Re-Export Does Not Absolve Importers From Penalty For Misdeclaration Under Customs Act: Madras High Court

The Madras High Court has held that an importer cannot escape penalties for misdeclaration and use of false documents merely by opting to re-export the goods after detection.

"The order of re-export on payment of redemption fine will not absolve the penal consequence envisaged under the Customs Act, 1962. If this proposition of the CESTAT is to be approved, then all illegal importers, if caught, will offer to pay a paltry sum as fine in lieu of redemption of the goods and re-export the same without suffering any penalty or custom duty for their attempt to violate the Customs Act, 1962” the court said.

The ruling came in an appeal filed by the Customs Department against an order of the Customs, Excise and Service Tax Appellate Tribunal, which had set aside a penalty imposed on Orion Enterprises and also quashed appropriation of duty, while permitting re-export of a luxury vehicle.

A bench of Justice G. Jayachandran and Justice Shamim Ahmed found that the Tribunal's reasoning was legally unsustainable and contrary to the scheme of the law.

“For availing import duty concession for improper goods the forfeiture and levy of penalty by the department is an action separate and independent. The levy of fine for misdeclaration is a separate action. One action will not exclude the other action, The importer cannot excuse paying the fine stating that he has already paid the duty or the penalty for improper import. The vice-versa is also not permissible. Likewise, after the importer has opted to avail the opportunity of re-exporting the goods, by redeeming the confiscated goods, he is liable to pay fine under Section 125 of the Customs Act, 1962, for redemption and re-export. ,” the court observed.

The case relates to the import of a Cadillac Escalade SUV by Orion Enterprises. The Directorate of Revenue Intelligence found that the importer had misdeclared key particulars such as seating capacity, country of origin and value to claim concessional duty benefits. The seating capacity was altered from eight to ten to fit a different tariff classification.

The adjudicating authority held the importer guilty of deliberate misdeclaration and imposed penalties, including under Section 114AA of the Customs Act. The Commissioner (Appeals) upheld this finding.

However, the tribunal allowed re-export and set aside the penalty under Section 114AA, holding that there was no specific allegation that the importer had directly fabricated documents. It also set aside the appropriation of duty.

Disagreeing, the High Court held that liability under Section 114AA is attracted not only when a person fabricates documents but also when false or incorrect documents are knowingly used in the import process.

“The act of furnishing false documents for improper import leads to levy of penalty and appropriation. The confiscation of the said goods or imposition of fine in lieu of confiscation, the redemption of the confiscated goods for the purpose of re-export are independent to each other and separate action is permissible under law,” the court held.

“While the statute distinctly empowers the authority to collect penalty or fine, as the case may be, for distinct and separate violations of the Act, the Tribunal ignoring the provisions of the Act and the spirit of the Act namely, Sections 114AA and 112(A) of the Customs Act, 1962 has rendered finding which have no legal basis,” it added.

Holding the tribunal's order to be “perverse and contrary to law,” the High Court allowed the appeal and upheld the penalties imposed on the importer.

For Appellant: Advocate P. Rajnish

For Respondent: Advocate B. Sathish Sundar,