Holding

The penalty under Section 114A is limited to the duty amount, while the fine under Section 125 may be upheld if the market price justifies the amount.

Summary

M/s. U.K. Enterprises imported integrated circuits from Hong Kong and the Customs authorities deemed the declared value to be severely undervalued, fixing a transaction value of Rs.23.4 lakh and demanding differential duty of Rs.4.91 lakh. The Commissioner imposed a penalty of Rs.50,000 under Section 114A and a redemption fine of Rs.2.5 lakh under Section 125, which the Tribunal later enhanced to Rs.10 lakh each. The appellant challenged the enhancements, arguing that the penalty under Section 114A cannot exceed the duty payable and that the fine under Section 125 cannot exceed the market price of the goods less duty. The Supreme Court held that the penalty must be limited to the amount of duty, reducing it to Rs.4.91 lakh, but upheld the Tribunal's increase of the fine, finding that the market price could not be less than Rs.10 lakh. Consequently, the appeals were disposed of, with the penalty reduced and the fine enhancement left intact.

Issues considered

The penalty under Section 114A of the Customs Act cannot exceed the duty demanded.
Whether the fine in lieu of confiscation under Section 125 can be imposed above the market price of the goods less duty.
The validity of the Tribunal's enhancement of both the penalty and the fine.

Legislation cited

Customs Act, 1962s. 112, s. 114A, s. 125

Subjects

customs dutyundervaluationpenaltySection 114ASection 125fine in lieu of confiscationimported goodsintegrated circuitsCustoms Act

Judgment

7-J
A M/S. U.K. ENTERPRISES & ANR.
v.
COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE &
ANR.

B NOVEMBER 22, 2007
+
[ASHOK BHAN AND V.S. SIRPURKAR, JJ.]

Customs Act, I 962; Ss. 112, 114A & I 25:
c
Undervaluation-Import ofIntegrated circuits-Levy ofcustoms
duty based upon actual price-Differential amount ofduty-Demand
of-Penalty & redemption fine-Imposition of-Appeal and cross-
appeals-Tribunal enhanced the penalty and the fine-On appeal,
D Held: Imposing ofenhanced penalty by the Tribunal was against the
express provisions oflaw-Hence, penalty reduced to the duty amount
)..
in terms ofthe provision u/s. I I 4A of the Act-In the facts and under
the circumstances of the case, no interference in the order of the
Tribunal enhancing the fine is calledfor.
E
Appellants-assessee had imported Integrated Circuits (ICs) from
a firm in Hong Kong. Directorate of Revenue Intelligence (DRI) after
examining the consignment found that ICs had been manufactured by
a foreign firm. Based upon the information from the firm, the authorities .'
came to the conclusion that the declared price of the goods was
F ~-
undervalued. Taking into consideration the actual price of the goods in
question and after adding 10% towards profit of the dealer, the
authorities fixed the value of the goods at Rs.23.4 Lac as against the
declared value ofover 2.3 Lac (CIF Goa). Accordingly, the authorities
demanded the differential amount of duty ofRs.4,91,000/-and imposed
G
penalty ofRs.50,000/-under Section 114A of the Customs Act on the
..._.,
firm and Rs.50,000/- on the proprietor of the firm under Section 112 of
the Act. Redemption fine ofRs.2,50.000/- under Section 125 of the Act
was also imposed on the firm. Both the assessee as well as the Revenue
H 436
j
,

MIS. U.K. ENTERPRISES v. COMMISSIONER OF 437
CUSTOMS AND CENTRAL EXCISE
filed separate appeals before the Tribunal. The Customs, Excise and A
Gold (Control) Appellate Tribunal dismissed the appeal filed by the
assessee and accepted the appeal filed by the Revenue and enhanced
the amount of penalty on the assessee to Rs.10,00,000/-. However, the
penalty imposed on the firm was set aside and the redemption fine was
also enhanced to Rs.10,00,000/-. Hence the present appeals. B
•-4
Appellants contended that the maximum penalty which could be
imposed under Section 114A of the Act can be equal to the duty
demanded which, in the present case, was Rs.4,91,000/- whereas the
Tribunal has enhanced it to Rs.10,00,000/-; and that under Section 125
of the Act, Revenue could impose the fine in lieu of confiscation as may
c
be deemed fit but it could not exceed the market price of the goods
confiscated, less in the case of imported goods the duty chargeable
thereon. But the fine in the instant case has been increased to
Rs.10,00,000/- without ascertaining the market value of the goods
D
A_.
confiscated.
Disposing of the appeals, the Court
HELD: 1. The amount of penalty could not be more than the
amount equal to the duty chargeable. A bare perusal of Section 114A E
of the Customs Act makes it clear that the liability to pay penalty can
be equal to the amount of duty and could not exceed the payable duty.
Hence, the penalty imposed was against the express provisions oflaw.
In these circumstances, the amount of penalty is reduced to Rs.
_.... 4,91,000/-. [Para 9] [442-D, E, F] F
'
2. Though the Tribunal had enhanced the amount offine in lieu of
confiscation to Rs.10,00,000/-without determining the market price of
the goods in question on the date of imposing the fine, but, in the facts
and circumstances of the case, this Court is not inclined to interfere with
the order of the Tribunal insofar as the enhancement of the fine is G
concerned, as it is evident from the facts placed before this Court that
the market price of the goods could not be less than Rs.10,00,000/-.
Admittedly, the value of the goods has been fixed at Rs.23.4 Lac, which
includes the profit of the dealer, as against the declared value of more
H
438 SUPREME COURT REPORTS [2007] 12 S.C.R.
~· '
A than Rs.2.3 Lac (CIF Goa). The purchase price would be deemed to be
Rs.23.4 Lac minus 10% which was added as profit of the dealer which
comes to Rs.21,06,000/-approx. Under the circumstances, it cannot be
said that the market price of the goods, on the date ofimposition offine,
could not be less than the purchase price thereof. Even if it is assumed
B that the appellants sold the goods at a loss, it could not be less than half
of the purchase price. The Revenue shall now proceed with the ~

