The Delhi Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside a Rs. 21.43 crore penalty imposed on a railway parts supplier, over alleged misclassification of imported goods.

The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical  Member) has observed 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) 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 bench observed that order confirming the proposals in the show cause notice cannot, therefore, be sustained. Section 28(2) 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 case revolved around the classification of 347 imported items by Faiveley, a subsidiary of U.S.-based Vaptec Company, which were originally declared under Customs Tariff Heading (CTH) 8607 as “railway parts.” However, following an investigation by the Directorate of Revenue Intelligence (DRI), the classification was disputed and re-assigned to CTH 8419, 8415, and other chapters.

Upon initiation of the DRI investigation, Faiveley accepted the reclassification, paid the full differential duty of ₹21.43 crore along with interest, and requested closure of the matter under Section 28(2) of the Customs Act, which allows conclusion of proceedings if duties and interest are voluntarily paid without intent to evade.

Despite this, the Principal Commissioner issued a show cause notice and levied a penalty equal to the duty amount under Section 114A of the Act.

The Tribunal held that there was no evidence of willful misstatement, suppression of facts, or collusion on the part of the importer. Classification disputes, especially involving parts used in railways, are matters of interpretation, not misdeclaration. Since the entire duty and interest was already paid voluntarily, no penalty or further action under Section 114A could be sustained.

The Tribunal emphasized that classification disputes cannot automatically imply fraud or intent to evade, especially where the importer had declared their understanding in good faith and complied upon clarification.

The Tribunal set aside the penalty and confirmed the legal position that under Section 28(2), once duty and interest are paid without suppression or fraud, no show cause notice should be issued. However, it also clarified that Faiveley is not entitled to a refund of the already paid amounts.

Case Details

Case Title: Faiveley Transport Rail Technologies India Private Limited Versus Principal Commissioner Of Customs-New Delhi Acc Import

Case No.: Customs Appeal No. 55785 Of 2023

Date:  21/07/2025

Counsel For  Appellant: Puneet Bansal, Chartered Accountant

Counsel For Respondent: Gurdeep Singh, Special Counsel

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