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TMI Blog2023 (10) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... d Service Tax Appellate Tribunal, West Zonal Bench at Mumbai (briefly the 'CESTAT' or 'the Tribunal' hereinafter) in Appeal Nos. C/1347 and 1374 of 2002. 3. The issue that arises in the two appeals is 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? 4. A brief recital of facts would be in order. 4.1. Show cause notice dated 17.12.1999 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. The information revealed that the firm M/s Ganpati Overseas was owned by one Mr. Yashpal Sharma; the Hong Kong based supplier M/s Arise Enterprises was owned by his relative Mr. Suresh Chandra Sharma; the imported goods were cleared from Air Cargo Complex, Sahar, Mumbai and that M/s National Shippin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vouchers was in the range of Rs. 40-60 per piece but the actual market value of these tuners was in the range of Rs. 200-325 per piece. In this manner, the respondents had evaded customs duty amounting to a total of around rupees twenty five to thirty lakhs approximately. 4.6. Mr. Yashpal Sharma was arrested on 15.03.1999 under Section 135 of the Customs Act. He was enlarged on bail on 30.03.1999 by the Additional Sessions Judge, Patiala House, New Delhi subject to the condition that a sum of rupees ten lakhs should be deposited in the office of the Directorate of Revenue Intelligence on 30.03.1999 and a further sum of rupees twenty lakhs should be so deposited within a period of forty-five days. Both the amounts were accordingly deposited. 4.7. From a scrutiny of the relevant materials including export declarations, it was found that the price of tuner as per the export declarations filed by the exporter before the Hong Kong Customs and Excise Department was Hong Kong $67.67 per piece which was much higher as compared to the price declared in the invoice by M/s Ganpati Overseas before the Indian customs authority at the time of importation of the goods. In this connection, the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o why interest should not be levied on the evaded customs duty. 4.9. The noticees were directed to submit their reply to the Commissioner of Customs, Air Cargo Complex, Sahar Airport, Mumbai within the stipulated time. It was mentioned that the show cause notice was issued under Section 124 of the Customs Act read with the proviso to Section 28(1) of the aforesaid Act. 5. M/s Ganpati Overseas through its lawyer replied to the aforesaid show cause notice on 20.05.2000. While denying all the allegations in totality, it was mentioned that the Commissioner of Customs vide his letter dated 07.04.2000 had rejected the request of M/s Ganpati Overseas for supply of certain documents sought for, on the ground that those documents were not relied upon. It was submitted that those documents might have relevance while preparing the defence and that absence of those documents would handicap the noticees in putting forth a proper defence. While reiterating the request for such documents, the noticees submitted what they called an interim reply. 5.1. It was mentioned that Mr. Yashpal Sharma was the proprietor of the noticee firm which was engaged in the business of import of tuners etc. during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mistake was subsequently rectified whereafter M/s Arise Enterprises lodged a second set of declarations before the Hong Kong customs authority and paid the penalty which was levied. 5.4. It was stated that the noticees were informed by the Hong Kong supplier that the tuners, saw filters etc. were being offered to them on stock clearance basis at lower prices. It was for this reason that the goods were sold to the noticees at lower prices, details of which were mentioned in paragraph 11 of the reply. 5.5. After saying so, it was pointed out that different prices in export declarations and in import invoices did not necessarily mean that the price shown in the export declarations was correct and that the one declared in the import invoices was incorrect. 5.6. The reply also touched upon the method of valuation as well as the valuation of the goods by the customs authority in India. After adverting to various provisions of the Customs Valuation Rules, it was asserted that the price at which the goods of the respondents were assessed and cleared was more or less correct. It was pointed out that the department could not adduce any single piece of evidence to arrive at the so calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the price of the goods on the basis of the other export declarations. Adjudicating authority did not accept the contention of the respondents that the price mentioned in the export declarations filed before the Hong Kong customs authority could not be accepted. Distinguishing the facts of the two cases relied upon by the respondents, the adjudicating authority took the view that even if the copies of the export declarations available with the Directorate of Revenue Intelligence were not attested or were xerox copies, it would not make those copies unreliable or unauthentic. Therefore, taking into account the fact that the supplier M/s Arise Enterprises had acknowledged that those declarations were filed by them, which was not denied by the respondents, the adjudicating authority held that there was no reason to doubt the veracity of the export declarations even if those were unattested and were mainly xerox copies. Accordingly, the adjudicating authority held that the information obtained was correct and genuine. 