CESTAT Quashes ₹10 Lakh Customs Demand on Sun Pharma, Finds No Intent to Evade Duty

April 24, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has set aside a customs duty demand exceeding ₹10 lakh, along with penalties and invocation of the extended limitation period, against M/s Sun Pharmaceutical Industries Ltd. (formerly Ranbaxy Laboratories Ltd.) and its customs broker. The Tribunal held that the incorrect declaration in the Bills of Entry was a bona fide error without any intent to evade duty.

A Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) allowed the appeals filed by the importer and its customs broker, M/s Schenker India Pvt. Ltd., setting aside the orders passed by the Commissioner of Customs (Appeals).

Background

The dispute arose from 173 Bills of Entry filed between March 2009 and December 2011 for import of pharmaceutical goods by air. The goods were purchased on an ex-works basis; however, the importer declared the ex-works value as Free on Board (FOB) value in the Bills of Entry.

Under the Customs Valuation Rules, in the case of air imports, freight is capped at 20% of the FOB value. By treating ex-works value as FOB, the freight component was computed incorrectly, resulting in short payment of duty.

The Directorate of Revenue Intelligence (DRI) issued a show cause notice, and the adjudicating authority confirmed a differential duty demand of ₹10,02,468 under Section 28(4) of the Customs Act. Penalties were also imposed under Sections 114A, 114AA, and 112 of the Act.

Tribunal’s Findings on Valuation

The Tribunal clarified that the Department was correct on the legal position. It held that:

• Freight should be computed as 20% of the FOB value, not the ex-works value
• FOB value can be derived from ex-works value by adding transport costs up to the port of export

Thus, there was indeed a short payment of duty due to incorrect computation.

No Suppression or Intent to Evade Duty

On the critical issue of limitation and penalties, the Tribunal ruled in favour of the appellants. It found:

• The error in declaration was an oversight, not a deliberate act
• There was no evidence of wilful misstatement, suppression, or collusion
• For a significant period, self-assessment was not in force, and customs officers themselves assessed the Bills of Entry

The Tribunal observed that both the importer and customs authorities failed to detect the error during assessment, reinforcing the absence of intent to evade duty.

Extended Limitation Not Invocable

The Bench emphasised that invocation of the extended limitation period under Section 28 requires clear evidence of intent to evade duty through suppression or wilful misstatement.

Since the entire demand was raised beyond the normal limitation period and relied solely on extended limitation, the Tribunal held that the demand itself was unsustainable in law.

Penalties Set Aside

Given the absence of mens rea, the Tribunal also set aside all penalties imposed under:

• Section 114A (penalty for duty evasion)
• Section 114AA (false declaration)
• Section 112 (improper importation)

Outcome

Both appeals were allowed, and the impugned orders were quashed, granting consequential relief to the appellants.

Case Title: M/s Sun Pharmaceutical Industries Ltd. (formerly Ranbaxy Laboratories Ltd.) & Anr. v. Commissioner of Customs (Appeals), New Delhi
Case Nos.: Customs Appeal Nos. 50589 of 2018 & 51710 of 2018