ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 22.11.2025
CESTAT Delhi Sets Aside Penalties and Confiscation in Mercedes Benz Import
This Article has been written by Shri Ravi Shekhar Jha, Advocate based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com or on his Mobile +91-9999005379.
In a significant judgment delivered on November 20, 2025, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, provided relief to Watermark Systems (India) Private Limited and Appellant in a long-standing customs appeal case. The case revolved around the import of a Mercedes Benz CLS 320 CDI car, which was alleged to have been mis-declared as “new” to claim benefits under a customs notification, leading to undervaluation and evasion of duty. β
Background of the Case β
The case dates back to 2008 when the car was imported by Seller, the importer-on-record, through New Customs House, New Delhi. β The declared value of the car was βΉ20,47,300, which was later reassessed to βΉ28,83,435 by the Commissioner of Customs (Imports). The car was confiscated under Section 111(d) of the Customs Act, 1962, with an option to redeem it on payment of a fine of βΉ6,00,000, along with a penalty of βΉ4,00,000 under Section 112(a). β
The car was subsequently registered in India in the name of Seller and later purchased by Appellant through Watermark Systems (India) Pvt. β Ltd. for βΉ54,00,000. β Investigations by the Directorate of Revenue Intelligence (DRI) in 2011 revealed alleged mis-declaration and undervaluation of imported luxury cars, including the Mercedes Benz in question. β A show-cause notice was issued in 2013, and the car was seized by DRI. β The matter was adjudicated afresh in 2016, leading to penalties of βΉ10,00,000 under Section 112(a) and βΉ5,00,000 under Section 114AA of the Customs Act against Watermark Systems and Appellant.
Key Arguments Presented
The appellants challenged the penalties imposed, arguing that the DRI lacked jurisdiction to issue the show-cause notice under Section 28 of the Customs Act. β They contended that the Additional Director of DRI was not a “proper officer” authorized to demand duty. β However, this issue was settled by the Supreme Court in its review judgment dated November 7, 2024, which confirmed that DRI officers are indeed proper officers under Section 28. β
The appellants also argued that they were bona fide purchasers of the car and had no role in the alleged mis-declaration or undervaluation during its import. β They emphasized the absence of evidence proving their involvement in any wrongdoing. β The appellants relied on various judicial precedents, including the Supreme Court’s decision in Hindustan Steel Ltd. vs. State of Orissa, which held that penalties should not be imposed for technical or venial breaches of legal provisions. β
Tribunal’s Observations and Final Decision
The Tribunal carefully examined the facts and legal arguments presented by both parties. β It noted that the car had already been confiscated and released on payment of redemption fine and penalty, and as per established legal principles, it could not be reconfiscated. β The Tribunal referred to the Supreme Court’s decision in Mohan Meakin Ltd., which held that subsequent purchasers of redeemed goods cannot be penalized for undervaluation or mis-declaration during import. β
Regarding the penalties imposed on the appellants, the Tribunal found that there was no evidence of any act or omission by the appellants that rendered the goods liable to confiscation under Section 111 of the Customs Act. β It also noted that the appellants had purchased the car in a bona fide manner and were not involved in the import process or any fraudulent activities. β
In light of these findings, the Tribunal set aside the impugned order and allowed the appeals, providing relief to Watermark Systems (India) Pvt. β Ltd. and Appellant.β
Implications of the Judgment
This landmark decision reinforces the principle that bona fide purchasers of goods cannot be penalized for alleged irregularities during the import process, especially when they have no role in the import or any fraudulent activities. β It also clarifies the scope of penalties under Sections 112(a) and 114AA of the Customs Act, emphasizing the need for concrete evidence and the presence of mens rea for imposing penalties. β
The judgment serves as a reminder to authorities to ensure due diligence during the adjudication process and highlights the importance of adhering to principles of natural justice. β It also provides clarity on the jurisdiction of DRI officers under Section 28 of the Customs Act, following the Supreme Court’s review judgment.
Source: CESTAT Delhi
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