CESTAT Chennai Sets Aside Massive Undervaluation in Confectionery Imports

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 18.02.2026

CESTAT Chennai Sets Aside Massive Undervaluation in Confectionery Imports

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chennai recently delivered a significant judgment on February 17, 2026, addressing 26 customs appeals arising from Order-in-Original No. 70307/2019 dated July 29, 2019. ​ This case involved allegations of misdeclaration, under-invoicing, misuse of Import Export Codes (IECs), and improper customs classification of imported goods. ​ The judgment, delivered by Hon’ble Member Technical and Hon’ble Member Judicial, has set a precedent in customs law and clarified several critical issues.

Background of the Case

The case revolved around M/s. ​ Nakshatra International Food Co. (NIFCO), a proprietorship firm owned by Appellant, and other related parties. ​ NIFCO was accused of importing confectionery items such as jellies, puddings, wafers, toffees, candies, chocolates, biscuits, juices, and coffee in retail packs/cartons between 2008 and 2013 through Chennai and Mumbai ports. ​ The Department alleged that NIFCO had misdeclared and under-invoiced the import price and retail sales price (RSP), misclassified certain items, and misused IECs of other entities for imports. ​

The case involved 566 Bills of Entry, with 388 imports made directly by NIFCO and 178 imports allegedly made using four other IECs. ​ The Department also seized goods worth Rs. ​ 1.46 crore and several incriminating documents, including electronic media, during investigations. ​

Key Issues Addressed ​

The Tribunal addressed several critical issues in its judgment:

A. Legality of Joint or Several Demand of Customs Duties ​

The Tribunal held that customs duties cannot be demanded jointly or severally from multiple parties unless it is proven that the goods were imported jointly. ​ In this case, NIFCO was a proprietorship firm, and appellant, as the sole proprietor, was the only legally accountable importer for the 388 Bills of Entry filed under NIFCO’s IEC. ​ The Tribunal also clarified that the concept of “beneficial owner” introduced in 2017 could not be applied retrospectively to imports made between 2008 and 2013. ​

B. Re-determination of Transaction Values ​

The Tribunal found that the rejection of declared transaction values under Rule 12 of the Customs Valuation Rules (CVR), 2007, was not legally sustainable. ​ The Department failed to comply with the mandatory two-step verification process under Rule 12, which requires the proper officer to communicate the grounds for doubting the declared value in writing and provide the importer an opportunity to respond. ​ Furthermore, the Tribunal held that the reliance on proforma invoices to re-determine transaction values was unsustainable, as proforma invoices are merely quotations and not enforceable contracts. ​

C. Issues Related to RSP and MRP Stickers ​

The Tribunal addressed allegations of non-affixing, tampering, and misdeclaration of RSP/MRP stickers. ​ It held that the goods were cleared from customs areas with MRP stickers affixed, as confirmed by statements from CHAs and compliance with FSSAI regulations. ​ The Tribunal also ruled that post-import tampering or altering of MRP stickers by distributors constitutes “manufacturing” under the Central Excise Act, 1944, and any duty recovery should be initiated under excise laws, not customs laws. ​

D. Admissibility of Electronic Evidence ​

The Tribunal found discrepancies in the serial numbers of the seized hard disks and those analyzed by the forensic agency. ​ It also noted the absence of mandatory certification under Section 138C of the Customs Act, 1962, which governs the admissibility of electronic evidence. ​ As a result, the electronic printouts relied upon by the Department were deemed inadmissible. ​

E. Compliance with Section 138B ​

The Tribunal emphasized the importance of adhering to Section 138B of the Customs Act, 1962, which governs the admissibility and relevancy of statements recorded under Section 108. ​ It held that the adjudicating authority failed to conduct chief examinations and denied cross-examination, rendering the reliance on statements legally untenable. ​

F. Customs Classification ​

The Tribunal ruled that the burden of proof for determining the correct customs classification lies with the Department. ​ In the absence of credible evidence, the Tribunal upheld the declared customs classification for the disputed items. ​

G. Legality of Corrigendum and Revenue Appeals ​

The Tribunal found that the corrigendum issued by the adjudicating authority to impose penalties on certain CHAs was not legally tenable, as it went beyond correcting typographical or arithmetical errors. ​ The Tribunal also dismissed the Revenue’s appeals seeking redemption fines and penalties, citing the absence of physical goods for confiscation and lack of evidence of active involvement or mens rea on the part of the CHAs. ​

Conclusion

The CESTAT Chennai’s judgment in this case is a landmark decision that reinforces the principles of natural justice and adherence to statutory procedures in customs law. By setting aside the impugned Order-in-Original in its entirety, the Tribunal has provided clarity on several contentious issues, including the legality of joint or several demands, re-determination of transaction values, admissibility of electronic evidence, and penalties on CHAs.

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Source: CESTAT Chennai

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