computation of the amount due towards penalty and fine in lieu of
confiscation in terms of this order. [Paras 10 and 11)
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1389-
c 1392 of 2002.
From the final Order No. 392 to 395/2001-Adated 6.11.2001 of
the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi in
Appeal No. 39-41/2001-A and C/372/2001-A.
D L.P. Asthana and Praveena Gautam (for Pramod B. Agarwala) for
).
the Appellants.
V. Shekhar, T.V. Ratnam and Abhigya, Pradeep K. Dubey (for B.
Krishna Prasad) for the Respondents.
E The Judgment of the Court was delivered by
ASH OK BHAN, J. I. TI1ese appeals are directed against the order
dated 06th December 2001 passed by the Customs, Excise & Gold
(Control) Appellate Tribunal (Now known as Customs, Excise & Service
F Tax Appellate Tribunal) [for short, 'the Tribunal'] in Appeal No.C/39-
41/2001-A filed by the appellants and No.C/372/2001-A filed by the
Revenue whereby and whereunder the Tribunal, while dismissing the
appeal filed by the appellants, accepted the appeal filed by the Revenue
and enhanced the amount of penalty under Section 114A of the Customs
G Act, 1962 (for short 'the Act') from Rs.50,000/- as imposed by the
Commissioner of Customs, Goa to Rs. l 0,00,000/- and the redemption
fine under Section 125 of the Act from Rs.2,50,000/- to Rs.
"""'
10,00,000/-.
2. The assessee-appellants herein had imported Integrated Circuits
H
MIS. U.K. ENTERPRISES v. COMMISSIONER OF 439
CUSTOMS AND CENTRAL EXCISE [BHAN, J.]
(ICs) from a finn in Hong Kong by declaring the value of the consignment A
at HK $40,492.49. Directorate of Revenue Intelligence (DRI) authorities
at Goa examined the consignment and upon examination thereof, found
certain stickers and labels indicative of the particulars of the manufacture
and transport of the goods by air etc. inside the cartons in which ICs were
packed. After investigation, the authorities found that ICs had been B
manufactured by Mis. Philips Ltd., Mis. Motorola (1) Ltd. and Mis. NEC.
They sought infonnation from the concerned manufacturers as to the cost
of the ICs. Manufacturers of six out of the seven varieties ofICs furnished
the said information to the authorities. Based upon the said information,
the authorities came to the conclusion that the declared price of the goods C
was undervalued. Hence, after adding 10% towards profit of the dealer
in Hong Kong, the authorities fixed the value of the goods at Rs.23.4 Lac
as against the declared value of over 2.3 Lac (CIF Goa). On the said
value fixed by the authorities, the differential duty ofRs.4,91,000/- was
demanded and paid by the appellant. D
3. While framing the assessment, the authority in original levied a
penalty of Rs.50,000/- under Section l l 4A of the Act on the firm and
Rs.50,000/- on the proprietor of the firm under Section 112 of the Act.
Redemption fine ofRs.2,50,000/- under Section 125 of the Act was also E
imposed on the firm.
4. The assessee as well as the Revenue filed separate appeals before
the Tribunal. The Tribunal dismissed the appeal filed by the assessee and
accepted the appeal filed by the Revenue and enhanced the amount of
penalty on the proprietor of the firm to Rs.10,00,000/-. The penalty F
imposed on the firm was set aside. Insofar as the redemption fine is
concerned, the same was enhanced to Rs. l 0,00,000/-.
5. Being aggrieved by the order of the Tribunal, the assessee has
come up in appeal before us.
G
.__,.
6. Shri L.P. Asthana, learned counsel appearing for the appellants
did not either dispute the value of the goods which was fixed by the
authorities at Rs.23.4 Lac or the amount of differential duty. He has
not disputed the culpability of the appellants as well. The only point raised
H
t
440 SUPREME COURT REPORTS [2007] 12 S.C.R.
- ,.__/ '

