2025 (6) TMI 690 - AT - Customs

Valuation of imported goods - consignment of old and used machinery and equipment through Chennai Port under concessional EPCG scheme on high seas sale basis - Rejection of declared value - manipulation of documents - extended period of limitation - denial of benefit of EPCG license. Whether the executive is empowered to issue such circulars which help fix the value of goods for which elaborate Valuation Rules already exist? - HELD THAT - It is noted that while the Act and Rules confer discretion to an officer under certain circumstances it should not result in arbitrary power being conferred on the executive in the absence of any guidance as to how that discretion should be exercised. This is all the more important when it is exercised by a large number of officers at different Customs stations and in situations that has an effect on trade / industry and the financial and economic interest of the country. Administrative Instructions/ Circulars help in achieving uniformity predictability removal of ambiguity cost saving and provides a level playing field for the trade on the one hand while putting a check on blame worthy conduct on the other. In Sant Ram Vs State of Rajasthan 1967 (8) TMI 117 - SUPREME COURT a Constitution Bench of the Supreme Court has held that statutory rules cannot be amended by Executive instructions but if the rules are silent on any particular point Government can fill up the gaps by issuing executive instructions in conformity with the existing rules. With effect from 08.04.2011 Self-Assessment has become the norm of assessment of Customs duty in respect of imported / export goods. Thus the discovery of this value is facilitated by Boards circular and happens as a collaborative process by the importer giving all the factual information available with him and facilitating inspection of the goods and the Chartered Engineer appraising the goods based on recogonised methods of appraisement with the help of information provided by the importer. This appraised value can then along with other inclusions like freight insurance etc. be declared by the importer in the Bill of Entry if he finds the same to be truthful and representing the value in line with the Rules. The proper officer would then evaluate the evidence put forth by the importer and after giving due consideration to factors such as depreciation refurbishment or reconditioning (if any) and condition of the goods determine whether the declared value conforms to the provisions in the Act and Rules. However in this case there is no requirement to draw on the implied powers of an authority since section 28 of CA 1962 can be pressed into action in such a situation as has been done in this case. Hence we do not find any merit in the appellants contention of non-mention of the rejection of appraised value in the Rules. Manipulation of documents by BVPIL leading to the issue of a false valuation certificate by the C.E. - Suppression of correct payments made towards various expenses incurred in Australia etc. which should have formed a part of the declared value - HELD THAT - Section 2(h) of the Indian Contract Act 1872 as it then stood states that An agreement enforceable by law is a contract. Insurance contracts are special contracts. The principle of uberrimae fidei meaning utmost good faith operates in insurance contracts. This is a fundamental legal doctrine requiring both parties to act with complete honesty and transparency. They are based on the general principles of full disclosure. Thus a proposer is under a duty to truthfully disclose to the insurer all material facts as are within his knowledge. Further the obligation to declare the transaction value is on the importer who in this case has statedly got the goods free of cost and the basic facts are within his special knowledge. When this value is challenged by revenue the burden of proof in establishing the allegations is on revenue. Once revenue has been able to create a high degree of probability discrediting the assessment certificate the onus of proof shifts onto the appellant. It is then for the appellant to discharge his onus. Thus while the burden of proof never shifts the onus of proof shifts. Such a shifting of onus is a continuous process in the evaluation of evidence. The C.E. Certificate produced by the appellant was found to be not reliable and has been discredited by revenue in such a situation the onus of proof shifts back to the appellant to defend the value declared in the Bill of Entry and refute the alternate value sought to be adopted by revenue. In the absence of the same revenue is understood to have discharged its burden of proof in terms of the value alleged in the SCN especially in a scenario when all the facts are in the special knowledge of the importer. Hence the value of the impugned goods declared by the appellant in an insurance contract can be accepted as the value of the goods ex-works for Customs purposes in the peculiar circumstances of this case. What other elements would have to be added to this value to arrive at the transaction value in terms of CA 62? - HELD THAT - Any value that is ascertained as per the Customs Act and Rules framed there under must include in addition to the price all costs incurred towards the transport of the imported goods to the place of importation. Loading