Rejection of transaction value without providing details of contemporaneous import unsustainable

Commissioner of Customs Vs Rajendra Textiles (CESTAT Chennai)

CESTAT Chennai held that rejection of transaction/ declared value of impugned goods on the basis of contemporaneous imports without providing details relating to contemporaneous imports of goods is unsustainable in law.

Facts- Vide the present appeal, the Revenue challenging the Order-in-Appeal which involved the issue of valuation of imported silk by M/s. Sree Rajendra Textiles.

M/s. Sree Rajendra Textiles have filed various Bills of Entry for clearance of Thrown Silk Yarn/ Raw Silk classifying under CTH 50040090 and 50020010.

As the Revenue noticed the contemporaneous import of the same goods of the same description were assessed at higher values and on the presumption that the importer had undervalued the goods to evade payment of appropriate duty the importer was requested to justify the values declared. Aggrieved by the same, the importer filed a writ petition before the High Court of Madras for acceptance of the contract value/ declared value. The Hon’ble High Court has ordered release of the goods subject to some conditions.

Based on the contemporaneous prices, the assessments were finalized by issuance of Orders- in-Original. Being aggrieved, the importer has filed appeals before the Commissioner of Customs (Appeals), who held that the under valuation was not proved with clinching evidence.

Conclusion- Held that we agree with the decision of the lower appellate authority that there was no clinching evidence for rejecting the transaction values declared. In these appeals the assessing authority has enhanced the declared values of the impugned goods on the basis of contemporaneous imports pertaining to some other importers of identical / similar goods during the relevant period. At the same time, the importer also has given the details of various Bills of Entry evidencing imports by other importers like Mahalakshmi Silk Trading, Kaveri Silk & Jute P. Ltd., at around the similar prices which were accepted and cleared by the Department. In the absence of giving all the details relating to contemporaneous imports of goods in respect of quantity, quality, type, country of origin whether of contract or not etc., which are having a bearing on the price placing reliance on only certain imports is not in accordance with the scheme of valuation envisaged under the provisions of Section 14 of the Customs Act, 1962 read with Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

FULL TEXT OF THE CESTAT CHENNAI ORDER

All these five appeals have been filed by the Revenue challenging the Order-in-Appeal C. Cus. No. 715 to 719 dated 16.05.2013 of Commissioner of Customs (Appeals), Custom House, Chennai. As all these appeals involve the same issue of valuation of imported silk by M/s. Sree Rajendra Textiles, Bangalore / Varanasi, all these are taken up together for disposal by this common order.

2. Brief facts of these appeals are that M/s. Sree Rajendra Textiles, Varanasi & Bangalore have filed various Bills of Entry for clearance of Thrown Silk Yarn/ Raw Silk classifying under CTH 50040090 and 50020010. Covering these imports, invoices were raised by M/s. Oingdao Yijia E.T.I.I./E Co., Ltd., Qingdao, China, K-Sun International Trade Co, Limited, Hongkong, M/s. Guangdong Silique International Group Gold Silk Co. Ltd., Guangzhou, China and M/s. Avanti Trading Co. Ltd., Jordan, Kowloon, Hong Kong with recorded unit price and declared country of origin as shown in the table below:

3. As the Revenue noticed the contemporaneous import of same goods of same description were assessed at higher values and on the presumption that the importer had undervalued the goods to evade payment of appropriate duty the importer was requested to justify the values declared. Aggrieved by the above, the importer filed W.P No. 1879 of 2011, 3325 of 2011, 3326 of 2011, 11726 of 2011, 6682 of 2011, 604 of 2011, 29713 of 2011 and 29712 of 2011 before the Hon’ble High Court of Madras for acceptance of the contract value / declared values for afore said Bills of Entry.

4. Disposing these writ petitions, the Hon’ble High Court of Madras has ordered to release the goods subject to the following conditions:

(i) The petitioner shall pay the entire amount of duty as per the declared value, which may be based on the contract price as per the provisions of the Customs Act, forthwith to the Department.

(ii) In addition to that, the petitioner shall provide sufficient Bank Guarantee by any Nationalized Bank in respect of 50% of the difference in duty in favour of the department, to be kept alive till the adjudication process is completed.

(iii) In respect of the remaining 50% of the difference in duty, the petitioner shall furnish a personal bond to the satisfaction of the Department who shall release the goods.

(iv) On release of the said good after completion of the said conditions, the Department shall complete the adjudication process within a period of four weeks.

5. Based on the above directions, the importer has furnished bank guarantees for 50% of the differential duty and furnished personal bond for remaining 50% of the differential duty and bills of entry were assessed provisionally and the goods were cleared.

