Holding

The proviso to Section 114A is applicable only when the entire duty is paid; partial payment is not a mitigating circumstance, and the penalty imposed is not infirm.

Summary

The appellant, Mis Carpenter Classic Exim Pvt Ltd, was found by the CESTAT to have under‑valued its import consignments by about 65% to evade customs duty, leading to penalties under Sections 112(a) and 114A of the Customs Act, 1962. The company argued that a payment of Rs. 25 lakhs made before the show‑cause notice should invoke the first proviso of Section 114A, allowing a reduced penalty of 25% of the duty. The Supreme Court held that the proviso applies only when the entire differential duty is paid, and a partial payment does not constitute a mitigating circumstance. It further observed that the CESTAT had not erred in the quantum of penalty imposed, which was not infirm. Consequently, both appeals were dismissed without any order as to costs.

Issues considered

The proviso to Section 114A of the Customs Act, 1962 applies only when the whole differential duty is paid before the show‑cause notice.
Whether a partial payment of duty before the show‑cause notice can be treated as a mitigating circumstance for reduction of penalty.
Whether the quantum of penalty imposed under Section 114A is reasonable and fair.

Legislation cited

Customs Act, 1962s. 108, s. 112(a), s. 114A, s. 28, s. 28AB

Subjects

under‑valuationcustoms duty evasionpenalty reductionSection 114Ashow‑cause noticedifferential dutypenalty discretionCustoms Act

Judgment

I
,;

•
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(2009] 2 S.C.R. 359

...
.,
t
MIS CARPENTER CLASSIC EXIM P. LTD.
v.
A

COMMNR. OF CUSTOMS (IMPORTS) AND ANR.
Civil Appeal No. 3871 of 2006
FEBRUARY 12, 2009
B
[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
SHARMA, JJ.]
~ Customs Act, 1962 :
s.114A, proviso - Evasion of customs duty by under- c
valuation of imported goods - Levy of penalty - Claim for
benefit of reduced penalty in terms of proviso to s. 114A - Held:
On facts, not tenable - The fact that a part of the differential
duty was paid before issuance of show cause notice was not a
-:
mitigating circumstance - Considering the background facts
D
~ it cannot be said that the quantum of penalty imposed suffered
"
/
from any infirmity
It was alleged that the appellant-company under-
. valued its import consignments in order to evade payment ·
of customs duty. Many incriminating documents were E
allegedly seized from the premises of the appellant. The
.._ statement of number of persons including 'R', the
-- "'
Managing Director of the company was recorded under
s.108 of the Customs Act, 1962. On the basis of evidence
on record, the Tribunal (CESTAT) held that there was F
under-valuation to the extent of 65% and accordingly it
levied penalty on 'R' and 'T', a Director of the appellant-
Company under s.112(a) of the Act as also on the
appellant-company under s.114A of the Act.
In appeals to this Court, benefit of reduced penalty G
... in terms of proviso to s.114A was claimed on the ground
•.
that even before the show cause notice was issued, to
prove its bona fides, a sum of Rs. 25 Lakhs had been paid
by the appellants.
359 H
'
!,,

~

360 SUPREME COURT REPORTS [2009) 2 S,C,R. {y

A Dismissing the appeals, the Court ... ,..,...
HELD:1. The relevant proviso in s.114A of the r
Customs Act, 1962 is applicable only where duty has -
been paid. In the instant case Rs.25 lakhs which is not
whole of the differential duty is claimed to have been PC!id I

~-
B before the issuance of the show cause notice. The same
is not a mitigating circumstance. [Para 7] [ 368-F, G]
2. CESTAT has not dealt with the question whether
the quantum of penalty levied under s.114A is reasonable ,
and fair. Eventhough there is no elaborate discussion (
c regarding the quantum of penalty yet considering the
background facts it cannot be said that the quantum of
penalty imposed suffers from any infirmity. [Para 8] [ 368-
A, B]

D
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 3871
of 2006 ,_
·1
:•
From the Judgement and Order dated 27.12.2005 of the
Custom Excise, Service TaxAppelate T~ibunal at in F.O. No. 2239
of 05 & 2241 of 05
E WITH
'
~

Civil Appeal No. 3872 of 2002
)-
S.K. Bagaria, S. Sukumaran, K. Rajeev, for the Appellant. ... .......

