Transaction value cannot be rejected by invoking rule 10A of Valuation Rules in absence of evidence showing undervaluation: CESTAT [Read Order]

The New Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that transaction value cannot be rejected by invoking rule 10A of Valuation Rules in the absence of evidence showing undervaluation. Further held that the finding that the silk fabric imported by the other four importers and the silk fabric imported by the appellant were identical ,as same “article member” was provided in the Bills of Entry cannot be sustained.

Elegant International, the appellant, challenged the order dated 06.02.2009 passed by the Commissioner of Central Excise (Adjudication), New Delhi, insofar as it rejects the transaction value of the imported silk fabrics from China through 37 Bills of Entry during the period from September 2003 to January 2005 under rule 10A of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, and re-determines the transaction value under rule 5 of the 1988 Valuation Rules.

Accordingly, the demand of differential customs duty has been confirmed. The Commissioner has also imposed redemption fine on the silk fabric confiscated under section 111(M) of the Customs Act, 1962 and has also imposed penalty upon the appellant under section 114(A) of the Customs Act.

It transpires that intelligence was received that certain other importers of silk fabrics were engaged in under-valuation of this product imported from China and were thereby evading customs duty. Intelligence further suggested that two sets of invoices were raised by the said overseas suppliers for the same consignment; one set of invoices showed the actual value, while the other set showed lesser value.

It is the latter invoice which was submitted by other Indian importers to the customs for clearance purposes so as to evade customs duty. An investigation was initiated by the Directorate of Revenue Intelligence , New Delhi on the import of silk-fabrics from China by other importers and the premises of M/s. Purnima Enterprises at Chennai and M/s. Om Fabrics at Bangalore were searched.

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It also transpired that M/s. Zhejiang Cathaya International, China had issued the invoices to such Indian importers. Searches were also conducted at the business premises of M/s. Vedant Enterprises at Bangalore, which who had also been supplied silk fabric by Zhejiang, China.

Based on the aforesaid investigation initiated by the officers of DRI on the other importers of silk fabrics, the premises of the appellant, to whom Zhejiang, China had also supplied silk fabrics, were searched. The residential premises of the Director were also searched. It is the case of the appellant that no incriminating documents were recovered from the premises of the appellant and the Director. The DRI also recorded statement of Ajit Gupta, who was looking after the work of the appellant, under section 108 of the Customs Act.

A show cause notice dated 06.08.2005 was thereafter issued by Additional Director General of DRI, New Delhi to the appellant proposing to demand differential duty from the appellant with interest; confiscation of the impugned goods; and imposition of penalties, based on under-valuation of the impugned goods by relying upon contemporaneous imports and documents retrieved from premises of other importers pertaining to import of silk fabrics from China. It is basis the investigation carried out by DRI against other importers named above that it was alleged that the appellant had also declared lesser value which needed to be re-determined.

The appellant submitted a detail reply dated 13.12.2007 to the show cause notice and denied the allegations. Additional submissions were also filed by the appellant on 19.12.2007. The Commissioner passed the impugned order dated 06.02.2009. The first issue, therefore, that would arise for consideration is whether the Commissioner was justified in rejecting the transaction value of the imported goods under rule 10.

The appellant had imported various grades of silk fabrics. The grade of each of them have been provided in the sales contract which the appellant entered with the suppliers. The sale contract has been cross-referenced in the invoices issued by the suppliers to the appellant. However, none of the documents of other importers relied upon by the department show the grammage, grade of silk fabric and quality of weave. In the absence of such information, the comparison of quality of the silk fabric imported by the other importers and the quality of the silk fabric imported by the appellant could not have been drawn.

It was imperative for the department to have substantiated the allegation of undervaluation of the silk fabric imported by the appellant from Zhejiang, China by cogent evidence and not by drawing an inference from the imports made by other importers of silk fabrics from Zhejiang, China.

The impugned order proceeds to hold that since under invoicing was done by Zhejiang, China in respect of imports of silk fabrics by other importers namely, M/s. Purnima Enterprises, Om Fabrics and Vedant Enterprises, it should be presumed that Zhejiang, China would have done so for every customer in India, including the appellant. It was imperative for the department to have substantiated the allegation of undervaluation of the silk fabric imported by the appellant from Zhejiang, China by cogent evidence and not by drawing an inference from the imports made by other importers of silk fabrics from Zhejiang, China.

The impugned order also relies upon the statement made by Ajit Kumar Gupta, who was looking after the activities of the appellant as a Director, to establish that the goods were undervalued. This statement was made by Ajit Kumar Gupta under section 108 of the Customs Act. In the absence of the procedure contemplated under section 138B of the Customs Act having been followed, this statement could not have been relied upon.A of the Valuation Rules.

It was viewed that the finding recorded by the Commissioner that the silk fabric imported by the other four importers and the silk fabric imported by the appellant were identical as same „article member‟ was provided in the Bills of Entry cannot be sustained.

A two member bench of Justice Dilip Gupta, President and Hemambika R. Priya, Member (Technical) observed that the Commissioner was not justified in rejecting the transaction value of silk fabrics in the 37 Bills of Entry during the period from September 2003 to January 2005 under rule 10A of the 1988 Valuation Rules. The issue of re-determination of the transaction value under the provisions of rule 5 of the 1988 Valuation Rules would, therefore, not arise. The imposition of redemption fine or imposition of penalty under section 114(A) of the Customs Act cannot, therefore, also be sustained.

It would, therefore, not be necessary to examine the contention advanced by counsel for the appellant that once the goods had been cleared for home consumption, they cease to be “imported goods” and, therefore, the transaction value cannot be rejected by invoking rule 10A of the 1988 Valuation Rules.

The tribunal set aside the order dated 06.02.2009 passed by the Commissioner and allowed the appeal.

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