Relief for Myntra: Why CESTAT quashed Rs 3.47 crore customs penalty over imported jackets

Tribunal rejects department’s case

• After examining the record, the tribunal observed that the central issue in the case was classification of imported jackets, which is often a matter of interpretation of tariff entries and explanatory notes.
• The bench noted that Myntra had declared the goods and paid duty on the basis of available documents, and once the department pointed out the classification issue, the company promptly deposited the differential duty and interest.
• “The classification of goods is a matter of belief and it cannot be said that facts have been suppressed merely because the department believes that the goods should have been classified under a different Customs Tariff Item,” the tribunal observed.
• The tribunal further relied on Supreme Court judgments, including Uniworth Textiles Ltd v. Commissioner of Central Excise, which clarified that mere non-payment or short payment of duty is insufficient to invoke the extended limitation period unless deliberate suppression or intent to evade duty is established.
• In the present case, the tribunal found no evidence of deliberate misstatement or suppression of facts by the importer.

Justice Dilip Gupta and Hemambika R Priya heard Myntra’s appeal against the order of the principal commissioner of customs.

No basis for confiscation or penalty

• Once the tribunal concluded that the extended limitation period was wrongly invoked, it held that the penalty under Section 114A (penalty for short-levy or non-levy of duty) and confiscation of goods under Section 111(m) (goods which do not correspond in respect of value or any other particular) could not survive.
• The bench also noted that in similar classification disputes involving apparel imports, tribunals have consistently held that penal provisions cannot be invoked in the absence of wilful intent to evade duty.
• The tribunal held that the dispute was essentially about interpretation of tariff classification, and there was no evidence of wilful suppression of facts or intent to evade customs duty.

Appeal allowed

• Setting aside the adjudication order of the principal commissioner, the tribunal ruled that the appeal filed by Myntra deserved to be allowed.
• “The impugned order dated August 31, 2023, passed by the Principal Commissioner, therefore, deserves to be set aside,” the tribunal held while allowing the appeal.

Dispute over classification of imported jackets

• Myntra Jabong India Private Limited, a major e-commerce platform engaged in selling fashion and lifestyle products, imports clothing, footwear, accessories and beauty products from overseas suppliers for sale on its portal.
• According to the company, it paid nearly Rs 800 crore in customs duty between July 2017 and November 2023 for such imports.
• The present case concerned imports made during the period August 9, 2017 to October 3, 2019, involving various types of men’s polyester knitted jackets.
• These jackets were front-open garments fitted with zippers, though their composition varied depending on the proportion of polyester and polyurethane used in their fabric.
• The jackets were declared under different Customs Tariff Items (CTI) that attracted basic customs duty of 20 per cent, based on the descriptions provided in the invoices and packing lists issued by the overseas suppliers.
• However, the Customs (Preventive) Commissionerate, New Delhi, suspected that the goods had been wrongly classified in the Bills of Entry, resulting in short payment of customs duty.

Investigation, notices

• The investigation began after customs officials examined a shipment imported under a Bill of Entry dated August 31, 2019.
• A seizure memo dated October 3, 2019, was subsequently drawn after officials concluded that the classification adopted by the importer was not correct.
• During the course of the investigation, Myntra deposited the differential customs duty along with interest, amounting to Rs 4.17 crore, through challans dated February 7, 2020 and June 1, 2020.
• The company also informed the department that the payment had been made voluntarily and requested that a show-cause notice not be issued.
• Despite this, the customs department issued three show-cause notices on September 20, 2021, December 24, 2021, and March 29, 2022, invoking the extended period of limitation under Section 28(4) of the Customs Act, 1962.
• Section 28(4) pertains to cases where any duty has not been [levied or not paid or has been short-levied or short-paid] or erroneously refunded, or interest payable has not been paid, part-paid or erroneously refunded, by reason of (a) collusion; (b) any wilful mis-statement; or (c) suppression of facts.
• The notices alleged that the company had mis-declared the description and classification of the jackets, particularly by failing to disclose details such as zipper fastening and length, thereby misleading the customs authorities and evading duty.
• The department proposed recovery of Rs 3.47 crore as differential duty.
• Confiscation of the imported goods under Section 111(m) of the Customs Act, and penalty under Section 114A for alleged suppression of facts.

Commissioner’s order

• In the adjudication order dated August 31, 2023, the principal commissioner held that the importer had failed to exercise due diligence under the self-assessment scheme introduced in customs procedures and had suppressed the correct description of the goods.
• The authority concluded that the extended limitation period was rightly invoked and confirmed the duty demand of Rs 3.47 crore, along with interest.
• However, since Myntra had already deposited the differential duty and interest prior to the issuance of the notices, the amount was merely appropriated and no further recovery was ordered.
• Nevertheless, the adjudicating authority held that the goods were liable for confiscation under Section 111(m) and imposed a penalty equivalent to the duty amount under Section 114A.
• Aggrieved by this order, Myntra approached the CESTAT.

Myntra’s arguments

• Appearing for the company, advocates Kishore Kunal, Ankita Prakash and Anuj Kumar argued that the extended limitation period could not be invoked because the entire differential duty, along with interest, had been voluntarily paid before issuance of the show-cause notices.
• The company also contended that the description of goods in the Bills of Entry was based on the invoices and packing lists provided by overseas suppliers.
• The case involved only a difference of opinion regarding the classification of jackets under the tariff entries.
• There was no wilful suppression or intent to evade duty, which is a necessary condition for invoking Section 28(4).
• It further relied on judicial precedents to argue that classification disputes generally involve the interpretation of tariff entries and cannot automatically justify allegations of suppression.