Mohan Parasaran, ASG, Krishna Kumar, Shweta Garg, Anil
F Katiyar, Ashish Gopal Garg, B. Krishna. Prasad, for the
Respondent.
The Judgement of the Court was delivered by
DR. ARIJIT PASAYAT, J.
G 1. Challenge in these appeals is to the judgment of
Customs, Excise and Service Tax Appellate Tribunal, South -~
.
Zone, Bangalore (in short the 'CESTAT'). The orders in original \c

passed by the Commissioner of Customs, Bangalore and ...
Commissioner of Customs, Chennai were affirmed subject to
H certain modifications.
\
~L
M/S CARPENTER CLASSIC EXIM P. LTD. V. COMMNR. 361
OF CUSTOMS (IMPORTS) AND ANR. [DR. ARIJIT PASAYAT J.J

2. Seven appeals were filed against the Order-in-Original A
No.27/2004 dated 27.7.2004 by Commissioner of Customs,
Bangalore and Order-in-Original No.2724/2004 dated
30.9.2004 passed by the Commissioner of Customs, Chennai.
The details of the orders challenged before the CESTAT and
the quantum involved are as follows : B
Appeal No Appellant Differential Redemption Penalty
Duty Fine
C/428/04 M/s Rs.59, 12,619/- Rs.15,00,000/- Rs.55,44,396/
Carpenter
Classic Exim c
(P) Ltd.
C/429/04 Ravi
Karumbaiah,
MD,CCEPL - - Rs.10,00,000/-

.-- C/433/04 Sanjeev - - Rs.1,00,000/-
Kabubur D

Appeal No Appellant Differential Redemption Penalty
Duty Fine
C/436/04 Mis Carpenter Rs.36,96,201/- - Rs.9,61,506/-
Classic Exim E
(P) Ltd.
C/437/04 Ravi - - Rs.9,00,000/-
Karumbaiah,
MDCCEPL
C/13/05 Thomas - - Rs.5,00,000/-
Mathew F
C/06105 Sanjeev - - Rs.7,00,000/-
Kabbur

3. Background facts as noted by the CESTAT are as
follows:
G
.i ~ The ORI Officers received intelligence regarding the under-
valuation of imported goods by the appellants. The business
premises and the residential premises of the concerned persons
were searched and incriminating documents were seized.
Statements of S/Shri Ravi Karumbaiah, Managing Director of H
362 SUPREME COURT REPORTS [2009] 2 S.C. R.

A Mis. Carpenter Classic Exim Pvt. Ltd., V.S. Chandan, CADD
Operator were recorded under Section 108 of the Customs Act
1962 (in short the Act). The residential premises of Shri Sanjeev
Kabbur, Ex-Marketing Manager of the company were searched
and some documents were seized. Statement of Sanjeev Kabbur
B was also t~ken. Ms. Jagruthy Sevak was the Executive of the
appellant company, her statement was also recorded. The
investigations conducted revealed that Shri R. Karumbaiah, his
wife, Shri Thomas Mathew and his wife as Directors started M/
s. Carpenter Classics Exim Pvt. Limited (in short 'CCEPL') as
c a private limited company in the year 1995. The company
decided to import their requirements of kitchens from Veneta
Cucine of Italy who are reputed manufacturers. Shri Karumbaiah
and Thomas Mathew hatched a conspiracy to undervalue their
imports for increasing their profits in the local market. For this
o purpose, they had prepared the invoices oflhe foreign supplier
and sent them to Italy. Thomas Mathew floated a front company
in the name of Proma SRL, the manipulated invoices were
raised in the name of the above front company. These invoices
were filed by the appellant before the Customs officials for
E assessment. They made their first import in the year 1995
through ICD, Bangalore. The foreign suppliers invoice and
packing list had been signed by Shri Thomas Mathew on behalf
of Mis. Proma SRL. CCEPL communicated their requirements
along with the drawing to Proma SRL with a copy to Veneta
F CuC::ine. Sometimes the orders were communicated directly to
Veneta Cucine. Proma SRL prepared the bill showing the actual
price in Lira and forwarded the drawings to Veneta Cucine.
Veneta Cucine in turn forwarded the confirmation order to Proma
SRL and CCEPL. These orders of confirmation indicated the
G actual price of the products ordered in Liras. Veneta Cucine at
the time of loading of cor:itainers and shipment prepared their
own packing !ists showing the order numbers of CCEPL and
the destination as CCEPL. CCEPL arranged for their
representatives to be present at the time of loading of the
H containers at the factory premises of Veneta Cucine to ensure
MIS CARPENTER CLASSIC EXIM P. LTD. V. COMMNR. 363
OF CUSTOMS (IMPORTS) AND ANR. [DR ARIJIT PASAYAT J.]

