TMI Blog2023 (10) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... d value - Where the value of imported goods cannot be determined under the provisions of any of the aforesaid rules, the value shall be determined using reasonable means as provided in Rule 8 i.e. the residual method. The dispute involved in South India Television (P) Ltd. [ 2007 (7) TMI 9 - SUPREME COURT] , was as regards the assessable value of ceramic capacitors and diodes imported by the importer from the foreign supplier at Hongkong. The price declared by the importer was not accepted by the customs authority on the basis of overseas investigation report whereafter Rule 8 of the Customs Valuation Rules was invoked - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kshmikumaran, Adv. Ms. Apeksha Mehta, Adv. Ms. Neha Choudhary, Adv. Ms. Umang Motiyani, Adv. Ms. Falguni Gupta, Adv. Mr. M. P. Devanath, AOR Ms. Charanya Lakshmikumaran, AOR JUDGMENT UJJAL BHUYAN, J. Since both the appeals arise out of the common judgment and final order dated 27.06.2008 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench at Mumbai with parties also being the same, the two appeals were heard together and are being disposed of by this common judgment and order. 2. The appeals have been filed by the Commissioner of Customs (Imports), Mumbai under Section 130-E of the Customs Act, 1962 against the common judgment and final order dated 27.06.2008 passed by the Customs, Excise and 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erential amount i.e. the difference between the actual price and the declared price was retained in India which he used to collect from Mr. Yashpal Sharma. 4.4. Mr. Yashpal Sharma was also summoned whereafter his statement was recorded under Section 108 of the Customs Act on 15.03.1999. Apart from narrating the factum of importing the goods by showing prices much lesser than the actual price meant to evade customs duty, he stated that the amount of payment disclosed in the import documents were sent by him to Mr. Suresh Chandra Sharma through the banking channel, whereas, the balance differential amount used to be handed over to Mr. Suresh Chandra Sharma on his visits to India. 4.5. It was mentioned that price of tuners so imported as per the sales 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 28(1) of the Customs Act. It was mentioned that M/s Ganpati Overseas was liable to pay the differential customs duty of Rs. 1,07,41,419.00 leviable on the import of tuners, saw filters etc. as per chart-I and Rs. 8,67,762.00 as per chart-II, the total amount being Rs. 1,16,09,181.00. Respondents were therefore called upon to show cause as to why the aforesaid amount of customs duty should not be demanded and recovered from them and also as to why the imported goods should not be confiscated under Sections 111(d) and 111(m) of the Customs Act, besides appropriation of the amount of Rs. 30 lakhs already deposited. Respondents were further called upon to show cause as to why penalty under Section 112(a) of the Customs Act should not be imposed upon them and as to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat both the statements were not at all reliable. Further, Mr. Yashpal Sharma vide letter dated 25.08.1999 had retracted the statement made by him under Section 108 of the Customs Act. 5.3. Regarding the export declarations filed by M/s Arise Enterprises before the Hong Kong customs authority, it was submitted that it was not known as to when these declarations were forwarded by the Consulate General of India, Hong Kong to the Directorate of Revenue Intelligence, New Delhi. The copies relied upon by the department were unattested and photocopies, thus unreliable. That apart, when the noticees contacted M/s Arise Enterprises, Hong Kong, it was acknowledged that due to error on the part of the staff, value of the goods was incorrectly shown in the export declarations. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the case was transferred to Commissioner of Customs (Adjudication-1), New Customs House, Mumbai for the purpose of adjudication. During the adjudication process, personal hearing was afforded to the respondents. 6.1. Adjudicating authority noted that the customs department had alleged under valuation of the goods in question resulting in evasion of customs duty to the tune of Rs. 1,16,09,181.00. To prove under valuation, the department had relied upon the price mentioned in the export declarations filed by the supplier before the Hong Kong customs authority in respect of nineteen consignments. The price so declared was considered as the correct transaction value. In respect of one more consignment where export declaration was not available, department had proposed enhancement 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rather, such a plea would support the allegation of the department that the invoice price was not a normal price and coupled with the fact that the parties were relatives, had rendered the invoice price unacceptable for assessment in terms of Section 14(1) of the Customs Act read with Rule 2(2) of the Customs Valuation Rules. Since neither the transaction value of similar goods nor contemporary prices etc. were available, resort to Rules 5, 6 and 7 for determining the assessable value of the goods was not possible. Therefore, Rule 8 of the Customs Valuation Rules was correctly applied. 