2025 (10) TMI 14 - AT - Customs

Valuation reassessment set aside for lack of cross-examination; remand ordered for de novo adjudication under section 138B

Harvinder & Co. Versus Commissioner of Customs (Import) Mumbai

CESTAT set aside the impugned order and allowed the appeal by remand, holding that valuation reassessment based solely on statements and a Chartered ... Mis-declaration of value of imported goods - used cranes - high seas sales - rejection of declared value - re-determination of the value - invocation of extended period of limitation - cross-examination not alllowed - violation of principle of natural justice - HELD THAT:- An identical issue on valuation of similar goods had come up before the Tribunal and, while setting aside unsupported appropriation, the re-assessment was called in question on the plea of importer therein that reliance upon statements for the purpose, and that, too, without testing for relevancy under section 138B of Customs Act, 1962, for disturbing the declared value was improper even if the manner of such declaration was questionable. In other words, except by strict compliance with the Rules framed under the authority of section 14 of Customs Act, 1962, re-assessment would not meet the test of soundness to enable which the matter was remanded. Thereafter, the culmination of de novo proceedings was agitated once again before the Tribunal and, in KARIM JARIA AND CROWN LIFTERS PVT LTD VERSUS COMMISSIONER OF CUSTOMS (IMPORT-I), MUMBAI [2022 (4) TMI 948 - CESTAT MUMBAI] while holding that 'Reliance on statements alone is too fragile a foundation to build a case of undervaluation; such depositions are reliable only with corroborative support. In the absence of corroboration, test of cross-examination is of essence, as mandated by section 138B of Customs Act, 1962, for relevancy.' Thus, fastening liability to duty and other detriments by relying only certificate of Chartered Engineer without subjecting the said person to cross-examination is blatant violation of principle of natural justice. Accordingly, the impugned order is set aside and the proceedings restored before the original authority for fresh decision after compliance with the statutory requirement. Appeals is allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether reliance upon a Chartered Engineer's certificate (and similar extracurial documents/statements) to reject declared customs value and re-determine value under the Rules framed under section 14 of the Customs Act, 1962, without affording opportunity to cross-examine the certifying witness, violates principles of natural justice. 2. Whether re-determination of declared value by applying erstwhile rule 8 (1988 Rules) / rule 9 (2007 Rules) and consequential recovery of differential duty, interest (section 28/28AA) and penalties is sustainable where the departmental case rests primarily on certificates/statements and admissions without corroborative material or cross-examination. 3. Whether the adjudicating authority may refuse cross-examination of persons whose statements or certificates are relied upon without recording specific reasons and thus proceed to finally adjudicate valuation and confiscation/recovery issues. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Natural justice: cross-examination of certifying authority relied upon for valuation Legal framework: Principles of natural justice require that where evidence (statements, certificates, reports) is taken on record and relied upon by the department for adverse adjudication, the affected party must be given a fair opportunity to test that evidence, which may include cross-examination of the persons who produced or are responsible for those materials. Section 138B of the Customs Act, 1962 (relevancy and testing of statements) and the Rules under section 14 for valuation govern procedural fairness in valuation disputes. Precedent treatment: Decisions of the Tribunal and High Courts (as discussed in the judgment) have held that cross-examination is essential where statements/certificates form the crux of the case; refusal to permit cross-examination without recorded reasons is a breach of natural justice (cited authorities applied and followed). Authorities recognizing that cross-examination is not an absolute right but must be permitted where necessary to protect fair trial rights were examined and applied. Interpretation and reasoning: The Court reasoned that reliance solely on a Chartered Engineer's certificate (or on statements/confessional material) to displace declared value is an inadequate foundation unless the maker of that evidence is made available for testing. The power to refuse cross-examination is not unfettered; the adjudicating authority must record specific reasons for refusal. Where a certificate or statement is a 'crucial link' in the chain of evidence leading to re-determination and recovery, denial of cross-examination without reasons is violative of natural justice. Ratio vs. Obiter: Ratio - denial of cross-examination of the certifying authority whose certificate is relied upon for valuation is a breach of natural justice unless refusal is recorded with specific reasons; such breach vitiates the adjudication and warrants remand for fresh decision. Obiter - general