"No Penalties for Honest Mistakes: How Voluntary Disclosure Saved an Importer from ₹30 Lakh Customs Penalty

Table of Contents

• Facts of the Case

• Issue

• Held by the Court

• Relevant Sections

The Hon'ble Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi in M/s Ceramic Tableware Pvt. Limited v. Commissioner of Customs (Customs Appeal No. 50720 of 2021-SM, Final Order No. 50524/2022, decided on June 17, 2022) held that where an importer voluntarily approaches the Customs department to rectify a clerical error in classification before any departmental action, it indicates absence of deliberate mis-declaration, and consequently, neither redemption fine nor penalty is justified.

Facts of the Case

The Appellant, M/s Ceramic Tableware Pvt. Limited, is a manufacturer of ceramic tableware located in Jaipur. The Appellant is a regular importer of their input – 'calcium phosphate' falling under chapter heading 28352690.

In the regular course of business, the Appellant imported calcium phosphate and filed three Bills of Entry: (i) No. 6897549 dated February 15, 2020, (ii) No. 6969438 dated February 21, 2020, and (iii) No. 70066555 dated February 25, 2020. However, due to a clerical error, the description of goods was mentioned as 'Apatite (GR) Calcium Phosphate' falling under chapter heading 25102030.

The Appellant suo motu discovered the error in filing the Bill of Entry, and accordingly approached the Revenue for correct classification and payment of duty vide letter dated February 27, 2020. In this letter, the Appellant pointed out the mistake and mentioned that the correct classification of the goods is 28352690. The Appellant prayed for rectification in the Bill of Entry and offered to pay the differential amount of customs duty and GST/IGST. It was also pointed out that the mistake occurred due to an error in the shipping documents (Bill of Lading wherein the goods were mentioned as 'Apatite (GR) Calcium Phosphate' HS Code 25102030). The same mistake appeared in the commercial invoice.

The Officers of Customs examined the consignment mentioned in the Bill of Entry dated February 15, 2020, on February 28, 2020, in the presence of the authorized representative of the Customs Broker. They found that the tag affixed on the jumbo bag mentioned the description of the goods as 'calcium' instead of 'Apatite (GR) Calcium Phosphate'.

It appeared to the Revenue that since the Appellant is a regular importer of calcium phosphate, they had deliberately misclassified the goods in the Bill of Entry to pay lower customs duty, as the total duty (BCD plus IGST) on 'Apatite (GR) Calcium

Phosphate' was 10%, whereas on calcium phosphate it is 28% (or 10% + 8%). It further appeared that for import of calcium phosphate under tariff heading 28352690, the importer had to obtain NOC from the Drug Controller Department, as required under the Drugs and Cosmetics Act. Thus, it seemed to Revenue that the Appellant had misclassified the goods to avoid this mandatory requirement.

The Appellant reiterated the request for correction of classification in the Bill of Entry along with an offer to pay the differential duty by their subsequent letter dated March 2-3, 2020. However, it appeared to Revenue that it was a case of deliberate mis-declaration, and accordingly, the goods were liable to confiscation under Section 111(d), (l), (m), (n), and (o) of the Customs Act.

Consequently, the goods were seized on March 2, 2020, and it further appeared that the Appellant was liable to penalty under Section 112(a)(ii) and Section 114AA. The differential duty payable was calculated as Rs. 10,88,650/-. The Appellant, in continuation of their earlier letter, suo motu admitted the error, prayed for correction in the Bill of Entry, agreed to the proposed demand for differential duty, and gave a consent letter dated March 5, 2020. The Appellant also waived their right to receive a show cause notice.

On these facts, the Additional Commissioner of Customs passed an order-in-original dated March 7, 2020, holding that the Appellant had intentionally filed the Bill of Entry under wrong description and classification. Accordingly, the goods were held liable for confiscation under Section 111(d), (l), (m), (n), and (o) of the Customs Act. Additionally, a penalty under Section 112(a)(ii) of Rs. 12 lakhs and a penalty under Section 114AA of the Customs Act of Rs. 9 lakhs were imposed. Further, the option of redemption was given subject to payment of a redemption fine of Rs. 10 lakhs.

Aggrieved, the Appellant preferred an appeal before the Commissioner (Appeals), who rejected the appeal, confirming the order-in-original. Further aggrieved, the Appellant approached the CESTAT.

Issue

Whether the imposition of redemption fine of Rs. 12 lakhs and penalty of Rs. 9 lakhs under Section 112(a)(ii) and Section 114AA respectively was justified in a case where the importer had voluntarily approached the department to rectify a clerical error in classification before any departmental action?

Held by the Court

The Hon'ble CESTAT, New Delhi in Customs Appeal No. 50720 of 2021-SM held that:

1. The CESTAT observed that there appeared to be a genuine mistake, in the nature of a clerical mistake, on the part of the Clerk of the Appellant company.

2. The Tribunal noted that this fact was evident from the record, as the Appellant had suo motu approached the Department for making necessary rectification in the Bill of Entry with regard to the classification and had also offered to pay the differential duty.

3. The CESTAT emphasized that such a suo motu offer was made before the Department pointed out any issue or issued any notice to the Appellant.

4. The Tribunal concluded that it was a case of simple clerical error, and there was no case of contumacious conduct on the part of the Appellant.

5. In view of these findings, the CESTAT allowed the appeal by setting aside the impugned order of confiscation and penalties under both Section 112(a)(ii) and 114AA of the Act.

6. The CESTAT directed that the Appellant was entitled to consequential benefits.

Relevant Sections

"Section 111 of the Customs Act, 1962" - "Confiscation of improperly imported goods, etc."

"Section 112(a)(ii) of the Customs Act, 1962" - "Penalty for improper importation of goods, etc."

"Section 114AA of the Customs Act, 1962" - "Penalty for use of false and incorrect material."