2024 (2) TMI 316 - AT - Customs

CESTAT sets aside customs value enhancement based on NIDB data without contemporaneous evidence or additional payments

CESTAT Chennai held that enhancement of transaction value based solely on NIDB data without contemporaneous imports or evidence of additional payments ... Valuation of imported goods - rejection of declared value - redetermination of value - enhancement of the transaction value on the basis of NIDB data - Violation of the port restriction - HELD THAT:- The goods imported by the appellant are, admittedly, not prohibited goods as per Rule 133 read with Rule 43-A of the Drugs and Cosmetics Rules, 1945 or any other law for the time being in force. It is also found that representative samples of the imported goods were drawn and the Assistant Drug Controller has issued No Objection for the release of the said goods. Further, the lower authorities have re-determined the value of the impugned goods based on the values declared by other importers without providing any basis for this decision and relying on certain imports which are clearly not contemporaneous in as much as the Bills of Entry pertaining to those imports were filed during the period November 2010, whereas the impugned import is of the year February 2011 and there is no material produced by the department that amounts over and above the invoice value were paid with respect to transaction value in question. It has been consistently held by the Tribunal that NIDB data alone is not sufficient for re-determination of value. The enhancing the transaction value on the basis of NIDB data is not sustainable in law and hence we set aside the enhancement. As far as the affixation of M.R.P and R.S.P price on the packages are concerned - It is found that this defect is curable one and would not amount to contravention of Standards of Weights and Measures (Packaged Commodities) Rules, 1977 as held in the case of ABB LTD. VERSUS COMMISSIONER OF CUSTOMS, BANGALORE [2010 (12) TMI 1027 - CESTAT, BANGALORE] cited by the appellant. Violation of the port restriction - HELD THAT:- During the relevant time, the Tuticorin was not an authorized port for import of the impugned goods but subsequently, the said port has been authorized for import of the impugned goods. Therefore, there is a violation with regard to port restrictions. For that violation, it is found appropriate to impose a penalty on the appellant under Section 111 (d) of the Customs Act, 1962 amounting to Rs.1,00,000/- and all other penalties and fine imposed by the impugned order are dropped. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the declared invoice/transaction value of imported cosmetics could be rejected and re-determined by the adjudicating authority based predominantly on NIDB/other importers' declared values without following the sequential Customs Valuation Rules. 2. Whether absence of affixed M.R.P./R.S.P. on packages and related non-compliance with Standards of Weights & Measures (Packaged Commodities) Rules, 1977 amounted to incurable contraventions justifying confiscation and penalties. 3. Whether import through a non-designated port (violation of Rule 43A read with Rule 133 of the Drugs & Cosmetics Rules, 1945) rendered the goods inadmissible, and what penal consequences follow (confiscation, redemption fine, and penalty). 4. What relief and penalty modulation is warranted where (i) transaction value re-determination is unsustainable, (ii) samples received regulatory NOC, and (iii) port restriction was breached but later authorized. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of rejection and re-determination of transaction value based on NIDB/other importers' values Legal framework: Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (notably Rules 4-8, Rule 10A, and Rule 5) and the principle that invoice/transaction value is the primary basis unless valid grounds for rejection exist; requirement of sequential application of valuation rules when transaction value is rejected. Precedent Treatment: The Tribunal has consistently held that NIDB data alone is insufficient to re-determine transaction value and that comparative Bill of Entry data must be contemporaneous and comparable. Administrative practice requires furnishing relied materials to the importer for rebuttal. Interpretation and reasoning: The adjudicating authority rejected the declared transaction value and re-determined value on the basis of values declared by other importers and NIDB data. The impugned imports relied on Bills of Entry from a non-contemporaneous period (November 2010 versus February 2011) and no evidence was produced to show additional amounts actually paid over invoice value. The Customs Valuation Rules prescribe a sequence (Rules 4 to 8) for arriving at value once transaction value is rejected; those steps were not followed. Further, the department did not place the other Bills of Entry or comparative particulars (quantities, country of export, contemporaneity) before the importer to enable challenge. Ratio vs. Obiter: Ratio - Rejection and re-determination of transaction value cannot be sustained solely on NIDB/other importers' data that are not contemporaneous or comparable and where the sequential valuation provisions are not followed; importer must be furnished materials relied upon. Obiter - Observations on the importance of contemporaneity and on proper use of NIDB as corroborative, not sole, material. Conclusions: Enhancement of transaction value based solely on NIDB/other non-comparable imports is unsustainable; the enhancement is set aside and original transaction