2025 (6) TMI 1023 - AT - Customs

Absolute confiscation - prohibited goods or not - 19 items which are declared in the Bill of Entry classifying under CTH 69120040 25169090 and 74082990 as objects in clay metal and stone - rejection of transaction value - acceptence of value under Rule 9 of CVR 2007 - levy of penalty u/s 112(a) and 114AA of the Customs Act 1962. Absolute confiscation of goods - HELD THAT - From the records it is found that no attempt has been made by the Customs Department to ascertain the fact from the Switzerland authorities as to whether such exports violated provisions of the said CPTA; hence interpreting the provisions of the CPTA by the Commissioner and arriving at a conclusion that there has been a violation of export laws of the said country cannot be construed to be a correct interpretation of the provisions of the said act in the circumstances of the case and its applicability to the 19 objects imported from the said country in question. Therefore the said 19 items cannot be considered as prohibited goods and liable to absolute confiscation under Section 111(d) of the Customs Act. Rejection of transaction value - HELD THAT - There are no error in the conclusion of the learned Commissioner as the description of the imported goods has been misdeclared and also classification has not been correctly disclosed in the Bill of Entry even though the appellant is a regular importer of antiques. The assessing officer if has a reason to doubt the truth and accuracy has the jurisdiction to reject the transaction value. Whether the valuation has been done in accordance with the procedure prescribed under Rule 12 of the CVR 2007? - HELD THAT - The valuation of the antiques arrived only on the basis of assessment of the criteria of aesthetic value material of the object age and period to which it belongs. The learned Commissioner in the impugned order did not consider the claim of the appellant about the comparable auction price available of more or less similar goods before discarding the said claim and adopting the opinion of valuation committee recorded its finding solely on the basis of the same. The learned Commissioner ought to have considered the availability of comparable international auction price as per Rule 4 5 of the said Rules while applying the valuation suggested by the Committee. Since the purpose of the determination of the transaction value rests on ultimate sale on the goods by the appellant an antique dealer; therefore international auction prices of similar goods definitely would play a significant role in arriving at the nearest transaction value of the imported goods for the purpose of assessment when the declared transaction value was rejected under Rule 12 of the CVR 2007. Conclusion - The determination of assessable value solely on the basis of the expert committee opinion cannot be sustained and the matter is remanded to the learned Commissioner to reassess the value taking note of the claim of the appellant that comparable price of similar goods in auction produced for consideration by them in ascertaining the correct value of the goods. The impugned order is set aside and the matter is remanded to the adjudicating authority to redetermine the assessable value and consequently the redemption fine and penalty on the appellant and the Managing Director - Appeal disposed of by way of remand.

The core legal questions considered by the Appellate Tribunal in these appeals include:

i. Whether the 19 imported items, declared under certain Customs Tariff Headings (CTH) as clay, metal, and stone objects, are in fact prohibited goods classified as antiques and thus liable to absolute confiscation under Sections 111(d) and 111(m) of the Customs Act, 1962;

ii. Whether the declared transaction value of Rs.5,08,953.68/- should be rejected and replaced by the valuation of Rs.4,75,00,000/- determined under Rule 9 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR);

iii. Whether penalties under Sections 112(a) and 114AA of the Customs Act, 1962 are properly imposed on the appellant company and its Managing Director.

Issue 1: Classification of the Imported Goods as Prohibited Antiques and Confiscation

The legal framework involves the Customs Act, 1962 provisions on confiscation (Sections 111(d) and 111(m)) and the Import Policy governing antiques import, including compliance with export laws of the country of origin. The Antiquities and Art Treasure Act, 1972, and the Swiss Cultural Property Transfer Act (CPTA) were also considered in relation to export legality.

The Court noted that the appellant declared the goods under CTH 69120040, 25169090, and 74082990 as clay, metal, and stone objects, but the Department's physical examination and expert opinion from the Archaeological Survey of India (ASI) classified them as antiques under CTH 97060000. The appellant admitted misdeclaration, attributing it to clerical error, but the Tribunal rejected this plea given the appellant's status as a seasoned antique dealer familiar with correct classification.

The Department's reliance on the CPTA to assert violation of Swiss export laws was critically examined. The Tribunal observed that the CPTA applies only to cultural property designated by Switzerland, and there was no evidence that the 19 items were so designated. Moreover, the exporter was a private collector, not a professional art dealer, thus not falling under CPTA's ambit. The Department did not seek verification from Swiss authorities regarding any export violation.

Consequently, the Tribunal held that the 19 items could not be considered prohibited goods under Section 111(d) of the Customs Act, and absolute confiscation on this ground was not justified. However, misdeclaration of classification and description rendered the goods liable for confiscation under Section 111(m).

Issue 2: Rejection of Declared Transaction Value and Adoption of Expert Valuation

The valuation dispute centered on the declared invoice value of Rs.5,08,953.68/- versus the expert committee's valuation of Rs.4.75 crores. The relevant legal provisions are the Customs Valuation Rules, 2007, especially Rule 12 (which allows rejection of declared value if there is reason to doubt its truth or accuracy) and Rule 9 (the residual method for valuation).

