Customs valuation must follow the sequential rules; arbitrary percentage-based revaluation under the residual method was unsustainable.

Undisclosed relatedness between importer and exporter created reasonable doubt about the truth and accuracy of the declared transaction value, so rejection under Rule 10A was upheld. However, after rejection, customs valuation had to follow the prescribed sequential scheme, and Rule 8 could not be used on arbitrary percentages, fictitious bases, or inconsistent materials. The re-determination of value for multiple categories of goods therefore failed, and the consequential demands, confiscation, and penalties could not stand. The appeals were allowed with consequential relief.

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Issues: (i) Whether the declared transaction value could be rejected under Rule 10A of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 on the ground of reasonable doubt as to truth and accuracy. (ii) Whether the re-determination of value under Rule 8 for several categories of imported goods was sustainable when the record showed reliance on arbitrary percentages and materials inconsistent with the mandatory sequential valuation scheme.

Issue (i): Whether the declared transaction value could be rejected under Rule 10A of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 on the ground of reasonable doubt as to truth and accuracy.

Analysis: The valuation framework requires acceptance of transaction value where buyer and seller are not related and price is the sole consideration, subject to adjustments under Rule 9 or rejection under Rule 10A where the proper officer has reason to doubt truth or accuracy. On the facts, the importer and the exporting concerns were found to be controlled by the same set of persons, and undisclosed relationship between buyer and seller was sufficient to create reasonable doubt about the declared value. The absence of conclusive proof of cash payment did not prevent rejection where the surrounding material supported doubt about the declared price.

Conclusion: The rejection of the declared transaction value was upheld.

Issue (ii): Whether the re-determination of value under Rule 8 for several categories of imported goods was sustainable when the record showed reliance on arbitrary percentages and materials inconsistent with the mandatory sequential valuation scheme.

Analysis: The Rules require sequential application: transaction value under Rule 3, additions under Rule 9 if applicable, and only then valuation under Rules 5 to 8 in order. Rule 8 is a residual method and cannot be used on arbitrary or fictitious values, or on prohibited bases such as domestic selling price, foreign market price, or unsupported blanket undervaluation percentages. For multiple categories of goods, the reasoning in the impugned order contradicted itself by asserting that no contemporaneous imports, sales, or manufacture existed, while simultaneously relying on invoices, association letters, sale invoices, and other material that showed the existence of comparable goods and transactions. In several instances the value was enhanced merely by applying a flat 60% undervaluation, which was impermissible under the rules.

Conclusion: The re-determination under Rule 8 was not sustainable and the consequential demands, confiscation and penalties could not stand.

Final Conclusion: The impugned order failed to sustain the valuation re-determination on the statutory scheme and the consequential liabilities flowing from it, and the appeals were allowed with consequential relief.

Ratio Decidendi: Rejection of declared value under Rule 10A may be justified by reasonable doubt arising from undisclosed relatedness, but valuation thereafter must follow the prescribed sequential statutory method and cannot rest on arbitrary percentages or other prohibited bases under the residual rule.

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