2022 (8) TMI 237 - AT - Customs

Customs demand set aside for procedural lapses under Sections 17, 105 and 138C; valuation evidence lacking and rejected

CESTAT Mumbai-AT allowed the appeal, setting aside the Customs demand and rejection of declared transaction values. The Tribunal found mandatory ... Admissibility of electronic evidence under Section 138C of the Customs Act (pari materia with Section 65B of the Evidence Act) - Requirements of Section 17(5) of the Customs Act for speaking re assessment orders on self assessment - Evidentiary value of Panchanama and requirements for seizure/description of electronic devices - Proof of remittance/payment to establish undervaluation - Reliance on insurance declarations for rejection of transaction value - Evidentiary weight of retracted statements and duty to examine retracting witness under Section 138BRequirements of Section 17(5) of the Customs Act for speaking re assessment orders on self assessment - Non compliance with Section 17(5) rendered the initial assessments not complete or final and undermined reliance on reassessment. - HELD THAT: - The Tribunal found that the bills of entry were self assessed, accepted and cleared at the time of initial assessment and there is no record in the SCN or impugned order of any speaking re assessment order as mandated by sub section (5) of Section 17. In absence of a speaking re assessment or a written confirmation by the importer waiving such order, the requirements of Section 17 have not been complied with and therefore the departmental action cannot be treated as a valid re assessment under Section 17 read with Section 2(2). This deficiency undermines the foundation for the disputed demands. [Paras 7]Assessments could not be regarded as complete or final due to non compliance with Section 17(5); reassessment basis was invalid.Admissibility of electronic evidence under Section 138C of the Customs Act (pari materia with Section 65B of the Evidence Act) - Electronic records/computer printouts seized and produced by the department were inadmissible for want of the mandatory certificate and other statutory conditions under Section 138C. - HELD THAT: - The Tribunal applied the principle that Section 138C is pari materia to Section 65B and requires compliance with conditions (including a certificate by a responsible official) before computer printouts or electronic records can be admitted. The record showed no certificate as required by Section 138C(4)/(2), and the statutory safeguards for retrieval, seizure and certification of electronic material were not followed. Consequently the emails, forensic output and computer printouts lost evidentiary value and could not be relied upon to confirm undervaluation. [Paras 12]Electronic evidence relied upon by Revenue was inadmissible for non compliance with Section 138C and could not support the adjudged demands.Evidentiary value of Panchanama and requirements for seizure/description of electronic devices - Panchanama and seizure formalities were deficient (no description of CPU, place of installation or operator's statement) and thus insufficient as corroborative evidence. - HELD THAT: - The Tribunal observed that statutory and CrPC derived safeguards governing Panchanama were not scrupulously followed. The Panchanama lacked details such as make, model, year of manufacture, exact location of the seized CPU and did not record a statement from the person operating the computer. The manner of seizure and handling of electronic devices did not satisfy statutory prescriptions, weakening the Panchanama's corroborative value. Given these lacunae, the Panchanama could not independently sustain the allegations of mis declaration. [Paras 8, 9]Panchanama and seizure formalities were deficient and insufficient to substantiate undervaluation.Proof of remittance/payment to establish undervaluation - Undervaluation was not established because there was no evidence of payment/remittance to the overseas supplier corroborating alleged extra consideration. - HELD THAT: - The Tribunal emphasised the settled principle that undervaluation requires proof of payment in excess of declared invoice value. Although amounts were deposited during investigation, the department failed to link such payments to the alleged differential paid to overseas suppliers: no enquiries, summonses or statements of intermediary or foreign suppliers were recorded. Reliance solely on retracted statements without corroborative evidence of financial flow is insufficient to prove undervaluation. [Paras 11]In absence of proof of remittance/payment to suppliers, undervaluation claim could not be sustained.Reliance on insurance declarations for rejection of transaction value - Higher insured value on marine insurance policies cannot, without further enquiry, justify rejection of declared transaction value. - HELD THAT: - The Tribunal held that insured values may be higher for reasons unrelated to transaction value (e.g., higher insurance declarations to claim compensation) and that department did not investigate reasons for enhancement or suppression. The insurer declarations alone, especially where the importer had produced insurance documents, do not constitute conclusive proof to discard the transaction value and invoke extended limitation. Hence relying upon insurance policies, without verification, to re determine transaction value was unjustified. [Paras 13]Insurance policy values alone do not justify rejection of the declared transaction value; such reliance is unsustainable.Evidentiary weight of retracted statements and duty to examine retracting