2025 (12) TMI 141 - AT - Customs

Appeal Allowed: Copper Scrap Value Enhancement Set Aside for Violating Section 14(1) and Rule 12 Valuation Requirements

CESTAT Chennai allowed the assessee's appeal against enhancement of value of imported copper scrap. The Tribunal held that the proper officer had rejected ... Rejection of transaction value declared upon import of Copper Scrap-druid - re-determination of value - enhancement of value on the basis of contemporaneous import/NIDB data - no discussion on the applicability of Rule 12 or adherence to the provisions in stricto senso - HELD THAT:- The Proper Officer could reject the declared transactional value based on certain reasons to doubt the truth or accuracy of the declared value in which event, he is entitled to make assessment in terms of Rules 4 to 9 of the 2007 Rules; grounds for doubting have been elucidated in explanation 3 to Rule 12. In the judgement of Century Metal Recycling Private Limited vs. Union of India [2019 (5) TMI 1152 - SUPREME COURT], the Apex Court had an occasion to consider the relevance and importance of conditions under Rule 12 in the context of Section 18 of the Act and while analyzing from the above context, the court has held that 'in the facts and circumstances of the present case, it has to be held that the adjudication order in original is flawed and contrary to law for it does not give cogent and good reason in terms of Section 14(1) and Rule 12 for rejection of the transaction value as declared in the bill of entry. The order in original is not in accordance with Section 14 and Rules 3 and 12 as the mandate of these provisions has been ignored. The Assistant Collector has rejected the transaction value as declared in the bill of entry which, as noticed above, is clearly and fundamentally erroneous besides being contradictory. In the aforesaid circumstances, we do not think that the order in assessment dated 7th April, 2017 can be sustained and upheld.' The Hon’ble Supreme Court has in very clear terms expressed the mandate of adherence to the provisions of section 14 with reference to Rule 12 which, has not been followed; the reasons for rejection has not been made known to the Assessee and nor do we find from the OIO any reasons recorded in terms of Section 14 (1) and Rule 12 for rejection of the transaction value as declared in the Bill of Entry - the fact remains that there is no specific mention about the country of origin and the quantity imported is also nowhere near. It is a different matter that the letter dated 13.07.2015 issued by the CPIO did specifically admit that even they did not have the copies of any of those Bills of Entry. The impugned order is not sustainable as being flawed and hence, there are no hesitation in setting aside the same - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the rejection of the declared transaction value of imported 'Copper Scrap - druid' and its enhancement on the basis of contemporaneous import/NIDB data was in accordance with Section 14 of the Customs Act, 1962 and Rules 3 and 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. 1.2 Whether the proper officer complied with the mandatory procedural requirements under Rule 12 of the 2007 Rules, including recording and communicating cogent reasons for doubting the truth or accuracy of the declared value, before discarding the transaction value. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Legality of rejection of transaction value and compliance with Section 14 and Rule 12 of the 2007 Rules Legal framework (as discussed by the Court) 2.1 Section 14 of the Customs Act provides that the value of imported goods shall be the 'transaction value', i.e., the price actually paid or payable for the goods when sold for export to India, where buyer and seller are not related and price is the sole consideration. 2.2 Rule 3(1) of the 2007 Rules stipulates that the value of imported goods shall be the transaction value adjusted in accordance with Rule 10, and Rule 3(1) is expressly made subject to Rule 12. 2.3 Rule 3(2) requires acceptance of the declared value when conditions in clauses (a) to (d) are fulfilled; Rule 12 grants the proper officer power to reject the declared value where there is 'reason to doubt the truth or accuracy' of the declared value and envisages a two-step process: (i) calling for further information/documents from the importer; and (ii) where reasonable doubt persists, treating the transaction value as not determinable under Rule 3(1) and proceeding to Rules 4 to 9. 2.4 The Explanation to Rule 12 (particularly clause (iii) read with clauses (a) to (f)) illustrates situations which may constitute 'reason to doubt', though these are not exhaustive. Under Rule 12(2), upon request by the importer, the proper officer must communicate in writing the grounds for doubting the declared value. 2.5 Relying on the apex court's interpretation of Section 14 and Rule 12, the Tribunal notes that: (a) formation of reasonable doubt and recording of reasons is mandatory; (b) communication of such reasons, when sought by the importer, cannot be ignored or waived; and (c) rejection of declared value without cogent and good reasons in terms of Section 14(1) and Rule 12 is contrary to law. Interpretation and reasoning 2.6 The Tribunal observes that the Order-in-Original merely reproduces NIDB data of so-called 'contemporaneous imports' and, by invoking Rule 12(1), proceeds to reject the declared value and enhance it, without a detailed discussion of how the statutory preconditions under Rule 12 are fulfilled. 2.7 It is noted that the laboratory report only indicated the composition of the goods (various percentages of galvanized iron, copper, plastic, aluminium, woven fabric, paper and yarn) and did not, by itself, provide any basis to doubt the declared price. 2.8 The Tribunal finds that neither the Order-in-Original nor the Order-in-Appeal records specific, cogent reasons under Section 14(1) read with Rule 12 for forming a reasonable doubt as to the truth or accuracy of the declared value, nor do they demonstrate adherence to the two-step procedure envisaged in Rule 12, including calling for and examining additional information from the importer. 2.9 On examining the NIDB data referred to in the Order-in-Original (para 10), the Tribunal notes that most of the items are clearly different from the goods in question; even in respect of two bills of entry that appear somewhat similar, there is no specific mention of country of origin and the quantities imported are not comparable. Furthermore, it is recorded that even the department did not have copies of those bills of entry, as admitted by the CPIO's letter. 2.10 The Tribunal holds that, in light of the principles laid down by the apex court, mere reference to NIDB data, without establishing identity/similarity of goods and without cogent reasoning, does not satisfy the mandate for rejection of transaction value. Absence of proper reasons, supported by contemporaneous and comparable material, renders the enhancement unsustainable. 2.11 The Tribunal therefore concludes that the lower authorities have disregarded the statutory mandate under Section 14 and Rules 3 and 12 by rejecting the transaction value solely on a generalized or inadequately supported reference to contemporaneous imports, without satisfying the conditions for doubting and discarding the declared value. Conclusions 2.12 The proper officer did not validly invoke Rule 12, as no cogent and recorded reasons demonstrating 'reason to doubt the truth or accuracy' of the declared value were shown, nor was there proper reliance on comparable contemporaneous imports. 2.13 The rejection of the declared transaction value and the consequent enhancement, as upheld by the first appellate authority, are contrary to Section 14 of the Customs Act and Rules 3 and 12 of the 2007 Rules. 2.14 The impugned appellate order, affirming the enhancement of value, is held to be flawed and unsustainable in law and is accordingly set aside.