Transaction value cannot be rejected on common directorship alone; penalty for undeclared goods may be moderated to reflect proved liability.

Declared import value cannot be rejected merely because a common director exists between the foreign supplier and the Indian marketing concern. In the absence of contemporaneous import evidence, proof of mutual interest, or material showing that the invoice price was not genuine, the department does not discharge the burden of proving undervaluation under the Customs Valuation Rules; the transaction value is therefore protected. Where undeclared goods are found in the consignment and the duty liability is sustained, the penalty may still be moderated if the original amount is excessive in relation to the proved liability, and it was reduced accordingly.

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Issues: (i) whether the declared import value could be rejected and enhanced merely because a common director existed in the foreign supplier and the Indian marketing concern, and (ii) whether the penalty required reduction in relation to the undeclared goods found in the consignment.

Issue (i): whether the declared import value could be rejected and enhanced merely because a common director existed in the foreign supplier and the Indian marketing concern

Analysis: The rejection of the declared value was founded only on the fact that one director was common to the supplier and the Indian marketing agency. There was no contemporaneous import evidence to support revaluation, and no material showing that the importer had any interest in the foreign supplier's business or that the stated price was not genuine. The manufacturer's invoice was also produced and supported the declared price. In these circumstances, the department did not discharge the burden of proving undervaluation or establishing that the parties were so related as to justify rejection of the transaction value under the Customs Valuation Rules.

Conclusion: The enhancement of value was not sustainable and was set aside in favour of the assessee.

Issue (ii): whether the penalty required reduction in relation to the undeclared goods found in the consignment

Analysis: The finding regarding undeclared goods and the corresponding duty liability was not disputed. However, the penalty had been imposed in a consolidated manner on the entire allegations. Considering the value of the undeclared goods and the duty confirmed, the penalty was found to be excessive and warranted moderation.

Conclusion: The penalty was reduced from Rs. 5 lakhs to Rs. 25,000, while the finding on undeclared goods and the duty demand was sustained.

Final Conclusion: The valuation enhancement was annulled, the duty finding on undeclared goods was maintained, and the penalty was substantially reduced, resulting in a partial success for the assessee.

Ratio Decidendi: Mere common directorship, without evidence of mutual interest, contemporaneous support, or other material showing the declared price to be unreliable, is insufficient to reject transaction value; penalty for undeclared goods may be moderated to reflect the proved liability.

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