Customs valuation must follow Rule 7 comparables, and penalty cannot stand without mandatory show cause notice and hearing.

Valuation under Rule 7 of the Customs Valuation Rules, 1988 could not be sustained where the authority relied on indigenous company data rather than the sale price of the imported goods or identical or similar imported goods, because the statutory method required reference to those goods and permitted deductions only in that context; the matter was remitted for fresh valuation. Penalty under Sections 112 and 114A of the Customs Act, 1962 could not be proposed or imposed without the mandatory show cause notice and hearing required by Section 124, so penal action was unsustainable absent that procedure.

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Issues: (i) Whether rejection of the declared invoice value and valuation of hair care products under Rule 7 of the Customs Valuation Rules, 1988 was sustainable when the authority relied on indigenous company data instead of the sale price of imported or identical/similar goods and whether the importer was denied a fair opportunity; (ii) Whether penalty could be proposed or imposed under Sections 112 and 114A of the Customs Act, 1962 without issuance of a show cause notice as required by Section 124 of the Customs Act, 1962.

Issue (i): Whether rejection of the declared invoice value and valuation of hair care products under Rule 7 of the Customs Valuation Rules, 1988 was sustainable when the authority relied on indigenous company data instead of the sale price of imported or identical/similar goods and whether the importer was denied a fair opportunity.

Analysis: The record showed that the importer had been called upon under Rule 10A of the Customs Valuation Rules, 1988 to justify the declared values and had been given notice and opportunity to furnish information. The further dispute, however, was whether the valuation under Rule 7 could be based on profit and general expenses drawn from Indian companies manufacturing or trading different goods, instead of the unit price of the imported goods or identical or similar imported goods sold in India. The authority below had not followed the Rule 7 method in the manner mandated by the Rule, since the statutory scheme required reference to the imported goods under assessment or identical/similar imported goods and permitted deductions only in relation to such goods. The valuation exercise was therefore not in accordance with law.

Conclusion: The valuation under Rule 7 was unsustainable and was set aside in favour of the assessee, with the matter remitted for fresh determination.

Issue (ii): Whether penalty could be proposed or imposed under Sections 112 and 114A of the Customs Act, 1962 without issuance of a show cause notice as required by Section 124 of the Customs Act, 1962.

Analysis: The recommendation for penal action could not dispense with the statutory requirement that a person be put to notice before penalty is imposed. Section 124 of the Customs Act, 1962 mandates a show cause notice and an opportunity of hearing before any penalty is levied. In the absence of such notice and opportunity, penal consequences could not be sustained.

Conclusion: Penalty could not be sustained without compliance with Section 124 and the assessee succeeded on this issue.

Final Conclusion: The lower orders were set aside and the original authority was directed to reconsider valuation afresh in accordance with law after giving the importer a reasonable opportunity of hearing, resulting in a remand in favour of the assessee.

Ratio Decidendi: Under Rule 7 of the Customs Valuation Rules, 1988, valuation must be based on the sale price of the imported goods or identical or similar imported goods in India, and penal action cannot be sustained unless the mandatory pre-decisional notice and hearing requirements of Section 124 of the Customs Act, 1962 are satisfied.

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