CESTAT Chennai Ruling On Used Garments Imports: Transaction Value, Confiscation And Policy Restrictions

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, recently decided a group of four appeals involving imports of old and worn garments by M/s Kayem Exim Private Limited and M/s Eskay Enterprises. The dispute primarily revolved around:

• Rejection and enhancement of the declared transaction value of used garments
• Confiscation of the consignments for want of a DGFT licence
• Quantum of redemption fine and penalty

The Tribunal partly allowed the appeals, offering important clarity on how valuation principles and import policy restrictions apply to second-hand clothing imports.

Background Of The Dispute

Parties and Proceedings

• The appeals were filed by M/s. Kayem Exim Pvt. Ltd. and M/s. Eskay Enterprises (collectively referred to as Appellant Nos. 1 & 2).
• They challenged common Orders-in-Appeal Nos. 190 to 324/2018 dated 23.05.2018, which had affirmed multiple Orders-in-Original passed by the adjudicating authority.

In the original adjudication:

• The declared transaction values were rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007
• Values were re-determined under Rule 5 based on so-called contemporaneous imports
• Goods were confiscated under Section 111(d) and Section 111(m) of the Customs Act, 1962
• Redemption fine was imposed under Section 125 and penalties under Section 112(a)

The Department itself appealed before the Commissioner (Appeals) only on the quantum of redemption fine and penalty, seeking enhancement. The importers, as respondents, filed cross-objections against findings on valuation, confiscation and penalty.

The Commissioner (Appeals) sustained the Orders-in-Original and rejected the Department’s appeals. Aggrieved, the importers carried the matter before CESTAT, Chennai.

Nature of Goods and Period of Import

The appellants were engaged in importing and trading worn clothing. Between July 2017 and May 2018, they filed multiple Bills of Entry at Chennai Port:

• Description declared: “old and worn unmutilated clothing fumigated”
• Classification: CTH 6309 0000
• Valuation: Based on supplier invoices in foreign currency

On examination, Customs officers found the consignments to be mixed second-hand garments, comprising assorted styles, grades and conditions.

Key Actions by Adjudicating Authority

The adjudicating authority took the following steps:

• Valuation
  • Declared transaction value was rejected invoking Rule 12 of the Valuation Rules, 2007
  • Value was re-fixed under Rule 5 using alleged contemporaneous import data
• Import Policy
  • Goods were considered restricted under the Foreign Trade Policy as second-hand garments
  • Absence of a DGFT licence was treated as a policy violation
• Confiscation & Penal Action
  • Goods were ordered confiscated under Section 111(d) and Section 111(m)
  • Option of redemption under Section 125 was granted
  • Penalty was imposed under Section 112(a) of the Customs Act

The Commissioner (Appeals) endorsed these findings in the impugned orders.

Issues Before The Tribunal

After hearing both sides and examining the records, CESTAT framed three core questions:

1. Valuation
   Whether rejection of the declared transaction value under Rule 12 and re-determination under Rule 5 was legally valid.

2. Confiscation
   Whether confiscation of the imported used garments under Section 111(d) and Section 111(m) was justified.

3. Redemption Fine & Penalty
   Whether the redemption fine under Section 125 and penalties under Section 112 were reasonable and proportionate.

Each of these issues was analysed separately.

Tribunal’s Analysis On Valuation

Department’s Argument: Acceptance Of Enhanced Value = No Appeal

The Department contended that the importers had, at the time of clearance, agreed to the enhanced valuation and paid duty accordingly. On this basis, it was urged that they were thereafter debarred from disputing the enhanced value in appeal.