Non-Mention Of Serial Numbers In Pre-2015 Watch Imports Cannot Prove Smuggling: CESTAT
Pranav B Prem
The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a major customs demand and confiscation order involving 838 high-end luxury watches, holding that the mere non-mention of serial numbers in import documents prior to 2015 cannot, by itself, establish smuggling under the Customs Act, 1962. The Bench comprising Justice Dilip Gupta, President, and C.J. Mathew, Member (Technical) held that the proceedings were hopelessly barred by limitation and that the Customs Department had wrongly invoked the reverse burden of proof under Section 123 of the Customs Act without adducing any independent evidence of smuggling.
The appeals arose from an Order-in-Original dated 12 December 2019 passed by the Principal Commissioner of Customs (Preventive), New Delhi. By the impugned order, the Commissioner had directed confiscation of 837 watches from M/s Kapoor Watch Co. Pvt. Ltd. and one watch from its group concern, Kapoor N Company, confirmed a customs duty demand of over ₹4.66 crore along with interest, and imposed penalties on the company, its directors, partners and an employee.
The case originated from an investigation initiated by the Directorate of Revenue Intelligence (DRI) in October 2012 after a foreign national was intercepted at the IGI Airport while allegedly handing over two undeclared luxury watches to an employee of the appellant company. Based on statements recorded during the interception, DRI conducted searches at multiple showrooms, service centres and residences connected with the appellants, during which over 4,400 watches and other foreign-origin goods were examined and detained.
Although a large number of watches were initially detained, the show cause notice issued on 6 October 2017 restricted the proceedings to 838 watches. According to the Department, these watches were liable to confiscation as smuggled goods on the grounds that in 807 cases, the import documents did not mention serial numbers; in 24 cases, there were alleged major mismatches between model or serial numbers in panchnamas and invoices; and in 7 cases, no import documents were produced.
Relying on Section 123 of the Customs Act, which places the burden of proving licit import on the person in possession of notified goods such as watches, the adjudicating authority concluded that the appellants had failed to establish lawful import and ordered confiscation with consequential penalties.
The Tribunal accepted the appellants’ primary contention that, prior to the issuance of the DRI Alert Circular dated 5 March 2015, there was no legal requirement or uniform practice mandating the mention of serial numbers of watches in Bills of Entry or supplier invoices. It noted that customs authorities had consistently assessed and cleared watch imports on the basis of model numbers alone and that serial numbers began to be insisted upon only after the 2015 circular.
The Bench held that the absence of serial numbers in import documents pertaining to pre-2015 imports could not retroactively render such imports illegal or smuggled, particularly when the goods had been examined and cleared by customs officers at the time of import.
With respect to the 24 watches where alleged mismatches were pointed out, the Tribunal held that minor discrepancies in model or serial numbers could not override the fact that the watches had been imported, duly entered in stock registers and cleared by customs several years earlier. It observed that once either the model number or serial number matched and the imports were reflected in contemporaneous records, the Department could not treat such goods as smuggled.
As regards the 7 watches for which no documents were produced, the Tribunal noted that these watches formed part of old stock and were reflected in closing inventories of earlier financial years, a crucial aspect that had been ignored by the adjudicating authority while simultaneously relying on the same stock registers for valuation purposes.
A decisive factor in favour of the appellants was limitation. The Tribunal held that all 838 watches were imported prior to 2012, whereas the show cause notice was issued only in October 2017, well beyond even the extended period of five years prescribed under Section 28(4) of the Customs Act. The Bench rejected the Department’s attempt to treat the date of search as the “relevant date”, holding that such an approach was legally untenable and contrary to the statutory definition of the term.
On the invocation of Section 123, the Tribunal clarified that while watches are notified goods and the initial burden lies on the person in possession, once reasonable evidence of licit import is produced, the burden shifts back to the Department. In the present case, the appellants had discharged their initial burden by producing import documents, Bills of Entry and stock records. The Department, however, failed to bring on record any positive or independent evidence to establish smuggling.
The Tribunal further held that statements recorded under Section 108 of the Customs Act could not be relied upon to sustain the findings of smuggling or penalties, as the mandatory procedure under Section 138B—requiring examination of the maker of the statement and an opportunity for cross-examination—had not been followed.
In view of these findings, the CESTAT set aside the confiscation of all 838 watches, quashed the customs duty demand along with interest, and annulled the penalties imposed on the company, its directors, partners and the employee. The decision reiterates that retrospective procedural requirements cannot be enforced, limitation provisions must be strictly adhered to, and Section 123 cannot be applied mechanically in the absence of substantive evidence of smuggling.
Cause Title: M/s. Kapoor Watch Co. Pvt. Ltd. Versus Principal Commissioner of Customs (Preventive)
Case No: Customs Appeal No. 50706 Of 2020
Coram: Justice Dilip Gupta, President, and C.J. Mathew, Member (Technical)
