2023 (8) TMI 751 - AT - Customs

Tribunal upholds declared value, overturns undervaluation, criticizes procedural lapses, rejects department's appeal.

The Tribunal upheld the Commissioner (Appeals)' decision to accept the declared value of goods, overturning the undervaluation finding and setting aside ... Valuation of imported goods - rejection of declared value - relevant SCN along with relied upon documents including correspondence with Hong Kong- Customs, on the basis of the department’s case have not been placed on record - HELD THAT:- It is found that the rejection of value by the Adjudicating Authority, and also the basis of setting aside of the order-in-original by the Commissioner (Appeals), has neither been made available by the department nor was filed by the department. It is therefore, for the concerned administrative authorities to take remedial action to ensure that Show Cause Notice and R.U.D’s are filed in departmental appeals. Even the grounds of appeal taken by the department indicate that they are relying upon inquiry report received from Hong Kong through the mutual assistance agreement from the department of justice Hong Kong vide letter dated June, 18 2009, but still appeal has been filed without even providing the same alongwith other documents and copy of the SCN. And now at this stage same documents are untraceable. The appeal has been filed by the department after review and authorization by Committee of Commissioners, but even the basic documents like SCN and RUDs including the relevant correspondence has not been put on record. In the absence of such documents having not been made available by the department despite opportunities given, the findings of Learned Commissioner (Appeals) agreed upon and the same is held as correct based upon evidence on record. The appeals of the department are rejected. ISSUES PRESENTED AND CONSIDERED 1. Whether the adjudicating authority validly rejected declared transaction value and re-determined customs value under the residual method (Rule 9), relying on quotations/offers extracted from personal computers and foreign export values. 2. Whether export prices or quoted values from a foreign jurisdiction (including supplier-declared export value to Hong Kong) can be directly adopted under the residual method in the absence of contemporaneous import data in India. 3. Whether alleged undervaluation, confiscation and penalties under the Customs Act (including sections corresponding to misdeclaration and penalties) survive where declared value is accepted. 4. Whether the appellate/reviewing process permits drawing adverse inference or dismissal of a departmental appeal where the Department fails to place the show-cause notice, relied-upon documents (including mutual assistance correspondence) and RUDs on record despite directions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of rejection and re-determination of declared transaction value using quotations/offers from personal computers Legal framework: Customs Valuation Rules; Rule 9 (residual method) requires value be determined using reasonable means consistent with principles of the Rules and on the basis of data available in India; value so determined must not exceed price at which such or like goods are ordinarily sold or offered for sale for delivery at time and place of importation in the course of international trade where seller and buyer are independent and price is sole consideration. Precedent treatment: The Court followed the settled principle that residual method cannot be based on extraneous, unverifiable caveat-free documents and that evidence should preferably include contemporaneous import data of identical or similar goods. Interpretation and reasoning: The adjudicating authority relied directly on quotations/offers obtained from personal computers/laptops to reject declared values. The Tribunal found such reliance impermissible because the residual method mandates reasonable means consistent with domestic data and accepted valuation principles; the record lacked any attempt to locate or apply contemporaneous import data in India. Quotations extracted from seller's devices were treated as caveat-free and insufficiently probative to displace declared transaction value absent corroborative flow-back or independent market data. Ratio vs. Obiter: Ratio - Rejection of declared value cannot be sustained when based solely on quotations/offers extracted from personal devices without corroborative contemporaneous import data or other reliable market evidence. Obiter - Preferable investigatory steps (e.g., inquiry into contemporaneous imports) that should have been taken. Conclusion: The adjudicating authority erred in rejecting and enhancing transaction value on the basis of such evidence; declared values must be accepted in the circumstances where no reliable alternative valuation basis was established. Issue 2 - Admissibility of foreign export prices/quoted values (e.g., export to Hong Kong) as direct basis under Rule 9 Legal framework: Rule 9 residual method and sub-rule (2) exclusions - Rule 9 requires use of data available in India and contains specific exclusions; interpretation must be consistent with principles of Customs Valuation Rules (both 1988 and 2007 regimes as applicable). Precedent treatment: The Court followed the established legal position that export value of another country cannot be adopted as the direct basis for residual valuation under