Court’s decision
The Customs Excise and Service Tax Appellate Tribunal, New Delhi, delivered a detailed judgment partly allowing and partly rejecting the importer’s appeal. The Tribunal upheld the rejection of transaction value for a single Bill of Entry dated 23.04.2019 and sustained the re-determined value under Rule 4 for that consignment, along with consequential differential duty and interest. However, the Tribunal set aside the re-determination of value for 44 past consignments, holding that no independent reasons were recorded to invoke Rule 12 for those earlier bills.
The Tribunal also set aside confiscation under Section 111(m) and deleted penalties under Sections 114A and 114AA, noting that undervaluation by itself is not misdeclaration unless supported by evidence of deliberate falsification. Consequential relief was granted to the appellant.
Facts
The appellant imported multiple consignments of bearings from an overseas supplier, declaring the transaction value in each Bill of Entry. A live consignment imported through Bill of Entry dated 23.04.2019 was flagged by Customs because another importer had declared higher value for similar goods imported from the same supplier around the same time. Customs detained the goods, summoned the importer, scrutinised the purchase agreement, and observed that the agreement contained conditions tied to a minimum annual purchase commitment, which the importer had not met.
The authorities rejected the declared value under Rule 12 for all 45 consignments—one live and 44 past consignments—and re-determined values using Rules 4 and 9. Differential duty was demanded, goods were confiscated under Section 111(m), and heavy penalties were imposed. The importer filed an appeal before CESTAT challenging the legality of valuation, confiscation, and penalties.
Issues
- Whether Customs was justified in rejecting the transaction value under Rule 12 of the 2007 Valuation Rules for the live consignment.
- Whether the declared value in 44 past consignments could be rejected solely because the live consignment’s value was suspected.
- Whether undervaluation alone establishes misdeclaration for confiscation under Section 111(m).
- Whether penalties under Sections 114A and 114AA can be imposed without proof of deliberate falsification or intentional misdeclaration.
- Whether the revaluation under Rules 4, 9 and the ensuing duty demands were lawful.
Petitioner’s arguments
The appellant contended that the declared value was based on genuine commercial invoices and that payments were made through authorised banking channels. They argued that lower prices alone could not justify invoking Rule 12 without evidence of fraud or manipulation. The appellant emphasised that the purchase agreement allowed price variations, and that being a long-standing customer, they received lower rates, which is commercially legitimate. They further argued that even if the transaction value for one consignment was rejected, it did not permit blanket rejection of values for all past consignments.
The appellant asserted that confiscation was unjustified because there was no misdeclaration—only a genuine declaration based on invoice price. It was submitted that penalties under Sections 114A and 114AA required proof of knowledge or intent, which was wholly absent. They requested that the impugned order be set aside with restoration of all reliefs.
Respondent’s arguments
The Revenue argued that contemporaneous imports of identical goods by another importer at significantly higher values raised justified doubts regarding the truth of the declared value. They asserted that the appellant’s inability to explain the 17–20% price difference warranted rejection of declared value under Rule 12. Relying on the purchase agreement’s minimum annual quantity requirement, which the appellant failed to meet, the department argued that the agreement could not justify the lower prices declared.
The Revenue defended re-determination under Rules 4 and 9, contending that undervaluation resulted in short payment of duty, justifying extended period action under Section 28(4). It asserted that undervaluation constituted misdeclaration, warranting confiscation under Section 111(m) and penalties under Sections 114A and 114AA.
Analysis of the law
The Tribunal examined Section 14 of the Customs Act and the valuation mechanism under the 2007 Valuation Rules. It reiterated that transaction value is the default mode of valuation and can be rejected only when the proper officer establishes “reasonable doubt” as defined under Rule 12. The Tribunal emphasised that the proper officer must justify rejection for each consignment independently and must then apply valuation methods sequentially under Rules 4 to 9.
The Tribunal held that undervaluation alone does not constitute misdeclaration; the law distinguishes between a declaration based on invoice value and deliberate falsification. Confiscation requires discrepancy between the declared value and actual transaction value—not merely a divergence from another importer’s value. Penalties require knowledge or intent, which must be proved through evidence.
Precedent analysis
1. Memorandum to the Finance Bill, 2007
Reiterates that post-2007, Customs valuation depends on transaction value, not notional value. This underpins the Tribunal’s analysis of Section 14.
2. Supreme Court judgments on valuation principles
Referenced implicitly in the Tribunal’s discussion, these precedents affirm that undervaluation must be demonstrated through concrete evidence, not comparison alone.
3. Customs Excise and Service Tax Appellate Tribunal and High Court decisions on Rule 12
These decisions clarify that rejection of transaction value must be based on documented, reasonable doubt and must be applied consignment-wise, not generically.
The Tribunal relied on these precedents to affirm Rule 12 rejection for the live consignment but set aside the rejection for earlier consignments where no separate reasons were recorded.
Court’s reasoning
The Tribunal held that Customs was justified in doubting and rejecting the declared value for the live consignment because contemporaneous imports by another importer from the same supplier showed a consistent 20% price difference, and the appellant could not satisfactorily explain it. This created “reasonable doubt” under Rule 12.
However, the Tribunal found that Customs had not recorded any independent grounds to doubt values for the remaining 44 consignments. Rule 12 requires separate reasons for each consignment. Since the department admitted that there were no contemporaneous imports for the earlier consignments, rejection of all values based solely on the live consignment was impermissible.
The Tribunal held that confiscation under Section 111(m) was unsustainable because an importer cannot foresee the re-determined value under Rules 4–9 and is required only to declare invoice value. Penalties were also set aside as there was no evidence of intentional misdeclaration.
Conclusion
The Tribunal upheld re-determination of value under Rule 4 and duty demand with interest for the single Bill of Entry dated 23.04.2019. All other re-determined values for the past 44 consignments were quashed. Confiscation under Section 111(m) was struck down, along with the penalties under Sections 114A and 114AA. The appellant was granted consequential relief. The judgment provides clear guidance on the limits of Revenue’s power when invoking Rule 12 and re-determining value.
Implications
This decision is a significant reinforcement of transaction value jurisprudence under Indian Customs law. It clarifies that:
- Each consignment must independently satisfy Rule 12 conditions for rejection of declared value.
- Undervaluation is not equal to misdeclaration unless supported by evidence of intent.
- Confiscation cannot be based on value enhancement arising solely from valuation rules.
- Penalties require demonstrable mens rea.
- Importers are not expected to pre-empt Revenue’s choice of valuation method.
This ruling strengthens procedural fairness in customs investigations and protects importers from blanket valuation rejections.
