Section 111(m) Customs Act | Confiscation Without Reasoned IPR Violation Proof Violates Natural Justice: CESTAT Kolkata

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Kolkata has delivered a significant ruling affirming that confiscation of goods under the Customs Act, 1962 cannot be sustained without reasoned justification, and that procedural fairness under natural justice is non-negotiable even in intellectual property rights enforcement. The order clarifies that mere suspicion or administrative convenience cannot override statutory safeguards for importers.

Background & Facts

The Dispute

The appellant, M/s. All Sky Marketing Private Limited, imported a consignment of 10,710 pairs of canvas shoes from China, declared under CTH 6402 9990 with a transaction value based on mutual agreement between exporter and importer. Upon examination, customs authorities discovered undeclared goods bearing trademarks of PUMA and Converse All Star, leading to allegations of IPR infringement and misdeclaration. The adjudicating authority ordered confiscation of multiple shoe brands, imposed a penalty, and enhanced the declared value - all of which were upheld by the Commissioner (Appeals).

Key Facts

• The imported consignment consisted of 10,710 pairs of shoes: 600 pairs Ladies Shoes and 10,110 pairs Gents Shoes
• Bill of Entry No. 2049242 dated 17.08.2022 declared goods under CTH 6402 9990
• On 23.08.2022, 100% examination revealed:
  • 9,360 pairs of 'All Sky' (local brand) Gents Shoes
  • 570 pairs of 'PUMA' Ladies Shoes (undeclared)
  • 140 pairs of 'Converse All Star' Gents Shoes (undeclared, marked 'Made in Vietnam')
  • 240 pairs of 'D&B' brand Gents Shoes
  • 300 pairs of 'Eleprint' brand Gents Shoes
  • Total examined: 10,610 pairs (100 pairs short of declared quantity)
• Revenue relied on technical reports from trademark holders under Rule 7 of the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007
• No Panchanama or witness statement was recorded during inspection
• No notice under Rule 3 of the IPR Rules was issued to the importer
• The importer was not provided access to the technical report from right holders
• The importer claimed the undeclared goods were mistakenly loaded by the supplier due to a mix-up
• The offending and non-offending goods were separately packed
• The appellant submitted representations on 22.08.2022 and 14.01.2023, both ignored
• Seizure Notice issued on 12.10.2022 - 49 days after examination
• The appellant incurred costs of Rs. 6.75 lakh for ground rent and Rs. 10.32 lakh for container rent due to delays

Procedural History

• 17.08.2022: Bill of Entry filed for import clearance
• 23.08.2022: 100% examination conducted by SIIB Officers
• 12.10.2022: Seizure Notice issued (49 days after examination)
• 11.04.2023: Order-in-Original No. KOL/CUS/PORT/(JC)/Gr.3/42/2023 passed:
  • Re-classification to CTH 6404 1910
  • Confiscation of 9,360 pairs 'All Sky', 240 pairs 'D&B', 300 pairs 'Eleprint' (redemption fine Rs. 1,00,000)
  • Absolute confiscation of 570 pairs 'PUMA' and 140 pairs 'Converse All Star'
  • Penalty of Rs. 75,000 under Section 112(a)(i) and (ii)
• 15.02.2024: Order-in-Appeal upheld the Order-in-Original
• 11.05.2026: Hearing before CESTAT Kolkata
• 15.05.2026: Final Order passed

Relief Sought

The appellant sought:

• Setting aside of confiscation of 'All Sky', 'D&B', and 'Eleprint' shoes
• Quashing of penalty of Rs. 75,000
• Release of confiscated goods without redemption fine
• Cancellation of value enhancement
• Compensation for delays and ancillary costs

The Legal Issue

The central questions were: (1) Whether confiscation of non-counterfeit goods under Section 111(m) of the Customs Act, 1962 is valid absent any evidence of intent or concealment; and (2) Whether the Revenue can rely on undisclosed technical reports from trademark holders to establish IPR infringement without affording the importer an opportunity to respond, thereby violating the doctrine of natural justice.