6. Contemporaneous imports of Chinese origin silk indicated that same item was imported from Vietnam and cleared for USD 29.5 (CIF) per kg through Chennai port vide Bills of Entry Nos. 655445 dated 12.10.2010 and 654995 dated 11.10.2010. Similarly same item was imported from china and cleared for USD 40(CIF) per kg vide Bill of Entry No. 666755 dated 22.10.2010. Similarly contemporaneous import data was taken for Uzbekistan origin Raw Silk Yarn. As per the data, it was noticed that same item was imported from Uzbekistan and cleared for USD 28.50 (CIF) per kg vide Bill of Entry No. 699388 dated 25.11.2010. Hence the declared value appeared to be liable for rejection under rule 12 of CVR, 2007 and the same had to be re-determined by sequentially going through from rule 4 to 9 of CVR, 2007.

7. Since identical goods were imported for USD 29.5(CIF) per kg from Vietnam, value of USD 29.5(CIF) per kg was to be adopted under Rule 4 of CVR, 2007 for the subject goods for the purpose of assessment of duty. Similarly identical goods were imported for USD 40(CIF) per kg from China, the value of USD 40(CIF) per kg was to be adopted under Rule 4 of CVR, 2007 for the subject goods for the purpose of assessment of duty and similarly identical goods were imported for USD 28.50(CIF) per kg from Uzbekistan, the value of USD 28.5(CIF) per kg was to be adopted under Rule 4 of CVR, 2007 for the subject goods for the purpose of assessment of duty.

8. Based on the contemporaneous prices, the assessments were finalized by issuance of Orders- in-Original where in the values were arrived at as detailed in table below:

9. Being aggrieved, the importer has filed appeals before the Commissioner of Customs (Appeals), Custom House, Chennai who vide Order-in-Appeal C3/302 to 306/O/2012-Sea has held that the under valuation was not proved with clinching evidence. As, no mis-declaration of quantity or description was alleged and further relying on the decision of the Hon’ble Supreme Court in the case of Eicher Tractors v CC, Mumbai [2000(122) ELT 321(S.C.)], lower adjudicating authority had set aside the orders passed by the lower authority and allowed the appeals with consequential relief.

10. Now, the Revenue has come in appeal challenging the above Order-in-Appeal C. Cus. No. 715 to 719 dated 16.05.2013 of Commissioner of Customs (Appeals) on the following grounds:-

(a) The Customs Valuation Rules (Determination of Imported Goods) Rules, 2007 and specifically Rule 12 provide grounds for rejection of transaction value. The valuation Rules and also provisions of Section 14 of Customs Act 1962 do not envisage the value entered into a long term contract as a transaction value. The contract period in this case appears to be more than one year. Silk being price sensitive goods, the prices vary from week to week if not on day to day basis. Therefore the acceptance of contract itself raises the legal question, whether or not such contracts can be accepted under the Customs Valuation Rules read with the provisions of the Section 14 of the Customs Act, 1962 as a transaction value.

(b) The sales contract said to be entered into between the seller and the buyer M/s. Sree Rajendra Textiles, for import of Thrown Silk Yarn/Raw Silks, cannot be regarded as a contract legally. Further, the total quantity as per the said contact was not imported. The details are as shown in table below:-

Therefore it appears that the contracted price / value cannot be accepted since the importer has not fulfilled the conditions of the contract. As the condition of contract is found not complied with which makes the contract ultra virus to the transaction. Therefore the values of the goods have to be arrived as per the contemporaneous values and not as per the contract price. Thus the observation of Appellate authority stating that “the under valuation was not proved with clinching evidence” is not acceptable.

(c) When the identical goods were imported significantly at a higher prices the instant importer cannot claim that the good were supplied as per the contracted price which was not prevalent at any material point of time either at the time of entering the contract or at the time of importing the goods. Therefore it is submitted that the declared value was mis-declared grossly by under invoicing which do not reflect the true commercial value.

(d) It is submitted that the contract cannot be regarded as a valid contract legally. Therefore there appears to be no valid contract and the declared value is liable to be rejected as not representing the actual transaction value contemplated in Rule 3 of CVR, 2007 and Rule 12 of CVR, 2007 read with Section 14 of the Customs Act, 1962. Thus the Order-in-Appeal which upholds the declared values as transaction value cannot be accepted.

11.1 The Ld. Advocate Shri M.A. Mudimannan representing the respondent importer viz., M/s. Sree Rajendra Textiles has submitted his contentions which are summarized as below.

11.2 M/s. Sree Rajendra Textiles is a major and bulk importer of various varieties of silk at Chennai port from various countries and the price of silk varies due to market fluctuation being a sensitive commodity. The two consignments of raw silk of Uzbekistan origin was imported from their supplier viz. Silver Zone Trading during March and April 2010 vide Bills of Entry No. 448437 dated 04.03.2010 and 480830 dated 12.04.2010 which were cleared accepting the declared value at US$ 15.5/kg.

11.3 They have conducted negotiations with M/s. Avanti Trading Co., who agreed for supply of silk at US$ 15.5/kg and consequently the sales contract was entered for bulk supply of 1,00,000 kg and the value of the contracted goods being US$ 15.3/kg. The following table will make it amply clear about the contemporaneous import prices for import of silk from Uzbekistan origin through Chennai port at the relevant time.

