The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside a ₹2 lakh penalty imposed under Section 117 of the Customs Act, 1962 on the importer holding that penalising an importer who voluntarily disclosed an inadvertent invoicing discrepancy and sought reassessment was unsustainable in the facts of the case.

The bench of Dr. Suvendu Kumar Pati (Judicial Member) emphasised the significance of the appellant’s bona fide conduct, particularly the fact that the discrepancy was brought to the Customs authorities’ notice by the importer itself shortly after clearance. 

The bench found no evidence suggesting that the importer had deliberately attempted to evade customs duty.

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The appellant/assessee is engaged in the business of importing and supplying scientific and laboratory testing instruments. The dispute arose from an import transaction involving goods sourced from its German supplier, M/s. Coesfeld.

The appellant had placed an order for scientific equipment covered by Invoice No. 541497 dated February 26, 2021, having an assessable value of ₹2,38,087. On the basis of this invoice, Khushboo Scientific filed Bill of Entry No. 3184049 dated March 17, 2021 and cleared the goods after paying customs duty of ₹69,718. The goods were granted Out of Charge on March 19, 2021.

However, after opening and examining the consignment, the importer discovered that certain additional goods had also arrived which were not reflected in the invoice submitted to Customs.

On contacting the German supplier, the appellant learned that two separate purchases had inadvertently been dispatched together in a single consignment.

According to the supplier, Invoice No. 541498 dated February 26, 2021, covering goods valued at ₹26,74,480, had inadvertently not been sent along with the other documentation. The omission resulted in a potential differential customs duty liability of ₹7,41,754.

The appellant did not wait for the Customs authorities to detect the discrepancy. Instead, it voluntarily approached the Department through a letter dated March 25, 2021, merely six days after clearance of the goods.

The importer requested cancellation of the Out of Charge and reassessment of the goods so that the applicable differential customs duty could be paid. The supplier also independently communicated the inadvertent error to the Commissioner of Customs.

Despite this voluntary disclosure, the proper officer imposed a penalty and directed reassessment. The appellant challenged the order before the Commissioner (Appeals), but its appeal was unsuccessful, leading to the proceedings before the CESTAT.

Before the Tribunal, Advocate Kartik Dedhia argued that the appellant’s conduct demonstrated complete bona fides.

The appellant had itself identified the discrepancy after receiving the consignment, informed Customs, and offered to pay the differential duty. According to the appellant, these circumstances clearly established that there was no mens rea or intention to evade customs duty.

The appellant also relied upon the CBIC’s direction concerning self-assessment, particularly Chapter I, paragraph 2.2 of the Self-Assessment-2011 instructions, under which penal provisions should not be invoked in cases involving bona fide errors in self-assessment where mens rea, wilful intention to evade duty, or non-compliance with a condition cannot be established.

The appellant further contended that, even assuming there had been a contravention, the Customs Act contained specific provisions dealing with such situations, including Sections 112 and 114. Therefore, according to the appellant, resort to the general penalty provision under Section 117 was itself inappropriate.

The Department defended the orders passed by the lower authorities.

Authorised Representative K. Azad argued that a penalty under Section 117 could be imposed where the details required in the Bill of Entry were not correctly supplied, even if the omission resulted from ignorance.

Significantly, however, the Department’s representative also acknowledged that the Customs Act contained express provisions dealing with such contingencies.

The tribunal examined the appeal records and the supporting documents, including the supplier’s letter addressed to the Commissioner of Customs and the appellant’s request to the Deputy Commissioner seeking reassessment of the Bill of Entry.

The Tribunal found the appellant’s request particularly significant. The documents showed that, after verifying the material received, the importer discovered that goods covered by both orders had arrived together and sought to incorporate the omitted Invoice No. 541498 dated February 26, 2021 into the Bill of Entry for reassessment.

The Tribunal noted that there was no evidence showing that Customs would have discovered the irregularity on its own had the appellant not voluntarily brought it to the Department’s attention.

The importer had not merely disclosed the discrepancy; it had also volunteered to rectify the mistake by paying the applicable customs duty on the entire consignment.

The Tribunal ultimately found the penalty unsustainable.

Dr. Suvendu Kumar Pati observed that penalising the appellant for voluntarily disclosing the discrepancy and cooperating with the authorities, particularly under a provision where an express penal provision was available, could not be sustained in the circumstances.

The Tribunal went further, describing such penalisation as an oppressive act, observing that such an approach was inconsistent with the principles expected to be promoted in a democratic country.

The ruling therefore places considerable emphasis on the distinction between an inadvertent compliance error and a deliberate attempt to evade duty.

Allowing the appeal, the CESTAT set aside the order of the Commissioner (Appeals), which had imposed a ₹2 lakh penalty under Section 117 of the Customs Act, 1962 on Khushboo Scientific Private Limited.

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