2025 (11) TMI 135 - AT - Customs

Importer's penalties quashed after revenue fails to prove mis-declaration, inadmissible electronic evidence and improper valuation

CESTAT CHENNAI - AT allowed the appeal and set aside the impugned order, finding Revenue failed to discharge its burden to prove mis-declaration of ... Mis-declaration of imported goods as regards country of origin - goods are of Malaysian origin in order to evade payment of anti-dumping duty (ADD) or not - discharge of burden of proof by Revenue or not - levy of penalty - HELD THAT:- Reference made to judgment of this Bench in the case of M/s. Tech Zone Global Trading [2025 (5) TMI 589 - CESTAT CHENNAI]. It is found that in the said case a similar matter relating to the import of PVC flex banners of Chinese origin through Malaysia with the help of one Shri Manoj Arjun Gore of M/s Topaz Plastic Industries (M) SDN BHD, Malaysia and Mr Goh, was examined. The issue of the COO certificate being not genuine was raised. The people against whom the allegations were made are the same. As regards the valuation of the goods, reliance has been placed on documents/ invoices retrieved from electronic devices which have been found inadmissible as evidence. Further in other cases the transaction value has been arrived at by converting the net weight in terms of square meter (SQM) using the factor grams per square meter (GSM) as per Rule 4 of the Valuation Rules 2007. There are no legal parallel to support such a method of valuation which is not as per the said Rules - Having not challenged the COO certificate and further by not showing that the shipments were not the same as the ones covered by the said COO certificates, it cannot be said that the goods did not originate in Malayasia. All these lacunae in the main evidence adduced in the OIO, reduces their probative value in reaching a conclusion even when the standard of proof is preponderance of probability. For the said reasons Revenue has not been able to discharge its burden and prove the allegations made against the importer-appellant. As regards Shri Manoj Arjun Gore, the charge against him is that he in collusion with Indian importers devised an illegal scheme to evade anti-dumping duty by routing goods of Chinese goods through Malayasia. It is seen that the main charge against Shri Manoj Arjun Gore of obtaining fake COO certificates from the Malaysian Authorities were never investigated or followed up by revenue with the Malaysian authorities and hence the burden of proof has not been discharged by revenue. The electronic documents relied upon against the appellant are found to be not admissible as evidence. Hence the question of imposition of penalty upon him does not arise. Once the case fails on merits, examining the issue of imposition of penalties against the importer; the non-confiscation of goods that were not available, delay in adjudication etc does not arise. The impugned order merits to be set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED * Whether a Country-of-Origin (COO) certificate issued by a foreign competent authority can be disregarded by customs authorities without following the verification procedure prescribed by the relevant Rules and treaty-related notifications. * Whether electronic records retrieved during searches are admissible in proceedings under the Customs Act without the certificate required by Section 138C(4) of the Customs Act read pari materia with Section 65B(4) of the Evidence Act. * Whether the evidentiary materials relied upon (statements, shipping documents, invoices, seals/container numbers, ancillary documents) suffice to establish that imported goods originated elsewhere and that anti-dumping duty was evaded, on the standard of preponderance of probability. * Validity of the valuation methodology adopted by the authority, specifically conversion of weight to square meters using grams per square meter (GSM) factors, vis-à-vis the Valuation Rules. * Whether penalties could be validly imposed on an individual alleged to have acted abroad (and on whom no violation under Section 111 was specifically alleged), including the question of extra-territorial investigatory/penal reach prior to statutory amendments. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Disregard of COO certificates without following verification procedure Legal framework: COO certificates issued by an authorized foreign authority under Rules/Notifications (including treaty-based procedures) are prima facie evidence of origin; Rules prescribe verification procedures for doubts. Precedent treatment: Earlier decisions of this Bench and various Tribunal decisions require verification per Rule 9 (and related provisions) before rejecting a COO; authorities have distinguished cases where internal documentary evidence proved falsity. Interpretation and reasoning: The Tribunal held that an official certificate issued under treaty-governed procedures and by a named competent authority carries higher evidentiary value than third-party statements or uncorroborated peripheral documents. Allegations of procurement or manipulation of COO certificates demand corroboration of a high order; mere statements alleging contacts or facilitation are insufficient where no direct enquiry/verification with issuing foreign authorities was made. The Tribunal applied the principle that mala fides allegations impose a heavy burden on the party asserting them and invoked the rule of best evidence: superior evidence (direct verification of the issuing authority) ought to have been sought before discarding the COO. Ratio vs. Obiter: Ratio - COO cannot be lightly discarded; verification as per Rules is required and failure to verify is fatal to a finding that origin is other than claimed. Obiter - distinctions drawn with cases involving misrepresented RVC where internal documentary proof existed. Conclusion: Revenue failed to prove that the COO was false or that the goods did not originate in the declared country; therefore COO could not be disregarded and findings based on its rejection were unsustainable. Issue 2 - Admissibility of electronic evidence (Section 138C CA and Section 65B