Justice with Velvet Gloves? A Look at the DHC’s Decision in the iPhone Counterfeit Case
Tejaswini Kaushal
But first, the facts in brief: The dispute arose when the license of the Appellant (engaged in Customs clearance via courier) was cancelled for alleged misdeclaration of imported goods. The Appellant was accused of undervaluing and misclassifying full iPhones as mere spare parts to circumvent regulatory scrutiny. Defending itself, the Appellant contended that ultimate responsibility lies with the importers and that the courier agency should not be held liable. The Respondent, however, argued that the Appellant was complicit, accused of document forgery and had close ties with the importers. The High Court reviewed evidence, including a letter from Apple Inc. confirming the goods were counterfeit, and concluded that there was “a clear misdeclaration as to the value of goods, nature of goods, and also the fact that these are spare parts of iPhones.” The Court noted that despite consignments being destined for different locations, delivery was made to a single individual, confirming complicity in the fraud.
What’s the Law in Place?
Section 135 of the Customs Act, 1962 prescribes rigorous punishment for serious customs offences, including imprisonment ordinarily not less than one year and substantial financial penalties, particularly in cases involving misdeclaration, fraud, or high-value goods. The legislative intent behind this provision underscores the necessity of uncompromising punitive measures to deter customs fraud effectively. Section 132 of the same Act imposes penalties, including imprisonment for up to two years or fines or both, for making or using false documents in customs dealings, thereby emphasising the critical importance of truthful and accurate declarations within the supply chain. The Indian Customs Manual (2023) (on page 308 of the pdf) complements these statutory provisions by envisioning confiscation of goods, imposition of heavy fines, and prosecution in cases of intellectual property violations such as counterfeiting, consistent with Sections 110 and 111 of the Customs Act and the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007. It also expressly empowers Customs authorities to cancel or suspend licenses or registrations of entities, including courier agencies and Customs House Agents, found to be complicit in import violations involving counterfeit goods. Further, the principle of proportionality, recognised both internationally (through instruments like the Revised Kyoto Convention and the WTO Trade Facilitation Agreement) and domestically, requires that penalties be commensurate with the gravity of the offence and the offender’s degree of culpability. Indian courts have consistently applied this principle to temper penalties, ensuring that sanctions are deterrent and effective without being excessively harsh or unfair.
Let Off Lightly? Analysing the Implications of the DHC’s Decision
The DB acknowledged that while the Appellant courier agency was complicit in the misdeclaration and illicit import of counterfeit iPhones, it was not the ultimate beneficiary of the fraud. Accordingly, the DB found the complete revocation of the license until 2031 to be disproportionate, recognising the Appellant as a peripheral actor rather than a central participant in the fraudulent scheme. Striving to balance deterrence with fairness, the Court reduced the revocation period to just over two years, from 18 August 2023 to 1 September 2025.
Nevertheless, this application of proportionality needs a look at several of its implications. Firstly, Indian courts have often faced criticism for their inconsistent and sometimes superficial engagement with the proportionality doctrine, frequently conflating it with the lower standard of “Wednesbury unreasonableness” rather than employing a rigorous, structured balancing of public interest and individual rights. Such an approach risks arbitrary reductions in penalties, enabling administrative leniency that undermines the effective enforcement of customs regulations and the broader public interest. The judgment notably lacks clear benchmarks for what guided the proportionality assessment of the time duration, which invites subjective and inconsistent outcomes in the longer run that weaken legal certainty.
Secondly, counterfeit offences, particularly those involving high-value electronics, inflict concrete harm upon consumers and erode brand equity. Intermediaries such as courier agencies play a critical role in counterfeit supply chains, and lenient sanctions against them risk eroding supply chain accountability. The public interest requires strict and deterrent penalties for all participants in counterfeit operations, not only the primary offenders.
It is imperative to distinguish counterfeit goods from refurbished products. Yogesh’s analysis (here) of the recent DHC jurisprudence in Western Digital Technologies v. Hansraj Dugar helps differentiate between counterfeit goods and refurbished goods and why they need to be dealt with different severity. This discussion emphasises the importance of full disclosure regarding product condition and warranty status in not constituting trademark infringement. It also notes how the scope of “material alteration” under Section 30 of the Trade Marks Act and its application to refurbished goods remains unsettled, and courts have insufficiently accounted for market realities, such as grey market dynamics where consumers expect used goods to be inferior and priced accordingly, significantly reducing the likelihood of origin confusion. Equating all secondary sales with trademark infringement is unsuitable forrefurbished goods, but it is true for many counterfeit goods. Some counterfeits are bought cheaper when consumers know that these are copies, but for iPhones, the consumers have been buying the goods at actual prices, but being served inferior quality. Counterfeit goods represent unequivocal infringement, unlawfully exploiting brand goodwill without consumer disclosure or authorisation.
The DB’s reduction of the courier’s registration revocation in this particular counterfeit iPhone import matter may warrant closer scrutiny regarding its potential impact on enforcement. The decision could risk conveying a less robust deterrent message to facilitators and intermediaries, particularly if it indicates that involvement in counterfeit import activities (irrespective of degree) attracts only moderate and time-limited sanctions. Such outcomes may inadvertently leave complicit actors with limited accountability and could make future violations more likely.
It is relevant to note that the Supreme Court’s authoritative ruling in Department of Customs v. Sharad Gandhi (Civil Appeal No. 1866 of 2016) clearly establishes that statutory sanctions under customs law, encompassing confiscation, fines, and prosecutions, are to be interpreted broadly and not attenuated, so as to uphold the core objectives of customs control. Departures from these principles (such as potentially lenient penalties under Sections 132 and 135 of the Customs Act) may raise concerns about safeguarding public interest, market order, and brand equity, as these measures aim to impose appropriate sanctions on all parties involved in customs infractions.
While it is important for the courts to calibrate penalties to ensure fairness and proportionality, a substantial reduction in punishment for intermediary roles could, over time, attenuate the deterrent value that is central to effective customs enforcement. It would make more sense to keep penalties strong and consistent across the supply chain in order to support the rule of law, help protect consumers, and safeguard the Indian market’s integrity.
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