Value fixed by Valuation Committee adopted without revealing methodology and basis is incorrect

Kalima Exim Vs Commissioner of Customs (CESTAT Chennai)

CESTAT Chennai held that adopting the values as fixed by the Valuation Committee without revealing the methodology and basis adopted for such values is not correct and is not in accordance with the Valuation Rules.

Facts- The appellant had filed two shipping bills for export of “Ready Made Gents Shirts” and “Kids Pant Shirt Set” to M/s. Inter Active Commercial Services, Dubai initially for a value of Rs.24,69,333/- under claim for duty drawback of Rs.1,44,551/-.

Thereafter, the appellant filed fresh shipping bill for the very same consignments with a revised value of Rs.8,26,715/- under the claim of duty drawback of Rs.67,264/- when it was realized that their representative had committed a mistake by wrongly declaring the values mentioned in earlier export documents.

On adjudication, the Additional Commissioner of Customs rejected the declared value and re-determined the value at Rs.4,68,377/- under Rule 6 of the Valuation Rules, 2007 read with Section 14(1) of the Customs Act and accordingly, restricted the drawback benefits to the re-determined value. Further, the exported goods were held liable for confiscation u/s. 113(h)(i) of Customs Act, 1962 and imposed a redemption fine of Rs.1,50,000/- u/s. 125 of the Customs Act, 1962, apart from a penalty of Rs.1,50,000/- u/s. 114(iii) of the Customs Act, 1962 on the appellant.

Commissioner (A) rejected the appeal. Being aggrieved, the present appeal is filed.

Conclusion-

Held that the above decision has been followed by this Tribunal in the case of M/s. Abhishek Exports India Pvt. Ltd. Vs. Commissioner of Customs, Tuticorin while deciding an identical issue of over valuation on the basis of the prices fixed by the Valuation Committee. As such adopting the values as fixed by the Valuation Committee without revealing the methodology and basis adopted for such values is not correct and is not in accordance with the Valuation Rules.

FULL TEXT OF THE CESTAT CHENNAI ORDER

M/s. Kalima Exim (the appellant herein) have filed these two appeals against the Order-in-Appeal Nos. 15 & 16/2013 (TTN) dated 21.02.2013 passed by the Commissioner of Customs & Central Excise (Appeals), Tiruchirapalli, who rejected their appeals against the Order-in-Original No. 39/2012 dated 13.09.2012 and Order-in-Original No. 43/2012 dated 04.10.2012 both passed by the Additional Commissioner of Customs, Custom House, Tuticorin.

2.1 The facts in brief in the first appeal are that the appellant had filed two shipping bills bearing Nos. 7740257 and 7740261 both dated 25.02.2012 for export of “Ready Made Gents Shirts” and “Kids Pant Shirt Set” to M/s. Inter Active Commercial Services, Dubai initially for a value of Rs.24,69,333/- under claim for duty drawback of Rs.1,44,551/-. It appears that the appellant filed fresh shipping bill Nos. 7758554 and 7758286 both dated 27.02.2012 for the very same consignments with a revised value of Rs.8,26,715/- under the claim of duty drawback of Rs.67,264/- when it was realized that their representative had committed a mistake by wrongly declaring the values mentioned in earlier export documents.

2.2 On entertaining a suspicion that the cargo was overvalued, the export goods were detained by the SIIB and the samples were drawn for testing. It appears that the appellant had submitted cost construction statement for each of the items covered in the above two shipping bills, duly certified by a Chartered Accountant, with a request to release for export these goods as the foreign buyer was insisting on dispatch of the goods. The goods were allowed provisionally by the Revenue as the value declared by the appellant in the revised shipping bill appeared to be reasonable and in line with the cost construction certificate submitted.

2.3 However, drawback due was withheld till finalization of the valuation issue and the samples drawn were sent to the Valuation Committee apparently in terms of the Circular No.07/2003-Cus dated 05.02.2003. The valuation committee fixed the price of the samples and accordingly, the FOB value of exports in respect of the above two shipping bills dated 27.02.2012 was determined as Rs.4,68,377/- as against the revised value of Rs.8,26,715/- .