6.2. On the contention that statements of Mr. Yashpal Sharma and Mr. Suresh Chandra Sharma were not voluntary and therefore could not be relied upon, adjudicating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .06.2002 held that the proviso to Section 28(1) of the Customs Act was applicable. Consequently, M/s Ganpati Overseas was held liable to pay the differential customs duty of Rs. 1,16,09,181.00 alongwith interest forthwith. For misdeclaration and under valuation, the goods in question were held liable for confiscation under Sections 111(d) and 111(m) of the Customs Act. However, as the said goods were not available having been cleared no order for confiscation was passed. Further, equivalent amount of differential customs duty was imposed on M/s Ganpati Overseas as a penalty under Section 114A of the Customs Act and in addition, penalty of rupees five lakhs was imposed on Mr. Yashpal Sharma under Section 112(a) of the Customs Act. 7. Aggrieved by the aforesaid order-in-original of the adjudicating authority, respondents preferred appeals before the CESTAT which were registered as Appeal Nos. C/1347 and 1374 of 2002. 7.1. CESTAT 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. This was for more than one reason. Firstly, those declarations were unattested photocopies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that in the said decisions, this court has held that the inculpatory portion of confessional statement of accused, even if retracted, could be relied upon to base conviction if it is found to be voluntary and truthful; however, this Court sounded a note of caution that prudence and practice would require that such confessional statement should be corroborated by other evidence adduced by the prosecution. Statement of Mr. Yashpal Sharma that the actual market value of the tuners was in the range of Rs.200.00 and Rs.325.00 per piece which would make the market price thereof in excess of Rs.700.00 after adding normal profit could not be taken to be voluntary and true for the reason that tuners were supplied to the respondents at negotiated price of four different rates i.e. HK$ 4.00, 4.50, 5.50 and 6.00. In that view of the matter, Tribunal was of the view that the loaded value proposed by the department would not be correct since the proposed Free on Board (FoB) price would be about Rs.372.00 per piece and CIF (Cost, Insurance and Freight) value would be Rs. 454.00 per piece and the landing cost would be Rs.660.00 per piece after adding customs duty. 7.5. CESTAT also noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 108 of the Customs Act had admitted under valuation. In his statement, Mr. Yashpal Sharma had stated that the supplier M/s Arise Enterprises, Hong Kong belonged to his co-brother Mr. Suresh Chandra Sharma. Mr. Suresh Chandra Sharma used to send the goods on his own and that he had never sent any written or oral order for supply. As and when M/s Arise Enterprises would dispatch the goods, Mr. Suresh Chandra Sharma would inform Mr. Yashpal Sharma over telephone to whom the goods were to be sold, in what quantity and at what price. Thereafter, he used to sell the goods at the settled price and receive the payments. He had stated that he was not aware of the actual price of the goods imported from Hong Kong. The amount of payment as per the import documents were sent by him to Mr. Suresh Chandra Sharma through banking channel and the balance amount he used to handover to Mr. Suresh Chandra Sharma whenever he visited India. 11.3. Learned counsel has highlighted the fact that the supplier in Hong Kong and the importer in India were related parties. Therefore, the contention that the foreign supplier had filed another set of export declarations wherein the price shown in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shpal Sharma could not be relied upon to prove under valuation for more than one reason. Firstly, when the two statements were recorded there was no evidence available with the customs department to prove under valuation. Secondly, both the statements were almost identical and matched each other which would indicate that those were dictated ones. Therefore, it is clearly evident that those were obtained under coercion and undue pressure. Thirdly, the two statements were retracted at the first available opportunity. Fourthly, the Additional Sessions Judge, New Delhi while granting bail to Mr. Yashpal Sharma had recorded in his order dated 26.05.1999 that the statement made was under coercion and pressure and therefore, the same could not be termed as a voluntary statement. In the circumstances, Tribunal was fully justified in not giving any credence to the above two statements. 12.4. He further submits that though the appellant had placed much emphasis on the fact that the parties are related and that filing of the second set of export declarations was an afterthought, the same is totally irrelevant. On the contrary, it is on record that the second set of export declarations were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual price of the goods was quite high. The difference between the actual price and the declared price was retained in India, which Mr. Suresh Chandra Sharma used to collect from Mr. Yashpal Sharma whenever he visited India. However, the two statements were subsequently retracted on the ground that those were obtained under coercion and duress. 14.2. Mr. Yashpal Sharma was arrested on 15.03.1999 under Section 135 of the Customs Act. He was enlarged on bail on 30.03.1999 by the Additional Sessions Judge, Patiala House, New Delhi conditional upon depositing Rs.30 lakhs, which he deposited. In his bail order, the Additional Sessions Judge recorded that the statement made by Mr. Yashpal Sharma under Section 108 of the Customs Act was forcibly taken, and, therefore, could not be relied upon. 14.3. It has come on record that the foreign supplier had admitted before the Hong Kong customs authority that price of the goods declared in the initial export declarations was not correct because of mistake committed by the staff. It thereafter submitted a second set of export declarations where the price of the goods declared matched the price of the goods at the time of import in India. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goods on stock clearance basis at a lower price for which reason it could sell the goods to M/s Ganpati Overseas at lower price. Such a contention was held to be an afterthought as M/s Ganpati Overseas did not produce any invoice etc. of purchase of goods on stock clearance basis. Since neither transaction value of similar goods nor price of contemporaneous imports etc. were available, adjudicating authority held that the department had rightly invoked Rule 8 of the Customs Valuation Rules instead of going through Rules 5, 6 and 7 sequentially. 14.9. The order-in-original was assailed by the respondents in appeals before the CESTAT. Vide the judgment and order dated 27.06.2008, CESTAT set aside the order-in-original passed by the adjudicating authority. CESTAT recorded that the initial export declarations filed by the foreign supplier before the Hong Kong customs authority could not be relied upon for enhancing the declared value of the imported goods. Copies of those export declarations available with the department were unattested photocopies. That apart, the foreign supplier had filed a second set of export declarations before the Hong Kong customs authority declaring the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pies of those export declarations. Adjudicating authority brushed aside the objections raised by the respondents that the copies of the export declarations relied upon by the Directorate of Revenue Intelligence and the department were not attested and were just xerox copies. Adjudicating authority took the view that merely because the copies of the export declarations were just xerox copies and were not attested, the said fact did not make those documents unreliable or unauthentic. It was held that the foreign supplier had accepted the factum of filing those declarations which the noticees did not deny. This finding of the adjudicating authority was negatived by the CESTAT. The Tribunal, while accepting the objections of the respondents that those declarations could not be relied upon for the purpose of enhancement of value not only because those were unattested photocopies but also for the reason that the foreign supplier had explained that incorrect price was erroneously mentioned in the first set of export declarations for which it filed a second set of export declarations showing the price of goods in question matching with the price as declared in the import invoices. The seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arma, who was his co-brother, was the proprietor of the importer M/s Ganpati Overseas. He had supplied tuners and saw filters to M/s Ganpati Overseas through his firm M/s Arise Enterprises, Hong Kong. He stated that the price of the goods shown in the import invoices did not reflect the actual price. Price of the goods in the import invoices was deliberately declared low with the intention of saving customs duty. Actual price of the goods was quite high. While the invoice amount after sale upon import used to be sent to him by Mr. Yashpal Sharma through the banking channel, the differential amount was retained in India by Mr. Yashpal Sharma who paid the same to Mr. Suresh Chandra Sharma whenever he visited India. 18.1. Mr. Yashpal Sharma in his statement also stated more or less the same thing as stated by Mr. Suresh Chandra Sharma. He was arrested on 15.03.1999 itself under Section 135 of the Customs Act. However, he was enlarged on bail on 30.03.1999 by the Additional Sessions Judge, Delhi subject to deposit of Rs. 30 lakhs within a specified period, which he paid. It has come on record that the Additional Sessions Judge in his bail order dated 26.05.1999 had mentioned that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect to the smuggling of any goods. A person so summoned was bound to make a statement as regards the subject which was being examined. Such an enquiry by the customs officer would be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 of the Indian Penal Code. 21. While we are on Section 108 of the Customs Act, we may also advert to Section 24 of the Evidence Act, 1882 which deals with admissibility of a confession. Section 24 of the Evidence Act reads as under: 24. Confession caused by inducement, threat or promise, when irrelevant in criminal proceeding.--A confession made by an accused person is irrelevant in a criminal proceeding, if the making of the confession appears to the Court to have been caused by any inducement, threat or promise, having reference to the charge against the accused person, proceeding from a person in authority and sufficient, in the opinion of the Court, to give the accused person grounds which would appear to him reasonable, for supposing that by making it he would gain any advantage or avoid any evil of a temporal nature in reference to the proceedings against him. 22. From a reading of Section 24 of the Evidence Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. 25. This court in Naresh J. Sukhawani Vs. Union of India, AIR 1996 SC 522 clarified that a statement made before the customs officer is not a statement recorded under Section 161 of the Criminal Procedure Code, 1973. It is material piece of evidence collected by the customs officer under Section 108 of the Customs Act. 26. A three-judge bench of this court in K.I. Pavunny Vs. Assistant Collector, (1997) 3 SCC 721 considered the question as to whether a retracted confessional statement would be inadmissible in evidence in the context of the Customs Act. After holding that a statement recorded under Section 108 of the Customs Act is admissible in evidence, this court considered the next question as to whether such a statement can form the sole basis for conviction. The further question was whether a retracted confessional statement requires corroboration from any other evidence. After referring to various judicial pronouncements this court observed that there is no prohibition under the Evidence Act to rely upon a retracted confession to prove the prosecution case or to make the same the basis for conviction of the accused. But practice and prudence would require that the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the statement so recorded, which is admissible in evidence, can meet the standard of basic judicial principles and natural justice. It is axiomatic that when a statement is admissible as a piece of evidence, the same has to conform to minimum judicial standards. Certainly a statement recorded under duress or coercion cannot be used against the person making the statement. It is for the adjudicating authority to find out whether there was any duress or coercion in the recording of such a statement since the adjudicating authority exercises quasi-judicial powers. 29. Proceeding ahead, we find that the department, after rejecting the price declared as per the import invoices, had invoked Rule 8 of the Customs Violation Rules straightaway instead of going through Rules 5, 6 and 7 thereof sequentially. This was approved by the adjudicating authority after rejecting the submission of the respondents that contemporaneous imports of similar goods by M/s Bharat Electronics and M/s K.S. International had prices comparable with the prices declared by the respondents in the import invoices. 30. Before we deal with this aspect, we may advert to the relevant legal provisions. Section 2 (4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively assigned to them in clause (m) and clause (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999)." 32. Section 156 of the Customs Act confers general power upon the Central Government to make rules consistent with the Customs Act to carry out its purposes. 33. In exercise of the powers conferred by Section 156 of the Customs Act read with Section 22 of the General Clauses Act, 1897 and in supersession of the Customs Valuation Rules, 1963 except in respect of things done or omitted to be done before such supersession, the Central Government has made the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (already referred to as the 'Customs Valuation Rules'). 33.1. Rule 2(1)(c) defines "identical goods". It means imported goods- (i) which are same in all respects including physical characteristics, quality and reputation as the goods being valued except for minor differences in appearance that do not affect the value of the goods; (ii) produced in the country in which the goods being valued were produced; and (iii) produced by the same person who produced the goods or where no such goods are available, goods produced by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction value. However, if that value cannot be determined, the value shall be determined by proceeding sequentially through Rules 5 to 8 of the Customs Valuation Rules. 