The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that an overseas supplier’s bona fide mistake in loading the wrong goods cannot, in the absence of contrary evidence, be treated as deliberate misdeclaration or misclassification by the importer.
The bench of Dr. Suvendu Kumar Pati (Judicial Member) and M.M. Parthiban (Technical Member) set aside a redemption fine of ₹3.50 lakh imposed on the releasable imported goods and a penalty of Rs. 5 lakh levied on the importer under Section 112(a) of the Customs Act, 1962.
Buy Now: 50+ Judgements on Customs Valuation
Embelle Trading had filed a Bill of Entry dated October 30, 2023, for importing assorted goods, including plastic tail boxes for motorcycles, sling bags for children, girls’ and children’s panties and unbranded amplifiers with spare parts.
Acting on specific intelligence developed by the Special Intelligence and Investigation Branch of Jawaharlal Nehru Custom House, the customs authorities placed the consignment on hold and conducted a 100% physical examination on November 15, 2023.
The examination revealed that instead of the declared 46,200 pieces of girls’ and children’s panties, the consignment contained 1,22,400 pieces of men’s underwear of different sizes. The amplifiers also did not bear specific markings relating to input power supply as required under applicable Bureau of Indian Standards specifications, while excess spare parts were allegedly found.
The remaining goods were found to correspond with the importer’s declaration. Testing conducted by the Textile Committee also confirmed that the textile products did not contain prohibited Azo dyes.
The customs department concluded that the supplier’s invoice did not disclose the correct transaction value of the imported goods. In the absence of comparable values for similar goods in equivalent quantities, the authorities conducted a market survey and redetermined the assessable value at ₹54.49 lakh against the declared value of approximately ₹17.33 lakh.
The department also found that the amplifiers were rated at 4,000 watts per hour and did not comply with the compulsory BIS registration requirements. The plastic tail boxes and certain other goods allegedly lacked mandatory declarations, including the maximum retail price, under the Legal Metrology (Packaged Commodities) Rules, 2011.
After the importer waived the issuance of a show cause notice and personal hearing, the Additional Commissioner of Customs rejected the declared value under Rule 12 of the Customs Valuation Rules, 2007, and redetermined the value under Rules 7 and 9.
The adjudicating authority confirmed customs duty of ₹41.57 lakh along with interest. It confiscated the amplifiers and other non-compliant goods, permitted their re-export on payment of a redemption fine of ₹2 lakh, and imposed a separate redemption fine of ₹3.50 lakh on the goods that could be released for domestic consumption. A penalty of ₹5 lakh was also imposed on the importer under Section 112(a) of the Customs Act.
The Commissioner (Appeals) subsequently affirmed the adjudication order.
Before the Tribunal, the importer relied upon a letter dated November 15, 2023, issued by the overseas supplier, Anzong Company Limited, Hong Kong.
According to the letter, the importer had ordered girls’ and children’s undergarments, but the supplier mistakenly loaded men’s underwear intended for delivery to another buyer, Noor Al Shawal General Trading LLC, Dubai. The supplier acknowledged the mistake and requested that the incorrectly shipped goods be returned.
The Tribunal accepted this explanation and observed that the discrepancy resulted from a mix-up of goods inside the imported container, which was beyond the importer’s control.
It held that the consequent change in customs classification could not be regarded as misclassification attributable to the importer.
The Bench further noted that the importer had declared the goods in the Bill of Entry based on the descriptions appearing in the supplier’s invoice and accompanying import documents.
The Tribunal found that the customs department had not produced any independent evidence demonstrating that the importer deliberately misdeclared the goods.
Once the overseas supplier admitted that the wrong goods had been loaded because of a mix-up, the difference between the declared and physically imported goods could not by itself establish fraud, suppression of facts or wilful misstatement by the importer.
The Bench observed that there was no document or other material showing that the importer acted with an intention to evade customs duty. Therefore, the statutory ingredients required for confiscating the releasable goods on the ground of deliberate misdeclaration and imposing a penalty were not satisfied.
As the men’s underwear had already entered India in excess quantity and was found free from Azo dyes, the Tribunal said there was no impediment to its clearance on payment of the appropriate customs duty.
The Tribunal also examined the alleged non-compliance with the Legal Metrology requirements.
Referring to the applicable import policy conditions and a public notice issued by JNCH Customs, it observed that mandatory declarations on imported packaged commodities must be completed before the consignment is cleared from customs control for home consumption.
The applicable procedure permitted importers or customs brokers to obtain approval from the competent customs officer and affix the required labels before registration, examination or clearance of the goods.
In the present case, the customs department had subjected the consignment to an intelligence-based physical examination before the goods went through the normal examination process. Therefore, the importer did not receive the usual opportunity to seek permission for affixing the required labels before examination.
The Tribunal held that the missing Legal Metrology declarations could be rectified after obtaining permission from the appropriate customs authority and before the goods were cleared for home consumption.
The amplifiers stood on a different footing. A customs-empanelled chartered engineer found that the amplifiers had a capacity of 4,000 watts per hour and were consequently covered by the compulsory safety and quality requirements under IS 616:2017.
Since the foreign supplier had not obtained the necessary BIS registration, the amplifiers were treated as non-releasable goods. The adjudicating authority had permitted their re-export subject to payment of a redemption fine of ₹2 lakh.
The importer had subsequently requested permission to re-export the non-releasable goods and expressed willingness to pay the stipulated redemption fine. Customs accepted the request and asked the importer to furnish the Export General Manifest after re-export.
Accordingly, the Tribunal disposed of the importer’s miscellaneous application relating to the re-export. The order did not interfere with the ₹2 lakh redemption fine attached to the non-releasable goods.
The Bench relied upon the Tribunal’s earlier ruling in Ocean Sky Impex Private Limited v. Commissioner of Customs, Chennai. In that case, the foreign supplier had admitted sending the wrong goods and had agreed to take them back. The Tribunal had directed customs authorities to allow the bona fide request for re-export.
CESTAT also referred to CBEC Circular No. 4/2015-Customs dated January 20, 2015, which provides a simplified procedure for permitting the re-export of goods imported because of a bona fide mistake.
The circular authorises the concerned customs officer to consider requests for re-export on their merits where goods meant for another destination are inadvertently imported at a particular customs station.
The Tribunal held that the circumstances of Embelle Trading’s case established the importer’s bona fides. The shipment discrepancy was caused by the supplier’s admitted mistake, and the matter was consequently required to be considered in accordance with the CBEC circular.
It concluded that there was no legal basis for imposing a redemption fine on the releasable imported goods or a penalty on the importer.
The CESTAT set aside the redemption fine of ₹3.50 lakh imposed on the goods eligible for domestic clearance and the ₹5 lakh penalty imposed under Section 112(a) of the Customs Act.
The appeal was partly allowed with consequential relief in accordance with law.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
Read More: Quarterly Export Refund Limitation Runs From End of Quarter in Which FIRC Is Received: CESTAT
