CESTAT Sets Aside ₹41.09 Lakh Customs Duty Demand on Used Printing Machines

Media Graphics Vs Commissioner of Customs (CESTAT Chennai)

Summary: The Chennai Bench of CESTAT allowed three appeals filed by M/s. Media Graphics and its partners against a customs undervaluation demand concerning six old and used offset colour printing machines imported between February and December 2015. The importer had declared an aggregate assessable value of ₹1,60,61,285, while the Directorate of Revenue Intelligence alleged that the goods were worth ₹3,16,37,782. The adjudicating authority confirmed differential customs duty of ₹41,09,269 with interest, imposed an equivalent penalty on the firm under Section 114A of the Customs Act, 1962, and imposed penalties on the partners under Sections 112(b) and 114AA. The Commissioner (Appeals) upheld the decision, leading to the appeals before the Tribunal.

The appellants submitted that Customs had originally assessed the used machinery on the basis of inspection reports and valuation certificates issued by empanelled Chartered Engineers, following CBEC Circular No. 25/2015 dated 15 October 2015. They argued that the Department could not subsequently disregard the assessed values without challenging those certificates and following the Customs Valuation Rules, 2007. The Tribunal agreed that the show cause notice questioned the declared values but did not establish any defect in the Chartered Engineers’ depreciated valuations accepted at import. It observed that two machine values were later determined merely from verbal statements, while pro forma invoices and quotations relied on for other machines were not adequately verified against the actual imports.

The Tribunal separately examined printouts and data allegedly obtained from mobile phones, hard disks and WhatsApp communications. Applying Section 138C of the Customs Act, 1962, which governs admissibility of computer-generated evidence, it held that secondary electronic records required compliance with the prescribed certification procedure. The Tribunal discussed the Supreme Court rulings in Anvar P.V. v. P.K. Basheer and Arjun Panditrao Khotkar v. Kailash Kishanrao Gorantyal, and the CESTAT ruling in S.N. Agrotech. Because the Department had not produced the requisite certificate under Section 138C(4), the electronic printouts could not sustain the allegations. Statements and unverified pro forma invoices did not independently cure these evidentiary deficiencies.

The Tribunal concluded that the Department had failed to prove undervaluation of any of the six machines. It could not ignore the valuation procedure prescribed by its own circular without showing why the Chartered Engineers’ assessments were unreliable; nor could it replace those values with unsupported oral assertions or inadmissible electronic records. Consequently, the differential duty demand and associated penalties did not survive. By its order pronounced on 23 July 2024, CESTAT set aside the impugned order in full, allowed all three appeals and granted consequential relief, if any, according to law.

Cases Discussed

• Gajra Bevel Gears Vs Collector of Customs, Bombay — 2000 (115) ELT 612 (Supreme Court).
• Welco Overseas Pvt. Ltd. — 2024 (3) TMI 1248 (CESTAT).
• Commissioner of Customs (Imports), Mumbai Vs Ganapati Overseas — 2023 (388) ELT 802 (Supreme Court).
• Assistant Collector of Central Excise Vs Duncan Agro Industries Ltd. — 2000 (8) TMI 87 (Supreme Court).
• Commissioner of Central Excise, Bolpur Vs Ratan Melting & Wire Industries — 2008-TIOL-194-SC-CX-CB (Supreme Court).
• Commissioner Vs Merino Panel Product Ltd. — 2023 (383) ELT 129 (Supreme Court).
• Anvar P.V. Vs P.K. Basheer — (2014) 10 SCC 473 (Supreme Court).
• Junaid Kudia — 2024 (16) Centax 503 (CESTAT Mumbai).
• S.N. Agrotech Vs Commissioner of Customs, New Delhi — 2018 (361) ELT 761 (CESTAT Delhi).
• Shafhi Mohammad Vs State of Himachal Pradesh — (2018) 2 SCC 801 (Supreme Court).
• Tomaso Bruno Vs State of Uttar Pradesh — (2015) 7 SCC 178 (Supreme Court).
• K. Ramajyam Vs Inspector of Police — (2016) Crl. LJ 1542 (Madras High Court).
• Arjun Panditrao Khotkar Vs Kailash Kishanrao Gorantyal — AIR 2020 SC 4908 (Supreme Court).

Five Alternative SEO Titles

1. CESTAT Quashes ₹41.09 Lakh Duty Demand on Second-Hand Printing Machines
2. Uncertified Electronic Evidence Cannot Prove Customs Undervaluation: CESTAT
3. Chartered Engineer Valuation Cannot Be Ignored Without Evidence: CESTAT
4. CESTAT Allows Media Graphics Appeals Over Defective Customs Valuation
5. Section 138C Certificate Mandatory for Secondary Electronic Records: CESTAT

FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT CHENNAI

These appeals are filed against Order in Appeal C. Cus. II No. 439 to 441/2021 dated 31.5.2021 passed by the Commissioner of Customs (Appeals – II), Chennai. (impugned order)

2. Brief facts of the case are that the appellant M/s. Media Graphics filed six Bills of Entry for import of ‘Old and Used’ offset colour printing machines of various brands. A search was conducted at the appellants office premises, by DRI on a reasonable belief that the impugned goods imported by them had been undervalued. Shri Varadharaj partner of the said firm informed the officers, that they were importing second- hand offset printing machines from various overseas suppliers as commission agents and were selling the same to buyers in India. Though the appellants have declared a total assessable value to the customs authority as Rs.1,60,61,285/- for the import of 6 said machines, the value based on materials collected by the DRI, allegedly worked out to Rs.3,16,37,782/-. M/s. Media Graphics thereby appeared to have evaded payment of customs duty to the tune of Rs.41,09,269/- for the period from February 2015 to December 2015. After due process of law, the Ld. Adjudicating Authority confirmed the said differential duty under section 28 of the Customs Act, 1962, (CA 1962) with interest and imposed an equal penalty on the firm under sec. 114A. A penalty of Rs.4,00,000/- under sec. 112(b) and Rs.20,00,000/- under sec. 114AA each were imposed on the partners Shri S. Varadharaj and Shri R. Janardhanan respectively. Aggrieved by the said order, the appellants preferred appeals before the Commissioner of Customs (Appeals), who rejected the same. Hence these appeals before us.

3. Shri S. Murugappan, Ld. Counsel appeared for the appellants and Shri R. Rajaraman, Ld. Authorised Representative appeared for the respondent. 3.1 The Ld. Counsel for the appellant submitted that M/s. Media Graphics is a partnership firm with two partners, namely, S/Shri R. Janardhanan and S. Varadharaj. He stated at the outset that though the SCN in this case was issued by DRI they want the issue to be decided on merits and the appellants have submitted their written consent in this regard. The firm is engaged in sourcing second-hand machines from abroad and after reconditioning, supplying them to local printers and other end users. The import value of the goods was arrived at on the basis of a detailed ‘Inspection Report and Valuation Certificate’ given by a local Chartered Engineers (CE) from a panel approved by Customs. Assessment was done based on the value determined and indicated in the CE’s Certificate. The practice is in vogue as per Board’s Circular No. 25/2015 dated 15/10/2015, Custom House instructions and the Apex Courts judgment in the case of Gajra Bevel Gears Vs Collector of Customs, Bombay as reported in 2000 (115) ELT. 612 (NC). The Ld. Counsel stated that once this procedure has been adopted and assessments completed, it is not open to the respondent to seek revision of value again without adopting procedures known to law and there was no basis to invoke the extended period for demand of duty under Section 28 (4) of CA 1962. In this regard, he placed reliance on the decision of CESTAT in the case of Welco Overseas Pvt. Ltd. as reported in 2024 (3) TMI 1248. He stated that the so-called confessional statements taken under section 108 of CA 1962, on which the case is made are nothing but statements dictated by the officers. This is evident from para 3 of the statement taken from Mr. Janardhanan on 16.2.2018 and also the verbatim reproduction of the contents in the statement of the other partner taken on 15.2.2016. Such dictated statements without clear corroborative evidence cannot be relied upon to eject the declared value. He placed reliance on the following judgments of the Apex Court. Commissioner of Customs (Imports) Mumbai Vs. Ganapati Overseas reported in 2023 (388) ELT 802 (SC) and Asst Collector of Central Excise Vs Duncan Agro Industries Ltd. repoorted in 2000 (8) TMI 87 Supreme Court. He stated that print out of the data obtained from mobile phones and hard disks have not been certified as required under section 138 of CA 1962 and hence electronic evidence is not admissible. He stated that totally unconnected pro-forma invoices and quotations were sought to be linked by the department to the actual imports made, based on similarity of dates and without any further investigations with the persons concerned. In the light of unreliability of evidence, the demand for payment of differential duty was not sustainable and consequently the penalties imposed on the firm as well as the partners cannot be sustained. Accordingly, he prayed that the impugned orders may be set aside with consequential relief.

3.2 The learned AR reiterated the points given in the impugned order.

4. We have carefully gone through the appeal papers and have heard the rival parties.

5. Boards Circulars and instructions issued by the Board are binding on the authorities functioning under the respective statutes, unless they have been issued contrary to statutory provisions or in defiance of the interpretation of such provisions by a judicial forum. [Ref: Five judge Bench of the Hon’ble Supreme Court in Commissioner Of Central Excise, Bolpur Vs M/S. Ratan Melting & Wire Industries – 2008-TIOL-194-SC-CX-CB and Commissioner Vs Merino Panel Product Ltd. – 2023 (383) E.L.T. 129 (S.C.)]. We find that Boards Circular N0. 25/2015 dated 15/10/2015 issued from file number 467/34/2006-Cus.V provides guidelines for valuation of imported second-hand machinery. It is a simplified method for arriving at the value of secondhand machinery for appraisement under Rule 3 of CVR 2007, considering the challenges faced both by the trade and the department. Relevant portion of the circular is reproduced below.

9. Given the nature of challenges in computing the value of secondhand machinery under Rule 9, and the need to ensure that the approach applied reflects commercial reality and results in a value which is fair, and is arrived through uniform processes by all custom houses, it is felt that it is necessary to obtain inspection/appraisement reports from qualified neutral parties.

10. For this purpose, the Board has decided that Inspection / Appraisement Reports Issued by Chartered Engineers, or their equivalent, based in the country of sale of the secondhand machinery shall be accepted by all Custom Houses. For the purposes of uniformity, the format in which inspection/appraisement reports shall be prepared by the Chartered Engineer is annexed to this circular. In the event that an importer does not produce an inspection / appraisement report in the prescribed format from the country of sale, he shall be free to engage the services of inspection agencies notified as per HBoP 2015-20. In case the agencies notified in the HBoP not being at the port of import, the importers will be free to select any Chartered Engineer from those empaneled by the Custom House of the port of import.

11. No Custom House shall require any importer to have an inspection / appraisement report of secondhand machinery from a particular Chartered Engineer. The importer shall be free to select any chartered engineer, empaneled by the Custom House for the respective class of goods, if so required.

12. To sum up, the following guidelines shall be followed:

a) All imports of second-hand machinery/used capital goods shall be ordinarily accompanied by an inspection / appraisement report issued by an overseas chartered engineer or equivalent, prepared upon examination of the goods at the place of sale.

b) The report of the chartered engineer or equivalent should be as per the Form A annexed to this circular.

c) In the event of the importer falling to procure an overseas report of Inspection / appraisement of the goods, he may have the goods inspected by any one of the agencies in India, as are notified by the DGFT under Appendix 2G of the HBoP 2015- 20 and Aayat Niryat Forms to FTP 2015-20, as amended from time to time (para 2.59 of Handbook of Procedures 2015-20 refers).

d) At customs stations where agencies notified by DGFT are not present, importers may continue to avail of the services of locally empaneled Chartered Engineers.

e) In cases where the report is to be prepared by the agencies in India notified by DGFT or the Chartered Engineers empaneled by Custom Houses, the same shall be in the Form & annexed to this circular.

f) The value declared by the Importer shall be examined with respect to the report of the Chartered Engineer. Similarly, the declared value shall be examined with respect to the depreciated value of the goods determined in terms of the Circular No. 493/124/86-Cus VI dated 19/11/1987 and dated 4/1/1988. If such comparison does not create any doubt regarding the declared value of the goods, the same may be appraised under rule 3 of the CVR, 2007. If there are significant differences arising from such comparison, Rule 12 of the CVR, 2007 requires that the proper officer shall seek an explanation from the importer justifying the declared value. The proper officer may then evaluate the evidence put forth by the importer and after giving due consideration to factors such as depreciation, refurbishment or reconditioning (if any), and condition of the goods, determine whether the declared transaction value conforms to Rule 3 of CVR, 2007. Otherwise, the proper officer may proceed to determine the value of the goods, sequentially, in terms of Rule 4 to 9.

Ascertaining the value of secondhand machines after allowing for depreciation has been found acceptable by the Hon’ble Supreme Court in its judgment in Gajra Bevel Gears (supra).

