Evading Customs Duty in India?  Here’s How Penalty Proceedings Unfold

Although customs duty is not necessarily the most exciting part of international business, it must be taken seriously nonetheless. Avoiding customs duty can be extremely costly, whether as a consumer importing goods into the country or as a business importing goods into the country.

Let’s examine the consequences of evading customs duties and the procedure for imposing penalties in this article.

What is Customs Duty?

Customs Duty refers to the duty levied on the import of the goods as well as export of the goods.Duty levied on the goods imported into the country is Import Duty. Similarly,the duty levied on the goods exported out of the country is Export Duty.

What Is Customs Duty Evasion?

During the importation or exportation of goods from one nation to another certain taxes are levied on them known as customs duty. The duty evasion occurs when the individuals or businesses intentionally avoid paying those taxes. These are done by  undervaluing goods, delusively declaring the type of item,sneaking items in luggage or misapplying exemption provisions.

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How Customs Duty Evasion Is Detected?

To spot customs duty evasion and smuggling, India uses a system called DIGIT. It was first meant for DRI officers, but later, Customs officers at ports and airports also started adding data to it. While this meant extra work for them, especially with tight deadlines, they eventually got used to it.

By 2019, a fair amount of information had been recorded in DIGIT. Each entry typically includes how the offence was carried out, details of the people involved, the goods in question, the amount of duty recovered (if any), the Show Cause Notice issued, and the final decision on the case. This data has made DIGIT a useful tool in spotting patterns, improving enforcement, and identifying more cases of customs duty evasion.

Show Cause Notice and Adjudication in Customs Duty Evasion

In cases of customs duty evasion, the department first issues a Show Cause Notice explaining what the offence is and asking the person to respond. It gives them a chance to explain their side before any action is taken. After that, the case goes through adjudication, where a Customs officer reviews the facts, hears both sides, and gives a final decision either confirming the duty and penalty or dropping the case.

Penalty Provisions

The Customs Act, 1962, contains diverse provisions that authorize authorities to impose penalties for customs duty evasion.These provisions cover both monetary fines and criminal consequences, depending on the nature and severity of the offence.

1.Section 112 – Penalty for Improper Importation

Any person involved in an act (or omission) that leads to goods becoming liable for confiscation under Section 111, or helps in such an act, or knowingly deals with such goods (like carrying, storing, selling, etc.), is liable for penalties as follows:

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• Prohibited Goods:
   If the goods are prohibited under the Customs Act or any other law, the penalty can go up to the value of the goods or ₹5,000, whichever is higher.
• Dutiable (Non-Prohibited) Goods:
   For goods where duty is evaded, the penalty can go up to 10% of the evaded duty or ₹5,000, whichever is higher.
  Concession: If the duty and interest (under Section 28AA) are paid within 30 days of the order, only 25% of the penalty needs to be paid.
• Over-Valued Goods:
   If the declared value is higher than the actual value, the penalty can be up to the difference in value or ₹5,000, whichever is higher.
• Prohibited + Over-Valued Goods:
   Penalty can be up to the value of goods, the value difference, or ₹5,000, whichever is the highest.
• Duty Evaded + Over-Valued Goods:
   Penalty can be up to the evaded duty, the value difference, or ₹5,000, whichever is the highest.

2.Section 114 – Penalty for Improper Exportation

Anyone who does, or fails to do, something that makes goods liable for confiscation under Section 113 or helps someone else do so, can face the following penalties:

• Prohibited Goods:
   If the goods are prohibited under the Customs Act or any other law, the penalty can go up to three times the value of the goods (as declared by the exporter or as assessed, whichever is higher).
• Dutiable (Non-Prohibited) Goods:
   If duty is being evaded, the penalty can go up to 10% of the evaded duty or ₹5,000, whichever is higher.
  Concession: If the exporter pays the duty (as determined under Section 28(8)) and interest (under Section 28AA) within 30 days of receiving the order, they only need to pay 25% of the penalty.
• Other Goods:
   For goods that are neither prohibited nor dutiable, the penalty can go up to the full value of the goods (declared or assessed-whichever is higher).

3.Section 114 A-Mandatory Penalty for Short-levy or Non-levy of duty in certain cases 

If customs duty or interest is not charged, short paid, or wrongly refunded due to collusion, willful misstatement, or suppression of facts, the person must pay a penalty equal to the amount of duty or interest. However, if the duty or interest and the applicable interest are paid within 30 days of receiving the order, the penalty is reduced to 25%.

If the duty or interest is later changed by an appeal or court order, the revised amount will be considered. If it increases, the reduced penalty benefit still applies if the person pays the increased amount, interest, and 25% of the extra penalty within 30 days of that order.Also, if penalty is charged under this section, no penalty will be imposed under Section 112 or 114 for the same issue.

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4. Section114 AA- Penalty for Use of False Documents

If a person knowingly or intentionally makes or uses any false or incorrect declaration, statement, or document in connection with any business under the Customs Act, they can be penalized. The penalty can be up to five times the value of the goods involved.

5.Section 116-Penalty for Non Accounting for Goods

If goods loaded for import into India, goods transshipped, or coastal goods carried in a conveyance are not unloaded at their destination, or if the quantity unloaded is less than expected, and the reason for this is not satisfactorily explained to the Customs authorities, the person in charge of the conveyance will be liable to pay a penalty.

• For imported goods or transshipped goods, the penalty can be up to twice the duty that would have been charged on the goods not unloaded or the deficient goods.
• For coastal goods, the penalty can be up to twice the export duty that would have been charged on the goods not unloaded or the deficient goods.

6. Section 117-Penalty for Contravention

Anyone who violates any provision of the Customs Act, 1962, or helps someone else violate it, or fails to follow any duty under the Act where no specific penalty is mentioned, can be fined up to ₹1 lakh.

Conclusion

Evading customs duty can cause  serious repercussions which includes hefty fines, seizure of goods, and even imprisonment  in certain cases.  Even though it makes one to bypass the the rules and make momentary gains, the potential risks far outweigh any short-term gains. The smarter approach is to stay compliant with customs regulations. It is the right and most effective way to avoid legal trouble and protect your interests.

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