Customs Duty Evasion using Fake Invoices for Imported Goods: CESTAT Orders Revised Duty Assessment [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), in a recent ruling ordered revised customs duty assessment in a case of customs duty evasion involving the undervaluation of imported goods through the use of fake invoices.

The appellants in the case are Nitin Khandelwal, Anshul Khandelwal and KLM Overseas.

The case arose from an extensive investigation into alleged customs fraud involving a firm that manipulated import values by using falsified invoices to evade duty payments.

The investigation began when the customs department discovered suspicious undervaluation during imports made by one of the appellants, M/s KLM Overseas, a partnership firm based in New Delhi. The inquiry into KLM was an offshoot of an earlier investigation involving another firm, M/s Wide Impex, where similar undervaluation practices had been uncovered. Another appellant, Nitin Khandelwal, a partner in KLM Overseas and a key figure in the Wide Impex case, was found to have orchestrated the same modus operandi across both firms.

During customs clearance, KLM Overseas allegedly submitted falsified invoices that significantly underreported the value of imported goods. The correct values of the imports were hidden in parallel invoices and spreadsheets exchanged between Khandelwal and his associate in China, Anuj Gupta, who coordinated the shipments. Nitin Khandelwal admitted during the investigation that he received two sets of invoices for each consignment—one showing the actual value in Chinese RMB and a falsified invoice listing a lower value in USD for customs purposes.

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During the investigation, Khandelwal voluntarily opened his email account in the customs office and handed over printouts of the incriminating documents, including the parallel invoices and an excel sheet that revealed the true values of the imports. The customs department used this evidence to build its case against KLM Overseas, rejecting the declared transaction value of Rs. 1.81 crore and recalculating the actual value to be Rs. 5.47 crore.

Despite repeated summonses, KLM Overseas and its partners, Nitin and Anshul Khandelwal (another appellant), failed to appear before the customs authorities to present their defense. Consequently, the customs department proceeded with the case and imposed significant penalties. KLM Overseas was ordered to pay Rs. 1.16 crore in differential duty, along with interest, and penalties under Sections 114A and 114AA of the Customs Act for knowingly submitting false declarations. Nitin Khandelwal was personally fined Rs. 9 lakh under Section 112(a)(ii) of the Customs Act and Rs. 20 lakh under Section 114AA of the same statute for his role in the scheme. Anshul Khandelwal, another partner, was fined Rs. 2 lakh under Section 112 and Rs. 5 lakh under Section 114AA of the Customs Act.

Aggrieved, the appellants appeared before the CESTAT contesting the aforementioned decision.

In their appeal to the CESTAT, the appellants argued that the customs authorities had overstepped by using evidence gathered in the Wide Impex investigation to assess their firm’s imports. They also claimed that Nitin Khandelwal had retracted his original statement admitting to the undervaluation scheme.

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However, the bench of Dr Rachna Gupta and Mr Subba Rao, after hearing both sides, dismissed the appellants’ arguments, finding that the evidence—including the emails and excel sheets provided by Nitin Khandelwal—was valid and had not been properly refutedThe tribunal noted that Nitin Khandelwal’s statement contained specific details that only he could have known, further reinforcing its credibility.

While the bench upheld the customs department’s rejection of the declared transaction value, it found an error in the method used to recalculate the value of the imports. The customs department had added 20% to the declared values for freight costs and 1.125% for insurance, based on the assumption that the values in the excel sheets were FOB (Free on Board) values. However, the tribunal determined that these values should have been treated as CIF (Cost, Insurance, and Freight) values, which already include these costs. As a result, the tribunal ordered a reassessment of the duty owed, taking into account the corrected CIF values.

The penalties imposed on KLM Overseas were also upheld, though the exact amount was ordered to be recalculated based on the revised duty assessment.

The tribunal further upheld the penalties on Nitin and Anshul Khandelwal under Section 112 for their roles in the scheme. However, it set aside the penalties imposed under Section 114AA, ruling that there was no evidence of separate misdeclarations by the individuals beyond those already penalized in the firm’s case.

To Read the full text of the Order CLICK HERE

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