11.4 The importer have contracted for import of huge quantity of silk and so the department’s reliance on the Bill of Entry No. 699388 dated 25.11.2010 as mentioned in the Show Cause Notice for a value at $ 28.50 cannot be considered relevant as the quantity and quality of the imports are different.

11.5 There is no allegation in the Show Cause Notice that there was any flow of money in the transaction through authorised or unauthorized channels and there is no suspicion into the contract entered with the supplier. The transaction value declared by the respondent / noticee has to be accepted in the absence of any special consideration or any mis-declaration of the imported goods either relating to description or price.

11.6 The proposal to confiscate the impugned goods and to impose penalty is not legally sustainable as there is no mis-description of the goods, as to quantity of the goods or change of country of origin or manipulation of invoices in the Bill of Entry.

11.7 The importer has relied upon the following decisions in support of his contentions.

(i) Ispat Industries Vs. Commissioner of Customs [2006 (202) ELT 561 (S.C)]:

Valuation rules are sub-servient to Section 14. The rule should be interpreted in such a way as to make it in accordance with the main object contained in Section 14.

Section 14 is primary and Valuation Rules is secondary.

(ii) Agarwal Industries Vs. Commissioner of Customs [2006 (193) ELT 421 (Tri.)]:

The transaction value can discarded only for reasons given in Rule 4 (2) (now Rule 3(2)) and not for any other reason.

(iii) West Coast Paper Mills Vs. Commissioner of Customs, Chennai [2001 (130) ELT 259 (Tri.)]:

Confiscation under Section 111(m) and consequently penalty under Section 112(a) are not sustainable especially when bonafides of the importer are not in doubt, there being no intent to mis-declare the goods.

(iv) Commissioner of Customs, Madras Vs. Aradhi Associates [2001 (129) ELT 120 (Tri.)]:

In the absence of mens rea and evidence of extra remittance, there cannot be confiscation and penalty.

12. The Ld. Authorized Representative Smt. Anandalakshmi Ganeshram have reiterated the grounds of appeal. It is also submitted by her that identical/similar goods are imported at higher values and enhancement of value by the original authority is in accordance with the Valuation Rules. The sale contracts said to be entered into between the sellers and importer for import of thrown silk/raw silk cannot be treated as a valid contract in the eyes of the law as total quantity as per the said contract was not imported. She has placed reliance on the following judicial decisions:-

(i) In the case of M/s. Gira Enterprises & Jai Industries Ltd. [2008-TIOL-1580-CESTAT-MUM] wherein the Hon’ble Tribunal Mumbai held that:-

“5. After hearing both sides and perusal of case records and the cited case laws, we find that the appellant have imported goods of Chinese origin from traders in U.A.E. Ordinarily the price of Chinese goods brought from U.A.E. should be more than goods imported directly on account of the traders margin and higher freight compared to similar goods imported from Chine directly. On the contrary, the price declared is equivalent to US $ 500 only as against contemporaneous imports of comparable goods imported from China in the price range of US $1860 to US $ 1950. It is not the case of the appellants that the impugned goods are akin to the kind of goods dealt in the case of Eicher Tractors (supra) where 77% discount was allowed by the manufacturer on one time sale of five years old sock. As such, the present appeals are clearly distinguishable from the case dealt in Eicher Tractors (supra). Moreover, the decision of the three Member Bench of the Hon’ble Supreme Court in the case of Rajkumar Knitting Mills (supra) interpreting Section 14(1) of the Customs Act, 1962 is binding on us in view of the fact that the relevant words of Section 14(1) have not under gone any change and there is no contrary decision of any Larger Bench of the Hon’ble Supreme Court. Section 14(1) of the Customs Act, 1962 (which is incidentally in line with Article VII of GATT and Ad Article VII in Annex I to GATT, to which India is a signatory) requires customs valuation to correspond to ordinary competitive price in international trade. Transaction value method is one of the methods of valuation under the Customs Valuation Rules, 1988 (which follows the Agreement to implement the said Article VII of GATT). The transaction value has been defined to be the actual price paid or payable. The declared value may not represent the transaction value in every case. When the declared value is ridiculously low compared to the ordinary competitive price of comparable goods contemporaneously imported, such declared values cannot be adopted as customs value. In such cases, the transaction value method is clearly inapplicable as the declared value does not conform to the requirement of the said Section 14(1). Valuation by adopting value of comparable goods contemporaneously imported is an equally efficacious method of valuation. Such valuation is also perfectly legal as has been held by the Hon’ble Supreme court and various Tribunal Benches vide various decisions cited by the learned S.D.R. and listed in paragraph 4 above.

