Voluntary acceptance of higher value exempts importer from liability for confiscation and redemption fine: reiterates CESTAT Mumbai

The Mumbai Bench Customs, Excise and Service Tax Appeals Tribunal (CESTAT) reiterated that voluntary acceptance of a higher value and willingness to pay customs duties at the increased rate would exempt the importer from the forfeiture and redemption penalty under the Customs Act 1962.

The single bench of members Dr. Suvendu Kumar Pati (Judicial Member) held that an importer cannot be said to have entered into a bond or contract for payment of a greater value, so as to render him liable for a breach of “civil obligations” for the purpose of imposing a penalty under the Customs Act.

The appellant M/s Neno Crystal, an importer, filed an inward declaration for the clearance of specified goods. Upon examination by an expert, at the request of the customs official, the value of the item was found to be much higher than declared.

The contracting authority found the goods liable to forfeiture under the Customs Act 1962. The authority also redetermined the value of the goods under Rule 5 of the Customs Valuation Rules 2007, authorized the reimbursement of the imported goods against the payment of a fine and sanctioned the owner of the appellant company. Against this order, the appellant appealed to the Commissioner of Customs (Appeals).

The Commissioner of Customs (Appeals) found that there was no deliberate undervaluation or misrepresentation by the appellant to avoid duty and that there was no evidence that the importer/caller had submitted a false invoice. The commissioner had ruled that since the revenue department’s allegations of undervaluation were not supported by physical evidence, the re-determination of value could be considered a self-declaration by the importer under section 108 of the Customs Act 1962. However, the commissioner upheld the confiscation order finding that the establishment of mens rea is not necessary to impose a sanction for breach of “civil duty”.

However, the commissioner had substantially reduced the amount of the fine and the penalty, considering that it should be proportionate to the offense committed by the appellant and not severe or excessively disproportionate.

The appellant Mr/s Neno Crystal appealed the order of the Commissioner of Customs (Appeals) to the CESTAT, challenging the legality of the confirmation of the fine and the sanction.

The appellant argued before the CESTAT that the imposition of a redemption fine had no legal basis. The appellant argued that in view of the decision of the Madras High Court in the case Commissioner of Customs (Sea), Chennai-I v MR Associates (2013), the forfeiture and penal provision invoked by the Commissioner (Appeals) cannot stand since the the increase in the value of the imported goods was based on a voluntary declaration under Section 108 of the Customs Act 1962.

The Department of Revenue argued that mens rea is not a prerequisite to the imposition of a penalty for breach of “civil duty” and the fine was imposed on the appellant to wipe out the profit margin. The Department of Revenue maintained that the Commissioner (Appeals) had rightly confirmed the fine and the penalty while reducing its quantum, so as to make it proportional to the offense committed by the appellant.

CESTAT considered that, in accordance with the law enacted by the High Court of Madras in Commissioner of Customs (Sea), Chennai-I v MR Associates (2013), the criminal provisions of the Customs Act cannot be invoked if the increase in the value of the goods is based on a voluntary declaration by the appellant/importer concerning the acceptance of the value of the goods, and the forfeiture of the goods does not nor can it be made in lieu of a refund fine.

The CESTAT ruled that the term “civil obligations” means the performance of certain actions under the obligation of the law which gives the other person the right to compel its performance in the event of a breach.

The CESTAT found that the applicant had filed an entry declaration on the basis of the description of the article mentioned in the import document by the supplier. The appellant agreed to pay value-added duty after the imported item was found to be a different size.

The CESTAT considered that the appellant cannot be said to have entered into a bond or contract for the payment of a higher value, so as to render him liable for a breach of “civil obligations” for the purposes of his impose a penalty under the Customs Act. CESTAT added that voluntary acceptance of a higher value and willingness to pay customs duties at the increased rate would exempt the appellant from the forfeiture and redemption penalty under the Customs Act.

The CESTAT thus upheld the appellant’s appeal and set aside the order made by the Commissioner of Customs (Appeals) regarding the confirmation of the penalty reduction and refund fine under the Customs Act. customs.

Case Title: M/s Neno Crystal v Commissioner of Customs (Import), Mumbai

Date: 06.04.2022 (CESTAT Bombay)

Appellant’s representative: ND George, lawyer

Respondent’s Representative: Bhushan Kamble, Assistant Commissioner, Respondent’s Authorized Representative

Click here to read/download the order

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