observations on the limited circumstances in which cross-examination may be refused and the need for the party to show relevance for seeking cross-examination. Conclusion: The impugned adjudication, which relied on the Chartered Engineer's certificate without permitting cross-examination and without recording reasons for denial, violated principles of natural justice and must be set aside and remitted for de novo consideration after allowing appropriate testing of the evidence. Issue 2 - Sufficiency of evidence for re-determination of customs value and consequent recovery/penalties Legal framework: Rejection of declared value and re-determination must comply with Rules made under section 14 of the Customs Act (rule 8 of 1988 Rules; rule 9 of 2007 Rules). Recovery of differential duty and imposition of interest and penalties proceed under sections 28 and 28AA and relevant penal provisions (including section 111(m) for confiscation). The statutory regime requires adherence to prescribed procedures and evidentiary standards. Precedent treatment: The Tribunal's earlier decisions emphasized that re-assessment must be founded on strict compliance with valuation Rules and on reliable, corroborated evidence. Reliance solely on admissions or statements (including confessional material) without corroboration and without testing through cross-examination has been held to be an inadequate basis for establishing undervaluation. Interpretation and reasoning: The Court observed that where the departmental case is built predominantly on certificates/admissions/statements and lacks independent corroboration regarding the actual price or value of imported goods (here, used cranes), such evidence is fragile. The Rules prescribe a methodical process for valuation; deviation from or superficial application of those procedures undermines soundness of re-determination. The adjudicating authority's reliance on the only available provision (i.e., the valuation Rules) does not absolve it from ensuring evidentiary sufficiency and fairness in testing the sources relied upon. Ratio vs. Obiter: Ratio - re-determination of value and consequential recovery cannot stand where the evidentiary basis is uncorroborated certificates/statements that have not been tested by cross-examination and where the adjudicating authority has not complied with procedural requirements under the valuation Rules. Obiter - comments that admissions and statements require corroborative support and that untested confessional statements are an insufficient foundation. Conclusion: Where the value re-determination was based on uncorroborated certificates and statements that were not subjected to cross-examination, the finding of undervaluation and consequential recovery/penalties is unsustainable; matter must be remitted to permit compliance with statutory valuation procedures and to allow testing of the departmental evidence. Issue 3 - Duty of the adjudicating authority to record reasons when refusing cross-examination and procedural consequences Legal framework: Administrative adjudicators must accord fair procedure; if an application for cross-examination is refused, the decision to refuse must be communicated with reasons so that the affected party understands the outcome and may proceed accordingly. Courts have held that disposal of a final order without addressing such an application is impermissible. Precedent treatment: High Court authorities cited hold that the adjudicating authority must dispose of applications for cross-examination before final adjudication, and if refused, must provide reasons. Failure to do so amounts to a serious breach of natural justice warranting quashing and remand. Interpretation and reasoning: The Court emphasised that a party who seeks cross-examination cannot be left in a state of expectation while the adjudicator proceeds to final order; the party must be informed whether the application is granted or refused, and if refused, reasons should be recorded. This ensures meaningful participation in the adjudication and prevents prejudicial finalization without disposal of interlocutory rights. Ratio vs. Obiter: Ratio - adjudicating authority must deal with and record reasons on an application for cross-examination before passing final adjudication; failure to do so vitiates the final order. Obiter - procedural comments on the need for the applicant to show relevance for cross-examination and the limited scope to summon non-witnesses. Conclusion: The adjudicating authority's failure to dispose of the cross-examination request with reasons and to permit testing of evidence relied upon requires setting aside the impugned order and remand for fresh adjudication after compliance with this procedural requirement. Disposition and Relief (Court's Conclusion) The impugned order is set aside on grounds of breach of principles of natural justice for relying on the Chartered Engineer's certificate and related evidence without permitting cross-examination and without recording reasons for refusal. Proceedings are restored and remitted to the original authority for fresh decision after affording opportunity for cross-examination and ensuring compliance with the statutory valuation Rules and other procedural requirements. Appeals are allowed by way of remand.