6.5. Holding that the export declarations reflected the true transaction value which was misdeclared by the importer to evade customs duty, the adjudicating authority vide the order-in-original dated 17.06.2002 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 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information, the benefit of doubt has to be given to the importer. On the basis of the aforesaid decision, CESTAT recorded that there was not only no contrary evidence of contemporaneous import but even the foreign supplier had satisfactorily explained that the price initially shown in the export declarations was incorrect which was subsequently amended and accepted by the Hong Kong customs authority. 7.4. As regards the statements of Mr. Yashpal Sharma and Mr. Suresh Chandra Sharma, the Tribunal observed that these statements were retracted at the earliest available opportunity. Decisions relied upon by the appellant, viz., Surjit Singh Chhabra Vs. Union of India, 1997 (89) ELT-646 and in K.I. Pavunny Vs. Assistant Collector, (1997) 3 SCC 721 did not advance the case of the department. Tribunal 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the invoice was much lower than the value declared in the export declarations filed in Hong Kong. Since it did not reflect the correct transaction value, the value appearing in the import invoices did not fulfil the criteria of Section 14(1) of the Customs Act and Rule 4 of the Customs Valuation Rules as per which the transaction value of the imported goods is the price actually paid or payable when sold for export to India. 11.2. He submits that the export declarations filed by the foreign supplier before the Hong Kong customs authority was not the sole basis for increasing the value of the subject goods. There were sufficient materials on record to prove under valuation. Both Mr. Suresh Chandra Sharma, director of the supplier firm and Mr. Yashpal Sharma, proprietor of the importer, in their statements under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared price matched the price shown by the respondents in the import invoices. The subsequent declarations were accepted by the Hong Kong customs authority following which penalty was levied which was paid by the supplier. 12.2. Mr. Lakshmikumaran, learned counsel submits that the export declarations relied upon by the appellant were only photocopies which were neither signed nor attested. As such, those export declarations did not have any evidentiary value. He has asserted that the price reflected in the import invoices was the sole consideration for sale which satisfied the definition of transaction value as per Rule 4 of the Customs Valuation Rules. 12.3. According to Mr. V. Lakshmikumaran, there were no evidence before the customs authority to prove under valuation. Statements of Mr. Suresh Chandra Sharma and Mr. Yashpal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Ganpati Overseas had imported twenty consignments of tuners and saw filters from M/s Arise Enterprises, Hong Kong during the years 1997-1998 and 1998-1999. Mr. Suresh Chandra Sharma and his wife Mrs. Kusum Sharma were the directors of M/s Arise Enterprises, whereas, Mr. Yashpal Sharma was the proprietor of M/s Ganpati Overseas. Mr. Yashpal Sharma and Mr. Suresh Chandra Sharma were co-brothers. 14.1. Statements of Mr. Suresh Chandra Sharma and Mr. Yashpal Sharma were recorded under Section 108 of the Customs Act. In their respective statements which virtually complimented each other, they admitted that the price of goods as per the export declarations filed by the foreign supplier before the Hong Kong customs authority reflected the actual price. On import, the price was kept intentionally low to avoid paying due customs duty. Actual 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat statements of Mr. Yashpal Sharma and Mr. Suresh Chandra Sharma were not voluntary and therefore could not be relied upon. According to the adjudicating authority, both the two persons had admitted to under invoicing of the price and this was buttressed by the fact that Mr. Yashpal Sharma had voluntarily paid Rs.30 lakhs towards the evaded customs duty during the investigation stage. Such objection was therefore held to be only an afterthought. 14.7. Further contention of the respondents that the declared price is correct when compared with the contemporaneous imports was not accepted by the adjudicating authority on the ground that invoices of contemporaneous imports did not reveal the specification, quality, etc. of the products. 14.8. Adjudicating authority also rejected the contention of the respondents that the supplier had purchased the 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e department and the adjudicating authority had relied upon the initial export declarations filed by the foreign supplier before the Hong Kong customs authority for the purpose of enhancing the value of the goods. CESTAT had interfered with the same. We believe, CESTAT was justified in doing so. 16. Proceeding alleging under-invoicing of price and thereby evading customs duty by the respondents was initiated by the Directorate of Revenue Intelligence and carried forward by the customs department primarily on the basis of the price declared by the foreign supplier in the first set of export declarations filed before the Hong Kong customs authority. It was noticed that there was great discrepancy in the price mentioned in the export declarations and the price of the goods as per the import invoices. To support the above allegations, the department relied upon copies 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of penalty for misdeclaration of price at the initial stage. It has also come on record that the foreign supplier