Evidence Act) Legal framework: Section 138C of the Customs Act (admissibility of computer printouts etc.) and Section 65B of the Indian Evidence Act prescribe mandatory certification requirements for electronic evidence; jurisprudence (Anvar P.V., Arjun Panditrao Khotkar) establishes mandatory nature of certificate under Section 65B(4), and Section 138C(4) is pari materia. Precedent treatment: The Tribunal followed binding Supreme Court rulings (Anvar; Arjun Panditrao Khotkar) and earlier Tribunal decisions holding that absence of the requisite certificate renders electronic records inadmissible. Interpretation and reasoning: Documents and data retrieved during searches (mobile, computer printouts, emails, invoices) were relied upon by adjudicating authority but lacked certificates issued by a responsible officer under Section 138C(4). Section 138C, being a special provision, prevails over general provisions and makes the certificate a sine qua non for admissibility. Oral testimony or ancillary evidence cannot substitute for the mandatory statutory certificate. Ratio vs. Obiter: Ratio - Electronic records obtained during search are inadmissible in proceedings under the Customs Act unless accompanied by the certificate mandated by Section 138C(4); portions of the impugned order relying on such un-certified records are liable to be set aside. Conclusion: Much of the documentary foundation of the SCN was inadmissible; reliance on such electronic evidence was fatal to Revenue's case. Issue 3 - Sufficiency of other evidence to establish origin change and evasion (statements, shipping indicators, ancillary documents) Legal framework: Burden of proof to show mis-declaration or suppression rests on Revenue; standard in adjudication is preponderance of probability, but serious allegations (mala fides/fraud) require credible corroboration. Precedent treatment: Tribunal examined analogous authorities distinguishing cases where documentary chains, RVC misstatements, or internal invoices incontrovertibly proved misrepresentation; conversely, where evidence was inferential and uncorroborated, demands failed. Interpretation and reasoning: The impugned order relied on statements (some retracted), shipping seal/container similarities, and unverified electronic documents. Tribunal found these materials either inadmissible (electronic evidence), retracted/unexplained (statements), or insufficiently linked to the consignments covered by the COO certificates. The adjudicator's failure to verify COO with issuing foreign authority and to correlate shipments broke the evidentiary chain required to rebut the declared origin. Lacunae reduced probative value even on the balance of probabilities. Ratio vs. Obiter: Ratio - Uncorroborated statements, inadmissible electronic material and similarities in shipping particulars without proper linkage to the specific consignments do not discharge Revenue's burden to prove origin misrepresentation and evasion of duties. Conclusion: Revenue did not discharge its burden; findings that goods originated elsewhere or that ADD was evaded could not be sustained. Issue 4 - Valuation method using GSM/SQM conversion Legal framework: Customs Valuation Rules (including Rule 4 and methods prescribed) govern transaction value and permissible valuation methodologies. Precedent treatment: Tribunal noted absence of legal authority for converting net weight into area (SQM) using GSM as a basis to determine transaction value where such method is not prescribed by the Valuation Rules. Interpretation and reasoning: Valuation adopted by Revenue relying on conversion factors (GSM to SQM) derived from electronic invoices was not supported by Valuation Rules; no legal parallel or rule authorizing such conversion was shown. Further, invoices underpinning that exercise were inadmissible. Ratio vs. Obiter: Ratio - Valuation cannot be determined by ad hoc conversion of weight to area absent statutory sanction or adherence to valuation rules and admissible foundational documents. Conclusion: The valuation approach in the impugned order was legally unsustainable. Issue 5 - Imposition of penalties on individual alleged to have acted abroad and extra-territorial reach prior to statutory amendment Legal framework: Penalties under Section 112 relate to acts rendering goods liable for confiscation under Section 111; scope of penal liability for persons acting outside India and investigatory powers outside India were subsequently amended (Act 13 of 2018 w.e.f. 28.03.2018). Precedent treatment: Parties addressed whether a natural person working for a foreign juristic person could be penalised in India prior to the 2018 amendment; Tribunal acknowledged precedent on individual versus company liability but declined to decide the point due to merits. Interpretation and reasoning: Because the substantive allegations failed on merits (origin not disproved; electronic evidence inadmissible), the Tribunal found it unnecessary to adjudicate the complex legal question of personal penal liability for acts abroad or the retroactive applicability of investigatory/penal powers. The Tribunal noted that no specific contravention under Section 111 was alleged against the individual and the core punitive findings depended on evidence already set aside. Ratio vs. Obiter: Obiter - Observations that issues of extra-territorial liability and whether penalty could be imposed on an individual rather than the foreign juristic entity were not decided on merits and remain open for determination where material evidence sustains the substantive charge. Conclusion: As substantive case failed, imposition of penalties on the individual could not be sustained on the record; Tribunal did not decide the legal question of extra-territorial penal reach prior to 28.03.2018. Overall Conclusion The Tribunal set aside the impugned adjudication: COO could not be rejected without proper verification, mandatory certification for electronic records was absent making much of the relied material inadmissible, valuation methodology was unsupported, and Revenue failed to discharge the burden of proof. Consequential reliefs, if any, were left open as per law.