. ,,. not only proper loading but also to relabel the packages to make A
it appear that the shipment had been affected by Proma SRL.
CCEPL presented the invoices prepared in the name of Proma
SRL along with the Bills of Entry which showed substantially lower
prices than what was actually charged by Veneta Cucine. In order
to camouflage the entire conspiracy of under-valuation CCEPL B
collected a certain portion of their sales proceeds from certain
customers in cash. The cash so collected was handed over by
Shri R. Karumbaiah to Mr. Thomas Mathew for settling the
account of Veneta Cucine. The portion containing the prices in
the confirmation order has been cut out in almost all such c
documents ostensibly to hide the actual price from the
customers. Thus, CCEPL substantially under-valued their import
consignments in order to evade payment of customs duty.
Similar modus operandi was adopted to import goods through
• I

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Chennai Port· also. On th~ basis of investigation, show cause
notices were issued to the noticees. After observing the
principles of natural justice, the adjudicating authorities at
Bangalore and Chennai passed orders which, were assailed
~
D

before CESTAT. ~~ .....

Various stands were taken before the CESTAT. The E
CESTAT ,.. noted the fact that the Commissioner has observed
that Ravi Karumbaiah has admitted that Proma SRL was a front
+ company set up in order to get the documents in the name of
th~ said company and to evade payment of customs duties.
The appellants submitted that from the extract of the company's F
house record, it is clear that the Proma SRL is a genuine
company which is in existence. Hence, it is clear that there are
discrepancies in the statement recorded from Ravi Karumbaiah
and as such it is. clear that the statement was obtained under
duress and coerdon. It was submitted that the oversea suppliers
G
~ have granted the appellants substantial discount on the listed
price and it was for this reason that the prices mentioned in the
invoices were deleted. It is a normal trade practice not to reveal
the price of the product at which they are procured by the··
importer/wholesaler to a customer. This is done basically to
H

,.
364 SUPREME COURT REPORTS [2009] 2 S.C.R.

A prevent the customers from knowing the margin of profit enjoyed ~
by a wholesaler/importer; otherwise customer will start
bargaining.
The CESTAT noted that the main charge against the
appellants is that of under valuation of the imported goods using
B a particular modus operandi. Many incriminating documents
were seized from the premises of the appellant. The statements
were recorded under Section 108 of the Act from various
persons. ORI investigation was taken up consequent to
investigations made by Income Tax Department. It appears that
C Ravi Karumbaiah was the Managing Director and the Chief
Promoter of the company. Shri Sanjeev Kabhur was ex-
marketing manager of the company and Shri Thomas Mathew
was the Director of the appellant-company and also a Director
of Proma SRL who issued the invoices relating to the imports.
D Allegation was that with the help of Thomas Mathew invoices
were issued by Proma SRL using it as a front. The actual
suppliers of the imported equipment were Mis Veneta Cucine
and other foreign companies. Investigations established that
value of the imported goods as per Veneta Cucine was different
E from those in the invoices of Proma SRL. The difference
between the two values was settled by Thomas Mathew who
collected differential sale amount during his visit to India and
later settled the same with Veneta Cucine. This probably was
the modus operandi.. The revenue relied upon the following
F documents:
•Photocopy of a Fax dated 214.1997, said to have been
sent by Thomas Mathew bearing No.VC/CC/9708 dated
21.4.97 addressed to Anchise Ballestrieri and Vittorio
Tollardo of Veneta Cucine S.PA. Treviso, Italy.
G
• Photocopy of a fax message No.CCEPL/TM/089/97 r ~
dated 5.4.97, said to have been sent by Carpenter Classics
to Thomas Mathew. •
• Photocopy of a fax message dated 8.10.98, said to
H have been sent to Thomas Mathew by Ravi Karumbaiah.
MIS CARPENTER CLASSIC EXIM P. LTD. V. COMMNR. 365
OF CUSTOMS (IMPORTS) AND ANR. [DR. ARIJIT PASAYAT J.]

·Photocopy of a letter No.CCEL/Proma/1362/97-98 dated A
·~
10 .1.98 to have been sent by Carpenter Classics to Pro ma
SRL.

• Photocopy of Bill of quantity and Order confirmations of
Mis. Veneta Cucine pertaining to shipment called India-
B
13 and lndia-14

• Photocopy of packing list of Mis. Veneta Cucine
pertaining to shipment called lndia-13 and lndia-14.

The CESTAT referred to the statements given by Shri Ravi
Karumbaiah under Section 108 of the Act. It held that the
c
conclusions were supportable as the evidence on record clearly
established that there was under valuation to the extent of 65%
with which Shri Thomas played crucial role in the nefarious
activities. It was held that both Ravi Karumbaiah and Thomas
D
~
Mathew were liable to penalty under Section 112(a) of the Act
""
.( and the company was also liable to penalty under Section 114A
of the Act. The differential duty was to be paid alongwith interest.
The penalty however was deleted so far as Shri Sanjeev Kabbur
is concerned.
E
4. The primary stand is that even before the show cause
notice was issued, to prove its bona fide, a sum of Rs.25 lakhs
was paid. Reference is made by learned counsel for the
appellant to the proviso to Section 114A of the ActJt is submitted
that since reduction in the quantum is permissible, discretion is F
given in the matter of imposition of penalty.

