Section 114A of the Customs Act, 1962 (‘Act’ for short) provides for the penalty for short levy or non-levy of customs duty in certain cases. The penalty under this section is liable to be levied under any of the following circumstances-
- Where the duty has not been levied or has been short-levied; or
- the interest has not been charged or paid or has been part paid; or
- the duty or interest has been erroneously refunded-
by reason of collusion or any wilful mis-statement or suppression of facts,
the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section (8) of section 28 shall also be liable to pay a penalty equal to the duty or interest so determined.
In case of import, the importer is to self-assess the customs duty along with the classification of the goods imported. Classification of the goods forms part of the assessment. The classification of goods may be accepted by the authorities or it may be varied and re-assessment may be done by them. In case, due to the classification by the Authority, different from that of the importer, is higher than the one of the importer, the importer is liable to pay the differential duty along with the interest. Under section 28(2) of the Act if the importer paid the entire duty along with interest, the importer is to inform the same to the Department. In such case the Department cannot issue show cause notice to the importer.
However, in ‘Faiveley Transport Rail Technologies India Private Limited v. Principal Commissioner of Customs, New Delhi, ACC Import’ – 2025 (7) TMI 1271 CESTAT, New Delhi, the Revenue imposed penalty despite the payment of differential duty along with interest and informed the same to the Revenue. The Principal Commissioner confirmed the demand with interest and also imposed penalty. On appeal the CESTAT set aside the order of imposing penalty by Principal Commissioner of Customs.
In the above said case Faiveley Transport Rail Technologies India is the subsidiary of Vaptec Company, USA. The said company imported various parts for use in railways and supplies them to Indian Railways. The company classified the said imported goods under Customs Tariff Item 8607 99 90/ 8607 21 00 as parts of railways. The Director General of Revenue Intelligence caused an investigation into the imports by the company and classified the said goods as 8419 50 90 and 8415 90 00. It also felt that certain goods deserve to be classified under Chapter 85. The company on the basis of investigation reclassified the goods and accepted the contentions of DRI and paid the differential customs duty to the tune of Rs.21.43 crores along with the interest. The company requested the Department to close the case since it paid the differential duty along with the interest, vide its letter dated 03.10.2021. However, the Department issued a show cause notice on 31.08.2022 to the company with the directions to pay the differential amount along with interest. The show cause notice also proposed to impose penalty on the company under Section 114A of the Act. The Principal Commissioner decided the case on 27.07.2023 and confirmed the demand with interest as per the show cause notice and also imposed equal amount of penalty on the company.
Against the said order of the Principal Commissioner, the company filed the present appeal before the CESTAT. The appellant contended before CESTAT that to the best of his knowledge, the appellant classified the goods import under the head 8607. When the DRI reclassified the same, the appellant agreed to the same and paid the differential duty to the tune of Rs.21.43 crores along with interest. The same was informed to the Department. The Department ought not to issue show cause notice under Section 28(2) of the Act which provides that the person who has paid the duty along with interest or amount of interest shall inform the proper officer of such payment in writing, who, on receipt of such information shall not serve any notice in respect of the duty or interest so paid or any penalty leviable under the provisions of this Act or the rules made there under in respect of such duty or interest.
The Revenue contended that the appellant had wilfully by mis-classified the goods in the Bills of Entry and thereby evaded paying duty and, therefore, section 28(2) will not apply. The penalty under section 114A of the Act can be imposed only if the duty was not paid or short paid by reasons of collusion or any wilful mis-statement or suppression of facts.
The CESTAT considered the submissions of the appellant and the Revenue. The CESTAT was of the view that the importer is required to make a truthful declaration by making any entry of the imported goods under section 46 of the Act. This entry under section 46 is in the form of Bill of Entry in which the importer has to declare all facts truthfully and also subscribe to a declaration as to the truth of the contents of the Bills of Entry. The importer is also required to self-assess duty under section 17 of the Act.
The CESTAT also analysed the definition of ‘assessment’ under Section 2(2) (a) of the Act which provides that assessment is the determination of the dutiability of any goods and the amount of duty, tax, cess or any other sum so payable, if any, under this Act or under the Customs Tariff Act, 1975 or under any other law for the time being in force, with reference to the tariff classification of such goods as determined in accordance with the provisions of the Customs Tariff Act. Therefore, the classification of the imported goods under the Customs Tariff is part of the assessment of the duty under section 17 of the Act. The appellant can and must do is to declare the tariff under which, according to its understanding, the imported goods fall. This classification can be changed by the officer during re-assessment of the Bill of Entry. If the Bill is Entry is challenged by either side, Commissioner (Appeals) can also modify, the classification. In further appeals, at every stage up to the Supreme Court the classification can be upheld or modified. If the importer declares the classification of the goods in the Bill of Entry which according to him is correct, it fulfilled its obligation.
The CESTAT observed that the Commissioner erred in issuing the show cause notice to the appellant invoking the extended period of limitation and alleging mis-declaration simply because the importer had classified the goods as per its understanding and not as per the understanding of the DRI during investigation. There is no collusion or wilful mis-statement or suppression of facts.
The CESTAT held that once the appellant had paid the entire amount of duty with interest, show cause notice could not have been issued by the DRI because the mandate in section 28(2) of the Act is that the “proper officer shall not serve any notice”. The show cause notice issued by Commissioner in pursuance of the investigation conducted by the DRI is, therefore, contrary to law. The impugned order confirming the proposals in the show cause notice cannot, therefore, be sustained. Section 28(2) of the Act would not apply to this case because the appellant had paid the full amount of duty and interest, the appellant cannot now claim the refund either duty or interest.
The CESTAT set aside the impugned order and allowed the appeal.
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