6. The argument that in the absence of any evidence of the appellants remitting any amount over and above the invoiced price, other methods of valuation cannot be adopted is not acceptable. In fact, where evidence of extra payment is available, then the transaction value method itself would be adequate to deal with such a case. Since transaction value is defined as the actual price paid or payable, the customs value would in such cases be the invoice price plus the extra payments made and the transaction value method would still be applicable. On the other hand, where the declared value is ridiculously low and does not correspond to the ordinary competitive price in international trade, then the other methods of valuation under the Rules are to be used to arrive at the customs value as has been done in this case adopting the lowest of the values of comparable contemporaneous imports.

7. The law provides for six different methods of valuation for the simple reason that the transaction value method may not be proper in all cases and the customs authorities cannot be forced to accept the declared value in every case notwithstanding how ridiculously low these are. It may also not be possible in every doubtful case for the customs officers to establish payments made over and above the invoice price without information from the originating and intermediate countries which may not always be forthcoming. When the extra payments can be established, the transaction value method itself can be used, otherwise one of the other methods can be used. Therefore, the precedent decisions of the Tribunal cited by the learned SDR approving valuation on the basis of comparable value of contemporaneous imports are sound and the same fully support the basis of valuation adopted in this case. Moreover, the different methods of valuation, whether based on transaction value, or comparable value (of identical/similar goods), or deducting value based on resale price, or computed value based on cost and profit etc, are designed to arrive at an equitable customs value for the purpose of charging customs duty. The importers can not have a grievance so long as one of these methods is fairly used, unless he is trying to secure a grossly undue duty advantage as in this case by declaring a value which is 25-30% of the value declared by competing importers importing similar goods. Equity considerations justify levy of duty to the same extent on similar goods.”

(ii) In the case of M/s. Y2K International [2010-TIOL-588-CESTAT-Mad] wherein the Hon’ble Tribunal Chennai held that:-

“2. We have heard both sides. The importers submission that transaction value could not be rejected except in certain circumstances set out in Rule 4 of the Customs Valuation Rules, 1988 which have not been shown to exist, is not tenable as we find that the price declared does not reflect the price at which such or like goods are ordinarily sold – the price of Mother Boards has literally been dictated by the importer to the foreign supplier and, therefore, does not represent the commercial price of the supplier: Shri Kamal Kumar Jain has also accepted that the prices of Mother Board vary; contemporaneous imports made within an approximate period; comparable quantities have been cited in respect of certain models of Motherboards and Daughter Boards which would show that similar models were imported at much higher prices during the contemporaneous period; the prices of such items were fluctuating and were not constant during the period of import. The deemed value under Section 14 (1) of the Customs Act, 1962 providing for value to be deemed to be the price at which such or like gods are ordinarily sold would therefore prevail, in the light of the apex court decision in Radhey Shyam Ratanlal Vs. Commissioner of Customs (Adjudication), Mumbai [2009 (238) ELT (S.C.)] = (2009-TIOL-66-SC-CUS),]”

(iii) In the case of M/s. Rajkumar Knitting Mills (P) Ltd. Vs. Collector Of Customs, Bombay [1998 (98) ELT 292 (SC)] wherein the Hon’ble Supreme Court held that:-

“7. This means that the value of the goods is to be ascertained on the basis of the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation and exportation in the course of international trade. The relevant date would, therefore, be the date of importation or exportation. Shri Mehta has laid stress on the words “ordinarily sold or offered for sale” and has submitted that in view of these words the date of contract is the relevant date. We are unable to agree. The words “ordinarily sold or offered for sale” have to be read along with the words which precede and the words that follow these words. If thus read these words mean that for the purpose of assessing the value it is necessary to ascertain the price at which the said or like goods are sold or offered for sale for delivery at the time and place is importation and exportation in the cases of international trade. The words “ordinarily sold or offered for sale” do not refer to the contract between the supplier and the importer, but to the prevailing price in the market on the date of importation or exportation. We are, therefore, unable to accept the contention urged by Shri Mehta that the Tribunal has committed any error in proceeding on the basis that value has to be assessed according to the price as on the date of importation and not on the basis of the date of contract.

8. Shri Mehta has placed reliance on the decision of the Calcutta High Court in Sneha Traders (Pvt.) Ltd. v. Collector of Customs, 1992 (60) E.L.T. 43 (Cal.), wherein the learned judges have expressed the view that assessable value has to be determined on the basis of the prevailing international market price at the time of entering into the contract and the delay in shipment on the part of the supplier cannot have any effect on determination of the assessing value. We find it difficult to agree with the said view of the Calcutta High Court. We are of the view that the contract between the supplier and the importer may have a bearing in governing the inter se relationship between the supplier and the importer but insofar as assessment of the value for the purpose of levy of customs duty under Section 14 of the Act is concerned, what is necessary is to determine the value of the goods as on the date of importation or exportation.”

13. We have heard both sides and carefully considered the submissions made by both the Ld. Advocate and the Ld. Authorized Representative and also we have gone through the documents and records available in these appeals.

