CESTAT Chennai remands customs valuation case after finding natural justice violation in value enhancement without proper reasoning

CESTAT Chennai held that the Commissioner of Customs (Appeals) erred in dismissing the appeal on res judicata grounds, as the earlier appeal concerned clearances to a branch unit while the current appeal involved clearances to a subsidiary company. The specified officer of MEPZ-SEZ violated natural justice principles by enhancing transaction values without issuing a speaking order or providing reasons, despite the Special Valuation Branch having accepted declared values after detailed investigation. The matter was remanded to the Original Authority for fresh determination of values under Section 14 of the Customs Act, 1962 and Customs Valuation Rules, 2007.

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Issues Involved:
1. Legality of enhancement of declared values by the specified officer, MEPZ-SEZ.
2. Treatment of payments made by the Appellant as payments under protest.

Detailed Analysis:

1. Legality of Enhancement of Declared Values:
The Appellant, engaged in warehousing and trading of chemicals, challenged the enhancement of declared values by the specified officer, MEPZ-SEZ, for clearances to their DTA unit. The Special Valuation Branch (SVB) had previously accepted the declared values as transaction values under Rule 3(3)(a) of the Customs Valuation Rules, 2007. However, the specified officer, MEPZ-SEZ, enhanced the value by loading 90% on the import prices without issuing a speaking order, despite repeated requests from the Appellant. This enhancement was based on the prices sold by the DTA unit to its prospective customers, which the Appellant contested as arbitrary and without legal basis. The specified officer's failure to issue a speaking order violated principles of natural justice and procedural requirements under Section 17(5) of the Customs Act, 1962, which mandates passing a speaking order within 15 days from the date of re-assessment of the Bills of Entry.

2. Treatment of Payments as Payments Under Protest:
The Appellant had been discharging duty on enhanced values since 05 October 2016 and had communicated their disagreement with the valuation determined by the department. Despite this, the specified officer did not issue any speaking order justifying the enhancement of value. The Appellant's payments were considered as made under protest, and thus, the time limit prescribed under Section 27 of the Act for filing a refund application did not apply. The Tribunal referred to the case of Commissioner of Cus, C. Ex. & ST., Guntur Vs. Fairway Trading Company Pvt. Ltd., which held that payments made under protest should be treated as such even if there is no specific procedure prescribed in Customs law for payment under protest.

Conclusion:
The Tribunal found that the specified officer, MEPZ-SEZ, had violated principles of natural justice by unilaterally enhancing the assessable value without issuing a speaking order. The impugned order dated 22.06.2020 by the Commissioner of Customs (Appeals), Chennai, was set aside. The entire issue of enhancement of values was ordered to be remanded to the Original Authority for issuing a well-reasoned speaking order in terms of Section 14 of the Customs Act, 1962, read with Customs Valuation Rules, 2007, ensuring strict observance of principles of natural justice. The duty payments made at enhanced rates since 05.10.2016 were treated as payments made under protest, and no limitation would apply while processing the refund claim if the duties paid were found to be in excess. The remand proceedings were directed to be completed within three months from the date of communication of the order.

Order:
The appeal was allowed by way of remand, and the impugned order dated 22.06.2020 of the Commissioner of Customs (Appeals), Chennai, was set aside. The Tribunal ordered the Original Authority to re-examine the issue and issue a well-reasoned speaking order.

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