Fabric Rolls Missing from Taxpayer’s Custody After Legal Seizure: CESTAT Upholds Redemption Fine [Read Order]

The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that goods seized by customs authorities but later found missing from the taxpayer’s custody remain liable for confiscation, and a redemption fine can still be imposed.

The Revenue had issued a show cause notice to Akay Cones Pvt. Ltd. and Intrade Impex Pvt. Ltd., accusing them of undervaluing imported printed flock fabrics by routing purchases through third-party traders in Singapore and Thailand at artificially low invoice values.

The Directorate of Revenue Intelligence (DRI) alleged that while the goods were actually purchased from manufacturers in the USA and Belgium at around US$ 3-3.5 per meter, the declared invoice value was only US$ 1 per meter. Based on this finding, the department seized 2,366 rolls of imported fabric stored in godowns operated by the respondents.

The seized goods were not physically retained by customs but were instead released into the custody of the respondents under a bond of safe custody (supardginama). Later, during a joint inspection ordered by the Delhi HighCourt, only 683 rolls were found to be in their possession. The remaining 1,683 rolls were missing.

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The Commissioner of Customs confirmed the differential customs duty and confiscated the 683 rolls found during inspection. The Commissioner declined to confiscate the missing goods and did not impose any redemption fine on them, reasoning that since the goods were not physically available at the time of adjudication, confiscation was not possible.

The Revenue counsel challenged this decision before the CESTAT, arguing that confiscation of seized goods does not depend on whether the goods are physically present at the time of adjudication. They argued that the respondents should not be allowed to benefit from the disappearance of goods that were lawfully seized and were missing due to their own failure to comply with the conditions of the custody bond. They submitted that the missing 1,683 rolls must also be deemed confiscated, and a redemption fine should be imposed accordingly.

The respondents did not appear for the hearing. In their earlier submissions, they had argued that confiscation and redemption fines could not be ordered for goods that no longer existed or were not available for seizure.

The two-member bench comprising Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) observed that the goods were lawfully seized and entrusted to the respondents under official bond. The fact that the goods later went missing while in their custody did not erase the basis for confiscation.

The tribunal held that legal confiscation under Section 111 of the Customs Act, 1962, remains valid even if the goods are not physically present. It further held that under Section 125 of the Customs Act, a redemption fine can be imposed in lieu of confiscation, regardless of whether the goods are still available at the time of adjudication.

The tribunal allowed the Revenue’s appeal and held that the missing goods were liable for confiscation and that a redemption fine should be imposed. The case was remanded to the adjudicating authority to determine the appropriate quantum of redemption fine and penalties on the missing goods.

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