CESTAT Chennai Orders Re-examination of Enhanced Customs Valuation and Confiscation in Gyanguru Enterprises Vs Commissioner of Customs

Background of the Dispute

The matter in Gyanguru Enterprises Vs Commissioner of Customs reached the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, arising from an order of the Commissioner of Customs (Appeals – II), Chennai. The first appellate authority had upheld:

  • Confiscation of imported goods
  • Enhancement of declared value
  • Demand of differential customs duty with interest
  • Imposition of penalties
  • Appropriation of bank guarantee

The appeal before the Tribunal challenged all these components, particularly the manner in which the customs authorities re-determined the value of the imported consignments and imposed fine and penalty even where re-export was allowed.

Facts of Import and Initial Adjudication

Nature of Goods and Declaration

An assessee imported 985 cartons containing assorted merchandise from M/s. Jinguan Industrial and Trading Co. Ltd., China. The consignment primarily comprised:

  • Birthday candles
  • Chocolate gift bags
  • Paper bags
  • Badminton rackets
  • Photo frames
  • Miscellaneous items including cosmetics and toys

The assessee filed Bill of Entry No. 2704362 dated 04.04.2019, declaring a CIF value of USD 16,798.33.

Examination and Alleged Violations

On first check examination by customs officers, the following issues came to light:

  1. Prohibited Cosmetics

    • Out of 985 cartons, 203 cartons contained cosmetic products.
    • These items required an appropriate drug licence under the Drugs and Cosmetics Act, 1940 read with the Drugs and Cosmetic Rules, 1945.
    • As no such licence was available, the cosmetics were treated as prohibited goods for import purposes.

  2. Quantity Mis-declaration

    • Certain items were found to be mis-declared in quantity.
    • A specific instance:
      • Shuttlecocks were declared as 50 pieces per carton.
      • Physical verification revealed 50 dozen shuttlecocks per carton, i.e., 12 times the declared quantity.

  3. Alleged Undervaluation and Misuse to Conceal Prohibited Goods

    • The adjudicating authority alleged that:
      • The declared value was not genuine.
      • The goods were used as a cover to conceal prohibited cosmetics.
    • On this basis, goods were found liable for confiscation, including under section 119 of the Customs Act, 1962 (CA 1962).

  4. Provisional Release of Permitted Goods

    • Goods not falling under the category of prohibited items were allowed provisional release on request of the importer, subject to conditions.

Order of the Original Adjudicating Authority

After issuing a show cause notice and following adjudication, the original authority passed an order with the following directions:

  1. Absolute Confiscation of 203 Cartons

    • The 203 cartons containing cosmetics imported in violation of the Drugs and Cosmetics Act, 1940 and the Rules were ordered to be absolutely confiscated.

  2. Re-export with Redemption Fine

    • Certain other goods were allowed to be re-exported, but only on payment of a redemption fine of Rs. 4,00,000.

  3. Confiscation with Option to Redeem

    • The balance 782 cartons were also confiscated under relevant provisions of CA 1962, but the assessee was given an option to redeem these on payment of fine.

  4. Demand of Differential Duty and Interest

    • The adjudicating authority enhanced the value of the goods and, based on this re-determined value, raised a demand for differential customs duty along with interest.

  5. Penalties Under Customs Act

    • Penalties were imposed under:
      • Section 112(a) of the Customs Act, 1962
      • Section 114AA of the Customs Act, 1962

  6. Appropriation of Bank Guarantee

    • A bank guarantee of **Rs.