14.1 The main issue that is for determination in these appeals is whether enhancement of value of the impugned goods is in accordance with the provisions of Section 14 of the Customs Act, 1962 read with Customs (Determination of Value of Imported Goods) Rules, 2007 or not.

14.2 The other issues that arise for determination are;

(i) Whether the allegation of mis-declaration against the importer is justified or not and whether the orders for confiscation of the imported Thrown Silk Yarn/Raw Silk under Section 111(m) of the Customs Act, 1962 is legally maintainable.

(ii) Whether the importer is liable for penal action under Section 112 A of the Customs Act, 1962.

15.1 In order to examine the issue of under-valuation of the imported goods, we find it appropriate to refer to the Hon’ble Supreme Court’s analysis of the statutory provisions relating to valuation under the Customs Act, 1962 in the case of M/s. Century Metal Recycling Pvt. Ltd. Vs.. Union of India [2019 (367) E.L.T. 3 (S.C.)]:-

““9. As per Section 14(1) of the Act, value of the imported goods shall be the transactional value of such goods, which means the price actually paid or payable for the goods when sold for export to India where the buyers and sellers are not related and the price fixed is the sole consideration for sale. As per the first proviso to Section 14(1) of the Act, the transactional value for the purpose of Customs duty would include amounts paid or payable as costs and services like commission, brokerage, engineering, design work, cost of transportation, etc., as may be specified in the rules made in this behalf. These amounts are to be added to the declared transactional value. Accordingly, in terms of Rule 10 of the 2007 Rules, the value and price of costs and services are added to the price actually paid or payable for the imported goods for determining the transaction value.

10. Sub-section (2) of Section 14 is a non obstante provision, which applies notwithstanding sub-section (1), i.e. when the Board has issued a notification in the Official Gazette fixing tariff values for any class of imported or exported goods. The Board has been authorised to issue notifications under Section 14(2) of the Act when it is satisfied that it is necessary or expedient. Thus, whenever tariff has been fixed vide notification issued by the Board under Section 14(2) of the Act, then notwithstanding the transactional value of the imported goods under subsection (1) to Section 14 of the Act, as per sub-section (2) to Section 14 of the Act the customs duty is payable as per the tariff value so fixed. In the present case, the Board has not considered it necessary and expedient to issue a notification under Section 14(2) of the Act to fix a tariff for the imported aluminium waste.

11. The second proviso to Section 14(1) deals with different situations, enumerated under the three clauses; (i) when buyers and sellers are deemed to be related; (ii) when there is no sale, or buyers and sellers are related or the price is not the sole consideration for sale, etc. and (iii) where the proper officer has reason to doubt the truth or accuracy of such value. When the conditions specified in the second proviso are satisfied, the transactional value for the purpose of charging of Customs duty is to be made as per rules framed in this behalf.

12. Rules 3 and 12 of the 2007 Rules i.e. Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 were enacted and enforced with effect from 10th October, 2007 replacing and superseding the 1988 Rules. Rule 3(1) of the 2007 Rules states that value of the imported goods shall be the transaction value adjusted in accordance with the provisions of Rule 10 of the 2007 Rules which Rule, as observed above, deals with the costs and services which are to be added to the price actually paid or payable for the imported goods for determining the transaction value. Sub-rule (1) to Rule 3 is however subject to Rule 12 and therefore give primacy to Rule 12 which we shall subsequently elaborate and explain. Subrule (2) to Rule 3 states that value of the imported goods under sub-rule (1) shall be accepted i.e. accepted by the Customs authorities. The proviso then vide different clauses sets out the pre-conditions for accepting value of the imported goods. Rule 11 provides for declaration to be given by the importer or his agent certifying that they had disclosed full and accurate details of the value of the imported goods and any other statement, information and document including invoice of the manufacturer or producer of the goods where the goods are imported from or through a person other than the manufacturer of goods, as considered necessary by the proper officer for valuation of the imported goods. Sub-rule (2) states that the declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value after an enquiry in consultation with the importers.

13. Sub-rule (3) to Rule 3 deals with cases when the buyer and seller are related. We would not dilate on the said sub-rule for this is not required for the purpose of the present decision. As per sub-rule (4), where the value cannot be determined under sub-rule (1) to Rule 3, the transaction is to be valued by step wise applying Rules 4 to 9. Rule 4 deals with transaction value based on identical goods. Rule 5 deals with transaction value based on similar goods. Rule 6 deals with the determination of value where the transactional value cannot be determined under Rules 3, 4 and 5. Rules 7 and 8 deal with deductive value and computed value respectively. Rule 9 prescribes the residual method for computing the transaction value. What is important to note is that Rules 4 to 9 are subject to the provisions of Rule 3 thereby giving primacy to Rule 3 which in turn gives primacy to Rule 12 of the 2007 Rules.