unloading and handling charges associated with the delivery of the imported goods at the place of importation and the cost of insurance - The value of the goods based on the documents submitted by the appellant themselves has been correctly determined in the impugned order as per the facts of the case. Whether extended period under Section 28(4) of the Customs Act can be invoked in cases of first check ? - HELD THAT - First check assessments involve a preliminary assessment of goods based on the information provided in the Bill of Entry and related documents provided by the importer when called for by the department or otherwise. As per section 46(4) of the Customs Act 1962 the importer while presenting a bill of entry shall at the foot thereof make and subscribe to a declaration as to the truth of the contents of such bill of entry. If even after a first check assessment it s discovered that the importer made a willful misstatement or suppressed facts to obtain a lower duty or other benefits Section 28(4) of the Customs Act can be invoked to issue a show cause notice for the extended period. When facts are concealed and not fully disclosed it amounts to suppression. Deliberate concealment or willful nondisclosure amounts to suppression of information. Apart from the false C. E. Certificate produced for valuing the goods Shri T. S. Sarma in his statement a summary of which is extracted in the para above was not able to explain when there was no change in the purchase order dated 02.04.2012 raised on M/s Boxco logistics India private limited by M/s MASPL how the consignee was changed to MAPL and the shipment effected in the name of MAPL when the shipment was necessarily to be done in the name of the entity raising the purchase order or why the freight amount was paid by MAPL - Having not discharged the onus of proof of not having committed a blame worthy conduct revenue has succeeded in over all establishing fraud and thus have rightly invoked section 28(4) of the Customs Act 1962 for demanding duty. In the circumstances the penalty imposed on Shri T. S. Sarma under section 112(a) of CA 1962 also cannot be faulted. The amount is also not shocking to the conscience so as to interfere with the quantum imposed. Whether benefit of EPCG license can be denied without its cancellation by the DGFT the issuing authority? - HELD THAT - The EPCG scheme does not adopt the valuation of goods done as per section 14 of the Customs Act 1962 for issue of authorisation under the EPCG scheme. The option available to the Customs authorities was to take up the issue of the fraudulent value noticed by them with the DGFT for cancellation of authorisation issued under the EPCG scheme and if the recommendation was accepted and the cancellation was done the notification benefit could have been denied. This is not to say that the importer is absolved of his blame worthy conduct as far as the Customs Act is concerned. Action for all statutory violations of the Customs Act 1962 cannot be faulted. Further the licensing authority is at liberty to examine the issue on merits and take appropriate action against the appellant in accordance with the law if necessary. As a principle goods which are liable for confiscation but not available cannot be redeemed unless the importer has undertaken to produce the goods as per the condition of the bond executed by him. Hence with regard to the confiscation and redemption of the goods on payment of a fine it is found that although the goods were cleared on execution of a bond it was executed in terms of notification No. 103/2009-Cus dated 11.9.2009 for binding the importer to comply with all the conditions of the notification as well as to fulfill export obligation on FOB basis equivalent to eight times the duty saved on the goods imported as may be specified on the authorization or for such higher sum as may be fixed or endorsed by the Licensing. Not for any blameworthy conduct under the Customs Act. None of these reasons are mentioned in the SCN and are not relevant in the present case. It is earlier found the impugned goods eligible for exemption under notification No. 103/2009-Cus and hence the goods are not liable for confiscation in terms of the bond. Conclusion - The duty needs to be reworked out and demanded by allowing the benefit of Notification No. 103/2009-Cus dated 11.9.2009. Accordingly interest and statutory penalty imposed under section 114A on M/s Mahindra Aerostructures Pvt Ltd also may be reworked out and informed to the appellant for payment. Confiscation of the impugned goods and imposition of redemption fine is also set aside. Since a penalty has been imposed under section 114AA on M/s Mahindra Aerostructures Pvt Ltd we feel that a penalty under the same section 114AA on Shri T. S. Sarma needs to be deleted considering that he was an employee of the company that has already been penalised on the said count. However since the goods were liable for confiscation under section 111(m) the penalty on him under section 112(a) sustains. Any leniency shown in varying the penalties imposed on M/s Mahindra Aerostructures Pvt Ltd under section 114AA would lack a deterrent effect and encourage others to violate statutory regulations with impunity which may have serious consequence s affecting revenue. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

