Customs Act, 1962 Section 114a — Penalty for short-levy or non-levy of duty in certain cases

Type Section

Legislation Customs Act, 1962

Amendments 5

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Plain-English Explanation

Plain English Summary

Overview

Section 114A of the Customs Act, 1962 prescribes a penalty for short-levy or non-levy of duty, interest or erroneous refund when it arises from collusion, wilful mis-statement, or suppression of facts. This section aims to penalize those who deliberately try to evade customs duties.

Who Does This Apply To?

This section applies to any person who is liable to pay duty or interest that has been either not levied, short-levied, part paid, or erroneously refunded due to their actions of collusion, wilful mis-statement, or suppression of facts. This could include importers, exporters, or any other individual or entity involved in customs-related transactions.

How It Works

The penalty mechanism under Section 114A works as follows:

Determination of Duty/Interest: If a duty or interest has not been levied or short-levied due to collusion, wilful mis-statement, or suppression of facts, the proper officer determines the actual amount payable under sub-section (8) of Section 28.
Penalty Equal to Duty/Interest: The person liable to pay the duty or interest is also liable to pay a penalty equal to the duty or interest so determined. Therefore, the total amount payable could be double the initially unpaid/short paid duty/interest.
Reduced Penalty Option: A significant benefit exists if the determined duty or interest, along with applicable interest under Section 28AA, is paid within 30 days from the date of communication of the order determining the duty. In such cases, the penalty is reduced to 25% of the determined duty or interest.
Impact of Appeals: If the duty or interest is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal, or the court, the revised amount will be considered for calculating the penalty under this section.
No Double Penalty: Where a penalty has been levied under Section 114A, no further penalty shall be levied under Section 112 (general penalty for improper importation of goods, etc.) or Section 114 (penalty for offences not expressly mentioned).

Important Conditions & Exceptions

Condition 1: The benefit of the reduced penalty (25%) is conditional on paying the full determined duty/interest AND the reduced penalty amount within 30 days of the order.
Condition 2: If the duty or interest payable is increased by appellate authorities, the benefit of the reduced penalty (25% on the original amount) is available only if the increased duty/interest, interest thereon, AND 25% of the penalty on the incremental increase in duty/interest are also paid within 30 days of the appellate order.
Exception: The provisions of Section 114A also apply to cases where the order determining the duty or interest under sub-section (8) of Section 28 relates to notices issued prior to the date the Finance Act, 2000 received the assent of the President.

Practical Example

ABC Importers knowingly undervalues imported goods by ₹10,00,000, leading to a short-levy of customs duty of ₹3,00,000. The Customs Department investigates and issues an order determining the duty short-paid as ₹3,00,000.

ABC Importers is liable to pay a penalty of ₹3,00,000 in addition to the unpaid duty of ₹3,00,000, totaling ₹6,00,000.

However, if ABC Importers pays the ₹3,00,000 duty, applicable interest under Section 28AA, and ₹75,000 (25% of ₹3,00,000) within 30 days of receiving the order, the total liability will be ₹3,75,000 + interest as per Section 28AA, saving them ₹2,25,000.

Key Amendments

No major amendments since enactment.

[Section 114A. Penalty for short-levy or non-levy of duty in certain cases. - Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has ****²been part paid or the duty or interest has been erroneously refunded by reason 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 (8) of section 28³ shall also be liable to pay a penalty equal to the duty or interest so determined:

Provided that where such duty or interest, as the case may be, as determined under ⁴sub-section (8) of section 28³, and the interest payable thereon under section ⁴28AA⁵, 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 such person under this section shall be twenty-five per cent of the duty or interest, as the case may be, so determined:⁴

Provided further that the benefit of reduced penalty under the first proviso shall be available subject to the condition that the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :⁴

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 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 in case where the duty or interest determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of 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 28AA⁵, and twenty-five percent of the consequential increase in penalty have also been paid within thirty days of the communication of the order by which such 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.]

Explanation . - For the removal of doubts, it is hereby declared that -⁴

(i)the provisions of this section shall also apply to cases in which the order determining the duty or interest ⁴sub-section (8) of section 28³ relates to notices issued prior to the date* on which the Finance Act, 2000 receives the assent of the President;⁴

(ii) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.⁴sub-section (8) of section 28³, and the interest payable thereon under section 28AA⁵, 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 such person under this section shall be twenty-five per cent of the duty or interest, as the case may be, so determined:

Provided also that where any penalty has been levied under this section, no penalty shall be levied under section 112 or section 114.

Explanation . - For the removal of doubts, it is hereby declared that -

(i)the provisions of this section shall also apply to cases in which the order determining the duty or interest sub-section (8) of section 28³ relates to notices issued prior to the date* on which the Finance Act, 2000 receives the assent of the President;

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Frequently Asked Questions

When does Section 114A of the Customs Act, 1962 apply?

