2025 (6) TMI 1105 - AT - Customs

Misdeclaration of description and gross under invoicing the goods to evade payment of appropriate customs duties - imported viscose knitted fabrics - onus of prove (shifting burden to prove) - HELD THAT - The belief knowledge and intention of the parties involved are a part of evidence. Direct evidence is not the only mode envisaged in the Evidence Act through which a fact can be proved. Once the Revenue has been able to disprove the description and value declared by the importer based on facts and preponderance of probabilities respectively the burden would then shift to the assessee to prove its claim. As stated by the Apex Court in Commissioner Of Income Tax Madras vs Messrs. Best Co 1965 (11) TMI 23 - SUPREME COURT where it was held that The process is described in the law of evidence as shifting of the onus in the course of a proceeding from one party to the other. There is no reason why the said doctrine is not applicable to income-tax proceedings. While the Income-tax authorities have to gather the relevant material to establish that the compensation given for the loss of agency was a taxable income adverse inference could be drawn against the assessee if he had suppressed documents and evidence which were exclusively within his knowledge and keeping. Further as held in A. Raghavamma Anr. Vs. Chenchamma Anr. 1963 (4) TMI 67 - SUPREME COURT there is an essential distinction between burden of proof and onus of proof. Burden of proof lies upon a person who has to prove the fact and which never shifts. Onus of proof shifts. Such a shifting of onus is a continuous process in the evaluation of evidence. It is seen from the facts of the case that the description and value of the goods were prima facie mis-stated as per the test report and the contemporaneous imports cited in the SCN - Once the Revue has pointed to discrepancies in the declaration made in the BoE s the burden of rebuttal that the mistake was a bonafide one is on the assessee because the basic facts are within his special knowledge. Section 106 of the erstwhile Indian Evidence Act. 1872 as it stood during the relevant time gives statutory recognition to this universally accepted rule of evidence. However this alone would not suffice. It is found that it was the duty of the original authority to examine this evidence and to accept the same or make out a case contrary to what has been stated. He could not have concluded the existence of a fact contrary to evidence put forward by the appellant without specifically disproving the material before him. Merely stating that the importers reply is not acceptable in as much as they had mis- declared the description and undervalued the imported goods with an intention to evade duty which could not have been detected but for the detailed investigation carried out by DRI and the tests conducted at textile committee Chennai would not suffice - While minor contradictions inconsistencies or insignificant embellishments like minor differences in weight GSM percentage of constituent material of the goods etc if any in the evidence relied upon by revenue may not affect the case. That would come up for consideration only after refuting the evidence relied upon by the importer and then proceeding sequentially as per the Customs Valuation Rules 2007. Conclusion - The non-consideration of the evidence submitted by the appellant in the OIO is a curable defect and hence the matter merits to be remanded back to the original authority for examining all the evidences including that submitted by the appellant afresh before coming to a conclusion in the matter. The matter is remanded back to the Original Authority for de novo adjudication - appeal allowed by way of remand.

The core legal questions considered by the Tribunal in this appeal include:

(i) Whether the description of the imported goods declared as polyester knitted fabrics was correctly classified, or whether the goods were in fact viscose knitted fabrics as alleged by the Department of Revenue Intelligence (DRI) based on test reports.

(ii) Whether the declared value of the imported goods was correctly determined by the appellant or whether there was undervaluation warranting rejection of the declared value under Rule 12 of the Customs Valuation Rules, 2007.

(iii) Whether the penalties imposed under Sections 114A and 114AA of the Customs Act, 1962, for misdeclaration and undervaluation with intent to evade customs duty, were justified.

(iv) Whether the lower authorities properly considered the evidence submitted by the appellant, including multiple Bills of Entry (BoEs) and invoices, in support of their declared value and classification.

(v) The proper application of the burden and onus of proof in customs valuation and classification disputes, particularly the shifting of onus once the revenue discharges its initial evidentiary burden.

Issue-wise detailed analysis:

1. Correctness of Description and Classification of Goods

The legal framework governing classification and description of imported goods is primarily the Customs Act, 1962, supported by the Customs Tariff Act and the Customs Valuation Rules, 2007. The test reports obtained by DRI revealed that the goods declared as polyester knitted fabrics were predominantly viscose knitted fabrics with minor polyurethane content. Subsequent re-sampling confirmed that out of 48,303.2 kgs imported, only 753.7 kgs were polyester knitted fabrics, the remainder being viscose fabrics.

The Court relied on the test reports as key evidence and the statement recorded under Section 108 of the Customs Act where the importer's power of attorney holder admitted the misdeclaration. The Tribunal emphasized that direct evidence is not the sole mode of proof; circumstantial evidence and preponderance of probabilities suffice to establish misdeclaration. The burden of proof shifted to the appellant to rebut the prima facie case made out by the revenue. The appellant's failure to provide evidence of correspondence with the foreign supplier to demonstrate a bona fide error further weakened their position.

