Related-person valuation and clandestine removal need real corroboration; unverified notebooks and non-comparable price comparisons are insufficient.

Transaction value for clearances from a 100% EOU to its DTA unit could not be rejected merely because the units were related persons. Rule 7(3) of the Customs Valuation Rules, 2007 was held inapplicable where the DTA unit did not manufacture the same goods, and comparison with small, non-comparable import consignments could not justify re-determination absent evidence that the relationship influenced price. Allegations of clandestine removal based on a private notebook and statements also failed because the notebook author was not examined, one statement was retracted, and no independent corroboration showed additional raw materials or production capacity. The undervaluation demand and the clandestine clearance demand were set aside.

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Issues: (i) Whether the assessable value of clearances from the 100% EOU to the DTA unit could be re-determined on the footing that the units were related persons and by applying Rule 7(3) of the Customs Valuation Rules, 2007. (ii) Whether the allegation of clandestine clearance based on the private notebook and statements could be sustained.

Issue (i): Whether the assessable value of clearances from the 100% EOU to the DTA unit could be re-determined on the footing that the units were related persons and by applying Rule 7(3) of the Customs Valuation Rules, 2007.

Analysis: The clearances from the EOU to the DTA unit were required to be assessed under Section 14 of the Customs Act, 1962 and duty paid under the proviso to Section 3(1) of the Central Excise Act, 1944. Mere relationship between the two units did not by itself justify rejection of the declared value. The method adopted by the Department, namely working back from the DTA unit's sale price by invoking Rule 7(3), was held inapplicable because the DTA unit was not manufacturing the same goods. The comparison with import prices of small sample consignments was also found not to be a valid basis for rejecting the transaction value, as the quantities were not comparable and no cogent material showed that the relationship influenced the price.

Conclusion: The re-determination of value was not sustainable and the demand on the allegation of undervaluation failed.

Issue (ii): Whether the allegation of clandestine clearance based on the private notebook and statements could be sustained.

Analysis: The allegation rested principally on entries in the private notebook and statements of persons connected with the units. The record did not contain reliable corroboration from independent evidence. The author of the notebook was not examined, one of the supporting statements stood retracted, and no supporting investigation was shown regarding procurement of additional raw material or corresponding production capacity. In the absence of corroborative evidence, the private records and statements were insufficient to establish clandestine removal.

Conclusion: The allegation of clandestine clearance was not proved.

Final Conclusion: Both the duty demand on undervaluation and the demand based on clandestine removal were set aside, and the appeals were allowed.

Ratio Decidendi: Transaction value cannot be rejected merely because the buyer and seller are related or because of comparison with non-comparable sample imports, and clandestine removal cannot be sustained without corroborative evidence beyond private records and uncorroborated or retracted statements.

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