2.4 On adjudication, the Additional Commissioner of Customs, Tuticorin vide Order-in-Original No. 39/2012 dated 13.09.2012, rejected the declared value and re-determined the value at Rs.4,68,377/- under Rule 6 of the Valuation Rules, 2007 read with Section 14(1) of the Customs Act and accordingly, restricted the drawback benefits to the re-determined value. Further, the exported goods were held liable for confiscation under Section 113(h)(i) of Customs Act, 1962 and imposed a redemption fine of Rs.1,50,000/- under Section 125 of the Customs Act, 1962, apart from a penalty of Rs.1,50,000/- under Section 114(iii) of the Customs Act, 1962 on the appellant.

3.1 In the second appeal, the appellant have filed four shipping bills Nos. 7730470, 7730508, 7730514 and 7730584 dated 24.02.2012 for export of Gents Shirts, Lungies, Gents Trousers, Shawl to M/s. Interactive Commercial Services, Dubai for a declared value of Rs.48,80,399/- under claim of drawback of Rs.3,06,625/-. There was a wrong declaration of the export product in the shipping bills as the description of the export goods was “67% Polyester & 33% Cotton” instead of “67% Polyester & 33% Viscose” resulting in mentioning a wrong drawback code. As such, subsequently the exporter has filed fresh four shipping bills with revised description and for different drawback serial number with a revised value of Rs.48,11,084/- under claim of duty drawback of Rs.2,79,204/-. This consignment was also examined by the SIIB which detained on the ground of over valuation. In accordance with the procedures, samples were drawn and sent to the Valuation Committee for fixing the price of the export goods. As the appellant had submitted a cost construction statement duly certified by the Chartered Accountant for each item of the export goods covered under the above four shipping bills and requested for provisional release which was allowed as the declared value was found reasonable on the basis of the cost statement. After obtaining the permission, the appellant had filed four fresh shipping bills Nos. 8654826, 8654845, 8654852 and 8654864 all dated 26.04.2012 with revised lower value of Rs.22,23,609/- (FOB) with drawback claim of Rs.1,85,646/-.

3.2 The adjudicating authority vide Order-in-Original No. 43/2012 dated 04.10.2012 has rejected the declared value based on the Valuation Committee report and re­determined the value as Rs.14,60,721/- under Rule 6 of the Valuation Rules and restricted the drawback claim to the re-determined value. On adjudication by the Additional Commissioner of Customs, Tuticorin vide Order-in-Original No. 43/2012 dated 04.10.2012, the goods were held liable for confiscation who also imposed a redemption fine of Rs.1,00,000/- under Section 125 of Customs Act, 1962 and a penalty of Rs.2,00,000/- under Section 114 (iii) of Customs Act, 1962. Further, the Bank Guarantee No. 34838 dated 23.04.2012 executed for Rs.2,00,000/- at the time of provisional release for export was appropriated towards redemption fine imposed and a part of the penalty.

4. Being aggrieved, the appellant has filed appeals before the Commissioner of Central Excise and Customs (Appeals), Trichirapalli, who rejected the appeals by the Order-in-Appeal Nos. 15 & 16/2013 dated 21.02.2003. Aggrieved, party came before this forum in appeal.

5.1 The learned advocate Shri M. Karthikeyan representing the appellant has submitted that their Manager was on leave for ten days for his father‟s treatment and their Accountant who filed these two shipping bills has wrongly mentioned the value based on the earlier shipping bills.

5.2 He has submitted that SIIB, detaining the cargo on the ground that the value of the export goods was overvalued, permitted provisional release based on the cost construction statement certified by the Chartered Accountant accepting the revised value as reasonable.

