2024 (1) TMI 533 - AT - Customs

Revenue fails to prove undervaluation of Methyl Phenyl Acetylene imports through mere invoice comparison

The CESTAT Bangalore allowed the appeal in a customs valuation dispute involving imported Methyl Phenyl Acetylene. The revenue alleged undervaluation by ... Valuation of imported goods - Methyl Phenyl Acetylene - Availability of contemporaneous import or not - nature of goods and country of origin of impugned as well as contemporaneous goods - HELD THAT:- The appellant categorically submit that the goods imported by the appellant cannot be considered as at par with the import made by the importer M/s. Dimesco Footcare(India) Pvt. Ltd. as alleged. Since times of import, quantity and country of import are different. As held by Apex court in the matter of BASANT INDUSTRIES VERSUS ADDL. COLLECTOR OF CUSTOMS, BOMBAY [1995 (1) TMI 89 - SUPREME COURT], a mere comparison of two invoices without anything more, it may not be correct to proceed on the premise that there is undervaluation. The relationship between the supplier and importer has also to be kept in mind because it is a matter of common knowledge that a price which is offered by a supplier to an old customer may be different from a price which the same supplier offers to a totally new customer. Similarly, as held by Apex court in the matter of Mirah Exports Pvt Ltd [1998 (2) TMI 124 - SUPREME COURT] in the business world, considerations of relationship with the customer are also a relevant factor and the price offered by a supplier to an old customer may be different from a price which the same supplier offers to a totally new customer. Thus it is not unusual for a foreign supplier to give a higher discount to an importer who is importing a much larger quantity and merely because such a discount has been given by the supplier it cannot be said that there has been any undervaluation in the invoice. There are no reason to confirm the demand of the differential duty on appellant. Hence the appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the transaction value declared at import can be rejected on the basis of a higher unit price seen in imports of ostensibly similar goods by another importer at a different port. 2. Whether a contemporaneous import by a different importer from the same manufacturer/supplier is sufficient cogent evidence to displace the declared transaction value under the Customs Valuation Rules. 3. Whether differences in time of import, quantity, port of clearance and route (country of shipment) are material factors in determining comparability for valuation purposes. 4. Whether the assessment of value should proceed sequentially through Rules 5 to 8 of the Customs Valuation Rules if Rule 4(1) (transaction value) is not rejected, and the evidential threshold required to invoke exceptions under Rule 4(2). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of rejecting declared transaction value based on higher price in another import Legal framework: The Customs Valuation Rules mandate acceptance of the price actually paid or payable as transaction value under Rule 4(1), subject to exceptions set out in Rule 4(2). If transaction value is rejected, valuation must be determined sequentially under Rules 5-8. Precedent treatment: The Court relied on established apex and tribunal authorities (as treated in the impugned proceedings) holding that transaction value must be accepted unless it falls within specified exceptions; mere comparison of invoices without more is insufficient to infer undervaluation. Interpretation and reasoning: The Tribunal held that an audit observation of a higher unit price in another importer's clearance does not ipso facto negate the declared transaction value. The assessing authority had originally accepted the declared price at import; the subsequent demand arose solely from after-the-fact comparison with another importer's clearance. The Court emphasized that rejection of transaction value requires cogent proof that the transaction falls within the exceptions (Rule 4(2)), not mere disparity in prices. Ratio vs. Obiter: Ratio - transaction value cannot be rejected solely on the basis of higher prices paid by another importer; cogent evidence is required to establish that the declared transaction falls within Rule 4(2) exceptions. Conclusion: The demand based solely on comparison with another importer's higher price was not justified; the declared transaction value should not have been rejected on that basis. Issue 2 - Sufficiency of contemporaneous import by different importer as cogent evidence Legal framework: Exceptions to transaction value require proof of special circumstances (Rule 4(2)) and comparability considerations under the valuation rules; contemporaneity and similarity are relevant but not determinative without supporting evidence of negotiation, pricing relationship or artificially low invoicing. Precedent treatment: The Court applied the principles from higher authority mandating that mere invoice comparison is insufficient and that supplier-importer relationship, negotiation evidence and quantity-based discounts are relevant considerations. Interpretation and reasoning: The Tribunal found the other import relied upon by revenue differed in time, quantity and ports; the importer's declared imports through other ports at the same declared value were also on record. The Court observed that suppliers may offer different prices to different customers depending on relationship and quantity, and a lower price to a long-standing or large-quantity purchaser does not automatically imply undervaluation. Hence, an import by another party, even from the same manufacturer, is not conclusive absent evidence that the price disparity is due to one of the Rule 4(2) exceptions (e.g., atypical sale, related-party considerations, or discounts not permissible for valuation). Ratio vs. Obiter: Ratio - contemporaneous importation by another importer is not per se cogent evidence to reject transaction value; additional proof is required to show the declared transaction falls within Rule 4(2) exceptions. Conclusion: The comparators relied upon by revenue were not contemporaneous or sufficiently comparable to displace the declared transaction value; therefore they did not constitute cogent evidence to reject the transaction value. Issue 3 - Materiality of differences in time, quantity, port and country of origin for comparability Legal framework: Valuation comparability requires assessment of relevant factors - time of import, quantity, origin, terms of sale and relationship between parties - to establish whether two consignments are sufficiently similar for valuation purposes. Precedent treatment: The Court followed apex jurisprudence recognizing that differences in these factors can justify price variation and negate a finding of undervaluation based only on invoice comparison. Interpretation and reasoning: The Tribunal noted significant differences: the alleged higher-priced import related to different quantities and times (including past months/years) and different ports of clearance; the appellant also imported through other ports at the declared (lower) value. The Court reasoned that such differences bear materially on comparability and that a supplier's differential pricing based on quantity or customer relationship is commercially plausible and legally relevant. Ratio vs. Obiter: Ratio - differences in time, quantity, port and shipping route are material and can preclude a finding that another importer's higher price establishes undervaluation of the declared transaction. Conclusion: The disparities in import parameters rendered the comparator import insufficiently comparable; thus differences were material and precluded rejection of the declared value. Issue 4 - Sequential application of valuation rules and the evidential threshold to trigger Rules 5-8 Legal framework: If transaction value under Rule 4(1) is valid and does not fall within Rule 4(2) exceptions, the authorities must accept it; only upon rejection may valuation proceed under Rules 5-8 in sequence. Precedent treatment: The Court reiterated controlling authority that mandates sequential application and cautions against bypassing Rule 4(1) absent proper grounds. Interpretation and reasoning: The Tribunal observed that the assessing authority had initially accepted the transaction value; the subsequent enhancement was predicated on the audit comparison rather than on findings that the declared price fell within any Rule 4(2) exception. Since no cogent evidence was produced to bring the transaction within Rule 4(2), there was no occasion to proceed to Rules 5-8. Ratio vs. Obiter: Ratio - valuation must not proceed beyond Rule 4(1) unless and until transaction value is validly rejected under Rule 4(2); mere audit discrepancy without supporting proof does not satisfy the threshold. Conclusion: The authorities erred in enhancing value without first establishing that Rule 4(1) was inapplicable; therefore sequential valuation under Rules 5-8 was not triggered and enhancement was unsustainable. Overall Conclusion The Court found no reason to confirm the differential duty demand. The declared transaction value stood unrebutted by cogent evidence meeting the exceptions under Rule 4(2); differences in time, quantity, port and supplier-buyer relationship rendered the comparator import insufficiently comparable. The appeal was allowed and the enhanced assessment set aside, with consequential relief as per law.