Customs valuation of second-hand machinery must follow transaction value rules, with hearing and a reasoned speaking order.

Customs valuation of imported second-hand machinery must start with the declared transaction value, which can be rejected only for recorded reasons after the importer is heard. The authorities must deal with objections meaningfully and issue a speaking order reflecting consideration of the material and submissions. Where valuation is disputed, the customs valuation rules must be applied sequentially; a mechanical depreciation-based approach cannot replace that process. The note also emphasises that effective hearing and reasoned adjudication are essential safeguards in departmental valuation proceedings, and that reassessment should follow proper consideration of the importer's case and relevant judgments.

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Issues: (i) Whether the valuation of imported second-hand machinery was made in breach of the principles of natural justice and without a proper speaking order; (ii) whether the declared transaction value could be discarded only by applying the customs valuation rules in sequence and not by a mechanical depreciation-based approach.

Issue (i): Whether the valuation of imported second-hand machinery was made in breach of the principles of natural justice and without a proper speaking order.

Analysis: The adjudicating and appellate authorities had not dealt with the importers' objections in any meaningful manner. No real hearing was afforded, the submissions were not addressed, and the orders did not disclose a reasoned consideration of the material placed before the authorities. In departmental adjudication, the affected party's contentions must be heard, considered, and reflected in a speaking order.

Conclusion: Yes. The valuation process suffered from denial of effective hearing and lack of a proper reasoned order.

Issue (ii): Whether the declared transaction value could be discarded only by applying the customs valuation rules in sequence and not by a mechanical depreciation-based approach.

Analysis: Section 14 of the Customs Act, 1962 makes transaction value the basis of assessment. If the department doubts that value, the reasons for rejection must first be explained and the assessee heard. Only thereafter can valuation proceed through the sequential application of the valuation rules. A depreciation formula cannot override the earlier valuation rules unless the transaction value has first been lawfully rejected.

Conclusion: The declared transaction value could not be displaced mechanically, and the valuation had to be reconsidered in accordance with the valuation rules after proper hearing.

Final Conclusion: The matter was sent back for fresh adjudication with a direction to hear the importers and pass a reasoned order after considering the relevant judgments and submissions.

Ratio Decidendi: In customs valuation, transaction value remains the starting point, and it can be discarded only on recorded reasons after hearing the importer and by applying the valuation rules in their proper sequence through a speaking order.

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