Mere Price Difference is No Proof of Misdeclaration: CESTAT Partly Allows Appeal in Customs Valuation Dispute [Read Order]

The Tribunal partly allowed the importer’s appeal, ruling that the rejection of transaction value, along with the resultant confiscation and penalties, was legally unsustainable.

The assessee, M/s Continental Trading Co., is an importer, who challenged the Order-in-Original dated January 24, 2022, passed by the Principal Commissioner of Customs, Inland Container Depot (ICD), New Delhi.

The dispute arose when the customs authorities found that the declared prices of bearings imported by the appellant were lower than those declared by another importer for identical goods from the same overseas supplier.

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The department, suspecting undervaluation, rejected the declared transaction value under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and re-determined the assessable value under Rules 4 and 9, increasing it from ₹11.05 crore to ₹14.19 crore.

The adjudicating authority demanded differential duty of ₹87.18 lakh under Section 28(4) of the Customs Act, 1962, imposed an equivalent penalty under Section 114A, a separate penalty of ₹50 lakh under Section 114AA, and ordered confiscation of goods under Section 111(m) with an option to redeem them on payment of fine. Aggrieved by the order, the importer approached the Tribunal.

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Appearing for the Assessee, Advocates Priyadarshi Manish and Kunal Sharma argued that the declared transaction value reflected the actual price paid to the foreign supplier through authorised banking channels. The imports were made under a valid agreement dated January 1, 2018, which explained the lower pricing due to the appellant’s long-term business relationship with the supplier.

They submitted that the customs authorities had erred in rejecting the declared value solely because another importer purchased identical goods at higher prices. They added that there was no misdeclaration or suppression, and that the rejection under Rule 12 was arbitrary. Even assuming the rejection was valid, the authorities were required to adopt the lowest of the contemporaneous import values, not the highest.

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The Revenue, represented by Girijesh Kumar, defended the impugned order, stating that the declared prices were significantly lower by up to 20 % than those declared by another importer for identical goods from the same supplier within a comparable time frame. This discrepancy gave sufficient reason for the proper officer to doubt the truth and accuracy of the declared value under Rule 12 of the Customs Valuation Rules, 2007.

Further, the re-determination of value under Rule 4 for the live Bill of Entry and under Rule 9 for past consignments was proper, as the importer had failed to substantiate the declared value. Therefore, the undervaluation amounted to misdeclaration, justifying confiscation, recovery of differential duty under Section 28(4), and penalties under Sections 114A and 114AA of the Customs Act, 1962.

The Bench comprises President, Justice Dilip Gupta and Technical Member, P. V. Subba Rao held that the rejection of declared values for 44 earlier consignments could not be sustained, as there was no independent evidence or contemporaneous comparison to justify the rejection of those transaction values. Thus, applying the residual valuation method under Rule 9 in such circumstances was not legally permissible.

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Further, CESTAT ruled that the mere rejection of transaction value by customs authorities does not, by itself, amount to misdeclaration under Section 111(m) of the Customs Act, 1962. Since the importer had declared the value as per the actual transaction invoices and there was no evidence of falsification, the confiscation of goods and redemption fine were also quashed.

However, it was observed that the customs authorities were justified in rejecting the declared value for one Bill of Entry, under Rule 12 of the Customs Valuation Rules, 2007, since identical goods from the same supplier were imported at higher prices by another importer around the same time. The re-determination of value under Rule 4 for this consignment, along with the corresponding demand of differential duty and interest, was therefore upheld.

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