Indirect Tax Laws · Levy of and Exemptions from Customs Duty

Penalty for Short-Levy or Non-Levy of Duty (Section 114A)

Updated 5 October 2026

Section 114A imposes a penalty equal to the duty or interest determined under section 28(8) in cases covered by section 28(4), where duty is short-levied, short-paid, not levied or erroneously refunded due to collusion, wilful misstatement or suppression of facts. If duty, interest and 25% penalty are paid within 30 days of the order's communication, the penalty is only 25%.

Understand Penalty for Short-Levy or Non-Levy of Duty (Section 114A)

Customs duty is self-assessed by the importer. If the importer gets it wrong by mistake, the department can recover the duty with interest. But if the loss of duty is caused by dishonest conduct, the law adds a penalty. Section 114A is that penalty.

The section applies where duty is determined under section 28(8) in cases covered by section 28(4). Those are cases where duty has not been levied, has been short-levied or short-paid, or has been erroneously refunded, or where interest has not been charged or paid, by reason of collusion or any wilful mis-statement or suppression of facts. These words describe intent. Simple error, oversight or a bona fide difference of opinion is not enough, and such cases do not reach 114A.

The person liable to pay the duty and interest determined under section 28(8) is also liable to a penalty equal to the duty and interest so determined. So if the order confirms duty of ₹10,00,000 and no interest, the full penalty is ₹10,00,000. It is a penalty linked to the amount in the order, not a fixed sum.

The base is whatever the order determines under section 28(8): the duty and the interest. Do not drop interest from the base on your own. If the order determines duty alone, the penalty is worked out on that duty. If the order determines interest alone (for example, interest not charged or not paid), the penalty equals that interest. In the first Alpha example below, the order determines both duty and interest, so both form the base.

The law gives a way out. If the duty, the interest payable under section 28AA and the reduced penalty are all paid within 30 days of the communication of the order, the penalty falls to 25% of the duty and interest determined. The payment of the 25% penalty within the same 30 days is itself a condition. The 30 days run from the communication of the order of the proper officer.

If the Commissioner (Appeals), the Tribunal or a court later reduces or increases the duty or interest, a further proviso to section 114A applies. The penalty is recomputed on the duty or interest as so reduced or increased. This proviso does not restart the 30-day period. The 25% option stays tied to payment within 30 days of the proper officer's order. Do not assume that an appellate order gives a fresh 30-day window.

Section 114A also interacts with other penalty sections. Where a penalty is levied under 114A, no penalty is levied under section 112 or 114 for the same duty shortfall. Penalties under other sections, such as section 114AA for false or incorrect documents, are not excluded. This is why exam questions often ask you to choose between 112 and 114A. Section 112 covers improper importation of goods liable to confiscation. Section 114A covers the fraud-based duty shortfall determined under section 28(8) in section 28(4) cases.

Key rules to remember

Full penalty under Section 114A: Penalty = 100% of duty and interest determined under section 28(8); Applies only to section 28(4) cases: shortfall due to collusion, wilful mis-statement or suppression of facts.
Reduced penalty option: Penalty = 25% × (duty + interest determined); Available only if duty, interest under section 28AA and the 25% penalty are all paid within 30 days of communication of the order.
Total outgo with reduced penalty: Duty + Interest + 25% × (Duty + Interest determined); Use this to compute the cash payable in the 30-day window. The 25% is taken on the duty and interest determined in the order.
Effect of appellate change: Penalty is recomputed on duty or interest as reduced or increased by Commissioner (Appeals), Tribunal or court; Under the proviso on appellate changes, the revised duty or interest becomes the base for the penalty. The proviso does not restart the 30 days. The 25% option is tied to payment within 30 days of the proper officer's order.
No double penalty: Penalty under 114A ⇒ no penalty under section 112 or 114 for the same duty shortfall; Section 112 or 114 is used when 114A is not attracted. Penalties under other sections, such as 114AA, are not barred.

How to solve Penalty for Short-Levy or Non-Levy of Duty (Section 114A) questions

Use this sequence for any question on Section 114A. Write the answer in provision, facts, conclusion form.

1Read the facts and identify whether duty was short-levied, short-paid, not levied, or erroneously refunded, or whether interest was not paid.
2Look for the section 28(4) trigger words: collusion, wilful mis-statement or suppression of facts. If the facts show only a bona fide error, state that 114A does not apply.
3Note the amount of duty and interest determined in the order under section 28(8).
4Compute the full penalty as 100% of that amount.
5Check the date of communication of the order and whether duty, interest under section 28AA and the 25% penalty were paid within 30 days. If yes, compute the penalty at 25% of the duty and interest determined.
6If an appellate authority has changed the duty or interest, redo the penalty on the revised amount. The 25% option stays tied to payment within 30 days of the proper officer's order. The appellate order does not restart the 30 days.
7State that no separate penalty under section 112 or 114 is levied where 114A applies, and give the total amount payable.
8Conclude clearly with the penalty amount and the total payment.

Quickest way: Three-question check

When to use it: Use this in case-scenario MCQs and short written answers when time is limited.

Is there intent (collusion, wilful mis-statement, suppression) so that section 28(4) applies? If no, 114A is out.
What are the duty and interest determined in the order? Penalty is that amount, or 25% of it.
Was everything paid within 30 days of communication? If yes, take 25% and total = duty + interest + 25% of (duty + interest determined).