Section 114A applies when duty has not been levied, or has been short-levied, or interest hasn't been charged/paid or has been part paid, or duty/interest has been erroneously refunded due to collusion, wilful misstatement, or suppression of facts. In these cases, the person liable to pay the duty or interest determined under Section 28(8) also becomes liable for a penalty.

What is the penalty under Section 114A for short-levy or non-levy of duty?

The penalty under Section 114A is equal to the amount of duty or interest that was short-levied, not levied, or erroneously refunded, as determined under Section 28(8), due to collusion, wilful misstatement, or suppression of facts. However, a reduced penalty is possible if certain conditions are met (see below).

Is there a way to reduce the penalty under Section 114A? If so, what are the conditions?

Yes, the penalty can be reduced to 25% of the duty or interest determined if the full duty/interest determined under Section 28(8), along with applicable interest under Section 28AA, is paid within 30 days from the date of communication of the order. Crucially, the reduced penalty amount *must* also be paid within that 30-day window to avail this benefit.

If the duty or interest payable is increased or decreased on appeal, how does it affect the penalty under Section 114A?

If the duty or interest determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal, or the court, then, for the purposes of Section 114A, the duty or interest as reduced or increased shall be taken into account. The penalty will be recalculated based on the revised duty or interest amount.

What happens if duty/interest is increased on appeal and I want to avail the reduced penalty under Section 114A?

If the duty or interest is increased by the Commissioner (Appeals), Appellate Tribunal, or the court, you can still avail the 25% penalty benefit. You must pay the increased duty or interest, the interest payable on the increased duty/interest under Section 28AA, *and* 25% of the consequential increase in penalty within 30 days of the communication of the order that increases the duty or interest.

If a penalty is levied under Section 114A, can penalties also be levied under Sections 112 or 114 of the Customs Act?

No. The Customs Act, 1962 specifically states that if a penalty has been levied under Section 114A, no penalty shall be levied under Section 112 (penalties for improper importation of goods) or Section 114 (penalties for fraudulent evasion or attempt at evasion of duty).

Does Section 114A apply to notices issued before the Finance Act, 2000 received Presidential assent?

Yes. Explanation (i) to Section 114A explicitly clarifies that the provisions of this section apply to cases where the order determining the duty or interest under Section 28(8) relates to notices issued prior to the date the Finance Act, 2000 received the assent of the President.

Key Conditions & Requirements

Condition	Details
Trigger: Short-levy/Non-levy due to specific reasons	Penalty is applicable when duty is not levied, short-levied, interest not charged/paid or erroneously refunded due to collusion, wilful mis-statement or suppression of facts.
Penalty Amount: Equal to duty/interest evaded	The penalty imposed will be equal to the amount of duty or interest that was short-levied or not levied, as determined under Section 28(8).
Reduced Penalty: 25% if paid within 30 days	A reduced penalty of 25% of the duty/interest is applicable if the full duty/interest and applicable interest under Section 28AA are paid within 30 days of the order communication.
Condition for Reduced Penalty: Full Payment	The benefit of the reduced penalty is contingent upon paying the determined penalty amount within the same 30-day period.
Impact of Appeal: Duty/Interest Adjustment	If the duty or interest is reduced or increased on appeal, the revised amount is used for penalty calculation under this section.
Increased Duty on Appeal: Extended Reduced Penalty	If duty/interest is increased on appeal, the reduced penalty applies if the increased duty/interest, related interest, and 25% of increased penalty are paid within 30 days of the appeal order.
Exclusion: No Double Penalty	If a penalty is levied under Section 114A, no penalty can be levied under Section 112 or Section 114 for the same offense.
Retrospective Application: Notices Prior to Finance Act, 2000	The provisions of Section 114A apply to cases where the order determining the duty or interest under Section 28(8) relates to notices issued prior to the enactment of the Finance Act, 2000.

Amendment History

12345Superscript numbers in the text mark amended passages — click them to jump here. Click "↑ view in text" to jump back.

1996↑ view in text

Inserted by the Finance (No.2) Act, 1996 (33 of 1996), section 64 (w.e.f. 28.09.1996).

1997↑ view in text

Omitted vide Corrigenda of dated 15-1-1997 to Finance Act, 1996 (33 of 1996).

2011↑ view in text

Substituted by the Finance Act, 2011 (8 of 2011), section 48 (a), for "sub-section (2) of section 28" (w.e.f. "08.04.2011).

2000↑ view in text

Substituted by the Finance Act, 2000 (10 of 2000), section 85, for the first and second provisos (w.e.f. 12.05.2000).