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Dated: 15.02.2025

CESTAT Kolkata- Servers are not restricted imports, rejecting the charges of misdeclaration and undervaluation

The CESTAT Kolkata has ruled in favor of M/s. Eastern Lights Industries Pvt. Ltd., overturning the customs confiscation and penalties imposed on the import of second-hand servers. The tribunal held that servers are not restricted goods and rejected allegations of misdeclaration and undervaluation, granting full relief to the appellant.

The customs department alleged that:

• The appellant misdeclared and undervalued the imported goods.
• The imported servers were classified incorrectly and should be considered “Automatic Data Processing Machines”, which are restricted items under DGFT Notification No.05/2015-20.
• Additional undeclared components (such as power supply units and switches) were found, leading to the rejection of the declared assessable value and its re-determination at a higher amount.

Key Issues Considered in the Appeal:

• Was the confiscation of imported ‘servers’ under Section 111 of the Customs Act, 1962 justified?
• Were the penalties under Sections 112(a)(i) and 114AA of the Customs Act, 1962, appropriate?

Findings of the Tribunal:

Classification of Goods:

• The Tribunal ruled that the imported items were indeed “Servers” and not “Automatic Data Processing Machines” as alleged by customs authorities.
• The Tribunal emphasized that servers are different from personal computers and laptops, citing previous rulings such as Microsoft Corp. India Pvt. Ltd. (2008) and Dell India Pvt. Ltd. (2008), where servers were classified separately.

Misdeclaration & Undervaluation:

• The Tribunal rejected the customs authorities’ claims that the servers were misdeclared.
• The undeclared parts (power supply units, switches, etc.) were essential components of the servers and not standalone goods.
• The value of these components was already included in the total value of the declared servers, and therefore, the re-determination of value was not warranted.

Confiscation & Penalties:

• The Tribunal overturned the confiscation order, stating that the goods were not restricted imports under the DGFT Notification.
• Since no misdeclaration or undervaluation was established, the penalty under Section 114AA (for fraudulent declarations) was not applicable.
• Similarly, the penalty under Section 112(a)(i) was set aside since the goods were neither restricted nor misdeclared.

Final Tribunal Order:

• Confiscation of the imported servers was revoked as they were found to be legitimate imports.
• Penalty of ₹20,00,000 under Section 112(a)(i) was set aside.
• Penalty of ₹30,00,000 under Section 114AA was set aside.
• The appeal was allowed, and the appellant was granted consequential relief as per law.

Conclusion:

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled in favor of M/s. Eastern Lights Industries Pvt. Ltd., affirming that servers are not restricted imports, rejecting the charges of misdeclaration and undervaluation, and setting aside all penalties imposed by the lower authorities.

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Source: CESTAT Kolkata

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