2025 (11) TMI 1220 - AT - Customs

CESTAT rejects customs value enhancement for ignoring Rule 12, inapplicable Section 28(1) proviso, and unsupported penalties

CESTAT set aside the order rejecting the importer's transaction value and re-determining customs duty. It held that Rule 12 of the Valuation Rules, 2007 ... Rejection of transaction value and re-determination of the customs duty - invocation of Larger period of limitation - confiscation and imposition of redemption fine in lieu of confiscation - levy of penalties - reliance placed on the revised prices of the other importers who have been investigated - Revenue’s case appears to have been triggered by the ‘valuation alert’ issued by the DG of Valuation, perhaps based on the monitoring of valuation trends of sensitive commodities - HELD THAT:- Rejection of transaction value is not in accordance with the Valuation Rules, 2007 as the procedure prescribed in Rule 12 ibid has not been followed. It was claimed that the Appellants did not pay any additional consideration to their foreign supplier, luckily for the Appellants there is no whisper about this in the SCN. In these circumstances, the burden of proof was on the Revenue to substantiate its allegations. Appellants’ claim that they are into this business of imports since 1997 from the same supplier and their claim that the rate of import depended on negotiations with their supplier have remained undenied/undisputed by the Revenue and it is also not even the case of the Revenue that during the period of imports under dispute, the supplier was different. It is further found that the enhanced value is not based on contemporaneous imports, but on Petrosil database alone, which admittedly a compilation of data of statistics like price, report, etc. of global petroleum industries which is nothing to do with transaction value. There is also nothing placed on record to suggest that these data represented the actual contemporaneous transaction value as prescribed under Valuation Rules, 2007, but in any case, the Adjudicating Authority admits at para 41 of the impugned order that the same was compared with the shipping prices of ‘Abhishek India Ltd.’, but how the same applies to these Appellants has remained undiscussed. Quiet apparently, the valuation in the OIO has not been made on the basis of any approved methods, at para 44 the Adjudicating Authority records Appellant’s objections as regards the differences in mineral content and colour of the goods in their Bills of Entry vis-à-vis the goods proposed to be compared, there is also a further remark that the CRCL reports are inconclusive but the same are not taken to their logical ends. These would point out that there is nothing that was suppressed and hence, at the threshold, proviso to Section 28(1) would not apply and nor would it amount to an act resulting in confiscation. Fact that despite most of the Bills of Entry having been finally assessed and goods released to the Appellants, the Revenue chose to have a re-look after a lapse of 4-years is itself a sufficient ground to discard the allegation of suppression and hence, the OIO deserves to be set aside on the ground of limitation alone - thus, the very rejection of transaction value itself is on a shaky ground. Levy of penalties - HELD THAT:- Penalty u/s 112 can follow only when there is liability to confiscation of goods under Section 111. The Adjudicating Authority has imposed penalty u/s 112, perhaps penalty u/s 114A was inapplicable to provisionally assessed Bills of Entry. The Revenue has not proved undervaluation and hence, the penalty imposed on Appellants Nos. 1 to 3 is clearly unsustainable - Penalty imposed u/s 114A with respect to the finally assessed Bills of Entry is equally bad in law inasmuch as Section 28(4) does not apply to the facts of this case - Penalty u/s 114AA could be imposed if any person intentionally uses information or documents which he knows are false. A perusal of the SCN indicates no allegation as to violation of this provision, only the operating part of the SCN has invoked Section 114AA. Interestingly, the impugned OIO also does not give any finding with respect to this provision, rather Section 114AA is merely recited along with other penal provisions. In the absence of any such allegation or finding, penalty under this provision appears to have been imposed in a routine manner, which is unsustainable. The Appellants have made out a case and therefore the transaction value as enhanced by the Revenue cannot sustain - the impugned order is set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority was justified in rejecting the declared transaction value and re-determining customs duty under the Valuation Rules, 2007. 2. Whether the larger period of limitation (extended period) is invokable in the facts and circumstances of the case. 3. Whether the order of confiscation and imposition of redemption fine in lieu of confiscation is sustainable. 4. Whether penalties under Section 112, Section 114A and Section 114AA imposed on the importers are sustainable. 5. Whether individual penalties under Section 112(b) and Section 114A imposed on an individual partner are sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of rejection of transaction value and re-determination of customs duty Legal framework: Valuation Rules, 2007 (in particular Rules 3, 4-9 and Rule 12) and Section 14(1) read with proviso; statutory procedure for rejecting declared transaction value and sequential methods of valuation. Precedent Treatment: The Court relied on and applied the principles laid down by the Supreme Court in Century Metal Recycling (Rule 12 procedural requirements and threshold for 'reason to doubt'). Interpretation and reasoning: Rule 12 requires a two-step enquiry: (i) preliminary inquiry calling for information/documents from the importer; (ii) recording of 'certain reasons' in writing before discarding declared value and proceeding to Rules 4-9. The threshold is 'reason to doubt' - a reasonable, objective basis founded on 'certain reasons' (examples in Explanation clauses (a)-(f)). Mere extrapolation from investigations into other importers, reliance on non-contemporaneous database figures (Petrosil) and CRCL reports without demonstrating contemporaneous comparable transactions are insufficient. The impugned order relied primarily on valuation material gathered against other importers and database statistics which do not represent contemporaneous transaction value as contemplated by the Valuation Rules; it failed to follow the procedural prescriptions of Rule 12 and did not record adequate 'certain reasons' specific to these importers. The importer's