2026 (1) TMI 171 - AT - Customs

Customs duty paid days after clearance: s.28(4) 'wilful suppression' claim rejected; s.114A penalty and confiscation set aside

Invocation of s.28(4) Customs Act and consequent mandatory penalty under s.114A was in issue where duty and interest were paid shortly after clearance, ... Invocation of section 28(4) of the Customs Act, 1962, with appendant penalty under section 114A of the Customs Act, 1962, despite the duty liability having been discharged, along with applicable interest, immediately after clearance of impugned goods - eligibility for exemption under the ASEAN–India Free Trade Agreement (AIFTA) - wilful suppression of facts or not - HELD THAT:- The adjudicating authority has invoked section 28(4) of Customs Act, 1962, predicated upon one or more of collusion, wilful mis-statement or suppression of facts, which, while not distinguishable from the normal provision on fastening of duty liability in the present instance, precludes ‘deemed conclusion’ attending on discharge of liability and mandates imposition of like penalty under section 114A of Customs Act, 1962. The enhanced burden renders it essential for the facts relied upon to establish the ingredients empowering the invoking. The elapse of time between clearance of goods and payment of days may, in the present instance, have exceeded that at other ports by a few days at most, which does not lend itself to establishing wilful mis-statement or suppression of facts in the absence of any other evidence or, of itself, as non-payment of duty. There are no particular gain accruing to the importer by postponement of duty liability inasmuch as delayed payment entailed interest and that there is no evidence of the investigation having established the appellant as responsible for delay in payment of duty let alone actuated by any of the ingredients in section 28(4) of Customs Act, 1962. The consequence of exclusion from ‘deemed conclusion’ of proceedings and mandatory penalty are too harsh to be tenable in the absence of justification for resort to section 28(4) of Customs Act, 1962. Prior knowledge with the importer and custom broker about duty liability is not in doubt. It is also not in doubt that, just as at the other places, duty liability was discharged within a few days of ‘out of charge’ and clearance. It is again an undisputed fact that, even after issue of the notification imposing the duty, it took the customs administration substantial time to make necessary changes for the new duty liability to be captured on assessment on ICES. In these circumstances, resort to section 28(4) of Customs Act, 1962 without particular evidence of wilful mis-statement or suppression of fact is not tenable let alone proportionate. There are no reason to allow the penalties and confiscation to subsist - the impugned order is set aside to allow the appeals - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether invocation of section 28(4) of the Customs Act, 1962 (collusion/wilful mis-statement/suppression) was sustainable where the importer paid the differential duty and applicable interest within a few days after clearance, in a scenario where the electronic system did not auto-compute the newly-imposed levy at the time of self-assessment. (ii) Whether, consequent upon failure to sustain section 28(4), the mandatory penalty under section 114A and the related penalties/confiscation founded on the impugned order could be allowed to stand. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Sustainability of invoking section 28(4) despite post-clearance payment with interest Legal framework: The Court considered that section 28(4) is premised on specific culpable ingredients-collusion, wilful mis-statement, or suppression of facts-and that its invocation carries an enhanced burden on the Department to establish those ingredients. It also noted the context of self-assessment and clearance ('out of charge'), alongside payment of duty with interest shortly thereafter. Interpretation and reasoning: The Court held that, because section 28(4) excludes the ordinary consequence of proceedings being treated as concluded upon payment and triggers harsher consequences, the facts relied upon must clearly establish the requisite mens rea elements. Merely showing a short time-gap between clearance and payment, even if marginally longer than at other ports, did not by itself establish wilful mis-statement or suppression, particularly when no other evidence was brought to support those allegations. The Court also found no identifiable 'gain' to the importer from postponing payment because interest became payable, and it found no evidence that investigation had established the importer as responsible for the delay or that the delay was actuated by the ingredients of section 28(4). The Court treated it as undisputed that the customs administration took substantial time to implement changes in the electronic system to capture the new duty liability, and that payments were being made through a stop-gap manual reassessment mechanism within a few days of clearance. Conclusion: Invocation of section 28(4) was held not tenable in the absence of particular evidence of collusion, wilful mis-statement, or suppression of facts, especially in the admitted circumstances of system non-availability for automatic computation and prompt post-clearance payment with interest. Issue (ii): Sustainability of penalties and confiscation based on the impugned invocation Legal framework: The Court treated the penalty under section 114A as appendant to the invocation of section 28(4) and noted the harsh consequence of mandatory penalty once section 28(4) is applied. It also examined the continuation of penalties and confiscation imposed in the impugned order as consequential to the sustained allegation of culpable conduct. Interpretation and reasoning: Having found section 28(4) unjustified and disproportionate on the evidence, the Court held that the consequential imposition of mandatory penalty and continuation of penalties and confiscation could not be sustained. The Court emphasized that the severity of consequences required justification that was absent on the record, especially where duty and interest were paid within days of clearance and system constraints were acknowledged. Conclusion: The penalties and confiscation were set aside; the impugned order was reversed and the appeals were allowed.