The Tribunal reaffirmed the principle that if the proper officer has reasonable doubt about the declared value, Rule 12 mandates a two-step process: seeking further information from the importer and, if doubts persist, rejecting the declared value and determining value under Rules 4 to 9.

The Tribunal found that misdeclaration of description and classification constituted 'certain reasons' under Rule 12 to doubt the declared value. The appellant's failure to produce export documentation from Switzerland was also noted. Accordingly, rejection of declared value under Rule 12 was upheld.

However, the Tribunal scrutinized the expert committee's valuation methodology. The committee, comprising ASI officials and experts, valued the antiques based on aesthetics, material, age, and period, without conducting any scientific tests or relying on market comparables. Cross-examination revealed that the ASI members had limited experience in commercial valuation, had not conducted chemical or age verification tests, and lacked documentary evidence or comparable sales to justify their valuation. One expert evaded cross-examination altogether, undermining the credibility of the committee's report.

The appellant submitted extensive evidence of over 150 comparable auction sales internationally, which the Department and adjudicating authority failed to consider or even mention in their order.

The Tribunal held that the valuation solely on the expert committee's opinion, without considering comparable international auction prices or other market data, was arbitrary and unsustainable. The valuation must be consistent with Rule 9(1), which prohibits arbitrary or fictitious values and requires consideration of prices at which like goods are ordinarily sold in international trade.

Therefore, the matter was remanded to the adjudicating authority to reassess the value, taking into account the appellant's evidence of comparable auction prices and applying the valuation rules comprehensively.

Issue 3: Imposition of Penalties

The penalties under Sections 112(a) and 114AA were imposed on the appellant and its Managing Director for misdeclaration and contravention of customs laws.

Since the valuation and confiscation orders were set aside or modified, the Tribunal directed reassessment of penalties consequent to the redetermined assessable value and confiscation order.

Additional Observations and Reasoning

The Tribunal emphasized that the appellant's claim of clerical error was not credible given their expertise and prior compliance history. The Department's initial detection of the goods as antiques on 01.02.2014 preceded the appellant's admission, negating the claim of voluntary disclosure.

The Tribunal also noted the legal vacuum prior to the Antiquities Act, 1972, regarding export registration, and accepted that antiques exported before that date could not be subjected to retrospective export permit requirements. The exporter's private collection status supported this view.

Regarding the CPTA, the Tribunal held that its provisions apply only to Swiss cultural property and professional art traders, not to private collectors or Indian antiques exported from Switzerland. Thus, the Department's reliance on CPTA to declare the goods prohibited was misplaced.

On valuation, the Tribunal extensively discussed Rule 12's procedural safeguards and the meaning of "reason to doubt" as opposed to "reason to believe," highlighting the lower threshold but the need for objective basis. The Tribunal underscored the importance of considering market comparables and rejected valuation based solely on expert aesthetic judgment without corroborative evidence.

The Tribunal found the Department's refusal to cross-examine one expert and ignoring auction data to be violations of principles of natural justice and fair procedure, rendering the valuation unreliable.

Conclusions on Each Issue

1. Classification and Confiscation: The 19 imported items are antiques misdeclared as other objects. Misdeclaration renders them liable to confiscation under Section 111(m). However, they are not prohibited goods under Section 111(d) as the Department failed to prove violation of Swiss export laws or applicability of CPTA. Absolute confiscation under Section 111(d) is therefore not justified.

2. Transaction Value: The declared value is rejected under Rule 12 of the CVR due to misdeclaration and reasonable doubt. However, the expert committee's valuation is arbitrary and lacks evidentiary basis. The matter is remanded for reassessment considering comparable international auction prices and applying valuation rules properly.

3. Penalties: Penalties imposed are subject to reassessment in light of the redetermined valuation and confiscation findings.

Significant Holdings and Legal Principles

"The proper officer can reject the declared transactional value based on 'certain reasons' to doubt the truth or accuracy of the declared value in which event the proper officer is entitled to make assessment as per Rules 4 to 9 of the 2007 Rules."

"The expression 'reason to doubt' refers to uncertainty and suspicion, not requiring positive belief, but must be reasonable and based on certain reasons."

"Valuation under Rule 9 shall not be based on arbitrary or fictitious values and must consider prices at which like goods are ordinarily sold in international trade."

"Misdeclaration of description and classification by an experienced importer cannot be treated as mere clerical error but is deliberate and intentional."

"The provisions of the Cultural Property Transfer Act of Switzerland apply only to cultural property designated by Switzerland and to persons active in art trade, not to private collectors or foreign antiques."

"Comparable auction prices of similar goods are relevant and material evidence for valuation and must be considered by the adjudicating authority."

In conclusion, the Tribunal set aside the impugned order and remanded the matter for reassessment of value, confiscation, and penalties in accordance with the legal principles and procedural safeguards outlined above.

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