2025 (10) TMI 277 - AT - Customs

Appeal allowed; order for recovery of differential duty, interest and penalties set aside; Customs Valuation Rules govern tile valuation

CESTAT allowed the appeal and set aside the adjudicating order that had directed recovery of differential duty with interest and penalties. The Tribunal ... Recovery of differential duty alongwith interest and penalty - value declared for the purpose of levy of ‘additional duty of customs’ under section 3(1) of Customs Tariff Act, 1975 had been under reported - re-determination of retail selling price (RSP/MRP) of imported goods - requirement of affixation of labels - HELD THAT:- There is no doubt that the ‘ceramic tiles’ are, when cleared by the manufactures in India, subject to valuation in accordance with section 4A of Central Excise Act, 1944. In consequence, for the purpose of section 3(1) of Customs Tariff Act, 1975, they are to be re-assessed on the value of ‘retail selling price’ marked on the packages. It is admitted that the imported goods did not bear any such markings. It is the claim of the appellant that the goods had been sold to builders and, from the records it is not evident that this claim has not been controverted. On the other hand, at the time of investigations and issue of show cause notice on 10th June 2008, the appellant had been disposing off ceramic tiles in the market through persons other than builders. Nonetheless, the reliance placed on list prices that, admittedly, related to period well after the date of import of the impugned goods would not be appropriate for the purpose of re-determination of the assessable value to levy additional duties of customs in assessment under section 17 of Customs Act, 1962, and with contingent recourse to section 28 of Customs Act, 1962, attained finality in view of the closure afforded by section 47 of Customs Act, 1962 insofar the imported goods are concerned. Tentativeness in such imports and clearance thereof under section 47 of Customs Act, 1962 is contingent upon no recovery being proposed within the normal period or within the extended period under section 28 of Customs Act, 1962. In order to propose such recovery, it was essential for the determination of value to be in consonance with Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 insofar as the imported goods are concerned. The importer is not bound by any restriction in stipulating ‘retail selling price’ at the time of import and cannot be held responsible for any alteration of such ‘retail selling price’ to the extent that the sale to the ultimate consumer has been effected by another entity. In accordance with the provisions of Central Excise Act, 1944, re-affixation of labels indicating ‘retail selling price’ is tantamount to manufacture and any proceedings arising, insofar as valuation based on the requirement of Standards of Weights and Measures Act, 1976 is concerned, would be for recovery of duty of central excise. With proceeding under Central Excise Act, 1944 alone available in such events, there is no particular need to disturb the sanctity of declaration of ‘retail selling price’ made by the importer at the time of import and such substitution was not the legislative intend. The purpose of section 3(1) of Customs Act, 1962 was to ensure that the imported goods do not carry the advantage of excise duty not being fastened thereof. The consequence of like goods being imported without being fastened with like excise duty is compensated for by excise duty that would be leviable on ‘post import’ alteration of ‘retail selling price’ by other entities in the channel of distribution. Even the provisions of section 3(1) of Customs Tariff Act, 1975, requiring levy ‘equal to excise duty on like goods produced or manufactured in India’ is related to rate of duty and not the value. This is apparent from section 3(2) of Customs Tariff Act, 1975. The adjudicating authority has travelled beyond the authority of Customs Act, 1962 in ordering recovery of differential duty and imposing penalties. The impugned order is set aside to allow the appeal. ISSUES PRESENTED AND CONSIDERED 1. Whether customs authorities may re-determine the 'retail selling price' (RSP/MRP) of imported goods for the purpose of levying additional duty under section 3(1) of the Customs Tariff Act, 1975 and thereby recover differential duty under section 28 of the Customs Act, 1962. 2. Whether reliance on list prices or retail price lists compiled after the date of import can lawfully be used to re-determine value for assessment or recovery of duty on imported goods. 3. Whether the absence of RSP/MRP markings on imported packages and the importer's claim of sales to builders/institutional users precludes re-determination of RSP for assessment of additional duty at import. 4. Whether invoking confiscation under section 111(m) and imposition of penalties under sections 112/114A of the Customs Act is permissible where the alleged misdeclaration of value does not relate to a value determined under section 14 of the Customs Act. 5. Whether any power existed, during the relevant period, in central excise or customs authorities to re-determine RSP (retrospectively) for valuation purposes, and the effect of pre-2008 law and post-2008 developments on that competence. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Competence of customs authorities to re-determine RSP for levy of additional duty and recovery under section 28 Legal framework: Section 3(1) of the Customs Tariff Act, 1975 provides for levy of additional duty 'equal to' excise duty on like goods; customs assessment generally relies upon the value determined under section 14 and Customs Valuation Rules for assessment under section 17 of the Customs Act, 1962. Section 28 authorizes recovery of amounts due where reassessment is permissible within statutory limits. Precedent treatment: The Tribunal has previously held that central excise officers lacked power to re-determine RSP for valuation prior to specific legislative/notification empowerment; similar limitations apply to customs where valuation must conform to the Customs Valuation Rules and section 14 framework. Interpretation and reasoning: The Court held that re-determination of RSP by customs officers (outside the statutory valuation scheme) exceeds their statutory competence. For imported goods, any assessment or reassessment of value for customs duty must align with the valuation mechanism in the Customs Act and Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Re-determining RSP independent of that framework and treating dealer/retail sale prices as the importer's RSP is beyond customs authority and not sanctioned by the statute. Ratio vs. Obiter: Ratio - Customs officers cannot re-determine RSP for assessment of additional duty outside the valuation rules and section 14; such exercise is ultra vires. Obiter - Observations on policy purposes of section 3(1) (to align