had paid the penalty. If this be the position, there can be no justifiable reason for the appellant to harp upon the price of the goods as per the initial export declarations by placing reliance on the unattested photocopies of the first set of export declarations to prove under-invoicing for the purpose of evading customs duty. 18. This brings us to the statements of Mr. Suresh Chandra Sharma and Mr. Yashpal Sharma recorded under Section 108 of the Customs Act. Statement of Mr. Suresh Chandra Sharma was recorded on 08.03.1999 whereas the statement of Mr. Yashpal Sharma was recorded on 15.03.1999. Reference to the full details of the two statements so made may not be relevant. Suffice it to say, according to Mr. Suresh Chandra Sharma, Mr. Yashpal Sharma, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the truth upon any subject respecting which they are examined or make statements and produce such documents and other things as may be required: Provided that the exemption under section 132 of the Code of Civil Procedure, 1908 (5 of 1908), shall be applicable to any requisition for attendance under this section. (4) Every such inquiry as aforesaid shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code, 1860 (45 of 1860). 20. From a reading of the provisions of Section 108 of the Customs Act, as it stood at the relevant point of time, we find that any gazetted officer of customs duly empowered by the Central Government had the authority to summon a person whose attendance be considered necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer was making with respect 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that provisions of the Evidence Act and the Code of Criminal Procedure did not govern the onus of proof under Section 167(8) of the Sea Customs Act. In such proceedings, the customs officer was guided by the basic principles of criminal jurisprudence and natural justice. The burden of proving that the goods were smuggled goods was on the department. The cardinal principle having an important bearing on the incidence of burden of proof was that sufficiency and weight of the evidence was to be considered according to the proof which it was in the power of one side to prove and in the power of the other side to have contradicted. 24. In Ramesh Chandra Mehta (supra), the objections as to admissibility of a confessional statement under Section 25 of the Evidence Act were rejected, holding that such a statement was admissible in evidence in customs proceedings since customs officers are not police officers. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, the person summoned and who makes a statement under Section 108 is not an accused. However, a statement made by a person under Section 108 of the Customs Act before the concerned customs officer is admissible in evidence and can be used against such a person. Object underlying Section 108 is to elicit the truth from the person who is being examined regarding the incident of customs infringement. Since the objective is to ascertain the truth, the customs officer must ensure the truthfulness of the statement so recorded. If the statement recorded is not correct, then, the very utility of recording such a statement would get lost. It is in this context that the customs officer who is empowered under Section 108 to record statement etc. has the onerous responsibility to see to it that the statement is recorded in a fair and judicious manner providing for procedural safeguards to the concerned person to ensure 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. Certainl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf. (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A) if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. (3) For the purposes of this section- (a) rate of exchange means the rate of exchange- (i) determined by the Board, or (ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency; (b) foreign currency and Indian currency have the meanings respectively 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 consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Rule 4 of the Customs Valuation Rules. 33.4. Rule 2(2) mentions the instances where persons shall be deemed to be related . In the context of the facts of the present case, what may be of relevance is Rule 2(2)(viii) which says that persons shall be deemed to be related only if they are members of the same family. Therefore, the question is whether co-brothers can be construed to be members of the same family? However, this aspect may not require much deliberation in view of our discussions in respect of the other issues. 34. Rule 3 of the Customs Valuation Rules reads as under: 3. Determination of the method of valuation For the purpose of these rules, - (i) the value of imported goods shall be the transaction value; (ii) if the value cannot be determined under the provisions of clause (i) above, the value shall be determined by proceeding sequentially through Rules 5 to 8 of these rules. 34.1. Thus, as per Rule 3, the valuation of imported goods shall be the transaction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch he and the buyer are not related; (c) substitute values shall not be established under the provisions of clause (b) of this sub-rule. 36. To complete the narrative, we may mention that while Rule 5 deals with transaction value of identical goods, Rule 6 deals with transaction value of similar goods. On the other hand, Rule 6A provides for determination of value when transaction value is not available. Rule 7 which comes after Rule 6A provides for determination of deductive value and Rule 7A provides for computed value. 