14. Rule 12, which as noticed above enjoys primacy and pivotal position, applies where the proper officer has reason to doubt the truth or accuracy of the value declared for the imported goods. It envisages a two-step verification and examination exercise. At the first instance, the proper officer must ask and call upon the importer to furnish further information including documents to justify the declared transactional value. The proper officer may thereafter accept the transactional value as declared. However, where the proper officer is not satisfied and has reasonable doubt about the truth or accuracy of the value so declared, it is deemed that the transactional value of such imported goods cannot be determined under the provision of sub-rule (1) of Rule 3 of the 2007 Rules. Clause (iii) of Explanation to Rule 12 states that the proper officer can on ‘certain reasons’ raise doubts about the truth or accuracy of declared value. ‘Certain reasons’ would include conditions specified in clauses (a) to (f) i.e. higher value of identical similar goods of comparable quantities in a comparable transaction, abnormal discount or abnormal deduction from ordinary competitive prices, sales involving the special prices, misdeclaration on parameters such as description, quality, quantity, country of origin, year of manufacture or production, non-declaration of parameters such as brand and grade etc. and fraudulent or manipulated documents. Grounds mentioned in (a) to (f) however are not exhaustive of ‘certain reasons’ to raise doubt about the truth or accuracy of the declared value. Clause (ii) to Explanation states that the declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value after enquiry in consultation with the importers. Clause (i) to the Explanation states that Rule 12 does not provide a method of determination of value but provides the procedure or mechanism in cases where declared value can be rejected when there is a reasonable doubt that the declared transaction value does not represent the actual transaction value. In such cases the transaction value is to be sequentially determined in accordance with Rules 4 to 9 of the 2007 Rules.

Sub-rule (2) of Rule 12 stipulates that on request of an importer, the proper officer shall intimate to the importer in writing the grounds, i.e. the reason for doubting the truth or accuracy of the value declared in relation to the imported goods. Further, the proper officer shall provide a reasonable opportunity of being heard to the importer before he makes the valuation in the form of final decision under sub-rule (1).

15. The requirements of Rule 12, therefore, can be summarised as under :

(a) The proper officer should have reasonable doubt as to the transactional value on account of truth or accuracy of the value declared in relation to the imported goods.

(b) Proper officer must ask the importer of such goods further information which may include documents or evidence;

(c) On receiving such information or in the absence of response from the importer, the proper officer has to apply his mind and decide whether or not reasonable doubt as to the truth or accuracy of the value so declared persists.

(d) When the proper officer does not have reasonable doubt, the goods are cleared on the declared value.

(e) When the doubt persists, sub-rule (1) to Rule 3 is not applicable and transaction value is determined in terms of Rules 4 to 9 of the 2007 Rules.

(f) The proper officer can raise doubts as to the truth or accuracy of the declared value on ‘certain reasons’ which could include the grounds specified in clauses (a) to (f) in clause (iii) of the Explanation.

(g) The proper officer, on a request made by the importer, has to furnish and intimate to the importer in writing the grounds for doubting the truth or accuracy of the value declared in relation to the imported goods. Thus, the proper officer has to record reasons in writing which have to be communicated when requested.

(h) The importer has to be given opportunity of hearing before the proper officer finally decides the transactional value in terms of Rules 4 to 9 of the 2007 Rules.

16. Proper officer can therefore 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. What is meant by the expression “grounds for doubting the truth or accuracy of the value declared” has been explained and elucidated in clause (iii) of Explanation appended to Rule 12 which sets out some of the conditions when the ‘reason to doubt’ exists. The instances mentioned in clauses (a) to (f) are not exhaustive but are inclusive for there could be other instances when the proper officer could reasonably doubt the accuracy or truth of the value declared.

17. The choice of words deployed in Rule 12 of the 2007 Rules are significant and of much consequence. The Legislature, we must agree, has not used the expression “reason to believe” or “satisfaction” or such other positive terms as a pre-condition on the part of the proper officer. The expression “reason to believe” which would have required the proper officer to refer to facts and figures to show existence of positive belief on the undervaluation or lower declaration of the transaction value. The expression “reason to doubt” as a sequitur would require a different threshold and examination. It cannot be equated with the requirements of positive reasons to believe, for the word ‘doubt’ refers to un­certainty and irresolution reflecting suspicion and apprehension. However, this doubt must be reasonable i.e. have a degree of objectivity and basis/foundation for the suspicion must be based on ‘certain reasons’.

18. The expression ‘proof beyond reasonable doubt’ in criminal law requires the prosecution to establish guilt and secure conviction of the accused by proving the charge ‘beyond reasonable doubt’. In Ramakant Rai v. Mad an Rai & Ors. – (2003) 12 SCC 395 referring to the expression ‘reasonable doubt’ in criminal law it was held as under:

“24. Doubts would be called reasonable if they are free from a zest for abstract speculation. Law cannot afford any favourite other than the truth. To constitute reasonable doubt, it must be free from an overemotional response. Doubts must be actual and substantial doubts as to the guilt of the accused persons arising from the evidence, or from the lack of it, as opposed to mere vague apprehensions. A reasonable doubt is not an imaginary, trivial or a merely possible doubt; but a fair doubt based upon reason and common sense. It must grow out of the evidence in the case.”

