Undervaluation and penalty require disclosed material, meaningful hearing, and cogent basis; mere price difference is insufficient.

Seizure and penalty for alleged undervaluation were held unsustainable where the consignments were supported by way bills and invoices, but the authority relied on an undisclosed market verification report and gave no material basis for rejecting the dealer's explanation. An unexplained difference between declared import price and alleged local sale price, without accounting for transport and incidental costs, was insufficient to establish undervaluation. The decision-making process was characterised as arbitrary and a colourable exercise of power. The authority was also required to supply the material relied upon and afford a meaningful opportunity to contest it, because seizure does not automatically justify penalty and penalty proceedings are independent.

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Issues: Whether the seizure of consignments and the penalty imposed on the ground of alleged undervaluation were sustainable in law.

Analysis: The consignments were accompanied by the requisite documents, including way bills and invoices, yet they were detained and seized on the basis of an undisclosed market verification report. The order of penalty merely recorded dissatisfaction with the explanation offered and did not disclose the basis for rejection, the contents of the verification report, or any material showing undervaluation. The difference between the declared import price and the alleged local sale price was found to be explainable by transport and incidental costs, and no reasonable basis was shown for treating it as undervaluation. The decision-making process was therefore held to be arbitrary, whimsical, and in the nature of a colourable exercise of power. The Court further held that, in cases of alleged undervaluation, the dealer must be supplied the material relied upon and must be given a proper opportunity to contest it, and that seizure does not automatically justify penalty because penalty proceedings are independent.

Conclusion: The seizure order and the penalty order were unsustainable and were set aside.

Ratio Decidendi: Seizure and penalty for alleged undervaluation cannot stand unless the authority has cogent material, discloses the material relied upon, and affords a meaningful opportunity to contest it; mere suspicion or unexplained price difference is insufficient.

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