37. Where the value of imported goods cannot be determined under the provisions of any of the aforesaid rules, the value shall be determined using reasonable means as provided in Rule 8 i.e. the residual method. 38. In Rabindra Chandra Paul (supra), this court referred to its earlier decision in Eicher Tractors Limited Vs. Commissioner of Customs, (2001) 1 SCC 315, and held as follows- 6. In Eicher Tractors Ltd. Vs. Commr. Of Customs, this Court held that the principle for valuation of imported goods is found in Section 14(1) of the Customs Act, 1962 which provides for the determination of the assessable value on the basis of the international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the basis of identical goods imported into India about the same time; Rule 6 allows fixation of transaction value on the basis of the value of similar goods imported into India about the same time. Where there are no contemporaneous imports into India, the value is to be decided under Rule 7 by a process of deduction in the manner provided therein. If this is not possible, then the value shall be computed under Rule 7- A. It was further held that it is only when the transaction value under Rule 4 is rejected, only then under Rule 3(ii) the value shall be determined by proceeding sequentially through Rules 5 to 8. Conversely, if the transaction value can be decided under Rule 4(1) and does not fall under any of the circumstances given in Rule 4(2), there is no question of determining the value under the subsequent rules. It was further held that discount is a recognised feature of international trade and as long as those discounts are uniformly available and as long as they are based on commercial considerations, they cannot be denied under Section 14. 7. The primary base for customs valuation is the transaction value i.e. the price actually paid or payable for the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egation is of under invoicing. The charge of under invoicing has to be supported by evidence of prices of contemporaneous imports of like goods. It is for the Department to prove that the apparent is not the real. Under Section 2(41) of the Customs Act, the word value is defined in relation to any goods to mean the value determined in accordance with the provisions of Section 14(1). The value to be declared in the bill of entry is the value referred to above and not merely the invoice price. 11. On a plain reading of Section 14(1) and Section 14(1- A), it envisages that the value of any goods chargeable to ad valorem duty has to be the deemed price as referred to in Section 14(1). Therefore, determination of such price has to be in accordance with the relevant rules and subject to the provisions of Section 14(1). It is made clear that Section 14(1) and Section 14(1-A) are not mutually exclusive. Therefore, the transaction value under Rule 4 must be the price paid or payable on such goods at the time and place of importation in the course of international trade. Section 14 is the deeming provision. It talks of deemed value. The value is deemed to be the price at which such g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut comparable imports. For proving undervaluation, if the Department relies on declaration made in the exporting country, it has to show how such declaration was procured. We may clarify that strict rules of evidence do not apply to adjudication proceedings. They apply strictly to the courts' proceedings. However, even in adjudication proceedings, the AO has to examine the probative value of the documents on which reliance is placed by the Department in support of its allegation of undervaluation. Once the Department discharges the burden of proof to the above extent by producing evidence of contemporaneous imports at higher price, the onus shifts to the importer to establish that the invoice relied on by him is valid. Therefore, the charge of under invoicing has to be supported by evidence of prices of contemporaneous imports of like goods. 39.2. Reverting to Section 14(1) of the Customs Act, this court held that 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. This is what this court has said: 13. Section 14(1) speaks of deemed va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, when the transaction value under Rule 4 is rejected, the value shall be determined by proceeding sequentially through Rules 5 to 8 of the Customs Valuation Rules. This court held as follows: 23. In Eicher Tractors this Court held that the value, according to Section 14, 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 of importation in the course of international trade. It was further held that by Rule 4(1) mandate has been cast on the authorities to accept the price actually paid or payable for the goods in respect of the goods under assessment as the transaction value but this mandate is subject to certain exceptions specified in Rule 4(2). It was also held by this Court in Eicher Tractors [(2001) 1 SCC 315] that both Section 14(1) of the Act and Rule 4 provide that the price paid by the importer to the vendor in the ordinary course of commerce shall be deemed to be the value in the absence of any of the special circumstances indicated in Section 14(1) and particularised in Rule 4(2). However, when the transaction value under Rule 4 is rejected, the value shall be determined by pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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