Relief for Importers CESTAT Clarifies on Section 112(a)(ii) Penalty
Penalty under Section 112(a)(ii) of the Customs Act, 1962, has often been a matter of concern for importers dealing with duty short-payments. In a recent ruling, the CESTAT (Customs, Excise and Service Tax Appellate Tribunal) has offered clarity — stating that this penalty cannot be imposed for mere short payment of duty, unless accompanied by clear evidence of deliberate evasion or fraud.
What Is Section 112(a)(ii) of the Customs Act?
Section 112 deals with penalties for improper importation of goods, and clause (a)(ii) specifically targets actions that result in evasion of duty or contravention of import rules.
Under this section:
- Penalties may be imposed on any person who abets or is concerned in evasion.
- Clause (a)(ii) applies only when goods are liable for confiscation and there’s intent to evade.
CESTAT Ruling: What Was the Case?
- The case involved alleged short payment of duty by the importer.
- Authorities invoked Section 112(a)(ii) to impose a penalty.
- The importer challenged the order, arguing there was no willful evasion or suppression.
Tribunal’s Key Observations:
- Short payment due to miscalculation or classification cannot attract penalty under this section.
- The absence of mala fide intent or active concealment was crucial.
- Mere procedural lapse or bonafide error ≠ evasion.
Held: Penalty under Section 112(a)(ii) cannot be imposed without establishing a deliberate attempt to evade duty.
Legal Angle & Precedents
This ruling aligns with multiple past decisions where:
- Mens rea (guilty mind) is considered essential before imposing penalties under penal sections.
- Delhi High Court and Bombay HC have also observed that bonafide classification disputes or valuation differences should not lead to penal consequences under Section 112 unless clear fraud is proven.
Expert View: How Should Importers Proceed?
According to customs law consultants:
- Document every classification and valuation judgment during import to build good faith.
- If a shortfall occurs, immediate voluntary rectification strengthens your case.
- Avoid silence or non-disclosure, which may be construed as intent to evade.
Practical Implications for Taxpayers and Consultants
This ruling offers major relief:
- Importers facing notices under Section 112(a)(ii) for technical or clerical short-payments can cite this case.
- Customs consultants and legal advisors must distinguish between bonafide errors and deliberate fraud before advising clients on appeal strategies.
Table: Section 112(a)(ii) – Penalty vs. Short Payment
| Scenario | Can Penalty Apply? | Remarks |
|---|---|---|
| Bonafide valuation or HS code error | ❌ | No mens rea, not liable under 112(a)(ii) |
| Deliberate undervaluation or concealment | ✅ | Intent to evade duty = penalty possible |
| Clerical/arithmetical miscalculation | ❌ | Procedural error, not fraudulent |
| Non-disclosure of actual quantity | ✅ | May trigger penalty if intent is proven |
Summary for Snippet:
CESTAT clarifies that penalty under Section 112(a)(ii) of the Customs Act cannot be imposed for short-paid duty unless intent to evade is proven. Bonafide errors or classification disputes alone don’t attract penal action.
FAQ: Penalty under Section 112(a)(ii)
Q1. Can short payment due to calculation error attract penalty under Section 112(a)(ii)?
A: No. Unless there is a proven intention to evade duty, such errors are not penalized.
Q2. Is mens rea required for penalty under Section 112?
A: Yes, courts have repeatedly held that guilty intent is a prerequisite for penalty under this section.
Q3. What should importers do if served a penalty notice under 112(a)(ii)?
A: Review the grounds of the notice, gather supporting documentation, and file an appeal citing relevant rulings.