Rule 9. Interpretation and reasoning: Although sub-rule (2) did not expressly exclude 'price of goods for export to India', the Tribunal interpreted the scheme and settled legal position to mean that export values declared to foreign customs authorities (e.g., export to Hong Kong) cannot be used directly to re-determine import value in India under residual method. The absence of evidentiary flow-back (demonstrating that such export value directly reflects the Indian import transaction) reinforced the conclusion that such foreign export quotations are not a permissible standalone basis. Ratio vs. Obiter: Ratio - Foreign export prices or supplier-declared export values cannot, without more, be adopted as direct basis for valuation under Rule 9. Obiter - Evidence of flow-back could, if available, fortify a different conclusion. Conclusion: The exported-to-foreign-country price and proforma/invoice copies extracted from electronic devices were insufficient to reject declared value; such foreign export values cannot be used to re-determine value under the residual method absent corroboration. Issue 3 - Consequences for undervaluation, confiscation and penalties where declared value is accepted Legal framework: Principles governing confiscation and penalties under the Customs Act depend on establishment of misdeclaration/undervaluation and mens rea/failure conditions set out in penal provisions; if valuation is accepted, the predicate for those penal measures may collapse. Precedent treatment: The Tribunal applied settled reasoning that penalty provisions and confiscation cannot be sustained where allegation of undervaluation and misdeclaration is negated by acceptance of declared transaction value. Interpretation and reasoning: Once the declared transaction values were held acceptable (because the departmental valuation basis failed), the Department's allegations of undervaluation fell away. Consequently, orders of confiscation and penalties founded upon those allegations had no sustaining foundation. The Commissioner (Appeals) had correctly held that since there was no case for misdeclaration, penalties under the relevant sections could not be imposed. Ratio vs. Obiter: Ratio - Acceptance of declared value removes the basis for charging undervaluation, confiscation and imposition of penalties tied to such findings. Obiter - The Tribunal did not decide other arguments on penalty since primary determination disposed of penalty issues. Conclusion: Penalties and confiscation orders premised on disputed valuation are unsustainable and liable to be set aside when declared values are accepted. Issue 4 - Procedural consequences where the Department fails to produce SCN, RUDs and relied documents despite directions Legal framework: Appellate procedure requires the party filing an appeal to place relevant documents on record; failure to produce critical evidence after specific directions permits the appellate authority to draw adverse conclusions and to base its decision on available record; administrative responsibility to preserve and transmit records, including documents obtained by international cooperation. Precedent treatment: The Tribunal treated the Department's failure to produce the show-cause notices, RUDs and mutual assistance correspondence as decisive and drew an adverse inference; it also directed administrative remedial action. Interpretation and reasoning: The Department filed appeals relying on inspection/inquiry material (including communications from foreign authorities) but did not place those materials before the Tribunal despite express directions and deadlines. The Tribunal observed that absent those documents the Department could not sustain reversal of the Commissioner (Appeals). The failure indicated negligent handling of legally significant records obtained via international cooperation; as a result, the Tribunal upheld the lower appellate findings and rejected departmental appeals. The Tribunal also directed that the order be communicated to higher administrative/legal officers for corrective action regarding record-keeping and transfers. Ratio vs. Obiter: Ratio - Where an appellant fails to place essential documents before the appellate forum after being specifically directed to do so, adverse conclusions may be drawn and the appellate forum may uphold the decision based on the record available. Obiter - Administrative comments and directions to take corrective action in record management. Conclusion: In view of the Department's non-production of the SCNs and relied documents, the Tribunal upheld the Commissioner (Appeals) findings and dismissed the departmental appeals; administrative remedial measures were recommended to ensure proper handling and transmission of legal records. Cross-references 1. Issue 1 and Issue 2 are interrelated: the impropriety of relying on supplier quotations/extraneous foreign export values (Issue 1) is reinforced by the legal prohibition on adopting foreign export prices as direct basis under Rule 9 (Issue 2). 2. Issue 3 flows directly from Issues 1-2: acceptance of declared value (Issues 1-2) eliminates the basis for undervaluation, confiscation and penalty orders (Issue 3). 3. Issue 4 provides the procedural backdrop that mandated upholding the Commissioner (Appeals) where the Department failed to produce the very documents on which it relied to challenge declared value (Issues 1-2), thereby influencing the outcome on penalties (Issue 3).