uncontested assertions regarding long-standing dealings with the same foreign supplier and absence of evidence of additional consideration were not rebutted by the Revenue. The opportunity to cross-examine third-party declarants/statements was denied despite reliance on such material. Ratio vs. Obiter: Ratio - Rule 12's procedure and threshold must be satisfied; material relied upon must represent contemporaneous transaction value or provide reasonable and certain grounds specific to the importer. Obiter - commentary on propriety of database reliance and cross-examination rights as applied to the facts. Conclusion: Rejection of the declared transaction value and re-determination of customs duty is unsustainable because Rule 12 procedure was not followed, the Revenue failed to place contemporaneous, specific evidence against the appellants, and the enhanced valuation was based on inadequate/non-contemporaneous material. Issue 2 - Invokability of larger period of limitation Legal framework: Section 28(1) proviso and Section 28(4) (extended period) - limitation for reassessment and conditions for invoking extended period. Precedent Treatment: Principles of limitation applied consistent with requirement of suppression or act resulting in confiscation to attract extended period. Interpretation and reasoning: The proviso to Section 28(1) and extended limitation presuppose suppression or act that would justify invoking the longer period. Here, many Bills of Entry were already finally assessed and goods released; searches were spaced years apart and did not yield incriminating documents against these appellants; the impugned order re-opened transactions after a lapse of up to four years without material to demonstrate suppression or concealment by the importers. The Adjudicating Authority's choice to reassess past imports based solely on investigations into other importers, without concrete evidence of suppression in respect of these particular imports, does not satisfy the legal threshold for invoking the larger period. Ratio vs. Obiter: Ratio - extension of limitation requires demonstrable suppression/act warranting confiscation specific to the assessed transactions; mere suspicion or extrapolation is insufficient. Obiter - criticism of investigative delay producing prejudice (interest exposure) though relevant to equity of relief. Conclusion: Larger period of limitation is not invokable on the facts; the re-look after several years without specific evidence of suppression warrants setting aside on limitation grounds. Issue 3 - Confiscation and redemption fine in lieu of confiscation Legal framework: Section 111 (confiscation) and relevant provisions allowing redemption fines in lieu of confiscation; interplay with Section 28 limitation and proof of suppression. Precedent Treatment: Confiscation/fine requires proof of an act or omission bringing goods within Section 111; links to proof of undervaluation/suppression and limitation considerations. Interpretation and reasoning: Confiscation (and consequential redemption fine) presupposes that the imported goods were liable to confiscation because of suppression or a contravention. Given the absence of evidence specific to the appellants demonstrating suppression, and the failure to validly re-determine value under Rule 12, confiscation and redemption fine could not be sustained. The procedural and substantive defects that invalidate the valuation decision undermine any order of confiscation or fine made in lieu thereof. Ratio vs. Obiter: Ratio - confiscation/redemption fine cannot stand where underlying valuation/duty demand is unsustainable and no specific suppression is proved. Obiter - none additional. Conclusion: Order of confiscation and imposition of redemption fine in lieu of confiscation is unsustainable on the record and is set aside. Issue 4 - Penalties under Section 112, Section 114A and Section 114AA on corporate importers Legal framework: Section 112 (penalty where goods liable to confiscation), Section 114A (penalty for undervaluation), Section 114AA (penalty for knowingly using false information/documents). Precedent Treatment: Penalty under Section 112 follows only when confiscation is permissible; Section 114AA requires an allegation/finding of intentional use of false information. Interpretation and reasoning: Because confiscation and valuation demand are unsustainable, penalty under Section 112 cannot validly follow. Section 114A (levy for undervaluation) similarly fails where undervaluation is unproven and extended limitation inapplicable. Section 114AA imposes liability only where it is shown a person intentionally used information or documents known to be false; the SCN and OIO contain no specific allegation or finding to this effect (Section 114AA was recited but not substantiated). The imposition of these penalties appears routine and unsupported by evidence or specific findings, and the Revenue did not discharge its burden to prove intentional falsity or suppression. Ratio vs. Obiter: Ratio - penalties predicated on confiscation or intentional falsehood cannot be sustained absent evidence/finding of those foundational facts. Obiter - procedural impropriety in imposing penalties without adequate findings. Conclusion: Penalties under Section 112, Section 114A and Section 114AA imposed on the importers are unsustainable and are set aside. Issue 5 - Individual penalties (Section 112(b) & Section 114A) on partner Legal framework: Personal liability provisions in Sections 112(b) and 114A and requirement of proof of individual culpability/suppression or participation in undervaluation. Precedent Treatment: Individual penalties require specific findings against the individual regarding knowledge, intent or acts attracting confiscation/undervaluation liability. Interpretation and reasoning: There is no evidence in the SCN or OIO establishing individual culpability of the partner. Given that the underlying confiscation/valuation is unsustainable and there is no specific allegation that the partner knowingly participated in mis-declaration or suppression, individual penalties cannot be sustained. Ratio vs. Obiter: Ratio - personnel penalties must be founded on specific adjudicatory findings of individual wrongdoing; absence of such findings invalidates these penalties. Obiter - none additional. Conclusion: Individual penalties under Section 112(b) and Section 114A imposed on the partner are unsustainable and are set aside. Final Disposition In view of the foregoing, the impugned adjudication is set aside; the transaction value as enhanced by the Revenue cannot be sustained and the appeals are allowed with consequential benefits as per law.