CESTAT Hyderabad Overturns Penalties and Confiscation in Customs Duty Dispute: Emphasis on Voluntary Disclosure

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 13.01.2026

CESTAT Hyderabad Overturns Penalties and Confiscation in Customs Duty Dispute: Emphasis on Voluntary Disclosure

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Hyderabad recently delivered a significant judgment in the case of M/s Paschal Form Work (I) Pvt Ltd. and its General Manager, against the Commissioner of Customs, Visakhapatnam. This case, which revolved around the alleged misdeclaration of imported goods and subsequent penalties, highlights the importance of transparency, voluntary disclosure, and adherence to customs regulations. ​

Background of the Case

The case originated from a purchase order issued by M/s Paschal Form Work (I) Pvt Ltd. to its parent company for the import of steel bars. The purchase order contained two separate offers, each valued at €86,139.67, along with carriage and freight (C&F) charges of €4,020. The goods were shipped and reached Visakhapatnam on July 28, 2009. ​ The company engaged M/s Sea Bird Sea and Air Logistics Division, a Custom House Agent (CHA), to handle the clearance of the imported goods. ​

However, due to confusion regarding the purchase order and invoices, the CHA mistakenly excluded the C&F charges and two invoices from the bill of entry (BOE). ​ This led to a short payment of customs duty. ​ The appellants, being first-time importers, were unaware of the significance of this error and relied on the advice of the CHA to amend the purchase order. ​ The CHA further altered the invoice by deleting the C&F charges, which resulted in the misdeclaration of the value of the imported goods. ​

Discovery of the Discrepancy ​

In December 2009, during an internal reconciliation of records, M/s Paschal Form Work (I) Pvt Ltd. discovered the discrepancy in the BOE and immediately informed the CHA. ​ The company expressed its willingness to pay the differential duty along with interest and requested the CHA to resolve the issue with the Customs Department. ​ The CHA admitted to the error and approached the Customs Department, which initiated an investigation into the matter. ​

Investigation and Adjudication

The Customs Department conducted a search at the appellant’s factory premises in February 2010 and seized the imported goods. ​ To avoid disruption in production, the appellants voluntarily deposited the differential duty, interest, and other charges, and the goods were provisionally released. ​

Following the investigation, a Show Cause Notice (SCN) was issued on July 5, 2010, alleging suppression and willful misdeclaration of facts. The Adjudicating Authority passed an Order-in-Original (O-I-O) on December 27, 2012, confirming the demand for short-paid duty, imposing penalties, and ordering the confiscation of goods. ​ The appellants challenged the O-I-O before the Commissioner (Appeals), who upheld the order. ​ Subsequently, the appellants filed appeals before the CESTAT Hyderabad.

Key Arguments by the Appellants

The appellants argued that the discrepancy was voluntarily disclosed to the Customs Department through their CHA, and the differential duty was paid well before the issuance of the SCN. ​ They contended that the investigation was initiated based on their voluntary disclosure, not due to any independent detection of suppression or collusion. ​ The appellants relied on several judicial precedents, including:

1. Faiveley Transport Rail Technologies India Pvt Ltd. vs. CC (CESTAT, New Delhi): This case established that once the duty and interest are paid before the issuance of an SCN, no SCN should be issued under Section 28(2) of the Customs Act. ​
2. Wockhardt Ltd. vs. CC (CESTAT, Mumbai): It was held that no penalty could be imposed when the differential duty and interest were paid before the issuance of an SCN. ​

The appellants also emphasized that there was no malafide intention behind the non-payment of the differential duty, as the error was due to the CHA’s advice and their inexperience as first-time importers. ​

Decision of the Tribunal

After hearing both parties and reviewing the evidence, the Tribunal concluded that the appellants had acted in good faith by voluntarily disclosing the discrepancy and paying the differential duty and interest before the issuance of the SCN. ​ The Tribunal noted that the appellants had no malafide intention and that the CHA had admitted to the error. ​

The Tribunal referred to the judicial precedents cited by the appellants and held that the issuance of the SCN was unwarranted under Section 28(2) of the Customs Act. ​ It also ruled that the confiscation of goods and imposition of penalties were not sustainable, as the appellants had voluntarily rectified the error and cooperated with the investigation. ​

Final Order

The CESTAT Hyderabad allowed the appeals filed by M/s Paschal Form Work (I) Pvt Ltd. and its General Manager, setting aside the impugned order. The Tribunal emphasized the importance of voluntary compliance and transparency in customs matters and granted consequential relief to the appellants as per the law.

Key Takeaways

1. Voluntary Disclosure: The case underscores the significance of voluntary disclosure in customs matters. ​ The appellants’ proactive approach in identifying and rectifying the error played a crucial role in the Tribunal’s decision. ​
2. Role of CHAs: The case highlights the critical role of CHAs in customs clearance and the potential consequences of errors or misjudgments in documentation. ​
3. Judicial Precedents: The Tribunal’s reliance on previous judgments demonstrates the importance of established legal principles in ensuring fair and consistent adjudication.
4. No Malafide Intention: The absence of malafide intention was a key factor in the Tribunal’s decision to set aside the penalties and confiscation. ​

This landmark judgment serves as a reminder to importers and CHAs about the importance of accurate documentation and compliance with customs regulations. It also reinforces the principle that voluntary disclosure and cooperation with authorities can mitigate penalties and legal consequences in cases of genuine errors.

Source: CESTAT Hyderabad

Disclaimer

Handy Download:

Write to us at office@aadrikaalaw.com

Tel: +91-11-4999 2707 I +91-9999005379

www.aadrikaalaw.com