Common mistakes in Penalty for Short-Levy or Non-Levy of Duty (Section 114A)

Applying Section 114A to every short payment of duty.
Students remember the heading and ignore the section 28(4) intent requirement.
Fix: Always look for collusion, wilful mis-statement or suppression of facts in the case. Without them, 114A does not apply.
Paying only duty in 30 days and claiming the 25% penalty.
Students overlook the conditions of the first proviso.
Fix: Duty, interest under section 28AA and the reduced penalty must all be paid within 30 days of communication of the order.
Taking the penalty on duty alone and leaving out the interest determined in the order.
Students remember 114A as a penalty on duty and forget that the order may also determine interest.
Fix: The base is what the order determines under section 28(8): the duty and the interest. Take 100% of that base for the full penalty and 25% of the same base for the reduced penalty. If the order determines duty alone, the base is that duty.
Levying section 112 penalty in addition to 114A for the same default.
Students see goods liable to confiscation and add both penalties.
Fix: Where a penalty is levied under 114A, no penalty is levied under section 112 or 114 for the same duty shortfall. State this in the conclusion. Do not extend it to other sections such as 114AA.
Ignoring the appellate change in duty, or assuming an appellate order gives a fresh 30 days for the 25% option.
Students stop at the original order, or assume the proviso on appellate changes restarts the payment window.
Fix: Recompute the penalty on the duty or interest as reduced or increased by the Commissioner (Appeals), Tribunal or court. The 25% option stays tied to payment within 30 days of the proper officer's order. The proviso does not restart the 30 days.

Worked examples

Example 1

Alpha Traders imported goods and declared a lower value by hiding a related-party price adjustment. The proper officer issued a notice and determined duty of ₹8,00,000 and interest under section 28AA of ₹1,20,000 under section 28(8), and found wilful mis-statement. The order was communicated on 5 June. Alpha pays the duty, interest and 25% penalty on 20 June. Compute the penalty and total payment.

Show the solution

Wilful mis-statement of value is established, so the case falls under section 28(4) and Section 114A applies.
Duty and interest determined under section 28(8) = ₹8,00,000 + ₹1,20,000 = ₹9,20,000. This is the penalty base.
Payment is made on 20 June, within 30 days of communication on 5 June.
Duty, interest and the reduced penalty are all paid in the window, so the penalty is 25% of ₹9,20,000 = ₹2,30,000.
Total payment = ₹8,00,000 + ₹1,20,000 + ₹2,30,000 = ₹11,50,000.
No separate penalty under section 112 or 114 is levied for this duty shortfall.

Answer: Penalty is ₹2,30,000 and the total payable is ₹11,50,000.

Example 2

Take a variant of Alpha Traders where the proper officer's order determines duty of ₹8,00,000 under section 28(8) for wilful mis-statement. To keep the figures simple, assume the order determines no interest. Alpha pays nothing within 30 days of communication of that order. The Commissioner (Appeals) then increases the duty to ₹10,00,000. Compute the penalty under Section 114A on the revised duty.

Show the solution

Wilful mis-statement is established, so the case falls under section 28(4) and Section 114A applies.
On the original order, the full penalty would be 100% of ₹8,00,000 = ₹8,00,000.
The appellate order increases the duty to ₹10,00,000. Under the proviso on appellate changes, the penalty is recomputed on the duty as increased.
Full penalty on the revised duty = 100% of ₹10,00,000 = ₹10,00,000.
The 25% option is tied to payment of duty, interest and the reduced penalty within 30 days of the proper officer's order. Alpha paid nothing in that window, and the appellate order does not restart it, so the 25% option is not available.
Duty and penalty on the revised duty = ₹10,00,000 + ₹10,00,000 = ₹20,00,000, plus interest under section 28AA as applicable (left out here for simplicity).
No separate penalty under section 112 or 114 is levied for this duty shortfall.

Answer: The penalty is recomputed on the revised duty and is ₹10,00,000. Duty plus penalty is ₹20,00,000, excluding interest under section 28AA.

Exam tips

In case-scenario MCQs, hunt for words like suppression, wilful, collusion or false declaration. They signal section 28(4) and 114A.
Always show two numbers: full penalty at 100% and reduced penalty at 25%, then state which applies on the facts.
Mention the 30-day payment of duty, interest and penalty together. Examiners give marks for each condition.
When asked to differentiate 112 and 114A, say 112 is for acts making goods liable to confiscation and 114A is for fraud-based duty shortfall under section 28(4), and 114A excludes 112 and 114 for the same matter.

Practice questions from Levy of and Exemptions from Customs Duty

Penalty for Short-Levy or Non-Levy of Duty (Section 114A): frequently asked questions

When does Section 114A of the Customs Act apply?

It applies where duty is determined under section 28(8) in cases covered by section 28(4). These are cases where duty is not levied, short-levied, short-paid or erroneously refunded, or interest is not paid, because of collusion, wilful mis-statement or suppression of facts. The penalty is on the duty or interest determined.

How is penalty calculated under Section 114A?

The penalty equals 100% of the duty or interest determined under section 28(8). If the duty, interest under section 28AA and a penalty of 25% are paid within 30 days of the communication of the order, the penalty is only 25%.

What is the difference between Section 114A and Section 112?

Section 112 penalises acts or omissions that make goods liable to confiscation under section 111. Section 114A penalises duty shortfall caused by collusion, wilful mis-statement or suppression. Where a penalty is levied under 114A, no penalty is levied under section 112 or 114.

Does Section 114A apply to an honest mistake?

No. The section needs collusion, wilful mis-statement or suppression of facts, which are the section 28(4) cases. A bona fide error or genuine dispute does not by itself attract it.