A by him is regarding the enhancement of the amount of penalty as well. as
the redemption fine.
I-
7. In this context it would be appropriate to refer to the relevant
sections, viz., Section 114A and Section 125 of the Act which read as
under:
B
"l 14A. Penalty for short-lev)i or non-levy of duty in certain cases.-
Where the duty has not been levied or has not been short- levied
or the interest has not been charged or paid or has been part paid
or the duty or interest has been erroneously refunded by reason
c 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 shall, also
be liable to pay a penalty equal to the duty or interest so
determined:
D
Provided that where such duty or interest, as the case may be,
as determined under sub-section (2) of section 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
E
such person under this section shall be twenty-five 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
F amount of penalty so determined has also been paid within the
period of thirty days referred to in that proviso:
Provided also that where the duty or interest determined to be
payable is reduced or increased by the Commissioner (Appeals),
the Appellate Tribunal or, as the case may be, the court, then, for
G
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 where the duty or interest determined to be
payable is increased by the Commissioner (Appeals), the Appellate
H
M/S. U.K. ENTERPRISES v. COMMISSIONER OF 441
CUSTOMS AND CENTRAL EXCISE [BHAN, J.]
Tribunal or, as the case may be, the court, then, the benefit of A
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 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 B
\
-I increase in the duty or interest takes effect:
Provided also that where any penalty has been levied under
this section, no penalty shall be levied under section 112 or section
114.
c
Explanation.-For the removal of doubts, it is hereby declared
that-
(i) the provisions of this section shall also apply to cases in which
j '·
the order determining the duty or interest under sub-section D
(2) of section 28 relates to notices issued prior to the date on
which the Finance Act, 2000 receives the assent of the
President;
(ii) any amount paid to the credit of the Central Government prior
to the date of communication of the order referred to in the E
first proviso or the fourth proviso shall be adjusted against the
total amount due from such person."
125. Option to pay fine in lieu of confiscation.-(1) Whenever
confiscation of any goods is authorised by this Act, the officer
adjudging it may, in the case of any goods, the importation or F
exportation whereof is prohibited under this Act or under any other
law for the time being in force, and shall, in the case of any other
goods, give to the owner of the goods or, where such owner is
not known, the person from whose possession or custody such
goods have been seized, an option to pay in lieu of confiscation G
such fine as the said officer thinks fit:
Provided that, without prejudice to the provisions of the proviso
to sub-section(2) of section 115, such fine shall not exceed the
H
t
442 SUPREME COURT REPORTS [2007] 12 S.C.R.

A market price of the goods confiscated, less in the case of imported
goods the duty chargeable thereon.
(2) Where any fine in lieu of confiscation of goods is imposed under
sub-section (1) the owner such goods or the person referred to in
sub-section( I) shall, in addition, be liable to any duty and charges
B
payable in respect of such goods."

8. According to the learned counsel for the appellants, the maximum
penalty which could be imposed under Section 114A of the Act can
be equal to the duty demanded which, in the present case, was
C Rs.4,91,000/-whereas the Tribunal has enhanced it to Rs.10,00,000/-.
It is further submitted by him that under Section 125 of the Act the
Commissioner could impose the fine in lieu of confiscation as he deemed
fit but it could not exceed the market price of the goods confiscated, less
in the case of imported goods the duty chargeable thereon. According to
D him, the fine under the said Section has been increased to Rs. 10,00,000/
- without ascertaining the market value of the goods confiscated.
9. After hearing learned counsel for the parties, we find substance
in the first submission of the learned counsel for the appellants, that the
E amount of penalty could not be more than the amount equal to the duty
chargeable. A bare perusal of Section 114A makes it clear that the liability
to pay penalty can be equal to the amount of duty and could not exceed
the payable duty. Hence, the penalty imposed was against the express
provisions of law. In these circumstances, we reduce the amount of penalty
F under Section 114A to Rs.4.91,000/-.
I0. Although we agree with the learned counsel for the appellants
that the Tribunal had enhanced the amount of fine in lieu of confiscation
to Rs. I0,00,000/- without determining the market price of the goods in
question on the date of imposing the fine, but, in the facts and
G circumstances of the case, we are not inclined to interfere with the order
of the Tribunal insofar as the enhancement of the said fine is concerned,
as it is evident from the facts placed before us that the market price of
the goods could not be less than Rs. I0,00,000/-. Admittedly, the value
of the goods has been fixed at Rs.23.4 Lac, which includes the profit of
H
MIS. U.K. ENTERPRISES v. COMMISSIONER OF 443
CUSTOMS AND CENTRAL EXCISE [BHAN, J.]
the dealer, as against the declared value of more than Rs.2.3 Lac (CIF A
Goa). The purchase price would be deemed to be Rs.23.4 Lac minus
10% which was added as profit of the dealer which comes to
Rs.21,06,000/- approx. Under the circumstances, it cannot be said that
the market price of the goods was not known or determinable. Even
otherwise, taking a common sense view, we conclude that the market price B
of the goods, on the date of imposition of fine, could not be less than the
purchase price thereof. Even if it is assumed that the appellants sold the
goods at a loss, it could not be less than half of the purchase price.
11. For the reasons stated above, the appeals are disposed of in C
the above terms. The Department shall now proceed with the computation
of the amount due towards penalty and fine in lieu of confiscation in terms
of this order.
S.K.S. Appeals disposed of.