CESTAT Rules Re-determination of Value Based on Unsustainable Forensic Data Invalid [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, held that the re-determination of customs value based on data retrieved through forensic examination of seized computers is invalid when such data is unreliable and unsupported by law.

Therefore it ruled that the Directorate of Revenue Intelligence (DRI) could not supersede the assessment already made by the proper officer under Section 14 of the Customs Act, 1962, on the basis of questionable electronic evidence.

The appellants, KDS Exports, and others had imported artificial flowers from China via the Inland Container Depot (ICD), Tughlakabad, New Delhi during the years 2002-2006. Investigations into claims that the imported items were undervalued were started by the DRI.

The real purchase prices were allegedly far greater than those stated in the Bills of Entry. As evidence, two computer CPUs were taken from the appellants' property. The DRI claims that these CPUs had "true" invoices that showed higher pricing, ranging from $4 to $6 per kilogram. The CPUs were not sealed at the time of the seizure, and they weren't sealed for 47 days.

The value was then proposed to be redetermined under Section 14 of the Customs Act, 1962, and differential duty, redemption fines, and penalties were demanded in a show cause notice. The Commissioner of Customs, verified the duty demand of more than ₹2.76 crore and levied redemption fines and penalties on the importers and persons. The appellants went before the Tribunal.

The appellants, represented by Dr. Seema Jain and Vimlesh Kumar, Advocates, argued that because the CPUs were not sealed at the time of seizure and remained open for 47 days, the printouts obtained from the confiscated CPUs lacked credibility. It was also contended that the electronic data lacked evidential value since no certificate, as required by Section 138C(2) of the Customs Act, 1962, had been presented.

The appellants added that the appropriate officer assessed Bills of Entry throughout the relevant time and had already increased the reported prices to US$1.46 per kilogram. Based on data that was retrieved, the DRI's second increase of value amounted to an illegal review of the appropriate officer's order.

Rakesh Kumar, for the Revenue argued that the inquiry supported the DRI's recovery of authentic commercial invoices from the appellants' computers and emails. Pointing out Section 139 of the Customs Act of 1962, he stated that unless proven differently, the court will assume that documents are authentic.

The bench comprises Dr. Rachna Gupta, Judicial Member and P.V. Subba Rao, Technical Member noted that during the relevant period, Section 14 of the Customs Act, 1962, provided that the value of imported goods should be based on the price at which such or like goods were ordinarily sold in the course of international trade.

The assessment of the appellants’ imports had already been done by the proper officer based on contemporaneous import data. Therefore, DRI’s subsequent redetermination of higher values were held as impermissible in law.

The tribunal observed that the DRI had adopted the highest value amongst the multiple sets of values on record without proper justification. Thus, reaffirming Section 14, the tribunal ruled that the value must reflect the price at which goods are ordinarily sold in international trade, not a value selectively derived from questionable data sources.

The redetermination of value, the corresponding duty demand, and the penalties imposed on the appellants were held to be unsustainable. Accordingly, CESTAT set aside the order of Commissioner of Customs and granted consequential relief, allowing the appeal.

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