The Tribunal held that the misdescription was established on the basis of scientific testing and corroborated by the importer's admission, thus justifying rejection of the declared description.

2. Valuation and Alleged Undervaluation

The valuation dispute was governed by the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The appellant declared a unit price of USD 1.6 per kg for the imported goods, whereas the revenue relied on contemporaneous imports and data from the National Import Database (NIDB) to show that viscose knitted fabrics were imported at significantly higher prices ranging from USD 6.2 to USD 7.3 per kg. The declared value was thus challenged and rejected under Rule 12 of the CVR.

The appellant submitted 13 BoEs with invoices showing imports at USD 1.6 per kg during the relevant period and contended that the revenue's enhancement was not based on comparable goods of similar quality. They argued that the authorities mechanically rejected their evidence without due consideration, violating principles of natural justice.

The Tribunal noted that the original adjudicating authority and Commissioner (Appeals) failed to adequately examine or disprove the evidence submitted by the appellant, including the BoEs and invoices. The Tribunal underscored that the adjudicating authority must specifically address and refute material evidence rather than dismiss it summarily. The appellant's contention that the revenue did not consider differences in GSM and fabric composition was found to be a valid point requiring fresh examination.

The Tribunal recognized that while the revenue discharged its initial burden by producing test reports and contemporaneous import data, the appellant had the onus to rebut this with credible evidence. Since the evidence submitted by the appellant was not properly considered, the valuation determination was deemed defective.

3. Imposition of Penalties under Sections 114A and 114AA of the Customs Act

The penalties under Sections 114A and 114AA are attracted where there is misdeclaration or undervaluation with intent to evade customs duty. The Department argued that the admitted misdeclaration and undervaluation justified the penalties. The appellant contended that the penalties were imposed concurrently without proper basis and that the evidence showed no deliberate intent to evade duty.

The Tribunal observed that since the description and valuation issues were not conclusively decided due to defective consideration of evidence, the penalty imposition could not be sustained without a fresh adjudication on these issues. The Tribunal did not delve into the merits of penalty but remanded the matter for de novo adjudication after proper examination of all evidence.

4. Burden and Onus of Proof

The Tribunal extensively discussed the principles relating to burden and onus of proof, referencing authoritative Supreme Court precedents. It reiterated that the burden of proof lies on the party who must prove a fact, but the onus of proof can shift during the proceedings as evidence is adduced. The revenue's initial burden is to produce sufficient evidence to raise a presumption of misdeclaration or undervaluation. Once done, the onus shifts to the importer to rebut the presumption by placing material evidence before the authorities.

The Tribunal applied this principle by holding that the revenue discharged its burden through test reports and contemporaneous import data, but the appellant also discharged their onus by submitting multiple BoEs and invoices. The failure of the adjudicating authority to consider this evidence meant the onus shifting process was incomplete, rendering the impugned orders unsustainable.

5. Procedural Fairness and Natural Justice

The appellant contended that the orders were passed mechanically without considering their evidence, violating natural justice. The Tribunal agreed that the lower authorities failed to provide a reasoned and speaking order addressing the appellant's evidence. It directed that the matter be remanded for fresh adjudication with adherence to principles of natural justice, including affording the appellant a reasonable and time-bound opportunity to present their case both orally and in writing.

Significant holdings:

"Once the Revenue has been able to disprove the description and value declared by the importer, based on facts and preponderance of probabilities respectively, the burden would then shift to the assessee to prove its claim."

"The burden of proof lies upon a person who has to prove the fact and which never shifts. Onus of proof shifts. Such a shifting of onus is a continuous process in the evaluation of evidence."

"Merely stating that the importers reply is not acceptable in as much as they had mis-declared the description and undervalued the imported goods with an intention to evade duty which could not have been detected but for the detailed investigation carried out by DRI and the tests conducted at textile committee Chennai, would not suffice."

"The Ld. Commissioner (Appeals) has failed to take this plea of the appellant into consideration while deciding the appeal and grant appropriate relief. Hence the order is defective and merits to be set aside."

"The matter merits to be remanded back to the original authority for examining all the evidences including that submitted by the appellant afresh before coming to a conclusion in the matter."

"The lower authority shall follow the principles of natural justice and afford a reasonable and time bound opportunity to the appellant to state their case both orally and in writing if they so wish, before issuing a speaking order in the matter."

Final determinations:

The Tribunal set aside the impugned order of the Commissioner (Appeals) and remanded the matter to the original adjudicating authority for de novo adjudication. The original authority was directed to examine all evidence afresh, including the appellant's BoEs and invoices, and to pass a reasoned and speaking order in accordance with principles of natural justice within ninety days. The appellant was directed to cooperate with the adjudicating authority to facilitate expeditious disposal. The question of penalties was left open for fresh consideration after proper determination of classification and valuation.

← Previous Next →