(a) Whether the value appraised under Section 46 of the Customs Act, 1962 (CA 1962) and Rule 9 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR 2007), based on the Chartered Engineer's (C.E.) appraisement certificate, can be rejected under Rule 12 of CVR 2007?

(b) Whether the Commissioner was correct in relying on the insurance company's inspection and valuation (at Australian $5,200,000) as the actual value of the imported equipment?

(c) Whether the documents submitted, including inspection reports, were manipulated or fabricated?

(d) Whether the extended period under Section 28(4) of the CA 1962 can be invoked in cases of "first check" assessments?

(e) Whether the benefit of the Export Promotion Capital Goods (EPCG) license can be denied without cancellation of the license by the Directorate General of Foreign Trade (DGFT), the issuing authority?

2. ISSUE-WISE DETAILED ANALYSIS

(a) Rejection of Value Appraised under Rule 9 of CVR 2007 by invoking Rule 12

Legal framework and precedents: Rule 9 of CVR 2007 provides a residual method to determine the value of imported goods when transaction value is not ascertainable, relying on reasonable means consistent with valuation principles. Rule 12 permits rejection of declared value if found incorrect or undervalued. Section 46(4) CA 1962 requires importers to declare true value in the Bill of Entry. Boards Circulars (No. 4/2008 and No. 25/2015) provide guidelines for valuation of secondhand machinery, emphasizing the need for inspection/appraisement reports by qualified Chartered Engineers or equivalent.

Court's interpretation and reasoning: The Court noted that while Rule 9 allows valuation by appraisement, it does not preclude rejection of such value under Rule 12 if found to be false or manipulated. The valuation process is collaborative, involving the importer's disclosure and inspection by Chartered Engineers. If the value declared or appraised is found to be factually flawed or fraudulent, the Customs officer is empowered to redetermine the value under Rule 12 and Section 28 CA 1962.

Key evidence and findings: The Chartered Engineer's certificate was found to be based on a fabricated and baseless inspection report prepared by Bureau Veritas India Pvt. Ltd. (BVIPL). The C.E. admitted he did not physically inspect the machinery and relied on a draft report that was not properly signed or authenticated. Statements of BVIPL personnel revealed issuance of imaginary values without actual verification. These facts undermined the reliability of the appraisement certificate.

Application of law to facts: Given the fraudulent nature of the inspection report and the appraisement certificate, the rejection of the value assessed under Rule 9 by invoking Rule 12 was legally permissible and justified.

Treatment of competing arguments: The appellant argued that Rule 12 only allows rejection of declared value, not the value assessed under Rule 9, and that the C.E.'s report was reliable. The Court rejected this, emphasizing the collaborative valuation process and the need to prevent fraud, noting that the absence of declared value does not bar rejection of appraised value if found false.

Conclusion: The rejection of the value appraised under Rule 9 based on the fabricated certificate was upheld.

(b) Reliance on Insurance Company's Valuation as Actual Value

Legal framework: Insurance contracts operate under the doctrine of uberrimae fidei (utmost good faith), requiring full disclosure of material facts. Section 14 CA 1962 and Rule 10 CVR 2007 require inclusion of all costs and services related to importation in the transaction value.

Court's reasoning: The insurance valuation of Australian $5,200,000 was not challenged as manipulated and was submitted by the appellant during inquiry. The Court accepted that in the peculiar circumstances-where the declared value was found fraudulent and the actual transaction value was not available-the insured value could be accepted as the ex-works value for Customs purposes.

Evidence and findings: The appellant's own statements and documents supported the insurance valuation. The insurance company's representative had inspected the goods, and the valuation was arrived at after consultation.

Application of law: The Court held that the insurance valuation, being a product of a contract requiring utmost good faith and submitted by the importer, could be accepted as a reliable indicator of value.

Competing arguments: The appellant contended the insurance value was not accepted by the insurer as true value and was not based on any invoice. The Court found no allegations or evidence of manipulation of insurance documents and thus upheld reliance on this valuation.

Conclusion: The insurance valuation was accepted as the actual value of the equipment for Customs valuation.

(c) Allegation of Manipulation of Documents

Legal framework: Certification requires an accredited person or agency to verify facts in accordance with established standards. Admissions under Section 58 of the Indian Evidence Act, 1872, though not conclusive, shift the burden of proof and are prima facie evidence unless rebutted.

Court's reasoning: The Court found that the inspection report by BVIPL was fabricated and the Chartered Engineer's certificate was based on this false report. Statements of BVIPL officials admitted issuing certificates without proper inspection. Admissions by appellant's employees regarding discrepancies and omissions were relied upon. The Court noted that mere resiling from statements does not negate their evidentiary value if unproven otherwise.

Evidence and findings: Statements recorded under Section 108 CA 1962, admissions by key personnel, and inconsistencies in purchase orders and bills of lading established manipulation of documents.

Application of law: The Court applied the principle that admissions shift onus and found the appellant failed to rebut the presumption of manipulation.

