2025 (6) TMI 1975 - AT - Customs

Tribunal sets aside customs confiscation and penalty for inadvertent duty rate error under sections 111 and 112

The Tribunal allowed the appeal and set aside the confiscation, redemption fine, and penalty imposed under the Customs Act, 1962. The appellant had ... Confiscation - penalty - declaration of entitlement to lower rate of duty had been made in error - HELD THAT:- It is already noted that the detriments imposed on the appellant are disproportionate to any benefit that may have been derived if the assessment had gone through. The Tribunal, in re Sundaram Finance Ltd [2012 (4) TMI 69 - CESTAT, CHENNAI] and Commissioner of Customs (Import), Mumbai v. Vidhi Dyestuff Manufacturing Ltd [2015 (2) TMI 692 - CESTAT MUMBAI] and brought to notice by the Learned Counsel for the appellant, had held 'there is no misdeclaration on the part of the respondent importer with respect to the impugned transaction. It is true that the respondent did not discharge the anti-dumping duty liability. The customs authorities also validated the transaction without noticing the mistake committed by the importer and therefore, it cannot be said that the respondent alone was negligent and not the department. Further, no goods have been seized or confiscated. The law does not provide for imposition of fine on a consignment which has already been cleared and not available for confiscation and therefore, imposition of redemption fine by the original authority on the importer is clearly unsustainable in law and therefore, the appellate authority was right in dropping the demand of fine.' Considering the totality of the facts and circumstances, and the manner in which lower duty came to be discharged, as well as the prompt rectification by the appellant, there are no reason to sustain the confiscation and penalty in the impugned order. The impugned order is set aside - appeal allowed. The core legal questions considered by the Tribunal in this appeal were:1. Whether the confiscation of imported goods under sections 111(m) and 111(o) of the Customs Act, 1962 was justified where the importer had discharged differential duty and interest upon detection of an error in the rate of duty applied.2. Whether the imposition of penalty under section 112 of the Customs Act, 1962 was warranted in the facts of the case, particularly when the error was inadvertent and promptly rectified.3. Whether the declaration made by the importer regarding the country of origin and entitlement to concessional duty rates under the ASEAN-India Free Trade Agreement (AIFTA) was a misdeclaration attracting confiscation and penalty.4. The proportionality of the confiscation, redemption fine, and penalty in relation to the duty differential and benefit derived by the importer.Issue-wise Detailed Analysis1. Justification for Confiscation under Sections 111(m) and 111(o) of the Customs ActThe relevant legal framework includes sections 111(m) and 111(o) of the Customs Act, 1962, which provide for confiscation of goods in cases of misdeclaration or contravention of customs laws. Section 111(m) applies when there is misdeclaration of any material particulars, and section 111(o) covers cases where goods are imported in contravention of any provisions of the Act or rules.Precedents cited include the Tribunal's decision in Sundaram Finance and Vidhi Dyestuff Manufacturing Ltd, which clarified that confiscation is not warranted where there is no misdeclaration of material particulars and the duty liability has been discharged with interest.The Court noted that the appellant had initially paid duty at a higher rate applicable to countries other than Philippines, but upon detection of the error, promptly paid the differential duty and interest. There was no dispute regarding the correctness of the final duty paid.The importer had declared the goods as originating from the Philippines, consistent with the bill of entry and relevant documentation. The authorities did not contest the country of origin or allege that the goods were from a non-entitled country. Thus, no material misdeclaration was established.The Tribunal reasoned that since the duty was ultimately paid correctly and no misdeclaration of material facts occurred, confiscation under sections 111(m) and 111(o) was not justified. The confiscation and redemption fine were disproportionate to the nature of the error and the benefit (if any) derived by the importer.2. Imposition of Penalty under Section 112 of the Customs ActSection 112 empowers the authorities to impose penalty for contraventions under the Customs Act. The Court examined whether the penalty was warranted given the circumstances.The Tribunal relied on the precedent in Sundaram Finance, where it was held that inadvertent errors promptly rectified without mala fide intention do not attract penalty. The Court emphasized the absence of any evidence of deliberate misdeclaration or fraud on the part of the importer.The appellant's conduct was characterized as an inadvertent error in declaring the rate of duty, which was corrected upon notice with payment of differential duty and interest. The Tribunal found no basis for penalty in such circumstances.The competing argument from the revenue was that the error warranted deterrent action. However, the Tribunal held that imposing penalty and confiscation disproportionate to the benefit derived would be unjust and contrary to principles of natural justice.3. Declaration of Entitlement to Concessional Duty Rate under AIFTAThe appellant had relied on notification no. 127/2011 implementing the ASEAN-India Free Trade Agreement, which extended concessional duty rates to imports from several countries including the Philippines, albeit at rates higher than some other ASEAN countries.The authorities contended that the appellant had declared entitlement to a lower rate of duty erroneously. However, the appellant had in fact paid duty at the higher rate applicable to countries other than the Philippines on earlier bills of entry, and only on the impugned bill was the differential duty sought.The Tribunal observed that the appellant did not claim entitlement to rates applicable to countries other than the Philippines, nor was there any misrepresentation regarding the country of origin. The declaration was consistent with the actual origin and applicable rates.Thus, the Court concluded that there was no misdeclaration of entitlement to concessional rates that would attract confiscation or penalty.4. Proportionality of Confiscation, Redemption Fine, and PenaltyThe Tribunal considered the quantum of differential duty (Rs. 44,258) vis-`a-vis the redemption fine (Rs. 5,00,000) and penalty (Rs. 2,50,000) imposed.It was held that the punitive measures were grossly disproportionate to the benefit derived by the importer, especially considering the prompt rectification and payment of dues.The Court emphasized that confiscation and penalty must be proportionate and just, and cannot be imposed as a matter of routine or to penalize inadvertent errors without mala fide intention.Significant Holdings'Section 111(m) of the Customs Act applies only when there is a misdeclaration of any material particulars. In the present case, the appellant has not mis-declared any material particulars and therefore, the provisions of Section 111(m) are not attracted in the fact of the case. Consequently, the liability to confiscation also does not arise and therefore, imposition of penalty on the appellant is also not warranted.'The Tribunal established the core principle that mere inadvertent errors in declaring the rate of duty, promptly rectified with payment of differential duty and interest, do not attract confiscation or penalty under the Customs Act.The Court concluded that confiscation and penalty must be proportionate to the benefit derived and the nature of the contravention, and that punitive measures are not justified where there is no mala fide or material misdeclaration.Accordingly, the impugned order imposing confiscation, redemption fine, and penalty was set aside and the appeal allowed.