2025 (9) TMI 1643 - AT - Customs

Appeal allowed - declared transaction value restored after customs failed to meet onus under Rule 12; tariff notation misuse overturned

CESTAT MUMBAI - AT allowed the appeal, set aside the revision of assessable value and restored the declared transaction value. The Tribunal held that ... Valuation of imported goods - rejection of the declared value in exercise of authority under rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - compliance with ‘pre-rejection’ requisite set out in rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - Simplicity of ‘one-to-one’ comparison - comparability with contemporaneous imports - HELD THAT:- There is no doubt that, as the appellant claims, recourse to rule 5 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 hinges on ‘similarity’ of goods corresponding to benchmarked value with imported goods and, by having adopted so, the onus lies on customs authorities to demonstrate the congruity. Admittedly, insofar as imports from China are concerned, the ‘transaction value’ in bills of entry no. 8163031/09.10.2012 for ‘sofa sets’ and no. 8025745/24.09.2012 for ‘other furniture’ by M/s Twenty First Century Techno Products Ltd and M/s Multiseats Ltd were adjudged for ‘similarity’; even here, and not surprisingly considering the further treatment undertaken as adjustments, the ‘price factor’ is consistent only in the variance thereof. Insofar as imports from Malaysia are concerned, the ‘transaction value’ in bill of entry no. 7601801/07.08.2012 for ‘furniture’ by M/s Reliance Fresh Ltd adjudged for ‘similarity’ with imported goods. In re Anil Kumar Tiwari [2015 (12) TMI 1202 - CESTAT CHENNAI], relied upon by Learned Authorized Representative, the Tribunal adjudged the acceptability of surrogate value assailed by the appellant therein for not being contemporaneous; here, contemporaneousness is not in dispute but conformity of benchmark declaration as ‘similar’ to declaration in the impugned bills of entry is. The two stand on entirely different footing to dislodged acceptance as binding precedent. In re Dev Anand Agarwal [2016 (3) TMI 513 - CESTAT NEW DELHI], the goods concerned were ‘artificial flowers’ generally sold by weight whereas, and notwithstanding the notation for ‘units’ against heading 9403 of First Schedule to Customs Tariff Act, 1975 which is of limited significance, here the issue is of furniture that is neither ever sold by weight nor intended to be adopted under Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. It is clear that the lower authorities had not perused the General Interpretative Rules and the Explanatory Notes appended to the Customs Tariff Act, 1975 inasmuch as the additional notes specifically asserts making it abundantly clear that this has no reference to assessment for the purpose of duty and has no place within the framework of rules issued under section 14 of Customs Act, 1962. We do not propose to go into the rights and wrongs of rejection of the declared value inasmuch as sufficient flexibility is afforded by the rules therein to the proper officer. But, the method of computation by relying upon unconnected notation in the First Schedule to Customs Tariff Act, 1975, intended for a particular purpose, is not in accordance with law and the revision in the assessable value is set aside. Consequently, the declared value remains unchallenged. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the proper officer lawfully rejected declared transaction value under rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 in absence of comparables validated as 'identical' or 'similar'. 2. Whether reliance on contemporaneous invoices treated as benchmark 'transaction value' and subsequent conversion to a weight-based 'price factor' (loading per kg) comports with rules 4 and 5 of the Customs Valuation Rules when applied to diverse wooden furniture articles declared by unit and not ordinarily traded by weight. 3. Whether the First Schedule unit notation (kg for heading 9403) or departmental guidelines/standing orders / valuation alerts can be used as a lawful basis to convert transaction value into a surrogate weight-based value for reassessment under the Customs Valuation Rules. 4. Whether the lower authorities' assessment methodology - reducing benchmark invoice values to a statistic and applying a derived 'price factor' to reassess declared value - was within the scope of section 14 of the Customs Act and the Valuation Rules. ISSUE-WISE DETAILED ANALYSIS Issue 1: Lawful rejection of declared transaction value under rule 12 Legal framework: Section 14 of the Customs Act, 1962 governs valuation; rule 3 sets transaction value; rule 12 permits rejection of declared value upon certain reasons and prescribes procedure; rule 5 contemplates use of transaction value of identical or similar goods. Precedent treatment: The Tribunal and High Court decisions recognize wide scope in rule 12 but require adherence to procedural safeguards and proper demonstration of comparability when using other transactions. Interpretation and reasoning: The Tribunal assumed, without deciding rule 12's full scope, that rejection power is wide but constrained by procedural requirements and by limitations on permissible benchmark transactions. The onus rests on customs to demonstrate congruity between imported goods and benchmarked contemporaneous imports when invoking rule 5 as applied after rejection. Ratio vs. Obiter: Ratio - rejection power exists but is procedurally and substantively constrained by requirement to establish comparability and to follow adjustments prescribed by the Valuation Rules. Obiter - broader limits of rule 12 not exhaustively examined. Conclusion: Rejection of declared value