5.3 The value of the goods was re-determined on the basis of the prices fixed by the Valuation Committee in terms of Rule 6 of the Valuation Rules. But Rule 6 is a residual rule and it can be resorted to only when the value cannot be determined under the provisions of Rule 4 and Rule 5 of Customs Valuation (Determination of Value of Export Goods) Rules, 2007. Rule 5 provides for determination of value on the basis of computed value method or on the basis of cost of production. The appellant had themselves submitted cost construction statement duly certified by a Chartered Accountant indicating the cost of each of the products covered in the shipping bills and the value declared therein was held to be reasonable as per the findings in the Order-in-Original by the adjudicating authority and the goods were allowed for export on provisional basis. It is their contention that the adjudicating authority ought to have resorted to Rule 5 since the cost of the goods matches with the declared value and the adjudicating authority ought not to have rejected the declared value by re-determining the value in terms of Rule 6 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007.

5.4 It has also been argued by the learned Advocate that the Department‟s reliance on the Board Circular No. 07/2003-Cus dated 05.02.2003 to send the samples drawn to the Valuation Committee for fixing the price of the export goods is misplaced as the said circular does not mention anything about sending the samples to the Valuation Committee; there is no basis for fixing of price by a Valuation Committee and such fixation is not legally permissible.  Further, it was also pointed out that nowhere it is stated as to who all formed part of the Valuation Committee and that the report of the said Valuation Committee fixing the price for the export goods has not been provided to the appellant; the adjudicating authority has merely relied on such price fixed by the Valuation Committee, the basis for such fixation is not informed to the appellant and there is no evidence to show that the value of the exported goods is overvalued.

5.5 The learned Advocate has relied on the decision of the Tribunal in the case of Woodern Style Plus Exports Vs. Commissioner of Customs and Central Excise, Tiruchirapalli reported in 2019 (370) ELT 778 (Tri. -Chennai) and the decision in the case of M/s. Abhishek Exports India Pvt. Ltd. Vs. Commissioner of Customs, Tuticorin reported in 2018 (9) TMI 1673 (CESTAT – Chennai) which decided an identical issue of over valuation on the basis of price fixed by Valuation Committee, the demand confirmed and the order was set aside by the Tribunal and appeal was allowed with consequential relief.

5.6 He prayed for the rejection and redetermination of value, restriction of duty drawback to such re-determined value, imposition of redemption fine and penalty may be set aside and for allowing the appeal with consequential relief including sanctioning of the drawback and refund of the amount realized from encashment of Bank Guarantee.

6. The learned Authorised Representative Ms. Sridevi Taritla (Additional Commissioner) has reiterated the findings of the lower adjudicating authorities. She has argued that there is a mis-declaration of the value of export goods and also as to the description of the commodity and consequently the drawback amount payable on their goods and so, justified restriction of the drawback, confiscation of the goods and imposition of penalty.

7. We have heard both sides and gone through the records as available in these appeals.

8. The issue that is to be decided in the case is whether the exported goods in these two appeals are overvalued or not and whether the confiscation of the goods and imposition of penalties are justified.

9.1 We find that the appellant was allowed to re-export the goods after re-determining the value on the basis of cost construction statement submitted which was duly certified by the Chartered Accountant. We have gone through the orders of the lower adjudicating authority where there is a specific mention that re-determined values before allowing provisional export of the goods were found to be ^„reasonable‟. He has confiscated the goods and imposed redemption fine and penalty on the basis of prices fixed by the Valuation Committee. We find that there is no dispute as to the basis for fixation by the Valuation Committee has not been communicated to the appellant and the appellant was not accorded any opportunity to rebut the same, thus, violating the principles of natural justice. The revised values are fixed in terms of Rule 6 of Customs Valuation (Determination of Value of Export Goods) Rules,      restricting the drawback amount to such re-determined value. In terms of the Valuation Rules, the adjudicating authority should sequentially go through Rule 4 and Rule 5 before fixing the value under Rule 6 ibid.

