The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has held that an importer cannot escape the consequences of gross misdeclaration merely by claiming that undeclared branded goods were mistakenly packed by the foreign supplier.
The bench of Sanjiv Srivastava (Technical Member) sustained the confiscation of the goods and the imposition of penalty under the Customs Act, 1962. However, it granted limited relief by reducing the redemption fine from ₹85,000 to ₹55,812 and the penalty from ₹4 lakh to ₹2 lakh.
The appeal arose from an order passed by the Commissioner (Appeals), Customs, Central Excise and CGST, Lucknow, affirming an adjudication order involving the import of garments and accessories from China.
The appellant/assessee had filed a Bill of Entry on August 30, 2019 for the clearance of goods contained in 32 packages. The consignment had arrived from Guangzhou, China, under an airway bill dated August 27, 2019 and was supplied by Nand Enterprise Company Limited, Hong Kong.
The declared assessable value of the consignment was ₹5,51,179, on which customs duty of ₹1,95,556, including Integrated Goods and Services Tax, was paid.
During the initial examination of randomly selected packages on September 2, 2019, customs officials found that the goods did not correspond with the particulars provided in the packing list. The authorities consequently ordered a complete examination of the consignment.
A 100% physical examination was conducted on September 9, 2019 in the presence of independent witnesses, a representative of the airport custodian and the importer. According to the department, substantial discrepancies were detected in the quantity and description of the imported goods.
The examination also revealed several undeclared garments carrying prominent brand names, including Adidas, Nike, Louis Vuitton, Burberry, Gucci, Under Armour, Armani, Diesel, GAP and Hugo Boss. The goods were allegedly concealed among the declared merchandise.
The proprietor, in a statement recorded under Section 108 of the Customs Act, admitted that variations in quantity and description, as well as undeclared goods, had been found during the examination. He nevertheless maintained that he had ordered only unbranded readymade garments and accessories.
He claimed that he had neither ordered the branded goods nor made any payment for them. According to him, the branded merchandise might have been included in the consignment because of a packing mistake by the foreign supplier.
The importer also acknowledged that he did not possess no-objection certificates from the owners of the brands appearing on the seized products.
The customs authorities did not accept the explanation. Although the proprietor stated that orders were ordinarily placed with the overseas supplier through email, he failed to produce the email through which the goods in question had allegedly been ordered.
He subsequently submitted a copy of a sale contract dated August 22, 2019. The authorities treated the document as an afterthought, particularly because the relevant email correspondence with the supplier was not produced.
Following the investigation, a show-cause notice dated March 4, 2020 proposed confiscation of the branded, undeclared and declared goods. It also proposed penalties under Sections 112(a), 112(b) and 114AA of the Customs Act.
The adjudicating authority ordered the absolute confiscation of undeclared branded clothes valued at ₹4,21,850 under Section 111(d) of the Customs Act. A further quantity of undeclared branded clothes valued at ₹6,98,570 was ordered to be absolutely confiscated under Sections 111(f), 111(i), 111(l) and 111(m).
Undeclared clothes valued at ₹76,361 were also confiscated, though the importer was permitted to redeem them on payment of a fine of ₹11,500 and the applicable customs duty.
The declared clothes, valued at ₹5,58,126, were confiscated under Section 118 of the Customs Act on the ground that they had been used to conceal the undeclared and prohibited goods. The importer was given the option to redeem these goods upon payment of a fine of ₹85,000 and the applicable duty.
A penalty of ₹4 lakh was additionally imposed under Sections 112(a) and 112(b). The proposal to impose a penalty under Section 114AA was, however, dropped.
Before the Tribunal, the importer did not challenge the confiscation of the branded goods, disclaimed any title over them and did not dispute their valuation. The challenge was substantially confined to the redemption fine imposed on the declared goods and the penalty of ₹4 lakh.
The importer argued that he was unaware of the branded goods and that their presence in the consignment could only be attributed to a mistake by the overseas supplier. He requested that a lenient view be taken.
Technical Member Sanjiv Srivastava observed that the complete examination had established that the consignment was grossly misdeclared in respect of quantity, description and value. It contained a substantial quantity of goods bearing third-party brand names, attracting the provisions governing the enforcement of intellectual property rights at the border.
The Tribunal noted that the declared goods had accompanied and were used to conceal substantial quantities of undeclared goods sought to be brought into India in violation of customs and intellectual property laws.
It, therefore, upheld the finding that the declared goods were liable to confiscation under Sections 118 and 119 of the Customs Act. Since the goods were liable to confiscation and had been permitted to be redeemed, the Tribunal found no fault with the decision to impose a redemption fine.
The Bench, however, considered the fine of ₹85,000 excessive when compared with the declared and assessed value of the goods. It reduced the fine to 10% of their value, amounting to ₹55,812.
Addressing the importer’s claim of innocence, the Tribunal observed that international trade transactions are not ordinarily conducted in the manner sought to be portrayed in the appeal. It found it difficult to accept that a foreign supplier had sent a substantial quantity of undeclared goods without any purchase order or invoice.
The Tribunal further reasoned that if the goods had genuinely been supplied in excess by mistake, the overseas supplier would ordinarily have sought their re-export or made some claim over them after their seizure and the importer’s relinquishment of title. No such material was shown.
The order also referred to earlier judicial decisions in which claims of accidental or mistaken shipment were rejected in the absence of contemporaneous documentary evidence.
The Tribunal observed that mens rea is not invariably required for every penalty imposed under the Customs Act. It noted the distinction between Sections 112(a) and 112(b), stating that a penalty under Section 112(a) may follow from an act or omission rendering the goods liable to confiscation, even where the specific knowledge contemplated under Section 112(b) is not established.
The Tribunal found no justification for completely setting aside the penalty. Nevertheless, it considered the amount of ₹4 lakh excessive and reduced it to ₹2 lakh.
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