CESTAT Delhi Overturns Penalties in Customs Valuation Dispute

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 30.10.2025

CESTAT Delhi Overturns Penalties in Customs Valuation Dispute

In a significant ruling, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, delivered a judgment on October 29, 2025, in the case of Appellant vs. Principal Commissioner of Customs. ​ The Tribunal set aside penalties imposed under Sections 112(b)(ii) and 114AA of the Customs Act, 1962, highlighting critical procedural lapses and the importance of adhering to legal safeguards during investigations and adjudication. ​

Background of the Case

The appellant a partner in M/s Chandra Impex, challenged the order passed by the Principal Commissioner of Customs, ICD TKD, New Delhi, which imposed penalties of Rs. 5 lakhs under Section 112(b)(ii) and Rs. ​ 50 lakhs under Section 114AA of the Customs Act. ​ The case revolved around allegations of undervaluation of imported goods, specifically spray paints, in the 14th consignment imported by M/s Chandra Chemicals, a firm owned by the appellant’s father.

The department alleged that the appellant had submitted fraudulent commercial invoices to declare lower transaction values, while the actual values were reflected in proforma invoices retrieved from his email account during an investigation. ​ The appellant, however, retracted his statement made under Section 108 of the Customs Act, claiming coercion and undue pressure during the investigation.

Key Issues Raised

The appellant’s counsel argued that the statement recorded under Section 108 of the Customs Act could not be relied upon due to the following reasons:

1. The statement was retracted immediately, citing coercion and threats. ​
2. The provisions of Section 138B of the Customs Act, which mandate examination and cross-examination of the person making the statement, were not followed. ​
3. The proforma invoices retrieved from the appellant’s email were not recorded under a panchnama, nor were they properly substantiated as evidence. ​
4. The department failed to provide evidence linking the proforma invoices to the alleged undervaluation of goods. ​

CESTAT’s Observations

The Tribunal meticulously analyzed the procedural requirements under Sections 108 and 138B of the Customs Act. ​ It emphasized that statements recorded during investigations must be admitted as evidence only after the adjudicating authority examines the person making the statement and provides an opportunity for cross-examination. ​ Failure to follow this mandatory procedure renders such statements inadmissible. ​

The Tribunal also noted:

• The appellant’s retraction of his statement highlighted the possibility of coercion during the investigation. ​
• The proforma invoices relied upon by the department were not properly substantiated or linked to the alleged undervaluation. ​
• The earlier 13 consignments had been cleared after physical examination by customs authorities, and no evidence was presented to prove undervaluation in those cases. ​

Final Decision

The Tribunal concluded that the charge of undervaluation could not be substantiated, and the transaction value declared in the commercial invoices could not be rejected under Rule 12 of the Customs Valuation Rules, 2007. ​ Consequently, the confiscation of goods under Section 111(m) of the Customs Act and the imposition of penalties under Sections 112(b)(ii) and 114AA were deemed unsustainable.

Key Takeaways

1. Adherence to Legal Safeguards: The judgment underscores the importance of following mandatory procedures under Sections 108 and 138B of the Customs Act to ensure fairness and justice during investigations and adjudication. ​
2. Protection Against Coercion: The Tribunal highlighted the need to safeguard individuals from coercion or undue pressure during investigations, ensuring that statements are voluntary and admissible. ​
3. Evidence-Based Adjudication: Reliance on unsubstantiated evidence, such as proforma invoices, without proper linkage or corroboration, cannot form the basis for penalties or confiscation.

Conclusion

This landmark decision by CESTAT serves as a reminder of the critical role of procedural compliance in customs investigations and adjudication. It reinforces the principle that justice must not only be done but also be seen to be done, ensuring that individuals are not penalized based on assumptions or procedural lapses. ​ The ruling is a significant step toward upholding transparency and fairness in customs law enforcement.

Source: CESTAT Delhi

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