2010 (7) TMI 1149 - HC - Customs

Court Invalidates Settlement Commission's Orders for Customs Valuation Errors

Mahahar Audiotronics Pvt. Ltd. Versus Union of India

Mahahar Audiotronics Pvt. Ltd. Versus Union of India - 2017 (355) E.L.T. 80 (Bom.) Issues Involved:1. Challenge to the orders dated 2nd August 2001 and 4th December 2001 by the Settlement Commission.2. Determination of customs duty liability for 7 shipments without export declarations.3. Application of Rule 5(3) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.4. Scope of the Settlement Commission's powers under Section 127C(7) of the Customs Act.5. Judicial review of Settlement Commission's orders under Article 226 of the Constitution of India.Detailed Analysis:1. Challenge to the Orders Dated 2nd August 2001 and 4th December 2001 by the Settlement Commission:The petitioners challenged the orders passed by the Settlement Commission, which settled the duty liability for 7 shipments at Rs. 23,01,077 instead of Rs. 3 lakhs as disclosed by the petitioners. The petitioners contended that the Settlement Commission did not adhere to the provisions of Rule 5(3) of the Valuation Rules, which mandates the use of the lowest transaction value for identical goods.2. Determination of Customs Duty Liability for 7 Shipments Without Export Declarations:The petitioners imported several consignments of electronic items during 1995-96. For 7 shipments, no export declarations were available. The Directorate of Revenue Intelligence (DRI) issued a show cause notice demanding customs duty based on alleged underinvoicing. The Settlement Commission, relying on the Tribunal's decision in Orson Electronics Pvt. Ltd., settled the duty liability at Rs. 23,01,077 for these 7 shipments.3. Application of Rule 5(3) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988:Rule 5(3) stipulates that if more than one transaction value of identical goods is found, the lowest such value shall be used to determine the value of imported goods. The petitioners argued that the Settlement Commission should have adopted the lowest transaction value for the 7 shipments, which would amount to Rs. 3 lakhs. The Court agreed with the petitioners, emphasizing that the Settlement Commission must follow the Valuation Rules and adopt the lowest value.4. Scope of the Settlement Commission's Powers Under Section 127C(7) of the Customs Act:Section 127C(7) allows the Settlement Commission to pass orders as it thinks fit on matters covered by the application, in accordance with the provisions of the Act. The Court held that the Settlement Commission is bound to pass orders in accordance with the Valuation Rules, which are part of the Act. The Commission cannot ignore the mandatory requirement to adopt the lowest transaction value under Rule 5(3).5. Judicial Review of Settlement Commission's Orders Under Article 226 of the Constitution of India:The respondents argued that the High Court's power of judicial review is limited and the orders of the Settlement Commission are conclusive under Section 127J. However, the Court clarified that the orders of the Settlement Commission are amenable to writ jurisdiction and judicial review is permissible. The Court found that the Settlement Commission's decision-making process was not in accordance with the law, as it failed to apply Rule 5(3) of the Valuation Rules.Conclusion:The Court held that the orders dated 2nd August 2001 and 4th December 2001 by the Settlement Commission were arbitrary and perverse. The Court set aside the orders to the extent that the Settlement Commission settled the duty liability for 7 shipments at Rs. 23,01,077 instead of Rs. 3 lakhs. The Court allowed the writ petition and made the rule absolute, with no order as to costs.