Customs valuation: declared transaction value cannot be discarded without proof of undervaluation and sequential rule-based valuation.

Transaction value remains the normal basis for customs assessment and cannot be rejected unless the Department first proves undervaluation on legally sustainable evidence. A Chartered Engineer's report based on local market values of similar indigenous goods was held insufficient to displace the declared value, especially where the inspection record did not support the alleged quantity discrepancy. If rejection is justified, the Customs Valuation Rules, 2007 require sequential application of the prescribed valuation methods; direct resort to the residual method without following that sequence is impermissible. On that reasoning, the valuation based on the report was unsustainable and relief was granted to the importer.

---

---

Issues: Whether the declared transaction value of the imported goods could be rejected and enhanced on the basis of a Chartered Engineer's report and market data without first discharging the Department's burden to show undervaluation and without following the sequential valuation framework under the Customs Valuation Rules, 2007.

Analysis: The dispute concerned valuation of imported goods. The record showed that the goods were detained on suspicion of misdeclaration and undervaluation, but the inspection by the Advocate Commissioner did not support the alleged discrepancy in quantity. The Department initially obtained import price information from the authorised importer of the branded goods, yet that material was not relied upon in the impugned order. Instead, valuation was based on a Chartered Engineer's report that adopted local market values of similar indigenous goods. The governing principle is that transaction value is ordinarily the basis of assessment, and it can be rejected only for legally sustainable reasons supported by evidence. Where undervaluation is alleged, the Department must establish the basis for rejection of the declared price and cannot substitute speculative market valuation. If the declared value is found unacceptable, the valuation rules require sequential resort to the prescribed methods and do not permit direct invocation of the residual method without compliance with the earlier steps.

Conclusion: The rejection of the transaction value and the valuation adopted on the basis of the Chartered Engineer's report were unsustainable. The appeal succeeded and the assessee was entitled to relief.

Ratio Decidendi: In customs valuation, the declared transaction value cannot be discarded unless the Department establishes undervaluation on legally tenable evidence and then applies the valuation rules sequentially in the prescribed order.

---