Competing arguments: The appellant argued the inspection was conducted properly and the report was reliable. The Court rejected this due to lack of independent verification and the admitted fabrication.

Conclusion: The Court upheld the finding of document manipulation and rejected the appellant's valuation certificate.

(d) Invocation of Extended Period under Section 28(4) CA 1962 in First Check Assessments

Legal framework: Section 28(4) allows extended period for issuing show cause notices where goods are undervalued or misdeclared. Section 46(4) requires truthful declaration in Bill of Entry. "First check" assessments are preliminary and based on declared information.

Court's reasoning: The Court held that deliberate concealment or suppression of facts in a first check assessment amounts to suppression under Section 28(4), justifying invocation of extended period for reassessment. The appellant's failure to explain discrepancies and involvement in fraudulent valuation constituted blameworthy conduct.

Evidence and findings: Statements of employees admitted discrepancies in purchase orders, shipment consignees, and payments. The appellant failed to satisfactorily explain these anomalies.

Application of law: The Court found revenue justified in invoking extended period and imposing penalties under Sections 112(a), 114A, and 114AA CA 1962.

Competing arguments: The appellant contended extended period should not apply to first check cases. The Court rejected this, emphasizing the need to prevent fraud and uphold revenue interests.

Conclusion: Extended period under Section 28(4) was rightly invoked.

(e) Denial of EPCG License Benefit without Cancellation by DGFT

Legal framework: Notification No. 103/2009-Cus provides concessional duty rates under EPCG scheme subject to a valid authorization issued by DGFT. Customs and DGFT operate in separate spheres; Customs administers duty exemptions, DGFT issues and cancels authorizations.

Court's reasoning: The Court emphasized that denial of EPCG benefit is conditional on cancellation of authorization by DGFT. Fraudulent valuation before Customs does not automatically invalidate the EPCG benefit unless DGFT cancels the license. Customs can initiate action for violations under Customs Act but cannot deny EPCG benefit without DGFT's cancellation.

Evidence and findings: The EPCG authorization was valid at the time of import. No evidence of cancellation by DGFT was placed on record.

Application of law: The Court held that benefit of EPCG license cannot be denied solely on Customs valuation grounds without DGFT cancellation.

Competing arguments: The appellant argued denial without cancellation was improper. The Court agreed, clarifying the distinct jurisdiction of DGFT and Customs.

Conclusion: EPCG benefit cannot be denied without DGFT cancellation of authorization.

Additional Issues:

Suppression of Considerations and Inclusion of Costs in Assessable Value: The Court examined payments for dismantling, packing, freight, insurance, consultancy, and other expenses incurred abroad which were not declared. These payments were required to be added to the transaction value as per Section 14(1) CA 1962 and Rule 10 CVR 2007. The appellant's own admissions and documents confirmed suppression. The Court upheld addition of these costs to assessable value.

Confiscation and Redemption Fine: Although the goods were liable for confiscation due to misdeclaration, the Court held confiscation could not be ordered as the goods were not available, and the bond executed was under the EPCG notification conditions, not for blameworthy conduct. Confiscation and redemption fine were set aside accordingly.

Penalties: Penalties imposed on the company and an employee were upheld except penalty under Section 114AA on the employee, which was deleted considering the company was already penalized. The Court emphasized deterrence against statutory violations.

3. SIGNIFICANT HOLDINGS

"The rejection of the value assessed under Rule 9 of CVR 2007 is permissible under Rule 12 when the value is found to be based on fabricated or manipulated documents, as the valuation process is collaborative and dependent on truthful disclosure."

"The insurance valuation submitted by the importer, being a product of a contract governed by the principle of utmost good faith and not challenged as manipulated, can be accepted as the actual value of the goods for Customs purposes in the absence of a reliable transaction value."

"Admissions made by parties, even if later resiled from, carry evidentiary weight and shift the burden of proof; failure to rebut such admissions supports findings of fraud or suppression."

"Extended period under Section 28(4) of CA 1962 can be invoked in 'first check' assessments where willful misstatement or suppression of facts is established."

"Benefit under EPCG notification cannot be denied by Customs without cancellation of the EPCG authorization by DGFT, as the two authorities operate in separate spheres."

"All payments made to third parties to satisfy obligations of the seller, including dismantling, freight, insurance, and consultancy, must be included in the transaction value under Section 14(1) and Rule 10 of CVR 2007."

"Goods liable for confiscation must be available for confiscation; if not available, confiscation and redemption fine cannot be imposed."