CESTAT Mumbai Sets Aside Undervaluation Demand Due to Failure to Comply with Section 138C of the Customs Act, 1962

Background and Overview

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai recently adjudicated a significant matter involving M/s Winsor Enterprises and its partners — Junaid Kudia and Sadik Kudia — who had challenged an Order-in-Original dated 21 August 2020 issued by the Commissioner of Customs (NA-III), Jawaharlal Nehru Customs House (JNCH). The dispute originated from allegations of deliberate undervaluation of imported merchandise, and the final outcome carries far-reaching implications for the admissibility of electronic evidence in customs proceedings.

The Tribunal's ruling, pronounced on 16 June 2025, decisively set aside the entire Order-in-Original and allowed the appeals filed by all the appellants, granting consequential relief as per law.

Facts of the Case

Nature of Imports and Alleged Fraud

M/s Winsor Enterprises was engaged in importing varieties of bags and PVC leather cloth classifiable under Customs Tariff Items 4202 2290, 5903 1090, and 5903 2090 of the First Schedule to the Customs Tariff Act, 1975. These goods were imported from China through the ports of Nhava Sheva, Mumbai, and Chennai.

The Directorate of Revenue Intelligence (DRI), Regional Unit, Surat, developed intelligence suggesting that the assessee had been systematically undervaluing the imported goods in active connivance with overseas suppliers, manufacturers, and commission agents. The objective, according to the DRI, was to evade payment of legitimate customs duty.

Search Operations and Evidence Collection

On 11 April 2017, the DRI conducted a search of the registered premises of M/s Winsor Enterprises. During this operation, investigators recovered printed email communications and other documents that allegedly demonstrated a discrepancy between the actual transaction value of goods and the value declared before the customs authorities. Statements were also recorded from various individuals connected to the business.

Show Cause Notice

Upon conclusion of the investigation, DRI issued a Show Cause Notice (SCN) bearing F. No. DRI/AZU/SRU-22/2017 dated 04 September 2018. The SCN proposed the following:

  • Redetermination of the assessable value under Section 14(1) of the Customs Act, 1962
  • Recovery of differential duty under Section 28(4) of the Customs Act, 1962
  • Confiscation of goods under Section 111(l) and Section 111(m) of the Customs Act, 1962
  • Imposition of penalties under Section 112(a) and Section 114AA of the Customs Act, 1962

Details of the Adjudication Order

Consignments via Nhava Sheva Port

With respect to 25 consignments imported through Nhava Sheva, the adjudicating authority:

  • Rejected the declared assessable value of Rs. 4,01,00,797/- and enhanced it to Rs. 6,13,46,437/-
  • Confirmed differential customs duty of Rs. 62,54,929/- under Section 28(4) along with applicable interest
  • Appropriated the deposited amount of Rs. 27,00,000/-
  • Ordered confiscation of the imported goods without imposing redemption fine, as the goods were no longer physically available
  • Imposed a penalty of Rs. 62,54,929/- on M/s Winsor Enterprises under Section 114A
  • Imposed penalties of Rs. 6,00,000/- and Rs. 3,00,000/- on Junaid Kudia and Sadik Kudia respectively under Section 112(a)
  • Imposed a further penalty of Rs. 5,00,00,000/- on Junaid Kudia under Section 114AA

Consignments via Mumbai Port

For 4 consignments imported through Mumbai: