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2025 (6) TMI 1279 - AT - Customs


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

1. Whether the direction by the Additional Commissioner of Customs (Import) to enhance the assessable value of imported goods by 20% on the ground of related party transactions was legally sustainable.

2. The scope and nature of the Special Valuation Branch (SVB)'s role and authority in customs valuation and assessment processes under the Customs Act, 1962.

3. The jurisdiction of the first appellate authority and the Tribunal to entertain appeals against directions or advisory opinions issued by the SVB prior to final or provisional assessment under sections 17 and 18 of the Customs Act, 1962.

4. The procedural propriety and legal effect of imposing valuation enhancements without issuance of a show cause notice or final assessment order.

5. The appropriateness of judicial intervention at the stage of advisory directions or provisional assessments, particularly when no actual import consignments have been subjected to such enhanced valuation.

Issue 1: Legality of 20% Value Enhancement on Related Party Transactions

The legal framework governing customs valuation is primarily contained in section 14 of the Customs Act, 1962, read with the Customs Valuation Rules, 1963. Rule 3 defines "sale under competitive conditions" as a transaction between unrelated parties where price is the sole consideration. Where related party transactions exist, valuation must be scrutinized to ensure it reflects arm's length pricing.

Precedent cited by the Tribunal from a recent decision clarified that the SVB's role is advisory, assisting the "proper officer" under section 17 in determining assessable value. The SVB's recommendations do not constitute binding orders or assessments.

The Court reasoned that the 20% enhancement was directed merely on the basis of related party status without a proper adjudicatory process under section 17 or section 18. The direction lacked certainty and was not a final assessment. The enhancement was not linked to any specific consignments actually assessed, nor was there evidence that such enhancement had been applied in practice.

The Court emphasized that valuation adjustments must be made through proper statutory procedures, including issuance of show cause notices and final orders, not through internal advisories or directions.

Issue 2: Role and Authority of the Special Valuation Branch (SVB)

The Tribunal analyzed the statutory provisions and rules governing customs valuation and the establishment of the SVB, which operates under the Directorate of Valuation of the CBIC. The SVB was created to scrutinize complex valuation issues, particularly involving related party transactions, royalties, lump sum fees, and other non-invoice elements affecting value.

The Tribunal underscored that the SVB's function is advisory and recommendatory. It assists the "proper officer" who alone is vested with statutory authority under sections 17, 18, and 28 of the Customs Act to make assessments and final decisions. The SVB cannot issue binding directions or orders that preempt or substitute the statutory adjudicatory process.

The Court cautioned against any misapprehension that SVB's advisories amount to final assessments or binding mandates. Such a misunderstanding would conflict with the statutory scheme and the fundamental principles of due process in customs valuation.

Issue 3: Jurisdiction of Appellate Authorities to Entertain Appeals Against SVB Directions

The Tribunal examined the jurisdictional scope of the Commissioner of Customs (Appeals) and the Tribunal itself under Chapter XV of the Customs Act, 1962. The appellate authorities derive jurisdiction to hear appeals only from final or provisional assessments made by the "proper officer" under sections 17 and 18.

The impugned order by the first appellate authority upheld the SVB's direction as if it were a final assessment, effectively converting an advisory into a binding order. The Tribunal found this to be a jurisdictional error since no final or provisional assessment had been made on any import consignments at that stage.

It was held that appeals against mere advisory directions or guidelines that have not yet been applied to specific imports do not fall within the appellate jurisdiction. The appellate process is triggered only upon issuance of an assessment order affecting the importer's liability.

The Tribunal remanded the matter to the first appellate authority to consider the appeal within the proper jurisdictional framework and after considering the appellant's submissions on the merits.

Issue 4: Procedural Requirements and Effect of Valuation Enhancements Without Show Cause Notice

The Tribunal noted that the proceedings leading to the impugned direction were initiated without issuance of a show cause notice, which is a procedural prerequisite to imposing valuation enhancements or additional duty demands.

The absence of such notice and the conversion of an advisory into a binding direction were found to be procedurally improper and contrary to principles of natural justice. The appellate authority should have ensured that the statutory procedural safeguards were complied with before entertaining or upholding such directions.

Issue 5: Prematurity of Judicial Intervention at Advisory or Provisional Assessment Stage

The Tribunal emphasized that judicial or quasi-judicial intervention at the stage of advisory directions or provisional assessments is premature. The Customs Act contemplates that provisional assessments under section 18 are subject to finalization within a prescribed period, and only final assessments give rise to appealable orders.

Since no consignments had been subjected to the 20% enhancement and no final assessment order had been passed, the grievance was speculative and not ripe for adjudication. The Tribunal declined to interfere with internal customs procedures or advance rulings that had not yet resulted in any detriment to the importer.

The Tribunal stressed the importance of preserving the hierarchical appellate structure and allowing the statutory process to run its course before judicial review is sought.

Significant Holdings:

"The Special Valuation Branch (SVB) may advise and recommend, any direction or mandate to assess in a particular way or to issue notice for recovery is anathema to adjudication that assessment, effectively, is whether under the earliest Rules for operation of section 14 of Customs Act, 1962 or the subsequent ones."

"Supervisory authorities in customs formations would misconstrue such advisory role of Special Valuation Branch (SVB) as oversight of 'proper officer' under section 17, section 18 or section 28 of Customs Act, 1962 for that would be at cross-purposes with the law."

"The first appellate authority should have similarly desisted from intervening before any provisional assessment had been finalised. The impact of the impugned order has been to transfigure a final assessment of the future to provisional assessment at the instance of the Commissioner of Customs."

"The internal procedures for providing expert consultation to the statutorily empowered assessing officers, even if of long standing existence, do not vest the institution, established by executive fiat for such purpose, with the same statutory empowerment; notwithstanding, the arrogation of direction, one way or the other, by the Deputy Commissioner, Special Valuation Branch (SVB), its recommendatory character cannot be elevated to that of an order in the absence of statutory support."

"It is not within the jurisdiction of the Tribunal to exercise the options in section 129B of Customs Act, 1962" to approve or disapprove advance rulings or directions that have not yet resulted in final assessments.

In conclusion, the Tribunal held that the impugned order upholding the 20% value enhancement direction was without jurisdiction and premature. The matter was remanded to the first appellate authority for disposal in accordance with law and after considering the appellant's submissions. The Tribunal refrained from interfering with internal customs advisory processes or provisional assessments that had not crystallized into final orders affecting the importer's liability.

 

 

 

 

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