The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bengaluru, has held that imported second-hand goods classified as “restricted” under the Foreign Trade Policy cannot be subjected to absolute confiscation without recording specific and cogent reasons for denying the importer an option to redeem the goods.
Setting aside an appellate order directing absolute confiscation of a second-hand measuring unit imported, the bench of R. Bhagya Devi (Technical Member) restored the original adjudicating authority’s decision permitting release of the goods on payment of a redemption fine of ₹30,000.
The bench also quashed the enhanced penalty of ₹1 lakh imposed under Section 114AA of the Customs Act, 1962, observing that the Commissioner (Appeals) had wrongly substituted the statutory provision under which the original penalty was imposed.
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The dispute arose from the import of a “Posalux Machine DLR Measuring Unit” by Ascent Circuits Pvt. Ltd. Upon examination, Customs authorities found that the equipment consisted of second-hand goods.
Under the applicable provisions of the Foreign Trade Policy 2015–2020, the authorities treated the goods as restricted imports.
The original adjudicating authority held that the goods were liable to confiscation. However, instead of ordering absolute confiscation, the authority allowed the importer to redeem the equipment on payment of a fine of ₹30,000 under Section 125 of the Customs Act.
A penalty of ₹10,000 was also imposed under Section 112(a) of the Customs Act.
Both the importer and the Revenue challenged the adjudication order before the Commissioner of Customs (Appeals), Bengaluru.
The Commissioner (Appeals), through an order dated January 29, 2024, dismissed the importer’s appeal and allowed the appeal filed by the Revenue.
The appellate authority held that the goods were liable to absolute confiscation and withdrew the option of redemption granted by the original authority. It also enhanced the penalty from ₹10,000 to ₹1 lakh under Section 114AA of the Customs Act.
While ordering absolute confiscation, the Commissioner (Appeals) relied upon the Supreme Court’s decision in Union of India v. Raj Grow Impex LLP. In that case, the Supreme Court had upheld the absolute confiscation of pulses imported beyond the quantitative restrictions imposed by the government and without the required licence.
Aggrieved by the decision, the importer approached the CESTAT.
Before the Tribunal, the importer argued that the machinery was not second-hand and, therefore, could not be treated as restricted goods under the Foreign Trade Policy. On this basis, it contended that neither the confiscation nor the penalty was sustainable.
The Revenue defended the appellate order, contending that physical examination had established that the imported goods were second-hand. Since the goods were restricted under the Foreign Trade Policy, the Revenue maintained that absolute confiscation and enhancement of the penalty were justified.
Technical Member R. Bhagya Devi noted that Section 125 of the Customs Act grants the adjudicating authority discretion in cases involving prohibited goods, while requiring an option of redemption in cases involving other confiscated goods.
The Tribunal emphasised that this discretion must be exercised judiciously and with reference to the facts and circumstances of each case.
It found that the Commissioner (Appeals) had not recorded any specific reasons explaining why the imported machinery had to be absolutely confiscated instead of being released on payment of a redemption fine.
The mere fact that the goods were restricted under the Foreign Trade Policy was not, by itself, sufficient to justify absolute confiscation, the Tribunal held.
According to the CESTAT, unless the adjudicating or appellate authority identifies circumstances warranting absolute confiscation, the option of redemption available under Section 125 cannot be denied mechanically.
The Tribunal held that the Commissioner (Appeals) had incorrectly relied upon the Supreme Court’s decision in Raj Grow Impex because that case arose from materially different facts.
In Raj Grow Impex, the importers were aware that the import of specified quantities of peas and pulses was restricted and permissible only against a licence. The imports exceeded the prescribed quota and had potentially serious consequences for the domestic agricultural economy and farmers.
The Supreme Court had consequently concluded that allowing the improperly imported pulses to enter the domestic market would defeat the purpose of the restriction. In those circumstances, absolute confiscation was held to be the appropriate course.
The CESTAT observed that the present dispute concerned second-hand machinery and did not involve similar considerations relating to the national economy, agricultural markets or a deliberate attempt to exceed quantitative restrictions.
It therefore ruled that the principles applied in Raj Grow Impex could not automatically justify absolute confiscation of the imported measuring unit.
Although it granted relief against absolute confiscation, the Tribunal rejected the importer’s contention that the equipment was not second-hand.
The CESTAT noted that the importer had waived the issuance of a show-cause notice and had also not participated in the personal hearing before the original authority, instead requesting that the dispute be decided on merits.
The examination report clearly identified the goods as second-hand. The Chartered Engineer’s report also described them as second-hand parts of capital goods aged above six months, with a residual life exceeding six years.
The Tribunal observed that the fact that the goods were not “refurbished” or “reconditioned” did not mean they were new. The material on record sufficiently established their second-hand character.
The CESTAT upheld the finding that the goods were restricted imports under the Foreign Trade Policy.
The Tribunal separately found fault with the enhancement of the penalty under Section 114AA of the Customs Act.
It noted that the original authority had imposed a penalty of ₹10,000 under Section 112(a), whereas the Commissioner (Appeals) enhanced the amount to ₹1 lakh under Section 114AA.
Section 112(a) deals broadly with acts or omissions rendering imported goods liable to confiscation. Section 114AA, on the other hand, concerns the knowing or intentional use of declarations, statements or documents that are false or incorrect in a material particular.
The CESTAT held that the two provisions operate on “entirely different premises.” The Commissioner (Appeals) could not simply enhance the penalty by invoking Section 114AA when the original penalty had been imposed under Section 112(a), without establishing the independent requirements of the former provision.
The enhanced penalty of ₹1 lakh was consequently set aside.
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