Arguments Presented

For the Appellant

The appellant argued that:

• The re-classification from CTH 6402 9990 to CTH 6404 1910 had no impact on duty (both attract 35% BCD), negating any allegation of malafide
• The shortage of 100 pairs indicated a logistical error by the exporter, not deliberate misdeclaration
• The non-offending goods ('All Sky', 'D&B', 'Eleprint') were separately packed and bore no resemblance to counterfeit brands
• The technical report from trademark holders was never shared with the importer, violating Rule 5 and Rule 7(4) of the IPR Enforcement Rules, 2007
• No notice under Rule 3 was issued, and no opportunity to be heard was granted
• The delay in issuing seizure notice (49 days) and prolonged adjudication caused financial harm
• The confiscation of non-counterfeit goods was arbitrary and lacked any reasoning

For the Respondent

The Revenue contended that:

• The presence of undeclared PUMA and Converse shoes constituted clear IPR infringement under Rule 6 of the IPR Enforcement Rules
• The technical report from right holders was sufficient to establish counterfeit nature
• The importer failed to prove due diligence in verifying the supplier’s authenticity
• The value enhancement was justified under Section 14 of the Customs Act based on discrepancies
• The confiscation of all goods in the consignment was warranted as a deterrent

The Court's Analysis

The Tribunal conducted a rigorous review of statutory compliance and procedural fairness. It emphasized that Section 111(m) permits confiscation only where goods are imported in contravention of any provision of the Customs Act or rules, and such contravention must be established with evidence and reasoning.

"The order of the lower authority is completely silent with regard to the confiscation of 9,360 pairs of 'All Sky' brand Gents Shoes, 240 pairs of 'D&B' brand Gents Shoes and 300 pairs of 'Eleprint' brand Gents Shoes. There is not a word as to why the said goods have been confiscated. In the absence thereof, such confiscation is no more than arbitrary and therefore, cannot be sustained."

The Tribunal held that mere presence of non-counterfeit goods in the same consignment does not justify their confiscation, especially where they are separately packed and bear legitimate branding. The absence of any nexus between these goods and the IPR violation rendered the confiscation unlawful.

Regarding IPR infringement, the Tribunal acknowledged that the PUMA and Converse shoes were indeed counterfeit. However, it stressed:

"It indeed was desirable for the authorities that the said reports were shared with the appellant in compliance with the doctrine of natural justice, even though the appellant may have voluntarily waived their right of seeking a formal written Show Cause Notice."

The failure to share the technical report and issue a Rule 3 notice violated Article 14 and 21 of the Constitution, as interpreted through Maneka Gandhi v. Union of India. The Tribunal noted that while the importer did not dispute the infringement, the process remained flawed.

On penalty, the Tribunal observed:

"The appellant has however suffered severely for lapses on the part of the Department and consequential delays in the clearance process... a penalty of Rs.5,000/- would meet the ends of justice."

The Tribunal rejected the Revenue’s argument that the importer bore full responsibility, noting the 49-day delay in seizure and lack of procedural adherence.

The Verdict

The appellant succeeded in part. The Tribunal:

• Set aside the confiscation of 9,360 pairs of 'All Sky' brand Gents Shoes, 240 pairs of 'D&B' brand Gents Shoes, and 300 pairs of 'Eleprint' brand Gents Shoes
• Upheld the absolute confiscation of 570 pairs of 'PUMA' and 140 pairs of 'Converse All Star' counterfeit shoes
• Reduced the penalty from Rs. 75,000 to Rs. 5,000 under Section 112(a)(i) and (ii)
• Directed the release of the non-counterfeit goods without payment of redemption fine
• Declined to interfere with re-classification due to identical duty rate
• Implicitly recognized the importer’s financial loss from delays but did not award compensation

What This Means For Similar Cases

Confiscation Requires Specific Reasoning

• Practitioners must challenge confiscation orders that lack any explanation for why non-infringing goods are seized
• Revenue authorities must explicitly link each confiscated item to a specific violation under Section 111
• Blanket confiscation of entire consignments based on partial infringement is now legally untenable

Natural Justice Is Mandatory in IPR Cases

• Importers must be provided with copies of technical reports from trademark holders before adjudication
• Failure to issue Rule 3 notices or share evidence invalidates confiscation proceedings, even if infringement is proven
• Oral submissions or implied waiver cannot substitute for statutory procedural requirements

Penalty Must Reflect Procedural Lapses by Authorities

• Penalties under Section 112 must be proportionate to the importer’s culpability
• Delays by customs authorities (e.g., late seizure notices, prolonged adjudication) must be factored into penalty determination
• Importers may now claim mitigation of penalty on grounds of administrative delay and resultant financial burden