Introduction
The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Mumbai’s decision in Epsilon Eye Care Pvt Ltdoffers significant judicial interpretation on the scope and limits of customs authorities under the Customs Act, 1962. The case involved allegations of misdeclaration, valuation manipulation, and violations of licensing requirements, and it ultimately exposed the line between legitimate enforcement and administrative overreach.
This commentary examines the Tribunal’s observations on what customs officers are lawfully empowered to do, and where they must draw the line.
Key Legal Issues in the Case
- Misdeclaration of value in postal imports.
- Confiscation and disposal of expired goods found at the importer’s premises.
- Customs officers acting upon violations of the Drugs and Cosmetics Act, 1940.
- Retroactive valuation and assessment of earlier imports.
- Penalty imposition without conclusive evidence of evasion intent.
What Customs Officers Can Lawfully Do?
1. Seizure and Confiscation for Misdeclaration
Under Section 110 of the Customs Act, 1962, customs officers may seize goods where there is reasonable belief of misdeclaration or undervaluation. Sections 111, 112, 114A, and 114AA provide for confiscation and penalties when such misdeclaration is proven.
In this case, the seizure of undeclared and undervalued intraocular lenses was held to be within the legal powers of customs authorities.
2. Rejection of Declared Value under Customs Valuation Rules, 2007
Customs officers are authorized to reject declared invoice values under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, when they have reasonable doubt that the declared value is not the transaction value. They may resort to Rules 5 or 6 for determining the appropriate valuation.
In Epsilon, the department attempted to rely on prior import values through the Air Cargo Complex (ACC) as a benchmark for reassessing duty on postal imports.
3. Denial of Clearance for Prohibited Goods
As per Section 47 read with Section 2(33) of the Customs Act, 1962, prohibited goods—those requiring licenses or restricted under other laws—may not be cleared for home consumption without fulfillment of prescribed conditions.
If at the time of importation, such goods are found non-compliant with applicable license requirements, customs officers are within their rights to deny clearance.
4. Assess Duty on Postal Imports under CBIC Guidelines
Even after the omission of Section 82, the CBIC Circular No. 14/2018 and Postal Imports Regulations, 2025 provide operational guidelines for duty assessment and processing of goods received by post.
Thus, customs actions regarding duty reassessment on postal parcels were within the legal framework.
What Customs Officers Cannot Do – Judicially Overruled Actions
1. Ordering Disposal of Confiscated Goods Without Statutory Authority
The adjudicating authority in this case ordered the disposal of expired lenses under the Disposal Manual, 2019.
This was struck down by the Tribunal for the following reasons:
- The Disposal Manual does not derive legal authority from the Customs Act.
- Section 126 of the Act specifies that confiscated goods vest in the Central Government, and adjudicating authorities act only as custodians.
- Disposal decisions lie exclusively with the Central Government, not the officer adjudicating confiscation.
The Tribunal held this was a clear overreach of power.
2. Enforcement of Drug Control Laws Post-Clearance
Customs officers attempted to impose confiscation on grounds that the importer lacked a valid CDSCO license at the time of import. However, the Tribunal noted that:
- Once goods are cleared under Section 47, they become part of the domestic market.
- Any post-clearance violation falls within the jurisdiction of domestic regulatory authorities (e.g., CDSCO), not customs.
- Customs officers are not empowered to act as public health regulators or to enforce drug laws beyond the port of entry.
This position reaffirmed the doctrine that customs jurisdiction ends at clearance, except where specific legal provisions extend such authority.
3. Arbitrary Valuation Using Highest Historical Values
The department assessed all previous imports using the highest historical values found in a single bill of entry through ACC.
The Tribunal found this unacceptable because:
- There was no evidence of the models involved in earlier imports.
- There was no proof of undervaluation or collusion in postal imports.
- The valuation relied upon was not contemporaneous, and not specific to the impugned consignments.
The use of surrogate values was held to be speculative and legally unsustainable under the Valuation Rules.
4. Retroactive Penalties Without Proper Show Cause
The Tribunal observed that several elements of the adjudication order exceeded the scope of the show cause notice. Penalties and findings were introduced at the adjudication stage without prior notice to the importer, violating principles of natural justice.
Reliance on Supreme Court precedents in Toyo Engineering, Ballarpur Industries, and GAIL supported this view.
Summary Table: Powers and Limitations
|
Powers Permitted by Law |
Actions Outside Legal Authority |
|
Seize and assess undervalued goods |
Confiscate goods post-clearance for regulatory violations |
|
Reassess value under Valuation Rules |
Use arbitrary high historical prices without evidence |
|
Deny clearance for goods lacking licenses |
Order disposal of confiscated goods independently |
|
Collect duty on postal imports |
Enforce health/safety norms after clearance |
Broader Legal Doctrines Affirmed
- Doctrine of Limited Jurisdiction: Customs officers are creatures of statute and must act strictly within the powers conferred by the Customs Act.
- Jurisdictional Finality at Clearance: Once goods are cleared under Section 47, they are no longer subject to customs adjudication, except under narrowly defined circumstances.
- Separation of Regulatory Powers: Enforcement of public health, drug safety, and licensing laws post-import lies with specialized agencies (like CDSCO), not customs.
- Due Process and Natural Justice: Show cause notices define the limits of adjudication; authorities cannot go beyond the notice to introduce new grounds or penalties.
Conclusion
The Epsilon Eye Care judgment is a reaffirmation of constitutional governance, rule of law, and administrative restraint. While customs officers play a critical role in protecting revenue and controlling imports, they are not empowered to act beyond their statutory mandate.
The Tribunal’s ruling ensures that enforcement remains grounded in legality, guided by due process, and respects the role of specialized regulatory agencies. It serves as a precedent against administrative overreach and for preserving importer rights within the customs framework.
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