Customs Cannot Enhance Value Without Proof of Undervaluation or Treat Counterfeit Goods as Branded: CESTAT [Read Order]

The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT), New Delhi, held that Customs authorities cannot enhance the value of imported goods without proof of undervaluation and that counterfeit or fake-branded goods cannot be treated as branded goods for valuation and penalty.

Barfo Impex, the appellant, is engaged in importing automobile parts. Based on information alleging mis-declaration of brands and undervaluation, Customs placed an alert on its imports. Goods imported under a Bill of Entry dated 05 October 2017 were initially cleared but were examined by the Special Intelligence and Investigation Branch before leaving the bonded area.

During examination and subsequent searches at the appellant’s warehouse and shop premises, auto parts bearing names of well-known brands were found even though no brand had been declared in the Bills of Entry.

The department alleged that the appellant had suppressed brand details and undervalued the goods. Although the appellant sought waiver of a written show cause notice, no such notice was issued. Despite this, the adjudicating authority rejected the declared transaction value, re-determined the value, demanded differential duty with interest, confiscated the goods with redemption fine, and imposed penalties.

The Commissioner (Appeals) upheld this order, leading to the appeal before CESTAT.

The appellant’s counsel argued that the goods were either unbranded or misbranded, with fake brand markings only on the packaging to improve saleability. They argued that brand verification showed the goods were not genuine branded products.

The appellant’s counsel also argued that there was no evidence of undervaluation, no proof of extra payment to foreign suppliers, no reliance on contemporaneous import data, and that valuation rules were not followed in sequence. They further argued that non-issuance of a show cause notice violated principles of natural justice.

The department’s counsel argued that the appellant deliberately did not declare brands and relied on market enquiry, statements of the proprietor, and voluntary duty payment in another case to support the allegation of undervaluation.

The bench comprising Dr. Rachna Gupta (Judicial Member) and Mrs. Hemambika R. Priya (Technical Member) observed that the burden to prove undervaluation lies on the department. It observed that most of the goods were found to be counterfeit or fake and cannot be treated as branded goods. It also observed that even unbranded goods, which were admitted to be correctly valued, had their value enhanced without justification.

The tribunal pointed out that no comparable import data was relied upon and that valuation rules were not properly followed. It also observed that the appellant was not confronted with the material used for enhancing value which amounted to denial of natural justice.

The tribunal set aside the impugned order and allowed the appeals, holding that the valuation enhancement, confiscation, and penalties were not sustainable in law.

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