Customs Valuation Rules| When Transaction Value Under Rule 4 Is Rejected, Value Be Determined By Proceeding Sequentially Through Rules 5 To 8: SC

The Supreme Court has held that when transaction value under Rule 4 is rejected, the value shall be determined by proceeding sequentially through Rules 5 to 8 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.

The Court was deciding a batch of two appeals that arose out of a common judgment and final order passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench at Mumbai.

The two-Judge Bench comprising Justice B.V. Nagarathna and Justice Ujjal Bhuyan observed, “Reverting to Section 14(1) of the Customs Act, this court held that it is for the department to prove that the invoice price is incorrect. When there is no evidence of contemporaneous imports at a higher price, the invoice price is liable to be accepted. … when the transaction value under Rule 4 is rejected, the value shall be determined by proceeding sequentially through Rules 5 to 8 of the Customs Valuation Rules.”

Advocate Rupesh Kumar appeared for the appellant while Advocate V. Lakshmikumaran appeared for the respondents.

Facts of the Case -

The appeals were filed by the Commissioner of Customs (Imports), Mumbai under Section 130-E of the Customs Act, 1962 against the common judgment and final order passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench at Mumbai (briefly the ‘CESTAT’ or ‘the Tribunal’ hereinafter). The issue that arose in the two appeals was whether the CESTAT was justified in holding that enhancement of value of the imported goods and the penalties imposed by the Commissioner of Customs (Adjudication-1), Mumbai on the respondents could not be sustained and consequently in setting aside the same. Show cause notice was issued to the respondents by the Additional Director General, Directorate of Revenue Intelligence, New Delhi.

It was mentioned therein that secret information was received by the Directorate of Revenue Intelligence that M/s Ganpati Overseas had imported tuners from Hong Kong at grossly under invoiced prices, thereby evading huge customs duty. Upon receipt of such information, Directorate of Revenue Intelligence carried out investigation wherefrom it could be gathered that M/s Ganpati Overseas had imported twenty consignments during the years 1997-98 and 1998-99. Aggrieved by the order-in-original of the adjudicating authority, respondents preferred appeals before the CESTAT which opined that export declarations filed by the foreign supplier before the Hong Kong customs authority could not be relied upon for the purpose of enhancement of value. It was this order of CESTAT which was impugned in the two appeals and the Supreme Court issued notice and thereafter, the appeals were submitted.

The Supreme Court in view of the above facts noted, “This court held that before rejecting the invoice price, the department has to give cogent reasons for such rejection. This is because the invoice price forms the basis of the transaction value. In this regard, this court held that under valuation has to be proved. If the department wants to allege under valuation, it must make detailed inquiries, collect material and also adequate evidence.”

The Court said that if the charge of under valuation cannot be supported either by evidence or information about comparable imports, the benefit of doubt must go to the importer and that the charge of under invoicing has to be supported by evidence of prices of contemporaneous imports of like goods.

“This court also referred to the decisions in Rabindra Chandra Paul (supra) and South India Television (P) Ltd. (supra) to reiterate the recognised legal position that transaction value can be rejected if the invoice price is not found to be correct but it is for the department to prove that the invoice price is incorrect”, observed the Court.

The Court concluded that both the department as well as the adjudicating authority were not justified in rejecting the import invoice price of the goods as not correct and enhancing the price by straightaway invoking Rule 8 of the Customs Valuation Rules when there was no evidence before them to do so.

“In these circumstances, CESTAT was justified in setting aside the order in original. … We, therefore, do not find any error or infirmity in the impugned judgment and order of CESTAT”, added the Court.

Accordingly, the Apex Court dismissed the appeals.

Cause Title- Commissioner of Customs (Imports), Mumbai v. M/s Ganpati Overseas through its Proprietor Shri Yashpal Sharma & Anr. (Neutral Citation: 2023INSC881)

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