5. Learned counsel for the respondents on the other hand
supported the judgment.

6. Section 112(a) and Section 114A read as follows: G
... ~ "112(a) Penalty for improper importation of goods,
etc. - Any person, -

(a) who, in relation to any goods, does or omits to do any
act which act or omission would render such goods liable H
366 SUPREME COURT REPORTS [2009] 2 S.C.R.

A to confiscation under section 111, or abets the doing or
omission of such an act, or
114A- Penalty for short-levy· or non-levy ·of duty in
certain cases. - Where the duty ha.s not been levied or
has been short-levied or the interest has not been charged
B
or paid or has [xxx] been part paid or the duty or interest
has been erroneously refunded by reason of collusion or
any wilful mis-statement or suppression of facts, the person
who is liable to pay the duty or interest, as the case may
be, as determined under sub-section (2) of section 28
c shall also be liable to pay a penalty equal to the duty or
interest so determined :
Provided that where such duty or interest, as the case
may be, as determined under sub-section (2) of section
D 28, and the interest payable thereon under section 28AB,
is paid within thirty days from the date of the ~
communication of the order of the proper officer
determining such duty, the amount of penalty liable to be
paid by such.person under this section shall be twenty-five Jc
E per cent of the duty or interest, as the case may be, so
determined :
Provided further that the benefit of reduced penalty under
the first proviso shall be available subject to the condition ,
that the' amount of penalty so determined has also been
F pai_d within the period of thirty days referred to in that
proviso:
. Provid_ed also that wherethe duty or"interest'detEirrnined
to be payable is reduced or increased by the
G Commissioner (Appeals), the Appellate Tribunal or, as
the case may be, the court, then, for the purposes of this
section, the duty or interest as reduced or increased, as
the case may be, shall be taken into account :
Provided also that in case where the duty or interest
H
(
I

MIS OARPENTER CLASSIC EXIM P. LTD. V. COMMNR. 367
OF CUSTOMS (IMPORTS) AND ANR. [DR. ARIJIT PASAYAT J.l

~· determined to be payable is increased by the A
Commissioner (Appeals), the Appellate Tribunal or, as
the case may be, the court, then, the benefit of reduced
penalty under the first proviso shall be available if the
amount of the duty or the interest so increased, along with
the interest payable thereon under section 28AB, and B
twenty-five per cent of the consequential increase in penalty
have also been paid within thirty days of the communication
) of the order by which such increase in the duty or interest
takes effect :

Provided also that where any penalty has been levied
c
under
. this section, no penalty
'
shall be levied under section
112 or section 114.
Explanation. - For the removal of doubts, it is hereby
declared that - D
(i) the provisions of this section shall also apply to cases
in which the order determining the duty or interest under
sub-section (2) of section 28 relates to notices issued
prior to the dat!3 on which the finance Act, 2000 receives E
the assent of the !=?resident;

(ii) any_arnount paid to the c::redit of the Central Gov~rnrnent
prior to the date of cgrnmunicaijgn of the order referred to

...
\
in the fire?t proviso or the fourth prqviso shall be cipjusted
against the total ?mount due from such person." F

> 7. The relevant proviso in Section 114A is applicable only
where duty h?s Ileen p~id. In the instant case the claim that
Rs.25 lakhs which is not whole of the differential duty is claimed
to have been paid before the issuance of the show cause notice.

- The same is not a mitigating circumstance.
8. Above being the position, the appeal filed by the
company is without merit and is dismissed. So far as appeal
~

filed by Ravi Karumbaiah is concerned it is to be seen that the
provision of penalty is not mandatory in the sense since H
368 SUPREME COURT REPORTS (2009) 2 S.C.R.

A discretion is given. CESTAT has not dealt with the question +
whether the quantum of penalty levied under Section 114A is
reasonable and fair. It appears that Ravi Karumbaiah was the
Managing Director and Chief Promoter of the appellant company
while Thomas Mathew who was the director of the appellant
B company was also a Director of Prom a SRL. Even though there
is no elaborate discussion regarding the quantum of penalty
yet considering the background facts it cannot be said that the
quantum of penalty imposed suffers from any infirmity. Appeal ..,
filed by Ravi Karumbaiah is also dismissed. Accordingly both
C the appeals are dismissed with no order as to costs.

B.B.B. Appeal dismissed.