2026 (1) TMI 408 - AT - Customs

Imported welding machines' declared value challenged as undervalued; Rule 12(2) verification lapses led to rejection of enhancement.

Enhancement of declared transaction value for alleged undervaluation of imported welding machines was rejected because Revenue failed to follow the ... Undervaluation of welding machines imported from various China-based suppliers - demand for differential duty - HELD THAT:- We find that the Original Authority has not complied with the two-step verification and examination exercise, as stated by the Hon’ble Supreme Court above. Revenue has not followed the procedure under sub-rule (2) of Rule 12 of CVR, 2007. This was all the more necessary when the proper officer only relied upon a self-incriminating worksheet purportedly submitted by the importer and statement recorded, to arrive at the transaction value and little else. Gross errors in the investigation like not making an attempt to retrieve deleted electronic documents from the importers phone or by using a statement recorded under section 108 of the Customs Act 1962, that was not recorded before any officer, let alone a gazetted one. Hence the attempt to enhance the value of the imported goods fail and so does the demand for duty as rightly held by the Ld. Original Authority. We find that in the circumstances that the Original Authority followed proper principles during the decision-making process and considered all relevant factors while deciding the issues raised in the SCN. Hence the final conclusion drawn and ‘Order’ made, cannot be stated to be illegal, irrational, or procedurally improper. We hence uphold the ‘ORDER’ as made in OIO. The respondent is eligible for consequential relief as per law. The appeal is disposed of accordingly. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether rejection of declared import value and consequential demand for differential customs duty could be sustained when the Revenue primarily relied on a self-incriminating worksheet/statement material, without following the mandated verification process for doubting transaction value under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. 2. Whether redemption fine could be imposed when the imported goods were not seized/available and had already been cleared for home consumption without execution of any bond for provisional release. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of value enhancement and differential duty demand Legal framework (as deliberated and applied by the Court): The Court applied the valuation framework under Section 14 of the Customs Act, 1962 read with the Customs Valuation Rules, 2007, specifically the procedure under Rule 12 (doubt as to truth/accuracy of declared value) and the consequential determination under Rules 4 to 9 only after the Rule 12 process is duly followed. Interpretation and reasoning: The Court held that although strict rules of evidence do not govern adjudication, the burden to prove undervaluation rests on the department, and suspicion cannot substitute legal proof. On facts, the evidence for undervaluation and redetermination was found to be 'near totally' based on self-incriminating material from the importer, including a worksheet used to compute differential duty. The Court found that basing the demand on such a worksheet is not a procedure laid down under the Customs Act or the Valuation Rules. The Court further found non-compliance with the essential, sequential exercise required under Rule 12-seeking further information, applying mind to whether reasonable doubt persists, and only thereafter rejecting transaction value and moving to Rules 4 to 9. This procedural deficiency was treated as critical, particularly because the department's case was not supported by adequate independent corroboration and suffered from investigative lapses, including failure to properly retrieve electronic material and reliance on a statement found procedurally unreliable. Conclusions: The Court concluded that the attempt to enhance the declared value failed due to lack of proper evidence and failure to follow the requisite Rule 12 procedure; consequently, the demand for differential duty was unsustainable and was correctly dropped by the adjudicating authority. Issue 2: Imposition of redemption fine in absence of seizure/availability of goods Legal framework (as deliberated and applied by the Court): The Court proceeded on the principle that redemption fine is linked to confiscation and the availability of goods for redemption; where goods are not available (and have been finally cleared for home consumption), the concept of redemption does not arise. The Court also treated the position as different where goods are provisionally released under bond, which was not the case here. Interpretation and reasoning: The Court found that no goods were seized and the imports had been cleared for home consumption. In these circumstances, it held that redemption fine could not be demanded because the goods were not available for redemption. The Court expressly distinguished situations where goods, though not physically available, were provisionally released under bond; here, no bond had been executed for clearance. Conclusions: The Court held that redemption fine was not imposable in the present facts because the goods were neither seized nor available and had been cleared without any bond-backed provisional release mechanism.