9.2 We have also gone through the Circular No. 07/2003-Cus., dated 05.02.2003 – F. No. 605/147/2002-DBK issued on the subject of admissibility of drawback and market verification for ascertaining the present market value of export goods under Drawback. This Circular gives the methodology to be adopted in cases of over-valuation of goods for export and there is no mention of constitution of any Valuation Committee. The Tribunal in the case of Woodern Style Plus Exports Vs. Commissioner of Customs and Central Excise, Tiruchirapalli reported in 2019 (370) ELT 778 (Tri. – Chennai) wherein an identical goods of over valuation of export goods based on the price fixed by the Valuation Committee was involved has held as follows:-

“6. The Learned Advocate appearing for the appellant also drawn our attention to the allegation made in the show cause notice, which is exclusively on the basis of a report of Valuation Committee of the Department. He submits that there is virtually no evidence on record to show the over-valuation. However, the status of such Valuation Committee along with the expertise of the members does not stand disclosed by the revenue and as such, the Committee in question cannot be held to be an opinion of expert person. Further, the Committee has not given any reasons as to why the value declared by the assessee is not to be accepted. As such, he submits that the Revenue has proceeded without there being any evidence to rebutt the value declared by assessee. In such a scenario, he prays for setting aside the redemption fine and penalty.

7. The Learned Authorised Representative appearing for the Revenue reiterates the findings adopted by lower authorities.

8. On going through the facts on records, we find favour with the appellant’s contention that apart from the report of the Valuation Committee, there is no other evidence to show overvaluation of the cargo. Even the status of the Valuation Committee does not stand disclosed i.e., as to who were the members of the said Committee, how they arrived at the value?; what was the basis of the findings? and what was the technical and expert qualification of the said members? As such, we are of the view that the impugned orders are not sustainable.”

10. We also find that the above decision has been followed by this Tribunal in the case of M/s. Abhishek Exports India Pvt. Ltd. Vs. Commissioner of Customs, Tuticorin reported in 2018 (9) TMI 1673 (CESTAT – Chennai) while deciding an identical issue of over valuation on the basis of the prices fixed by the Valuation Committee. As such adopting the values as fixed by the Valuation Committee without revealing the methodology and basis adopted for such values is not correct and is not in accordance with the Valuation Rules.

11. In view of the above, we hold that the drawback as applicable is payable on the re-determined value of Rs.8,24,245/- in respect of Exports effected under Shipping Bills Nos. 7758554 and 7758286 dated 27.02.2012 and on re-determined value of Rs.22,23,609/- in respect of Exports effected under Shipping Bills Nos. 8654826, 8654845, 8654852 and 8654864 dated 26.04.2012.

12. However, a careful reading of the orders of the lower adjudicating authorities indicate that there is mis-declaration of the value of the export goods thereby contravening the provisions of the Customs Act and Rules made thereunder. So, we cannot find fault with the orders of the original adjudicating authority in holding the goods liable for confiscation under Section 113(h), (i) and (ia) of the Customs Act, 1962 or for imposition of penalty under Section 114 (iii) of the Act ibid. in both these appeals. However, having regard to the facts of these appeals, in respect of Order-in-Original No. 39/2012 dated 13.09.2012 the redemption fine imposed is reduced from Rs.1,50,000/- to Rs.50,000/- (Rupees Fifty Thousand Only) and the penalty imposed is reduced from Rs.1,50,000/- to Rs.50,000/- (Rupees Fifty Thousand Only) and in respect of Order-in-Original No.43/2012 dated 04.10.2012, the redemption fine imposed is reduced from Rs.1,00,000/- to Rs.50,000/-(Rupees Fifty Thousand Only) and the penalty imposed is reduced from Rs.2,00,000/- to Rs.50,000/- (Rupees Fifty Thousand Only). For better clarity, the revised redemption fines and penalties are captured in the table given below: –

13. In view of the above reasons, we order to set aside the impugned Order-in-Appeal Nos. 15 & 16/2013 dated 21.02.2013 with consequential relief, if any, and partially allow the appeals, as indicated above.

(Order pronounced in the open court on 12.06.2023)