Smuggling of Undeclared Memory Cards Concealed in Imported Metal Clips: CESTAT Upholds Penalty and Confiscation of Goods Against Importers [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upholds the penalty given to father and son who had a shop for selling memory cards. The goods smuggled included memory cards and adaptors which were concealed in imported metal clips. The confiscation of goods ordered by the Director of Revenue Intelligence (DRI) was also held valid.

CESTAT also ruled that the principle of audi alteram partem cannot be applied when personal hearings were listed on several dates. Further, the cross-examination proceedings also provide sufficient opportunity for the appellants to be heard.

The case focuses on the owner of an exporting company, M/s Ishan Exports, a G-Card holder and a father-son duo who paid for this service of exporting memory cards.

The facts state that in a consignment covered under an Airway Bill dated 13.04.2007 arriving from Hong Kong to Delhi having “clips for multimedia cards (Metal Parts)” contained memory cards concealed in them. A Bill of Entry (“BoE”) was soon filed by the department on 18.04.2007. The goods declared for in the BoE were different and the memory cards were not declared at all. Upon inquiry, the owner of M/s Ishan Exports, Mr. Uday Bhan Singh, told the Customs House Agent that the goods belonged to Mahender who was helped by his son Bhupinder. They had offered to pay INR 5000 per consignment to him.

The DRI then issued a show cause notice dated 16.10.2007 to confiscate the seized goods and penalise the violation. The Commissioner found the notice to be meritorious and issued a corrigendum dated 10.06.2008 and ordered payment of redemption fines. The matter then was appealed by the assessees Mahender and Bhupender to the Customs Excise and Service Tax Appellate Tribunal (CESTAT) on the following grounds:

1. That there had been improper appreciation of facts by Commissioner of Customs;
2. That the order was bad in law due to improper application to impose penalty under section 114A;
3. That principles of natural justice were violated as there was insufficient opportunity to be heard for personal hearing;
4. That the Commissioner failed to reason why the personal penalty was imposed;
5. That a fair hearing is sought because of the improper consideration of issues by the Commissioner.

The respondent counsel clarified that misdeclaration was reported to evade payment of duty. Further, they said that the personal hearing was fixed on 20.12.2007, 18.02.2008 and on 20.08.2008 and all notices were informed. Furthermore, the Settlement Commission already rejected his application and the goods did not match the description in the invoices therefore transaction value was rejected and re-determined. Lastly, the penalty under Section 114A of the Income Tax Act, 1961 is a mandatory penalty to be imposed if duty is not paid in full because of suppression of facts or willful mis-statement. In this particular case, the memory cards were imported but not declared and thus the act of importing them is to be penalised.

The bench found the smuggling case to be thorough with the procedures, taking the BoE in consideration. Further investigation revealed that the father-son duo had a shop of memory cards, which implicated them in the matter. Additionally, personal hearings were listed and cross-examinations provided additional opportunity to be heard.

The bench, comprising Justice Dilip Gupta (President) and P. V. Subba Rao (Technical), also observed that the compliance with Section 14 of the Act read with Customs Valuation Rules, 1988 allows re-determination of transfer value. Finally, Sections 114A, 111(f), (ii), (l) and (m) were held to be correctly imposed for the confiscation of the imported goods.

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