witness under Section 138B - Retracted statements could not be summarily discarded and the adjudicating authority ought to have examined the deponent under Section 138B; reliance on retracted statements without corroboration was improper. - HELD THAT: - The Tribunal noted that the appellant retracted statements by letter and explained delay in retraction due to late receipt of copies. Law requires department to prove voluntariness of confessions and to corroborate retracted confessions; where a retraction is filed during adjudication proceedings the adjudicating authority should examine the person who made the statement and the officers, under Section 138B, before rejecting the retraction. The adjudicating authority failed to carry out such enquiries and improperly treated the retracted statements as decisive evidence. [Paras 14]Retracted statements could not be relied upon without examination under Section 138B and independent corroboration; the adjudicating authority's reliance on them was improper.Final Conclusion: The Tribunal held that the department failed to substantiate undervaluation by legally admissible and corroborative evidence: assessments were invalid for non compliance with Section 17(5), electronic evidence and Panchanama formalities were deficient, insurance values were not a ground to discard transaction value, and retracted statements lacked necessary examination and corroboration. Appeals allowed with consequential relief as per law. Issues Involved:1. Early hearing of appeals.2. Allegation of undervaluation of imported goods.3. Compliance with statutory procedures for re-assessment and seizure.4. Admissibility and reliability of evidence, including electronic records.5. Invocation of extended period of limitation.6. Validity of retracted statements.7. Use of insurance policy values as evidence of undervaluation.Issue-wise Detailed Analysis:1. Early Hearing of Appeals:The appellants sought early hearing of their appeals. The tribunal allowed the miscellaneous applications for early hearing in the interest of justice and took up the appeals for hearing together.2. Allegation of Undervaluation of Imported Goods:The appellants were accused of gross undervaluation of imported goods, leading to the issuance of a Show Cause Notice (SCN) proposing rejection of the declared value under Rule 12 of the Customs Valuation Rules, 2007 (CVR 2007) and re-determination under Section 14(1) of the Customs Act, 1962. The Commissioner of Customs adjudicated the SCN, rejecting the declared value of Rs. 6,81,09,687/- and re-determining it at Rs. 9,41,16,126/-, demanding differential customs duty and imposing penalties on the appellants.3. Compliance with Statutory Procedures for Re-assessment and Seizure:The tribunal observed that the requirements of Section 17 of the Customs Act, 1962, regarding self-assessment and re-assessment of duty, were not diligently complied with by the Customs department. The tribunal noted the absence of a speaking order as mandated under Section 17(5) and concluded that the assessments could not be considered final. Additionally, the tribunal found that the procedures for seizure under Section 105 and the drawing of Panchanama were not properly followed, as the description and details of the seized computer were not furnished.4. Admissibility and Reliability of Evidence, Including Electronic Records:The tribunal found that the evidence relied upon by the department, such as emails and data retrieved from the CPU, did not comply with the statutory requirements under Section 138C of the Customs Act. The tribunal noted the absence of a certificate as required under Section 138C(4) and held that the electronic documents could not be relied upon as admissible evidence. The tribunal cited various judgments, including S.N. Agrotech and Tele Brands (India) Pvt. Ltd., to support its conclusion.5. Invocation of Extended Period of Limitation:The tribunal held that the extended period of limitation under Section 28(4) of the Customs Act could not be invoked as the SCN was issued beyond the normal period prescribed in the statute. The tribunal noted that the import documents were submitted at the time of filing the Bills of Entry and during the Panchanama proceedings, and the proceedings for recovery of the adjudged demands were barred by limitation.6. Validity of Retracted Statements:The tribunal found that the retracted statements of the appellants could not be relied upon in isolation to conclude the undervaluation of goods. The tribunal noted that the statements were retracted within a reasonable time and that the department failed to corroborate the statements with independent evidence. The tribunal cited the judgment in Vinod Solanki, which held that retracted confessions must be corroborated by other independent evidence.7. Use of Insurance Policy Values as Evidence of Undervaluation:The tribunal held that higher insured values of consignments could not be a justifiable ground for rejecting the transaction value declared to Customs. The tribunal noted that higher values might be declared for insurance purposes for claiming higher compensation in case of damage and that such mis-declaration could not be conclusive proof of undervaluation. The tribunal cited the judgment in I.S. Corporation, which held that enhancement of transaction value based on insurance policy values was unsustainable.Conclusion:The tribunal concluded that the department failed to substantiate the allegations of undervaluation with cogent and legally admissible evidence. The appeals were allowed with consequential relief as per law.