Mis-declaration Not Proved: CESTAT Rules Scrap Classification Alone Cannot Trigger Penal Action in Customs Valuation Disputes [Read Order]

The bench of the Customs, Excise and Service Tax Appellate Tribunal, Chandigarh (CESTAT), held that the allegation of mis-declaration could not be sustained in the absence of evidence and ruled that mere variation in scrap classification cannot justify penal action under customs law. Accordingly, the bench set aside the redemption fine and penalty imposed on the importer in a customs valuation dispute.

M/s Hansco Iron and Steel Pvt. Ltd. imported 135.840 MT of heavy melting scrap through a Bill of Entry and opted for a first-check examination. The Department sought enhancement of the declared value of 264 USD per metric tonne to 275 USD per metric tonne, which the appellant accepted for clearance purposes.

Subsequently, on the basis of a Chartered Engineer’s examination, the Revenue alleged that 90% of the consignment comprised re-rollable scrap and adopted a value of 330 USD per metric tonne. The adjudicating authority imposed a redemption fine of ₹1,50,000 and penalty of ₹50,000, which were upheld by the Commissioner (Appeals). Aggrieved, the appellant approached the Tribunal challenging the levy of redemption fine and penalty.

Sudeep Singh Bhangoo appeared for the appellant arguing that the declaration was made in accordance with the documents received from the foreign exporter. He contended that the Chartered Engineer’s report was based on estimation without proper sampling and thus could not form the basis for alleging mis-declaration. Further, highlighted that there was no evidence of any excess payment to the supplier, asserting that penalty cannot be imposed without establishing mens rea.

The Bench comprising S. S. Garg, Judicial Member and P. Anjani Kumar, Technical Member held that the Revenue had failed to substantiate the allegation of mis-declaration. The bench noted that there was only slight variation in weight, and that the appellant had opted for a first-check examination while declaring the goods as per import documents.

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The bench reasoned that a mere difference in interpretation of scrap type, heavy melting scrap versus re-rollable scrap, does not by itself establish mis-declaration. Further, held that there was no proof of any excess or undisclosed payment to support the charge of under-valuation. The acceptance of an enhanced value to avoid clearance delays did not amount to admission of mis-declaration.

In the absence of material evidence, the bench ruled that penal consequences could not be invoked. Accordingly, CESTAT allowed the appeal to the extent of setting aside the redemption fine and penalty imposed on the appellant.

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