CESTAT Mumbai: Confiscation, Penalty & ₹3 Crore Redemption Fine Set Aside; Amendment to Section 3(12) Held Prospective
Pranav B Prem
The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has ruled that confiscation, penalty, and redemption fine imposed on G Amphray Laboratories in connection with imports worth ₹54.13 crore under the Advance Authorisation (AA) Scheme during 2017–18 were unsustainable in law. The Bench comprising Ajay Sharma (Judicial Member) and C.J. Mathew (Technical Member) held that while Integrated Goods and Services Tax (IGST) was payable due to the non-fulfillment of the pre-import condition, other punitive measures under the Customs Act lacked statutory authority.
Background
The appellant, G Amphray Laboratories, had availed IGST exemption on imports made under the Advance Authorisation Scheme between October 2017 and December 2018. The exemption was governed by Notification No. 79/2017-Cus dated 13.10.2017, which introduced a pre-import condition mandating that imported inputs be used for export production before any domestic sale. In January 2019, the government withdrew this pre-import condition. However, the Department of Customs alleged that the company had used other inputs for export instead of the duty-exempt imported goods, thereby violating the condition. A show cause notice was issued demanding IGST along with interest, penalty, confiscation, and a ₹3 crore redemption fine. The appellant had already paid ₹6.84 crore in IGST and ₹4.94 crore in interest in July 2023, following the Supreme Court’s ruling in Union of India v. Cosmo Films Ltd. (2024), which upheld the IGST levy in such cases.
Arguments by the Appellant
Appearing through Dr. Sujay Kantawala, the appellant argued that since the liability pertained to IGST under Section 3(7) of the Customs Tariff Act, 1975, and not to customs duty under Section 12 of the Customs Act, 1962, the provisions for penalty, confiscation, or interest were not applicable. It was submitted that Section 3(12) of the Customs Tariff Act—the provision dealing with additional duties—did not authorize the imposition of such punitive measures prior to its amendment by the Finance (No. 2) Act, 2024, which came into effect on August 16, 2024. The counsel emphasized that the amendment was prospective, as clarified by the Bombay High Court in A.R. Sulphonates Pvt. Ltd., and could not be applied to transactions from 2017–18.
Tribunal’s Observations
The CESTAT agreed with the appellant’s contention, observing that Section 3(12) did not confer power to levy interest, penalties, or confiscation prior to its 2024 amendment. “The amendment brought by Finance (No. 2) Act, 2024, to Section 3(12) of the Customs Tariff Act, 1975, is prospective in nature. Therefore, prior to August 16, 2024, the authority to impose penalties or order confiscation under the Customs Act did not extend to IGST liabilities arising under the Tariff Act,” the Bench noted.
The Tribunal relied on its earlier decision in Chiripal Poly Films Ltd. and the Bombay High Court’s ruling in A.R. Sulphonates Pvt. Ltd., both of which held that in the absence of explicit statutory authorization, punitive actions such as confiscation or penalty cannot be imposed for recovery of IGST. The Bench clarified that the breach of pre-import conditions entitled the department only to recover IGST, and not to invoke provisions such as Section 111(o) (confiscation) or Section 114A (penalty) of the Customs Act.
Holding that the IGST liability had already been discharged and that other punitive measures lacked legal basis, the Tribunal ruled: “The confiscation of goods, redemption fine of ₹3 crore, and penalty under Section 114A are without authority of law and cannot be sustained.” Accordingly, the CESTAT set aside the confiscation order, redemption fine, and penalty, and directed closure of proceedings against G Amphray Laboratories.
Appearance
Counsel For Appellant: Dr Sujay Kantawala
Counsel For Respondent: AK Shrivastava, Assistant Commissioner (AR)
Cause Title: G Amphray Laboratories Versus Commissioner of Customs (NS-III)
Case No: Final Order No: 86721/2025
Coram: Ajay Sharma (Judicial Member), C.J. Mathew (Technical Member)