value must stand for duty assessment unless proper sequential valuation procedure and quantifiable material justify otherwise. Issue 2 - Consequence of non-affixation of M.R.P./R.S.P. and compliance with Packaged Commodities Rules Legal framework: Standards of Weights & Measures (Packaged Commodities) Rules, 1977 (labelling/price marking obligations); relevant Board circulars on treatment of labeling defects; general remedial principle that some packaging/labeling defects are curable. Precedent Treatment: Tribunal and administrative orders have treated absence of affixed M.R.P./R.S.P. as a curable defect in appropriate circumstances and not invariably as a ground for confiscation or denial of clearance, particularly where regulatory authorities permit release. Interpretation and reasoning: Representative samples were drawn and the Assistant Drug Controller issued a No Objection for release, indicating regulatory compliance from drug control perspective. The defect of non-affixation of M.R.P./R.S.P. was addressed by circular guidance and prior adjudications treating such defects as curable rather than constituting an absolute contravention warranting confiscation and heavy penalties. Ratio vs. Obiter: Ratio - Absence of M.R.P./R.S.P. on packages, in the circumstances where samples received regulator's NOC and where rules/circulars treat labeling defects as curable, does not justify confiscation or sustaining heavy penalties. Obiter - Emphasis that factual matrix (extent of defect, availability of corrective measures) is relevant to determining curability. Conclusions: The lack of affixed M.R.P./R.S.P. was a curable defect; it did not sustain confiscation or the quantum of penalties imposed by the lower authority. Issue 3 - Import through non-designated port and penal consequences Legal framework: Rule 43A and Rule 133 of the Drugs & Cosmetics Rules, 1945 governing designated points of entry for cosmetics; Customs Act provisions enabling penalty for contravention (e.g., Section 111(d)) and provisions for confiscation/redemption and penalty under Sections 112(a) and 125. Precedent Treatment: Authorities treat unauthorized landing/import through non-designated ports as a contravention attracting penal consequences, but proportionality and the specific facts (regulatory NOC, subsequent designation of port) may influence relief and penalty quantum. Interpretation and reasoning: At the relevant time Tuticorin was not designated for import of the impugned cosmetics - a breach of port restrictions occurred. However, representative samples had been cleared by the drug regulator (NOC) and subsequently Tuticorin was authorized for such imports; hence the contravention, though established, was not of a nature justifying the entire panoply of confiscation, large fines, and penalties originally imposed. The Tribunal exercised discretion to impose a moderate penalty under Section 111(d) and to set aside confiscation, redemption fine, and larger penalties under Sections 112(a) and 125, treating the breach as material but remediable and requiring proportionate sanction. Ratio vs. Obiter: Ratio - Violation of designated point-of-entry rules justifies imposition of penalty under Section 111(d), but where regulatory NOC exists and port subsequently becomes authorized, confiscation and higher penalties can be moderated. Obiter - Policy considerations about administrative consistency and proportionality in sanctioning technical vs. substantive breaches. Conclusions: There was a violation of port restriction; a penalty of Rs.100,000 under Section 111(d) is appropriate, while other penalties and fines (confiscation, redemption fine, penalty under Section 112(a)) were set aside as excessive in the circumstances. Issue 4 - Relief and modulation of penalties given factual matrix Legal framework: Discretionary relief under Customs Act and established principles of proportionality, curability of defects, and requirement of lawful procedure in valuation and penalty imposition. Precedent Treatment: Tribunal practice supports setting aside unlawful enhancement of value, treating labeling defects as curable, and reducing/compounding penalties where strict enforcement would be disproportionate in light of regulatory clearance and subsequent changes in port designation. Interpretation and reasoning: Combining findings on valuation (enhancement unsustainable), labeling (curable), regulatory NOC (supports admissibility), and port violation (established but subsequently mitigated by authorization), the appropriate composite relief is: set aside value enhancement; quash confiscation and large penalties/fines; impose a single reasonable penalty under Section 111(d) to address port breach. Ratio vs. Obiter: Ratio - When valuation re-determination is unsustainable and defects are curable with regulatory NOC, relief should include setting aside enhanced duty assessments and quashing confiscation/unduly harsh penalties, while imposing proportionate penalty for any established procedural breach. Obiter - Guidance that departments must follow valuation rules sequentially and provide comparative materials to importers when relying on other entries. Conclusions: The transaction value enhancement is set aside; defects relating to labeling are curable and do not justify confiscation; port-restriction violation merits a reduced, proportionate penalty of Rs.100,000 under Section 111(d); all other penalties and fines imposed in the impugned order are dropped. Cross-reference: Issue 1 (valuation) and Issue 2 (labeling) findings directly inform the relief and penalty modulation under this issue.