an amount fixed by rules. A proviso lists the people and cases to whom compounding does not apply.
This article reads the section as per the text on the CBIC portal updated to 30 March 2022 (the Act as amended up to the Finance Act, 2022). Please check later Finance Act changes to section 137 before acting.
No court takes cognizance of an offence under section 132, 133, 134, 135 or 135A (and a section the copy refers to as 135AA) without previous sanction of the Principal Commissioner of Customs or Commissioner of Customs. For section 136, the sanction comes from the Central Government or the Principal Commissioner or Commissioner, depending on the officer's rank. Under sub-section (3), any offence under Chapter XVI may be compounded, before or after prosecution begins, on payment of the amount specified by rules, except for the excluded persons in the proviso.
Section 137(1): previous sanction for the main offences
Sub-section (1) says no court shall take cognizance of any offence under section 132, section 133, section 134, section 135 or section 135A, or section 135AA, except with the previous sanction of the Principal Commissioner of Customs or Commissioner of Customs.
Two printing points. The words "or section 135AA" carry a footnote saying they were inserted by section 96 of the Finance Act, 2022 (6 of 2022). The copy consulted prints no section 135AA, so this article describes nothing about it. The portal also prints "Principal Commissioner of Custom" without the final "s". We flag these rather than correct them.
Sanction is a gate before the court. The articles on the offences themselves are sections 132 to 134, section 135 and sections 135A and 135B. If you are facing a prosecution complaint, ask whether sanction was obtained and whether it came from the authority the section names. Our legal dispute resolution team can examine the papers with you.
Section 137(2): sanction for offences by officers (section 136)
Sub-section (2) deals with cognizance of an offence under section 136 (offences by officers of customs; see our article on section 136).
| Officer | Sanction needed |
|---|---|
| Not lower in rank than Assistant Commissioner of Customs or Deputy Commissioner of Customs | The previous sanction of the Central Government |
| Lower in rank than Assistant Commissioner or Deputy Commissioner | The previous sanction of the Principal Commissioner of Customs or Commissioner of Customs |
Section 137(3): compounding of offences
Sub-section (3) says any offence under "this Chapter", that is Chapter XVI, may be compounded:
- By whom: the Principal Chief Commissioner of Customs or Chief Commissioner of Customs.
- When: either before or after the institution of prosecution.
- On what terms: payment by the person accused of the offence, to the Central Government, of such compounding amount, and in such manner of compounding, as may be specified by rules.
The footnotes show that sub-section (3) was inserted by the Finance (No. 2) Act, 2004 (23 of 2004), with effect from 10 September 2004, and that the words "such compounding amount and in such manner of compounding" were substituted by the Finance (No. 2) Act, 2009 (33 of 2009), with effect from 19 August 2009.
The Act itself prints no compounding amount. It leaves the amount and the manner to rules, and this article states none.
The rules on compounding
The rules made for this purpose are named, in their own opening lines, the Customs (Compounding of Offences) Rules, 2005. The copy consulted is dated 22 August 2022; that is the date of the rules copy, not of the Act text. The rules begin by saying they are made under section 156(2)(h) read with section 137(3). Rule 2(c) defines the "compounding authority" as the Principal Chief Commissioner of Customs or Chief Commissioner of Customs having jurisdiction over the place where the offence has been or is alleged to have been committed. The rules have their own application procedure and method for fixing the amount; we leave the rule-wise detail to a separate article and state no amount here. Please check the rules in force at the time of application.
The proviso: who cannot compound
The proviso says that nothing in sub-section (3) applies to the following.
| Clause | Excluded person or case |
|---|---|
| (a) | A person who has been allowed to compound once in respect of any offence under sections 135 and 135A |
| (b) | A person accused of an offence under the Act which is also an offence under any of four named Acts: the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985); the Chemical Weapons Convention Act, 2000 (34 of 2000); the Arms Act, 1959 (54 of 1959); the Wild Life (Protection) Act, 1972 (53 of 1972) |
| (c) | A person involved in smuggling of goods falling under certain heads, listed in (i) to (iii) below |
| (d) | A person who has been allowed to compound once in respect of any offence under the Chapter for goods of value exceeding rupees one crore |
| (e) | A person who has been convicted under the Act on or after the 30th day of December, 2005 |
Clause (c) covers:
- goods specified in the list of Special Chemicals, Organisms, Materials, Equipment and Technology in Appendix 3 to Schedule 2 (Export Policy) of the ITC (HS) Classification of Export and Import Items of the Foreign Trade Policy, as amended from time to time, issued under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);
- goods specified as prohibited items for import and export in that Classification; and
- any other goods or documents which are likely to affect friendly relations with a foreign State or are derogatory to national honour.
The proviso was inserted by the Finance (No. 2) Act, 2009 (33 of 2009), with effect from 19 August 2009, as the footnote shows.
Observe what the text does and does not say. Compounding is available for "any offence under this Chapter", subject to the proviso. The proviso excludes certain persons and certain goods, not whole sections. A first-time compounding of a section 135 offence is therefore within the sub-section, while a second one by the same person is excluded by clause (a). Clause (d) is separate: it is about goods valued above one crore of rupees and a person already allowed to compound once for any offence under the Chapter.
An example. Neha Traders is accused of an offence under section 135 and has never compounded before, and none of the proviso's other clauses applies. Sub-section (3) allows the compounding authority to compound on payment of the amount fixed under the rules, either before or after prosecution is started. If the same company later faces another section 135 charge, clause (a) bars compounding. Whether any such case qualifies is a matter for the facts and the rules in force.
Compounding and other proceedings
Compounding under section 137(3) is an answer to prosecution for offences. The text says nothing about confiscation, penalty or duty demands, which proceed under their own provisions. For the penalty side, read our overview of penalties under sections 112 to 117. Whether an arrest follows or a bail question arises is dealt with in other sections; see our article on sections 138 to 138B for the trial side.
Need help with prosecution or compounding?
Whether to seek compounding, and when, depends on the charge, your history and the goods involved. Our team can read the complaint against the proviso with you and explain the steps. Reach us through legal dispute resolution.
Key takeaways
- Section 137(1): previous sanction of the Principal Commissioner of Customs or Commissioner of Customs before a court takes cognizance of offences under sections 132, 133, 134, 135 and 135A (and the section 135AA the copy refers to but does not print).
- Section 137(2): sanction for section 136 offences depends on the officer's rank.
- Section 137(3): any offence under Chapter XVI may be compounded by the Principal Chief Commissioner or Chief Commissioner, before or after prosecution, on payment of the amount fixed under rules.
- The proviso excludes five groups, including repeat compounding for sections 135 and 135A, offences also under four named Acts, and convictions on or after 30 December 2005.
- The Act prints no compounding amount.
Read next
- Section 135: evasion of duty or prohibitions, punishment
- Section 136: offences by officers of customs
- Sections 138 to 138B: summary trial, culpable mental state and statements as evidence
- Penalties under the Customs Act, sections 112 to 117
Disclaimer: Based on the Customs Act, 1962 as published on the CBIC Tax Information Portal, updated to 30 March 2022 (amended up to the Finance Act, 2022), as consulted on 2 October 2026. Finance Acts of 2023 and later, and the current rules, regulations and notifications, should be checked. This article is general information, not legal advice; check the official text before acting.