Proof beyond ‘reasonable doubt’ is certainly not the requirement under proviso to Section 14 of the Act and Rule 12 of the 2007 Rules, albeit the above quote draws a distinction between a simple doubt and a doubt which is reasonable. In the context of the proviso to Section 14 read with Rule 12 and clause (iii) of Explanation to the 2007 Rules, the doubt must be reasonable and based on ‘certain reasons’. The proper officer must record ‘certain reasons’ specified in (a) to (f) or similar grounds in writing at the second stage before he proceeds to discard the declared value and decides to determine the same by proceeding sequentially in accordance with Rules 4 to 9 of the 2007 Rules. It refers to a doubt which the proper officer possesses even after the importer has been asked to furnish further information including documents and evidence during the preliminary enquiry to clear his doubt about the truth and accuracy of the value declared. Therefore, there has to be a preliminary enquiry by the proper officer in which the importer must be given an opportunity for clarification of the doubts of the officer by furnishing of documents and evidence as to the accuracy or truth of the value declared. It is only in case where the doubt of the proper officer persists after conducting examination of information including documents or on 15 Appeal No(s).: C/41617 & 41619/2013-DB account of non-furnishing of information that the procedure for further investigation and determination of value in terms of Rules 4 to 9 would come into operation and would be applicable. Reasonable doubt will exist if the doubt is reasonable and for ‘certain reasons’ and not fanciful and absurd. A doubt to justify detailed enquiry under the proviso to Section 14 read with Rule 12 should not be based on initial apprehension, be imaginary or a mere perception not founded on reasonable and ‘certain’ material. It should be based and predicated on grounds and material in the form of ‘certain reasons’ and not mere ipse dixit. Subjecting imports to detailed enquiry on mere suspicion because one is distrustful and unsure without reasonable and certain reasons would be contrary to the scheme and purpose behind the provisions which ensure quick and expeditious clearance of imported goods.”

15.2 We are of the firm opinion that any valuation dispute in relation to imported / exported goods is feasible to be analysed on the basis of the guidelines incorporated in the above Hon’ble Apex Court’s decision.

16. The respondent M/s. Sree Rajendra Textiles has imported Thrown Silk Yarn/ Raw Silk which are of Chinese, Vietnamese and Uzbekistan origin and the dates of Bills of Entry filed for the impugned goods pertained to the period from December 2010 to April 2011. The imports are under various contracts entered into with the suppliers from abroad. The Department sought to enhance the values of these goods considering the values of identical / similar goods during the relevant period where the assessed prices were noticed to be higher in comparison to the declared prices by the respondent. The main ground of the Revenue is that the price of silk tends to vary being a price sensitive commodity and the declared value of imported goods under a contract may not represent the correct transaction value being spread over a long period. The second contention is that the importer though has contracted for import of huge quantities of raw silk from these suppliers but has failed in importing the contracted quantities thus contravening the conditions of the contract. The contracts are to be treated as invalid and extraneous to the transactions.

17. On perusal of the order of the lower adjudicating authority, it is clear that reliance is placed on the values of imports effected in certain Bills of Entry during the relevant time mainly depending upon general description of the goods and the country of origin. Crucial commercial details of these consignments on which reliance is placed to determine contemporaneous prices as to the type, quality, quantity imported whether under any contract or whether any advance paid or whether the supply from the manufacturer or trader or whether the import is from any stock lot, etc., are not ascertainable. There was no discussion by the original adjudicating authority as to how the values of contemporaneous imports of identical / similar goods have been arrived at. Further, the respondent has intimated the clearances of same commodity by other importers nearly at or around the same price during the relevant period during the adjudication proceedings. (Paragraph 11 supra)

18. We find there was no allegation that the importer has mis-declared the description of goods or whether any excess quantity found or whether there is any other mis-declaration as to any other aspect in relation to imported goods. All the silk was imported in terms of the contracts entered with various suppliers as agreed upon with the contracting parties. There is no allegation that any amount over and above the contracted price was paid by the importer to the supplier. Further, there is no allegation that the importer is related to the suppliers other than being a contracted party or the price paid was influenced by any other consideration.

19. We take note of the importer’s contention that their earlier silk import was cleared at around same prices as in the impugned consignments and they are the bulk importers of silk through Chennai port, the transaction values declared by them to be accepted in the absence of any evidence that they have indulged in mis-declaration of the value.

20. The lower appellate authority has accepted the contentions of the respondent relying on the decision of the Hon’ble Supreme Court in the case of Eicher Tractors v CC, Mumbai [2000(122) ELT 321(S.C.)]. However, this case is not akin to the above where exclusively made five year stock lot of bearings were sold at 77% discount on the list prices.