rates, not values) and interplay with excise law. Conclusions: Re-determination of RSP by customs to compute additional duty and consequential recovery under section 28 is not legally tenable; the impugned exercise exceeded authority and cannot support differential duty recovery. Issue 2 - Use of post-import list prices to fix RSP for re-determination of assessable value Legal framework: Reassessment and recovery under section 28 must be based on value determinations consistent with valuation rules and the period of import; tax certainty requires use of contemporaneous evidence relevant to the import date. Precedent treatment: The Court referred to authorities holding that reliance on list/prices from periods after import is inappropriate for valuing imports retrospectively. Interpretation and reasoning: The Tribunal found that list prices compiled well after import cannot reliably establish RSP at import and would violate certainty in taxation; such retrospective application is inconsistent with the statutory valuation regime and closure provisions (section 47) that give finality to imports where no recovery is timely proposed. Ratio vs. Obiter: Ratio - Post-import price lists are not appropriate basis for re-determining assessable value of imported goods. Obiter - Comments on tax certainty and temporal relevance of evidence. Conclusions: Lists from after the import date cannot justify re-determination of RSP for the purpose of reassessment and recovery of additional duty on imported goods. Issue 3 - Effect of absence of RSP markings and claim of sale to builders/institutional users on applicability of RSP re-determination Legal framework: Standards of Weights and Measures Act requires markings where applicable; central excise valuation (section 4A) uses RSP where packages bear such markings; absence of markings affects applicability of RSP-based valuation. Precedent treatment: Authorities recognize that where no RSP/MRP marking exists and the normal course of trade does not mandate such marking, imputing an RSP at import requires robust evidence of normal retail sale practices contemporaneous to import. Interpretation and reasoning: The Court observed that absence of labels weakens any inference that importer should have declared RSP at import. The importer's claim of sales to builders/institutional users lacked sufficient contemporaneous evidence and was contradicted by investigation showing market sales through traders. Nonetheless, even if goods sold to builders, RSP affixation and subsequent re-labelling are matters of excise/standards law and do not empower customs to treat subsequent retail pricing by downstream sellers as the importer's declared RSP for customs valuation. Ratio vs. Obiter: Ratio - Lack of RSP markings precludes using an inferred RSP to revalue imports unless lawful, contemporaneous evidence supports that the importer bore responsibility for RSP; obiter - factual finding regarding insufficient evidence that sales were exclusively to institutional buyers. Conclusions: Absence of RSP markings and unproven claims of institutional sales do not justify customs re-determination of RSP; where downstream actors alter retail pricing or affix labels, recourse lies to excise/standards provisions, not to reassessment of the import declaration. Issue 4 - Validity of invoking confiscation under section 111(m) and penalties where value was not determined under section 14 Legal framework: Section 111(m) applies to goods liable for confiscation on specified grounds; penalty provisions (sections 112, 114A) attach where misdeclaration or duty evasion is established; section 2(41) links 'value' relevant for confiscation to value used for assessment under section 14. Precedent treatment: The Court relied on the statutory linkage that confiscation and certain penalties are predicated on misdeclaration insofar as assessment value under section 14 is implicated. Interpretation and reasoning: The Tribunal held that invoking confiscation and penalties premised on a re-determined RSP which was not a value determined under the Customs valuation provisions is legally unfounded. Since the impugned re-determination of value was beyond customs power, consequential invocation of section 111(m) and imposition of penal consequences cannot stand. Ratio vs. Obiter: Ratio - Confiscation and penalty cannot be validly imposed where the underlying re-determination of assessable value did not conform to section 14 and the valuation rules. Obiter - Emphasis on limited scope for using section 111 where valuation linkage is absent. Conclusions: Confiscation and penalties imposed on the basis of an impermissible re-determination of value are unsustainable and must be set aside. Issue 5 - Existence and effect of power (pre-2008 and post-2008) in excise/customs to re-determine RSP and its bearing on customs assessments Legal framework: Central excise valuation provisions (section 4A) and any delegated empowerment by notification determine whether excise authorities could re-determine RSP; customs competence to revalue imports, however, must comply with the Customs Act and Customs Valuation Rules. Precedent treatment: Decisions have held that prior to specific notifications/legislative change, central excise officers lacked power to re-determine RSP; even after changes, customs authorities remain constrained by the customs valuation regime. Interpretation and reasoning: The Court accepted that central excise officers lacked power, during the relevant period, to re-determine RSP; even if excise competence subsequently changed, that does not ipso facto confer power on customs to re-determine import value outside the statutory customs valuation framework. The legislative scheme does not contemplate that importers be held responsible for retail prices subsequently fixed by other entities in the distribution chain. Ratio vs. Obiter: Ratio - Lack of excise re-determination power during the relevant period supports the conclusion that customs could not lawfully perform such re-determination for imports; obiter - observations on legislative intent and distribution-chain pricing. Conclusions: Historical absence of re-determination power in excise reinforces that customs orders purporting to re-determine RSP for imported goods during the period were beyond authority; subsequent legislative changes do not validate prior ultra vires actions. OVERALL CONCLUSION The adjudicating authority exceeded statutory authority in re-determining retail selling price for imported goods, ordering recovery of differential duty and imposing penalties/confiscation on that basis; the impugned order is set aside. The Court emphasized that valuation for customs purposes must conform to section 14 and the Customs Valuation Rules, that post-import list prices are not a reliable basis for retrospective revaluation, and that confiscation/penal measures cannot rest on an impermissible valuation exercise.