Customs Duty - Undervaluation Must Be Proved By Evidence Of Prices Of Contemporaneous Imports; Else Benefit Of Doubt Goes To Importer : Supreme Court

The Supreme Court has recently highlighted that the transaction value (the price actually paid or payable for the goods) should be the primary basis for customs valuation and that other valuation methods be invoked sequentially only when there is evidence to doubt the correctness of the declared transaction value. 

A division bench of Justice B.V Nagarathna and Justice Ujjal Bhuyan added that in such cases, the burden of proof was on the customs department to establish undervaluation.

"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 under invoicing has to be supported by evidence of prices of contemporaneous imports of like goods."

The appellant had moved the Apex Court challenging the decision of CESTAT which set aside the enhancement of value of the imported goods and the penalties imposed on the respondents.

The appellant's case is that the respondents had under-invoiced the imported goods and thereby evaded customs duty. They relied on export declarations from Hong Kong to show that the actual value of the goods was higher than the declared value.

The respondents denied the allegations and claimed that they had declared the correct value of the goods. They also argued that the statements of Yashpal Sharma and Suresh Chandra Sharma, the proprietor and co-director of the respondents' firm, respectively, were not voluntary and therefore could not be relied upon.

The adjudicating authority held that the export declarations filed by the supplier before the Hong Kong customs authority were reliable and that the price declared by the respondents was not the correct transaction value. It was also held that the goods were liable for confiscation under Sections 111(d) and 111(m) of the Customs Act. However, as the goods were not available having been cleared, no order for confiscation was passed.

The respondents appealed the adjudicating authority's order to the CESTAT, which set aside the enhancement of value of the imported goods and the penalties imposed on the respondents.

CESTAT held that the appellant had failed to prove that the respondents had under-invoiced the goods. The Tribunal noted that the export declarations from Hong Kong were unattested photocopies and that the appellant had not provided any other evidence to support his case. It also held that the appellant had not followed the proper procedure in enhancing the value of the goods.

The appellants relied on the statements of Suresh Chandra Sharma and Yashpal Sharma respectively under Section 108 of the Customs Act where they admitted to under-invoicing the goods. However, the respondents retracted their statements on the ground that those were obtained under coercion and duress.

After considering the submissions, the Apex Court found that CESTAT was justified in setting aside the enhancement of value of the imported goods and the penalties imposed on the respondents.

The 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. However, these declarations were unattested photocopies and were not reliable.

The foreign supplier had also filed a second set of export declarations before the Hong Kong Customs Authority showing the correct price of the goods. This price matched the price declared in the import invoices. The Hong Kong Customs Authority had accepted the second set of export declarations and imposed a penalty on the foreign supplier for misdeclaration of price at the initial stage.

The department and the adjudicating authority had also relied upon the statements of Suresh Chandra Sharma and Yashpal Sharma. However, these statements were retracted on the ground that they were obtained under coercion and duress. The Additional Sessions Judge, Delhi had also mentioned in his bail order that the statement of Yashpal Sharma may not have been a voluntary one.

The CESTAT refused to give credence to the statements of Suresh Chandra Sharma and Yashpal Sharma. It also held that the value shown in the first set of export declarations could not form any reliable basis for enhancement of the value. 

Upon going through the relevant precedents and legal provisions, the Court found that a customs officer is not a police officer and a person summoned under Section 108 of the Customs Act is not an accused.

However, a statement made under Section 108 is admissible in evidence and can be used against the person making the statement. The Court also emphasized that the statement must be recorded in a fair and judicious manner, free from duress or coercion.

"what is deducible from an analysis of the relevant legal provisions and the corresponding judicial pronouncements is that a customs officer is not a police officer. Further, 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." 

The Court then quoted Section 14 of the Customs Act, which provides for the valuation of goods. It noted that the price at which goods are ordinarily sold or offered for sale in the course of international trade is the primary basis for valuation. However, the Central Government is also authorized to make rules for determining the price of imported goods and to fix tariff values for any class of imported or exported goods.

Thus, the court upheld the decision of the CESTAT, stating that the customs department and the adjudicating authority had wrongly rejected the import invoice prices without sufficient evidence, and their actions were unjustified.

The appeals were accordingly dismissed. 

Case Title: Commissioner of Customs (Imports), Mumbai v. M/s Ganpati Overseas 

Citation : 2023 LiveLaw (SC) 864

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