21. No doubt, the proper officer can on ^„certain reasons‟ raise doubts about the truth or accuracy of declared value and these certain reasons can be higher value of identical / similar goods of comparable quantities in a comparable transaction, abnormal discounts or abnormal deduction from competitive prices, mis-declaration on parameters such as description, quality, quantity, country of origin, year of manufacture or production, non-declaration of parameters such as brand and grade and fraudulent or manipulated documents. In these appeals, the only reason for rejecting the transaction value is on account of noticing higher values of the contemporaneous imports.               However, while determining a particular import to be considered as a contemporaneous import for enhancement, it is necessary to match all commercial level details like quality, quantity, type, whether under a contract, physical characteristics, brand, reputation, country of origin, time of import, stock lot sale, manufacturers sale, etc. This is a necessary requirement. Merely giving the details of the Bills of Entry may be of identical / similar goods or of same country of origin and may be at the same time would not be sufficient because the transaction values are affected by various commercial factors like the quantity imported, the quality differences, reputation and relationship between the supplier and the importer, whether any advance paid or not, etc. In the absence of all the details of the imports whose values have been relied upon as contemporaneous prices by the lower adjudicating authority it is not possible to decide whether the decision of enhancement is reasonable or whether it is in accordance with the valuation provisions or not.

22. The impugned goods in all these appeals are imported in terms of various contracts entered into with the suppliers abroad. If any condition of the contract is contravened, it is for the contracting parties to settle among themselves and raising a doubt about the validity of the contract is not proper in the absence of any evidence that such a contract is entered into with any ulterior motive affecting the price. Further, revenue has discredited the contract prices as the respondent has not reportedly imported the entire contracted quantities. From the Show Cause Notice, the Order-in-Original and records, contract numbers and the quantity contracted for import are only mentioned as detailed in paragraph 10 (b) supra. Actual total quantity imported and how much is the shortfall and how it is to affect the transaction prices declared is not forthcoming.

23. On the issue of accepting the declared transaction value under a contract, we find it relevant to refer the decision rendered by the Tribunal, Bangalore in the case of M/s. Agarwal Industries v. Commissioner of Customs, Vizag [2006 (193) E.L.T. 421 (Tri. – Bangalore)] in the context of old Valuation Rules, wherein it has been observed as under: –

“2. … …. In all the cases, we find that the transaction value has been arrived at purely on commercial considerations based on contracts. The supplier, in order to honour the contracts, supplied the goods at the contracted price. There is also no allegation that the appellants paid to the 19 Appeal No(s).: C/41617 & 41619/2013-DB supplier more than the contracted value. Under these circumstances, there are actually no grounds to reject the transaction value….” The above decision was affirmed by the Hon’ble Apex Court in its judgement as reported in 2011 (272) E.L.T. 641 (S.C.).”

24. All the facts / events pertaining to these appeals have been captured in detail in the above paragraphs in order to emphasise the fact that the lower adjudicating and assessing authorities have to necessarily consider all the commercial factors to arrive at contemporaneous prices of identical or similar goods before resorting to enhancement of the declared transaction values in terms of Rule 4 or Rule 5 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. No doubt, the proper officer can raise doubts as to the truth or accuracy of the declared value for certain reasons, but, doubts would be reasonable only if they are free from assumption or speculation. To constitute a reasonable doubt it must be clear from assumptions. Doubts must be actual and supported by facts. A fair doubt is based on reason and common sense.

25. The Ld. Authorised Representative and Ld. Advocate have referred to many judicial decisions as detailed in the above paragraphs. But, the facts obtaining in these appeals are clearly distinguishable. There is nothing illegal or improper in suspecting the declared values of imported silk by the appellant. But, under valuation has not been conclusively proved by the Revenue. We agree with the decision of the lower appellate authority that there was no clinching evidence for rejecting the transaction values declared. In these appeals the assessing authority has enhanced the declared values of the impugned goods on the basis of contemporaneous imports pertaining to some other importers of identical / similar goods during the relevant period. At the same time, the importer also has given the details of various Bills of Entry evidencing imports by other importers like Mahalakshmi Silk Trading, Kaveri Silk & Jute P. Ltd., at around the similar prices which were accepted and cleared by the Department. In the absence of giving all the details relating to contemporaneous imports of goods in respect of quantity, quality, type, country of origin whether of contract or not etc., which are having a bearing on the price placing reliance on only certain imports is not in accordance with the scheme of valuation envisaged under the provisions of Section 14 of the Customs Act, 1962 read with Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

26. So, for the reasons detailed above, we are of the opinion that there are no cogent grounds to allow these appeals. We hold that order of lower appellate authority is not required to be interfered with. As such, there is no need to discuss about confiscability of the impugned goods. Neither there is any justification for imposition of penalty when mis-declaration of the values of impugned goods is not established conclusively. The appeals filed by Revenue are dismissed with consequential relief, if any.

(Order pronounced in the open court on 03.08.2023)