TaxTMI 
TaxTMI 
Overvaluation and Undervaluation in Imports Between Unrelated Parties under Indian Customs Law
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....vervaluation and Undervaluation in Imports Between Unrelated Parties under Indian Customs Law<br>By: - YAGAY andSUN<br>Customs - Import - Export - SEZ<br>Dated:- 26-7-2025<br><br>Under the prevailing legal framework governed by the Customs Act, 1962 and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, the assessable value of imported goods is determined primarily on th....
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....e basis of the transaction value, as prescribed under Section 14(1) of the Act read with Rule 3 of the 2007 Rules. Where the importer and exporter are not related, and the price is the sole consideration for the sale, the transaction value is presumed to be acceptable, subject to the condition that there is no reason to doubt the truth or accuracy of the declared value. This legal presumption, ho....
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....wever, is rebuttable under Rule 12, which empowers the proper officer to reject the declared value if it is found to be inconsistent with commercial reality, market comparables, or other objective evidence. Undervaluation In cases of undervaluation, even between unrelated parties, if the declared value is found to be unreasonably low when compared with the contemporaneous import price of identic....
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....al or similar goods, or if relevant price-affecting elements (such as assists, royalties, or post-importation services) are omitted, the customs authorities are entitled to reject the transaction value. Upon rejection, the value is to be re-determined by sequential application of the alternative methods prescribed under Rules 4 to 9 of the Valuation Rules. Where undervaluation results in short-le....
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....vy of duty, recovery proceedings may be initiated under Section 28(4) of the Act, particularly where there is fraud, collusion, willful misstatement or suppression of facts. Such cases attract penal consequences under Section 114A, in addition to interest under Section 28AA. Furthermore, Section 111(m) permits confiscation of goods in cases involving misdeclaration of value. Overvaluation While ....
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....overvaluation does not ordinarily result in revenue loss to customs, it assumes significance under the customs framework where it involves false representation, misdeclaration, or is used as a vehicle for contraventions of allied laws, including FEMA, 1999, and the Prevention of Money Laundering Act, 2002. Overvaluation may also be examined under Section 111(m), which empowers confiscation for mis....
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....declaration of any particulars, including value. Where the overvaluation leads to wrongful availment of export incentives, drawbacks, or is linked to trade-based money laundering, customs authorities may initiate proceedings under the respective statutes in addition to customs law. Overvaluation can also lead to reporting to enforcement agencies, including the Directorate of Revenue Intelligence ....
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....(DRI) and the Enforcement Directorate (ED). Judicial Position Indian courts have consistently upheld the principle that the transaction value must be accepted if the buyer and seller are unrelated and the price is the sole consideration, unless cogent reasons exist to doubt its veracity. In COLLECTOR OF CUSTOMS, CALCUTTA Versus SANJAY CHANDIRAM - 1995 (5) TMI 25 - Supreme Court, the Supreme....
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.... Court held that mere suspicion is not sufficient to reject the transaction value, and adequate material must be placed on record. However, in cases where undervaluation or overvaluation is evidenced by contemporaneous imports, invoice discrepancies, or third-party data, courts have upheld rejection of the declared value under Rule 12. Conclusion In the case of unrelated party transactions, the ....
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....customs law presumes the declared value to be genuine, but this presumption is conditional and subject to verification. Both undervaluation and overvaluation, if established, attract the full operation of customs valuation law, including rejection of value, re-assessment under the valuation rules, recovery of duty with interest, imposition of penalties, and confiscation of goods. The legal positio....
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....n as it stands today affirms that even unrelated party transactions are not immune from scrutiny if the declared value lacks credibility or is inconsistent with the objective indicia of market value.<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....