Customs Can’t Reject Declared Value of Used Garments Without Proof of Undervaluation: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Customs Department could not reject the declared transaction value of imported used garments without proof of undervaluation merely on the basis of alleged contemporaneous import data without establishing proper comparability. The bench of Ajayan T.V., (Judicial Member) and Vasa Seshagiri Rao (Technical Member) upheld confiscation of the goods on the ground that the imports were made without the mandatory DGFT licence required for restricted second-hand clothing. The case arose from imports of old and worn clothing made by Sabari Infra Pvt. Ltd. between July 2017 and May 2018 through Chennai Customs. The importer declared the goods as “old and worn unmutilated clothing fumigated” under Customs Tariff Heading 6309 0000 and paid duty based on the transaction value mentioned in supplier invoices. During examination, Customs authorities found the consignments to contain mixed used garments. The Department rejected the declared value under Rule 12 of the Customs Valuation Rules, 2007 and enhanced the assessable value by relying on purported contemporaneous imports. Customs also treated the goods as restricted items under the Foreign Trade Policy due to the absence of a DGFT licence, resulting in confiscation, redemption fine and penalties. The importer argued that the declared transaction value was fully supported by invoices and import documents and that Customs had failed to produce any evidence showing that the declared value was incorrect or that any additional consideration had flowed to the overseas supplier. The company further contended that used clothing imports consist of mixed lots varying significantly in quality, condition and usability, making comparison with other consignments unreliable. The importer also submitted that acceptance of the enhanced value at the time of clearance was made under commercial compulsion to avoid demurrage and detention charges and could not prevent it from subsequently challenging the valuation. The Tribunal agreed with the importer and observed that Customs had failed to establish that the goods relied upon for valuation were identical or similar in terms of quality, condition, quantity or commercial level. It noted that the Department had not produced any evidence showing that the declared value was not genuine or that any additional consideration had been paid by the importer. The Bench emphasized that mixed consignments of second-hand garments inherently vary in quality and composition, making it inappropriate to adopt a uniform benchmark value without demonstrating comparability. The Tribunal held that merely because a declared price appears lower than prices of other imports does not justify rejection of transaction value. Accordingly, CESTAT set aside the rejection of the declared transaction value and directed acceptance of the invoice value declared by the importer. On the issue of import restrictions, the Tribunal observed that second-hand garments are classified as restricted goods under the Foreign Trade Policy and require a valid licence from the Director General of Foreign Trade (DGFT) for import. Since the importer had admittedly not obtained such a licence, the import violated the policy conditions. While the Tribunal accepted that there was no deliberate misdeclaration regarding the nature of the goods, it held that import without the required authorisation rendered the goods liable for confiscation under Section 111(d) of the Customs Act, 1962. However, confiscation under Section 111(m), which relates to misdeclaration, was set aside because no evidence of incorrect declaration regarding description, quantity or value was found. The Tribunal also granted substantial relief regarding the quantum of redemption fine and penalties. It observed that the imported goods consisted of low-value used garments intended for resale in economically weaker markets and that there was no evidence of fraud, suppression or deliberate violation. The Bench noted that Customs had not conducted any market survey to determine profit margins and that the trade in used clothing is characterized by uncertain and limited profits. Taking these factors into account, the Tribunal held that the redemption fine should not assume a punitive character and must bear a reasonable nexus with the likely profit margin. Consequently, the redemption fine was reduced to 10% of the declared invoice value, while the penalty under Section 112 was restricted to 5% of the declared value. Partly allowing the appeals, the Chennai Bench of CESTAT held that Customs authorities could not enhance the value of imported used garments without reliable evidence demonstrating that the declared transaction value was incorrect. While the Tribunal upheld confiscation of the goods due to the absence of a mandatory DGFT licence, it set aside the valuation enhancement, accepted the declared invoice value, removed confiscation under Section 111(m), and substantially reduced the redemption fine and penalties. Case Details Case Title: M/s. Sabari Infra Private Limited Versus Commissioner of Customs Citation: JURISHOUR-1530-CES-2026(CHE) Case No.: Customs Appeal Nos. 41090 to 41092 of 2019 Date: 02.06.2026 Counsel For Appellant: N. Viswanathan, Advocate Counsel For Respondent: Rajini Menon, Authorised Representative Click Here To Read Order Read More: Customs Can’t Demand Duty Without Proving SEZ Unit Diverted Duty-Free Gold & Silver: CESTAT

Customs Can’t Reject Declared Value of Used Garments Without Proof of Undervaluation: CESTAT

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