6. It is seen that the SCN only seeks to discard the ‘declared value’ and not to reject the depreciated value adopted for assessment as per the ‘Inspection Report and Valuation Certificate’ (Valuation Certificate) given by a CE, that was accepted by the department at the time of import. The assessment of Customs duty on the basis of a procedure established by a Boards circular cannot be held to be an incorrect levy by the department, until such time as the correctness of the ‘Inspection Report’ is challenged in the SCN and conclusively proved in the OIO. Two values cannot legally co-exist under the CVR 2007, for the very same goods, post the issue of OIO.

7. In Annexure-A to the SCN, a chart is provided showing the details of the impugned machines imported vide six BE’s and their values as declared, re-valued by CE and proposed by the department. The remarks column show that in three cases the value is sought to be determined by proforma invoices as reportedly recovered from the appellants and mentioned in the statement of Shri Vardharaj. In two cases the value is based on what was verbally stated by the appellant and recorded in the panchanama and statement. In one case value has been ascertained as per the WhatsApp chats purportedly between the importer and supplier. In short the value of two of the six machines were adopted without any documentary evidence and based on what was verbally stated, which is a procedure neither recogonised by the CA 1962 or CVR 2007. In the case of the value of the other four machines, reliance was placed on printouts of electronic records, from devices statedly recovered during search operations.

8. The impugned order refers to Commercial Invoice KPN-APR08 dated 08/04/2015 for USD 36,000 filed along with BE 9249590 with consignee as Media Graphics, Chennai and states that the same machine was found invoiced vide proforma invoice no #KPN-APR08 dated 08/04/2015 for USD 114,000 addressed to Graphics Printing Press, Madurai. Hence alleging undervaluation. It is seen that the machine described as per Invoice KPN-APR08 is ‘One set of Used Mitsubishi 2F4 offset printing machine with accessories’, where as the machine referred to in proforma invoice no #KPN-APR08 is for ‘Offset Printing Machine’, which is not stated to be a secondhand machine. A similar pattern is seen with respect to the evidence relied upon by revenue for the other two machines. No verification has been made at the address given in the proforma invoice, presumably in the light of the admission of the value shown therein, in the statement of Shri S Varadharaj. Due to these lacunae the evidentiary value of the documents is doubtful.

9. We also find that the OIO in this regard depends on evidence gathered from electronic devices, data of which has been retrieved under a panchanama. The appellant has stated that print outs obtained from mobile phones and hard disks have not been certified as required under section 138 of CA 1962 and hence such documents are not admissible in evidence. In this connection they have placed reliance on the judgment of the Apex Court in the case of Anvar P.V Vs P.K. Basheer [(2014) 10 SCC 473] and CESTAT, in the case of Junaid Kudia [2024 (16) Centax 503 (Tri-Bom)] along with S.N. Agrotech and others [2018 (4) TMI 856 CESTAT, New Delhi].

10. We find that in Anvar P.V. (supra), a three Judge Bench of the Hon’ble Apex Court, held that any documentary evidence sought to be produced from an electronic record under the provisions of the Evidence Act 1872, (Evidence Act) can be proved only in accordance with the procedure prescribed under Section 65B therein. The judgment held that the certificate required under Section 65B(4) is a condition precedent to the admissibility of evidence by way of electronic record. Oral evidence in the place of such certificate will not suffice as Section 65B(4) is a mandatory requirement of the law. The judgment is of relevance to this case as section 138C of the CA 1962 is pari materia to the said section 65B of the Evidence Act. Hence a written certificate under section 138C(4) is a sine qua non for admissibility of such electronic evidence under the CA 1962 also.

11. Consequent to the judgment in Anvar P.V. (supra), some confusion arose over the scope and ambit of Section 65B of the Evidence Act as different views were taken in a few subsequent decisions of Constitutional Courts namely, the Hon’ble Apex Court judgments in Shahfi Mohammad Vs State of Himachal Pradesh [(2018) 2 SCC 801] and Tomaso Bruno Vs State of Uttar Pradesh [(2015) 7 SCC 178] and the Hon’ble Madras High Court judgment in K. Ramajyam Vs Inspector of Police [(2016) Crl. LJ 1542]. The discordance was placed for a resolution before a three-judge bench of the Hon’ble Supreme Court, in Arjun Panditrao Khotkar Vs Kailash Kishanrao Goratyal, [AIR 2020 SC 4908 / AIRONLINE 2020 SC 641]. The Hon’ble Court, after examining the said judgments clarified the binding legal position. The Hon’ble Court upheld the Anvar P.V. judgment (supra) while overruling the Shafhi Mohammed’s judgement (supra) and made it clear that the certificate must be mandatorily provided as a condition under Sec 65B(4) for admissibility of electronic evidence. The Court also overruled it’s earlier decision in Tomaso Bruno (supra) wherein it was held that sections 65A and 65B of the Indian Evidence Act are only procedural provisions, since they are not a complete code on the subject and hence a certificate is not required under Sec. 65B. It also disagreed with the Ramajyam judgment (supra) of the Hon’ble Madras High Court, wherein it was held that in lieu of the certificate under section 65B, evidence aliunde (elsewhere) can be given by the person who was in possession of the device.

