Domestic Embroidery-Machine Buyer’s ₹4 Lakh Customs Penalty Set Aside As CESTAT Finds No Proof Buyer Knew Of Importer’s Alleged Misdeclaration

M/s. Macro Agencies imported SWF-brand computerized embroidery machines under an exemption notification.

The Department alleged that the machines lacked the plotter required for the exemption and that fabricated catalogues and an incorrect write-up had been submitted at import.

Macro Agencies admitted the duty liability and paid ₹18,40,250.

Manas Fabrics, which had purchased one machine domestically, was issued a show-cause notice proposing confiscation and penalty under Section 112(b) of the Customs Act, 1962.

The Commissioner imposed a penalty of ₹4,00,000; Macro Agencies had obtained immunity from confiscation and penalty from the Settlement Commission.

Manas Fabrics appealed, contending that it had paid the invoiced price, had not received the import documents, and had neither knowledge of nor involvement in the alleged misdeclaration.

Section 112(b) of the Customs Act, 1962 requires the relevant knowledge or reason to believe that goods are liable to confiscation; ordinary domestic purchase, without evidence of such knowledge or participation, does not by itself establish liability.

Relying on Amritlakshmi Machine Works v. Commissioner of Customs (Import), 2016 (335) E.L.T. 225 (Bom.), the Tribunal noted the distinction between Sections 112(a) and 112(b), and that mere facilitation without knowledge does not constitute abetment; knowledge that goods are imported is not equivalent to knowledge that they are liable to confiscation.

The principle of caveat emptor does not relieve the Department of its burden to prove the statutory ingredients of the alleged contravention.

The alleged misdeclaration and wrongful exemption claim arose at the import stage, while Manas Fabrics bought the machine through domestic invoices and paid the invoiced consideration and applicable taxes.

The invoices described the goods as computerized embroidery machines and did not represent that they qualified for the customs exemption; nor was there evidence that Manas Fabrics knew of or participated in the alleged fabrication or misdeclaration.

Although payment of the price and taxes was not conclusive, the Department could not establish the knowledge, reason to believe, or participation required for penalty merely from the domestic purchase or the purchaser’s failure to obtain import documents.

It set aside the impugned order insofar as it imposed the ₹4,00,000 penalty on Manas Fabrics, with consequential relief, if any, in accordance with law; the confiscation of the goods was not before the Tribunal for consideration.