35. This brings us to transaction value dealt with in Rule 4 which is as under: 4. Transaction value. -(1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these rules. (2) The transaction value of imported goods under subrule (1) above shall be accepted: Provided that - (a) there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which- (i) are imposed or required by law or by the public authorities in India; or (ii) limit the geographical area in which the goods may be resold; or (iii) do not substantially affect the value of the goods; (b) the sale or price is not subject to same condition or consideration for which a value cannot be determined in respect of the goods being valued; (c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Customs Act, 1962 which provides for the determination of the assessable value on the basis of the international sale price. Under the said Act, customs duty is chargeable on goods. According to Section 14(1), the assessment of duty is to be made on the value of the goods. The value may be fixed by the Central Government under Section 14(2). Where the value is not so fixed it has to be decided under Section 14(1). The value, according to Section 14(1), shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place and importation in the course of international trade. The word "ordinarily" implies the exclusion of special circumstances. This position is clarified by the last sentence in Section 14(1) which describes an "ordinary" sale as one where the seller or the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale. Therefore, when the above conditions regarding time, place and absence of special circumstances stand fulfilled, the price of imported goods shall be decided under Section 14(1-A) read with the Rules framed thereunder. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e primary base for customs valuation is the transaction value i.e. the price actually paid or payable for the goods when sold for export to the country of importation, subject to adjustment. The said price should not be subject to any condition or consideration that could prevent the value from being determined under Rule 4(1). Where the Department has reason to doubt the truth or accuracy of a declared value, it may ask the importer to provide further explanation to the effect that the declared value represents the total amount actually paid or payable for the imported goods. If the declared value is lower than the declared value of similar goods imported by other buyers at or about the same time, it can constitute "reason to doubt" the truth or accuracy of the declared value indicated in the commercial invoice (see Rule 10-A). Under Rule 8(2)(i) no value shall be determined based on the selling price of the goods produced in India. In cases where the Department fails to establish circumstances mentioned in Rule 4(2), the transaction value declared by the assessee cannot be rejected and the price mentioned in the invoice should be held to represent the transaction value. 39. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 is the deeming provision. It talks of deemed value. The value is deemed to be the price at which such goods are ordinarily sold or offered for sale, for delivery at the time and place of importation in the course of international trade where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or for offer for sale. Therefore, what has to be seen by the Department is the value or cost of the imported goods at the time of importation i.e. at the time when the goods reach the customs barrier. Therefore, the invoice price is not sacrosanct. 39.1. 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. 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. The charge of unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be accepted. This is what this court has said: 13. Section 14(1) speaks of "deemed value". Therefore, invoice price can be disputed. However, 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. The value in the export declaration may be relied upon for ascertainment of the assessable value under the Customs Valuation Rules and not for determining the price at which goods are ordinarily sold at the time and place of importation. This is where the conceptual difference between value and price comes into discussion. 40. Section 14 of the Customs Act and Rules 3 and 4 of the Customs Valuation Rules again came up for consideration before this court in Varsha Plastics Private Limited (supra). As regards Section 14(1) of the Customs Act, this court analysed the said provision in the following manner: 19. Section 14(1) of the Act prescribes a method for determination of the value of the goods. It is a deeming provision. By legal fiction incorporated in this section, the value of the imported goods is the deemed price at which such or like go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction value under Rule 4 is rejected, the value shall be determined by proceeding sequentially through Rules 5 to 8 of the Rules.
40.2. 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.
41. Thus, on a cumulative analysis of the facts and the legal position as alluded to hereinabove, we have no hesitation in coming to the conclusion 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.
42. We, therefore, do not find any error or infirmity in the impugned judgment and order of CESTAT. The appeals filed by the department are devoid of merit and those are accordingly, dismissed. No costs. X X X X Extracts X X X X X X X X Extracts X X X X
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