must be justified by demonstrable similarity or valid alternative valuation that complies with the Valuation Rules; mere absence of importer detail does not automatically validate rejection without adequate benchmark validation. Issue 2: Use of contemporaneous invoices and conversion to weight-based 'price factor' under rules 4 and 5 Legal framework: Rule 5 permits use of transaction value of identical or similar goods; rule 4(1)(b) and (c) permit specified adjustments (commercial level, quantity) but require demonstrated evidence to establish reasonableness and accuracy of adjustments. Precedent treatment: Decisions cited (including Tribunal decisions in similar disputes and Supreme Court guidance) require that adjustments be grounded in demonstrable evidence and that surrogate values be arrived at in conformity with the Rules; prior Tribunal rulings (Nilkamal, Abhiman Impex) held that loading by weight where goods are declared by unit is unsustainable. Interpretation and reasoning: The Tribunal found the authorities did not adopt the surrogate transaction value as such nor demonstrate required adjustments under rule 4(1); instead they reduced benchmark transaction values and imported declared values to a statistic and applied a uniform weight-based price factor. Such 'loading' or statistical conversion is not among the enumerated valuation methods and lacks the evidentiary basis demanded by rule 4(1). The nature of furniture (diverse articles not normally traded by weight) undermines the premise that price per kg yields comparable value. Ratio vs. Obiter: Ratio - conversion of transaction values into a generalized weight-based price factor and application of that 'loading' is not in accordance with the Valuation Rules where adjustments are not demonstrated as required; for furniture declared by unit, weight-based loading is unsustainable. Obiter - discussion of alternative factual permutations where demonstrable adjustments might justify different treatment. Conclusion: The reassessment based on a derived price-per-kg factor is not lawful under rules 4 and 5 absent evidence justifying the specific adjustments; the declared transaction value must stand where the conversion/adjustment lacks required demonstration. Issue 3: Role of First Schedule unit notation, departmental guidelines and valuation alerts in valuation Legal framework: The First Schedule to the Customs Tariff Act specifies standard unit quantity codes (UQCs) primarily for statistical/data purposes; Valuation Rules and section 14 govern assessment; administrative guidelines (standing orders, CBEC circulars, DGOV alerts) are departmental aids. Precedent treatment: The High Court and Supreme Court have held that standing orders/valuation alerts are departmental guidance only and cannot supplant statutory valuation provisions; they assist assessing officers but do not confer power to assess de hors the Valuation Rules. Interpretation and reasoning: The Tribunal held that the unit notation (kg for heading 9403) is intended for standardizing data and trade statistics, not for determining assessable value. Reliance on the First Schedule or standing orders to convert transaction value into surrogate weight-based value misapplies instruments made for comparison and data-quality purposes. Administrative guidelines cannot override or substitute the statutory framework and evidentiary requirements of rule 4 and rule 5. Ratio vs. Obiter: Ratio - UQCs and departmental guidelines are only aids for comparison/statistics and cannot be used as lawful basis to derive surrogate values or justify loading contrary to Valuation Rules. Obiter - commentary on the limited usefulness of valuation alerts when not supported by factual enquiries. Conclusion: The notation 'kg' and departmental standing orders/alerts do not authorize conversion of transaction value into a weight-based surrogate for valuation; such reliance by the assessing authority is unlawful. Issue 4: Legality of the lower authorities' assessment methodology and final outcome Legal framework: Section 14 and the Valuation Rules set permissible methods and adjustments; any assessment must be reasoned, supported by demonstrated evidence for adjustments, and consistent with the hierarchy of methods in the Rules. Precedent treatment: Tribunal and higher court authorities emphasize that where transaction value is available and not disproved, it should be adopted; where alternative methods are used, the assessing authority must comply with procedural safeguards and the evidentiary requirements of rules 4 and 5. Interpretation and reasoning: The Tribunal examined bills of entry and inventories, found sufficient detail to permit one-to-one comparison, and concluded that the assessing authorities erred in treating the consignment as non-comparable and in resorting to a weight-based loading methodology. The Tribunal observed that the lower authorities failed to show that adjustments under rule 4(1) were made on the basis of demonstrated evidence and that conversion into a statistical rate (loading) is not an authorized valuation method. The Tribunal set aside the revised assessable value and restored the declared value. Ratio vs. Obiter: Ratio - where benchmark comparators are not lawfully validated and adjustments are not demonstrated, the reassessment that reduces transaction value to a statistic and applies a weight-based loading is unlawful; declared transaction value must prevail. Obiter - ancillary remarks on when valuation alerts or standing orders may be used as auxiliary guidance. Conclusion: The reassessment by applying a derived price-per-kg factor was not in accordance with law; the revision of assessable value is set aside and the declared transaction value is restored.