Voluntary compliance with payment of customs duties disqualifies penalty under Section 28(4) of the Customs Act.

Per Mr. VASA SESHAGIRI RAO

The present appeal has been filed by the Appellant, arises out of Order-in-Original No.33006/2014 dated 28.11.2014 passed by the Commissioner of Customs (Import), Chennai (hereinafter referred to as the ‘impugned order’), pursuant to Show Cause Notice dated 30.07.2013 issued by the Directorate of Revenue Intelligence under Section 28 (4) read with Section 124 of the Customs Act, 1962 .

2.1 M/s. MKP Fashions, Bengaluru, Importer- Exporter Code (IEC) 0799002011, (hereinafter referred to as “the Appellant”), is engaged in the manufacture and export of silk made-ups. The Appellant imported silk fabric during the period 2012–2013, availing duty exemption under Notification No. 96/2009-Cus dated 11.09.2009, against Advance Authorisations issued by the Director General of Foreign Trade. The said notification permitted duty-free import subject to fulfilment of post-import export obligation, failing which the importer was required to pay the applicable customs duty along with interest in terms of the bond executed at the time of import.

2.2 Due to adverse overseas market conditions, the Appellant could not fulfil the export obligation within the stipulated period. The Appellant voluntarily informed the Department vide letter dated 04.01.2013 of its inability to discharge the export obligation and requested acceptance of duty and interest payable under the bonds and re-credit of the Advance Authorizations.

2.3 Thereafter, the Appellant voluntarily discharged customs duty and interest aggregating to approximately ₹1.75 crores, prior to issuance of the Show Cause Notice. The payments were duly acknowledged by the Department and are also reflected in the Show Cause Notice itself.

2.4 Notwithstanding the above voluntary compliance, the DRI issued the impugned Show Cause Notice alleging misuse of the Advance Authorization scheme and diversion of duty-free imported goods into the domestic market.

2.5 The impugned Order-in-Original confirmed a demand of ₹4,14,99,046/- with interest by denying exemption under Notification No. 96/2009-Cus, ordered confiscation of imported silk fabrics with redemption fine of ₹8,00,000/-, imposed penalty of ₹4,14,99,046/- on the Appellant under Section 114A and ₹1,50,00,000/- on the Proprietor under Section 114AA, and appropriated ₹1,75,00,000/- paid during investigation. Being aggrieved by the said Order-in-Original, the Appellant filed the present appeal before this Tribunal.

2.6 During the pendency of the appeal, the matter was dismissed on 26.11.2024 for non-prosecution by this Tribunal due to non-appearance of the Appellant on any of the dates of hearing granted.

2.7 Subsequently, the Appellant filed an application for restoration of the appeal, explaining the reasons for non- appearance. This Tribunal, being satisfied with the explanation offered and in the interest of justice, restored the appeal vide Miscellaneous Order, dated 06.08.2025 subject to payment of costs of ₹10,000/-.

2.8 The Appellant duly complied with the said condition and the appeal was restored to its original number and taken up for hearing on merits.

2.9 The appeal is now being disposed of after hearing both sides on merits.

3. The Ld. Senior Advocate Mr. Sudhir Mehta, appeared on behalf of the Appellant and advanced detailed submissions in support of the Appeal and the Ld. Authorized Representative Mr. Sanjay Kakkar, appeared for the Revenue and defended the Impugned Order.

4. The Ld. Senior Advocate Mr. Sudhir Mehta for the Appellant made the following submissions which are summarized as below: -

4.1 Silk fabric was freely importable under the Foreign Trade Policy during 2012–2013.

4.2 Notification No. 96/2009-Cus contained only post-import conditions, and in the event of non-fulfilment