Customs Act, 1962 Section 127b — Application for settlement of cases
Customs Act, 1962 · Application for settlement of cases
Plain-English Explanation
Overview
Section 127B of the Customs Act, 1962 provides a mechanism for importers, exporters, and other persons involved in customs-related disputes to approach the Settlement Commission for settling cases before adjudication. It allows applicants to voluntarily disclose previously undeclared duty liabilities, pay the applicable duty and interest, and seek a resolution through the Commission, aiming for faster resolution of customs disputes.
Who Does This Apply To?
This section applies to any importer, exporter, or any other person involved in a customs case, provided they meet specific conditions. This includes individuals and businesses importing or exporting goods and facing potential duty liabilities related to misclassification, undervaluation, inapplicability of exemption notifications, or other reasons.
How It Works
The application process under Section 127B involves several key steps:
- Application Submission: An applicant must file an application to the Settlement Commission before the case is adjudicated by customs authorities. The application must be in the prescribed format, accurately detailing the duty liability that was not previously disclosed.
- Full Disclosure: The application must include a full and true disclosure of the manner in which the duty liability was incurred, the additional amount of customs duty the applicant accepts to be payable, and any other relevant particulars. The application must include details of the dutiable goods with short levy due to misclassification, undervaluation or inapplicability of exemption notification.
- Duty & Interest Payment: The applicant must have already paid the additional amount of customs duty accepted, along with the applicable interest under Section 28AA.
- Acceptance of Application: The Settlement Commission reviews the application to ensure it meets all requirements before accepting it for settlement.
- Settlement Proceeding: The Settlement Commission conducts proceedings to determine the terms of the settlement, which may include payment of additional duties, penalties, or other conditions.
- Final Order: The Settlement Commission passes a final order, which is binding on both the applicant and the customs authorities. The application cannot be withdrawn once submitted.
Important Conditions & Exceptions
- Condition 1: The applicant must have filed a bill of entry, shipping bill, bill of export, baggage declaration, or postal/courier declaration, and a show cause notice must have been issued in relation to that document.
- Condition 2: The additional amount of duty accepted by the applicant in their application must exceed three lakh rupees.
- Exception: No application is entertained if the case is already pending before the Appellate Tribunal or any court.
- Exception: No application can be made in relation to goods to which Section 123 applies (goods presumed to be smuggled) or to goods related to offences under the Narcotic Drugs and Psychotropic Substances Act, 1985.
- Exception: No application can be made for the interpretation of the classification of goods under the Customs Tariff Act, 1975.
- Sunset Clause: No application can be made under this section on or after the 1st day of April, 2025.
Practical Example
Imagine a company, "XYZ Exports," discovers that it had incorrectly classified a shipment of electronic components, resulting in a short payment of customs duty. After internal review, XYZ Exports determines the unpaid duty amounts to ₹5,00,000.
Before receiving any notice from customs, XYZ Exports, following Section 127B, files an application with the Settlement Commission, disclosing the misclassification, accepting the additional duty liability of ₹5,00,000, and paying the duty along with applicable interest. Because the duty exceeds ₹3,00,000, XYZ's application is eligible.
The Settlement Commission reviews XYZ's application, accepts it, and initiates settlement proceedings. After considering the facts and arguments, the Commission issues an order requiring XYZ Exports to pay a reduced penalty of ₹50,000 in addition to the duty and interest already paid. XYZ Exports complies, and the case is settled, avoiding potentially lengthy and costly litigation.
Key Amendments
No major amendments since enactment.
No case laws found for this provision yet.
Browse all case laws →Frequently Asked Questions
Who can apply for settlement of cases under Section 127B of the Customs Act, 1962?
Any importer, exporter, or any other person involved in a customs case can apply to the Settlement Commission under Section 127B, provided they make a full and true disclosure of duty liability not previously disclosed to the proper officer. This application must be made before adjudication of the case.
What are the conditions for an application under Section 127B to be considered valid?
To be valid, an application under Section 127B requires that a bill of entry, shipping bill, or similar document has been filed and a show cause notice issued by the proper officer. The additional amount of duty accepted by the applicant must exceed ₹3 lakh, and this amount, along with applicable interest under Section 28AA, must be paid.
Are there any cases where an application under Section 127B is not permitted?
Yes, applications are not entertained if the case is pending before the Appellate Tribunal or any court. Furthermore, applications are prohibited for goods to which Section 123 applies (goods presumed to be smuggled) or goods related to offenses under the Narcotic Drugs and Psychotropic Substances Act, 1985. Applications are also not allowed for the interpretation of the classification of goods under the Customs Tariff Act, 1975.
Can an application filed under Section 127B be withdrawn?
No, Section 127B(4) explicitly states that an application made to the Settlement Commission cannot be withdrawn by the applicant once it has been filed. This underscores the seriousness and commitment required when seeking settlement.
What is the deadline for making an application under Section 127B, and what happens to pending applications after that date?
According to the proviso to Section 127B, no application can be made under this section on or after April 1, 2025. Furthermore, from the date of the constitution of the Interim Board, every pending application will be dealt with by the Interim Board from the stage at which it stood immediately before its constitution.
Can a person other than the primary applicant apply to the Settlement Commission?