12. WE find that Section 138C of the CA 1962 provides for the admissibility of micro films, facsimile copies of documents and computer print-outs as evidence in a proceedings under the Act without further proof of production of the original. The section differentiates between the original information (primary evidence) contained in the “computer” itself and copies made there from (secondary evidence). The section would not come into play when original documents are being produced in evidence. The admissibility of evidence relating to print outs of electronic records as per the record of the witnesses (mahazar / panchanama) drawn during the search and recovery, of electronic evidence, as per the provisions of of 100 or section 101 of the CA 1962 or of a statement incorporating details of the electronic evidence found, under section 108 of the CA 1962, shall have to yield to section 138C of CA 1962 which is a special provision relating to the admissibility of such documents. This is because Generalia specialibus non derogant, a special section will always prevail over the general sections of the Act. Consequently, the evidence in the form of computer print-outs etc. can be admitted, as in the present proceedings, only subject to fulfilling the conditions under section 138C as evidenced by the certificate issued by a responsible person under sub-section (4) of the said section. We find that, the lack of such a certificate is fatal to revenues case and the portion of the order relying on such evidence is liable to be set aside.

13. A co-ordinate Bench of this Tribunal in S.N. Agrotech Vs Commissioner Of customs, New Delhi [2018(361) E.L.T. 761 (Tri. – Del.)] held as under;

11. Upon perusal of the judgment of the Hon’ble Supreme Court in the case of Anvar P.V. (supra), we note that the Apex Court has categorically laid down the law that unless the requirement of Section 65B of the Evidence Act is satisfied, such evidence cannot be admitted in any proceeding. We note that the Section 138C of the Customs Act is parimateria to Section 65B of the Evidence Act. Consequently, the evidence in the form of computer print-outs etc. recovered during the course of investigation can be admitted as in the present proceedings only subject to the satisfaction of the sub- section (2) of Section 138C. This refers to the certificate from a responsible person in relation to the operation of the relevant lap- top/computer. After perusing the record of the case, we note that in respect of the electronic documents in the form of computer print- outs from the seized lap-tops and other electronic devices have not been accompanied by a certificate as required by the Section 138 C (2) as above. In the absence of such certificate, in view of the unambiguous language in the judgment of the Honble Supreme Court (supra), the said electronic documents cannot be relied upon by the Revenue for confirmation of differential duty on the appellant. In the present case, the main evidence on which, Revenue has sought to establish the case of under-valuation and mis-declaration of the imported goods is in the form of the computer printouts taken out from the laptops and other electronic devices seized from the residential premises of Shri Nikhil Asrani, Director in respect of which the requirement of Section 138C (2) has not been satisfied. On this ground, the impugned order suffers from un-curable error and hence, is liable to be set aside.

14. In fine we have found that there have been six secondhand machine imported by the appellants. The value for the purpose of assessment as per Rule 3 of CVR 2007, was at the time of import arrived at as per the procedure established under a Boards Circular. The said depreciated value arrived at in the ‘Inspection Report and Valuation Certificate’ of a CE based on the Circular, has not been challenged. Only the declared price, which had earlier been discarded by the department in favour of the depreciated value, has been sought to be rejected once again. No reason for ignoring the CE’s Certificate has been stated in the impugned order. The department cannot blow hot and cold at the same time on its own circular without any explanation. Further the value of two of the machines have been fixed arbitrarily as per verbal statements, which is a procedure not recogonised either under the Customs Act or the Rules framed there under and merits to be quashed. In the case of the other four machines, the department has relied on printouts of electronic records without following the procedure prescribed in section 138C of the CA 1962, making the evidence inadmissible. This being so the department has failed to prove undervaluation of the goods in this case and the impugned order merits to be set aside in toto.

15. As the issue does not survive on merits the question of demand for duty, imposition of penalties etc. also does not arise.

16. Having regard to the discussions above we set aside the impugned order. The appellants succeed in their appeals and are eligible for consequential relief, if any, as per law. The appeals are disposed of accordingly.

(Order pronounced in open court on 23.07.2024)