CESTAT Upholds Penalty for Misdeclaration and Undervaluation in Import of Glass Chatons, against Importer and Alleged Mastermind [Read Order]

The dispute originated from a consignment imported through the Air Cargo Complex in Chennai, declared as “China Glass Imitation Stone” and weighing 1,239 kg, with a total value of USD 14,868. However, acting on specific intelligence, the Directorate of Revenue Intelligence (DRI) examined the cargo and found it consisted of branded "888" glass chatons, items known to have a significantly higher market value. The Bill of Entry in question was filed under the name of M/s Royal Traders, a proprietorship firm run by G. James. But during the investigation, James admitted that the firm and the IEC code were created at the behest of S. Iqbal, who also financed the business and orchestrated the import transaction.

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The DRI's examination revealed a carefully crafted scheme involving multiple players. Iqbal, according to the statements recorded, allegedly set up the import framework using benami traders and dummy firms. He reportedly made payments for port charges and logistical activities. James, acting as the face of the operation, facilitated documentation and customs filing. Upon interception of the consignment and seizure on 6th October 2010, both James and Iqbal were summoned for questioning. While James confessed to being a front, Iqbal also allegedly admitted the involvement of several other individuals across cities in coordinating the undervaluation and misdeclaration.

The adjudicating authority, through its Order-in-Original No. 686/2012 dated December 14, 2012, concluded that the declared description and value were false. The transaction value was accordingly rejected, and a differential customs duty was demanded and partly appropriated from the importer’s payment of ₹6.88 lakhs. Further, a penalty of ₹10 lakhs was imposed on Iqbal under Sections 112(a) and 114AA of the Customs Act, 1962, while a separate penalty of ₹50,000 was imposed on James under Section 112(b) read with Section 114AA of the Act.

Both Iqbal and James challenged the order before the Tribunal. Iqbal’s primary contention was that he was not involved in the imports and had been implicated merely based on the statements of others. He also argued that he was denied the opportunity to cross-examine witnesses, thereby violating principles of natural justice. James, on the other hand, maintained that he was merely a name-lender and had no real control or benefit from the import activities. Both sought the setting aside of the impugned order and cancellation of the penalties imposed.

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The Bench, comprising Judicial Member P. Dinesha and Technical Member M. Ajit Kumar, took note of the admissions made by both parties during the investigation. The Tribunal asserted that Iqbal, in his own recorded statement, had neither retracted his admission nor denied involvement in the undervaluation scheme. It was held that had there been any contradiction between his statement and those of others, cross-examination could have been meaningful and dismissed the argument of denial of natural justice.

Furthermore, the Tribunal noted that the Revenue had relied not only on the NIDB database but also on several import data sources to determine undervaluation, thereby satisfying the evidentiary requirements under the Customs Valuation Rules. About Iqbal’s alleged masterminding of the operation, the Tribunal observed that:

“His statement explaining the modus operandi is glaringly against him. There has been no denial either during investigation or adjudication proceedings. This lends credibility to the Revenue’s case and justifies the penalty imposed.”

The Tribunal upheld the order passed by the adjudicating authority in full, including the penalties. As a result, the appeals were dismissed.

The tribunal warns importers and intermediaries against using benami arrangements to bypass customs valuation norms

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