Yes, Section 127B(5) allows a person other than the original applicant to apply to the Settlement Commission in respect of a show cause notice issued to them in a case relating to the applicant. This is applicable if the original case has been settled or is pending before the Settlement Commission, and the notice against the other person is pending before an adjudicating authority.
What information needs to be disclosed in an application under section 127B?
The application must contain a full and true disclosure of the applicant's duty liability which has not been disclosed before the proper officer. This includes how such liability was incurred, the additional amount of customs duty the applicant accepts to be payable, and other particulars as prescribed by the rules, including details of dutiable goods involved in short levy due to misclassification, undervaluation, or inapplicability of exemption notifications.
Key Conditions & Requirements
| Condition | Details |
|---|---|
| Eligible Applicant | Importer, exporter, or any other person can apply for settlement, termed as the applicant. |
| Full and True Disclosure | The application must contain a full and true disclosure of duty liability not previously disclosed, including the manner it was incurred and the additional duty accepted to be payable. |
| Show Cause Notice Requirement | The applicant must have been issued a show cause notice related to a bill of entry, shipping bill, bill of export, baggage declaration, or postal declaration. |
| Minimum Duty Threshold | The additional amount of customs duty accepted by the applicant must exceed three lakh rupees. |
| Duty and Interest Payment | The applicant must have paid the additional amount of customs duty accepted, along with interest due under section 28AA. |
| Cases Pending Elsewhere | No application can be entertained if the case is pending in the Appellate Tribunal or any court. |
| Excluded Goods | No application can be made for goods to which section 123 applies or those related to offences under the Narcotic Drugs and Psychotropic Substances Act, 1985. |
| Classification Interpretation Excluded | No application can be made for the interpretation of the classification of goods under the Customs Tariff Act, 1975. |
Amendment History
Substituted by the Finance Act, 2007 (22 of 2007), section 101, or sub-section (1) (w.e.f. 01.06.2007). Earlier sub-section (1) was amended by Act 10 of 2000, section 86 (w.e.f. 12.05.2000). Sub-section (1), before substitution by Act 22 of 2007, stood as under: “ (1) Any importer, exporter or any other person (hereinafter in this Chapter referred to as the applicant) may, at any stage of a case relating to him, make an application in such form and in such manner as may be specified by rules, and containing a full and true disclosure of his duty liability which has not been disclosed before the proper officer, the manner in which such liability has been incurred, the additional amount of customs duty accepted to be payable by him and such other particulars as may be specified by rules including the particulars of such dutiable goods in respect of which he admits short levy on account of misclassification or otherwise of goods, to the Settlement Commission to have the case settled and such application shall be disposed of in the manner hereinafter provided: Provided that no such application shall be made unless – (a) the applicant has filed a bill of entry, or a shipping bill, in respect of import or export of goods, as the case may be, and in relation to such bill of entry or shipping bill or a show cause notice has been issued to him by the proper officer; (b) the additional amount of duty accepted by the applicant in his application exceeds two lakh rupees: Provided further that no application shall be entertained by the Settlement Commission under this sub-section in cases which are pending in the Appellate Tribunal or any court: Provided also that no application under this sub-section shall be made in relation to goods to which section 123 applies or to goods in relation to which any offence under the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985), has been committed: Provided also that no application under this sub-section shall be made for the interpretation of the classification of the goods under the Customs Tariff Act, 1975 (51 of 1975).”
Substituted by the the Finance Act, 2010 (14 of 2010), section 57, for “but excluding the goods not included in the entry made under this Act” (w.e.f. 08.05.2010).
Substituted by the Finance (No.2) Act, 2014 (25 of 2014), section 84(i), for clause (a) (w.e.f. 06.08.2014). Clause (a), before substitution, stood as under: “ (a) the applicant has filed a bill of entry, or a shipping bill, in respect of import or export of such goods, as the case may be, and in relation to such bill of entry or shipping bill, a show cause notice has been issued to him by the proper officer;”.
Substituted by the Finance (No.2) Act, 2014 (25 of 2014), section 84(ii), for “section 28 AB” (w.e.f. 06.08.2014)
Sub-section (1A) omitted by the Finance Act, 2015 (20 of 2015), section 86 (w.e.f. 14.05.2015). Sub-section (1A), before omission stood as under: “ (1A) Notwithstanding anything contained in sub-section (1), where an application was made under sub-section (1) before the 1st day of June, 2007 but an order under sub-section (1) of section 127C has not been made before the said date, the applicant shall within a period of thirty days from the 1st day of June, 2007 pay the accepted duty liability failing which his application shall be liable to be rejected.”
Sub-section (2) omitted by the Finance (No.2) Act, 2014 (25 of 2014), section 84(iii) (w.e.f. 6-8-2014) . Sub-section (2), before omission, stood as under: “ (2) Where any dutiable goods, books of account, other documents or any sale proceeds of the goods have been seized under section 110, the applicant shall not be entitled to make an application under sub-section (1) before the expiry of one hundred and eighty days from the date of the seizure.”
Inserted (w.e.f. 31-3-2017) by the Finance Act, 2017 (7 of 2017) , Section 106.
Inserted by s. 97 of the Finance (No.7) Act, 2025.