Corduroy Imported as ‘Grey Fabric’: Madras HC Upholds DRI Seizure; Relief Only to Non-Involved Licence Transferor

The Madras High Court has upheld the seizure, confiscation, duty demand and penalties imposed by customs authorities in a case involving misdeclaration of imported fabric, holding that Corduroy fabric imported by an assessee was falsely declared as Cotton Griege (Grey) fabric to wrongly claim duty exemption. The Bench of Justice Dr. Anita Sumanth and Justice P. Dhanabal granted limited relief by setting aside the penalty imposed on a licence transferor who had no role in the impugned import. The dispute arose from the import of a fabric consignment in October 2006 under a Bill of Entry declaring the goods as Cotton Griege (Grey) fabric. Based on this declaration, the importer claimed exemption under Notification No. 90/04-Customs dated 10 September 2004, by utilising a Duty Free Replenishment Certificate (DFRC) issued under the Foreign Trade Policy. After clearance of the goods, the Directorate of Revenue Intelligence (DRI) conducted an examination and found that the consignment actually consisted of Corduroy fabric, which was materially different from the declared description. Consequently, the goods were seized on 10 November 2006, and adjudication proceedings were initiated. By an Order-in-Original dated 30 November 2007, the adjudicating authority denied the claimed exemption and confirmed the demand of customs duty and countervailing duty. The authority ordered confiscation of 40,622.50 metres of Corduroy fabric under Section 111(m) of the Customs Act, 1962, read with Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992, on the ground of misdeclaration. An option to redeem the confiscated goods was granted on payment of a redemption fine of ₹4 lakh along with applicable duty. In addition, a penalty of ₹47.77 lakh was imposed on the importer under Section 114A of the Customs Act, while separate penalties ranging between ₹2 lakh and ₹5 lakh were imposed on related entities and individuals under Section 112 of the Act. On appeal, the CESTAT substantially upheld the Order-in-Original, though it reduced the quantum of penalties. Importantly, the Tribunal recorded a categorical finding of fact that the imported goods were Corduroy and not grey cotton fabric as declared, thereby conclusively establishing misdeclaration. Before the High Court, the principal questions of law included whether the confiscation of goods for misdeclaration was legally sustainable, and whether penalties could be imposed on multiple persons including the partnership firm, its partners, and associated entities. One of the appeals abated during the proceedings due to the death of one of the appellants. The Bench noted that even before the High Court, the importer did not dispute that the goods were Corduroy, but attempted to argue that Corduroy could fall within the description of Grey Cotton fabric. Rejecting this contention, the Court held that such an argument was untenable, particularly in light of the clear and concurrent factual findings recorded by the adjudicating authority and the Tribunal. Holding that no substantial question of law arose on the issue of misdeclaration, the Court answered the questions in favour of the Revenue and dismissed the appeals filed by the importer, thereby upholding the seizure, confiscation, duty demand and penalties. However, the Court took a different view in the appeal filed by Sri Krishna Spinning and Weaving Mills, which was the original holder of the DFRC licence later transferred to the importer. The Bench observed that this entity had no role in the subject import, an admitted position on record. In the absence of any involvement in the alleged misdeclaration, the Court held that the penalty imposed on the licence transferor was unsustainable. Accordingly, the appeal filed by this entity was allowed, and the penalty was set aside. Case Details Case Title: Vikram Traders Versus CESTAT Case No.: C.M.A.Nos. 863, 864, 865 & 866 of 2010 Date: 02.01.2026 Counsel For Petitioner: B.Satish Sundar Counsel For Respondent: Su.Srinivasan Click Here To Read Order Read More: Limitation Plea Can’t Be Entertained For First Time At Appellate Stage Without Supporting Facts On Record: Madras HC

Corduroy Imported as ‘Grey Fabric’: Madras HC Upholds DRI Seizure; Relief Only to Non-Involved Licence Transferor

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