The New Delhi Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside personal penalties imposed on six individuals connected with a watch-importing firm, holding that the penalties cannot survive when the underlying customs demand and confiscation proceedings against the importing company itself no longer subsist following a remand order. 

The Bench of Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical  Member) has observed that  the personal penalties imposed on the six appellants were entirely consequential to the findings against Rajasthan Watch Manufacturers. Since the adjudication order against the company had effectively ceased to exist following remand, there was presently no surviving confirmation of customs duty demand or confiscation of goods against the importer.

The controversy traces back to a show cause notice issued by the Directorate of Revenue Intelligence (DRI) in 2007 alleging undervaluation of imported watches. Acting on the notice, the Commissioner of Customs, Jaipur, passed an order on December 31, 2010 rejecting the declared transaction values of watches imported through multiple ports and re-determining their assessable value. 

The Commissioner confirmed a differential customs duty demand of approximately ₹2.44 crore, ordered confiscation of the imported goods, imposed redemption fine, and levied penalties on the importing company under the Customs Act, 1962. Personal penalties were also imposed on six individuals associated with the business under Sections 112(a) and 112(b) of the Act. 

The penalties challenged before the Tribunal were: ₹7 lakh on Hargun Das Nebhani; ₹7 lakh on Mirchoomal Chandani; ₹13 lakh on Om Prakash Pareek; ₹90 lakh on Ishwar Das Moolrajani; ₹13 lakh on Naresh Moolrajani; and ₹13 lakh on Nanak Das Moolrajani. 

A notable feature of the case was that the six appellants had not raised independent grounds of challenge. Instead, each appeal expressly adopted the grounds taken by Rajasthan Watch Manufacturers in its own appeal against the same adjudication order. 

Subsequently, in 2017, CESTAT remanded the appeal of Rajasthan Watch Manufacturers and several connected matters to the Commissioner for fresh adjudication, pending resolution of the legal controversy concerning the authority of DRI officers to issue customs demand notices. 

The Tribunal noted that while the Revenue challenged the 2017 remand order before the Rajasthan High Court in respect of these six individual appeals, it did not challenge the remand order concerning the company’s own appeal. As a result, the proceedings against Rajasthan Watch Manufacturers stood remanded to the adjudicating authority and the original order against the company ceased to operate. 

The Bench further recorded that although the issue regarding the competence of DRI officers to issue show cause notices has since been settled by the Supreme Court, nothing was brought on record to indicate that fresh adjudication had been completed by the Commissioner after remand. 

When the appeals were taken up for hearing, counsel appearing on behalf of the appellants sought another adjournment. Observing that the litigation had remained pending for more than fifteen years, the Tribunal declined the request. 

The Bench nevertheless proceeded to decide the matter on merits, relying on the Supreme Court’s ruling in Shri Balaji Steel Re-Rolling Mills, which held that appellate tribunals are required to decide appeals on merits and cannot dismiss them merely for non-appearance of parties. 

The Tribunal observed that the penalties imposed on the individuals were dependent upon those very findings against the company. In the absence of a subsisting adjudication establishing liability against Rajasthan Watch Manufacturers, the foundation for the personal penalties had disappeared. 

Holding that the penalties could not be sustained independently of the principal proceedings, the Tribunal allowed all six appeals and set aside the penalties imposed on the individuals. 

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