Proper Officer Must Provide 'Reason To Doubt' Value Of Goods Declared By Importer Before Initiating Reassessment U/S 17 Customs Act: Delhi HC

Pertinent to note that Section 17 of the Customs Act, 1962 relates to 'Assessment of duty'.

An entity intending to import goods is required to self-assess the duty which would be leviable. For this purpose, the importer is required to electronically present on the customs automated system, the Bills of Entry (BoE) for the consideration of the proper officer.

A self-assessed BoE which is submitted by an importer, if accepted and endorsed by the proper officer, would be deemed to have been duly assessed.

Section 17(2) empowers the proper officer to verify the disclosures made in the BoE and examine the imported goods. It is only when the proper officer comes to form the opinion under Section 17(4) that the self-assessment was not done correctly, that the power to reassess duty is triggered.

The High Court said that it is manifest from Section 17(4) that before the proper officer commences the process of reassessment, it must come to form an opinion on the basis of verification and examination of goods that the self-assessed declarations submitted by the importer are incorrect.

“It is only on the formation of that opinion that it proceeds to reassess the duty leviable on the imported goods. It is thus evident that before the procedure as contemplated under sub-section (5) is undergone, the proper officer would have come to form a prima facie opinion that the self-assessed declaration is incorrect. It is this preliminary formation of opinion that forms the basis for the process of reassessment being commenced. The reasons for reassessment as well as the opinion formed under sub-section (4) thus constitutes the foundation for further action that may be taken by the proper officer under sub-section (5),” it said.

The Court further pointed out that the formation of opinion under Section 17(4) is regulated by the procedure prescribed under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

Rule 12 thereof provides contingencies in which the proper officer would be justified in rejecting the value of imported articles as declared by the importer.

It provides that an exercise of reassessment would be predicated upon the proper officer having “reasonable doubt” as to truthfulness of the value declared in relation to the imported goods.

Rule 12(2) makes the proper officer liable, at the request of the importer, to intimate them in writing the grounds on the basis of which it had come to doubt the truthfulness of the declarations. It also obliges the proper officer to provide a reasonable opportunity for the importer to be heard, before a final decision is taken.

In this backdrop the Court observed, “The sine qua non for commencement of reassessment, therefore, is the existence of reasonable doubt as to the declaration as made by the importer. What we seek to emphasise is that it is the formation of this opinion that forms the bedrock for the proper officer treading down the path constructed by Section 17(4) of the Act.”

Court said both Section 17 as well as Rule 12 have to be interpreted as “mandatorily” requiring the proper officer to provide “reason to doubt” and if construed in any other manner, it would lead to “arbitrary consequences” since it could result in the proper officer not even documenting the grounds on which it came to doubt the declared value in the first instance.

“The consent or concession of the importer and on which much emphasis was laid by the respondents cannot possibly be construed as relieving the proper officer from documenting the reasons which formed the basis for it doubting the declared value,” Court said.

It relied on Century Metal Recycling (P) Ltd. vs. Union of India (2019) where the Supreme Court had discussed imperative of reasons being recorded in support of the “doubt” with respect to declared value and the same being communicated to the importer.

The observations were made in a case surrounding importers of polyester knitted fabrics, aggrieved by reassessment under Section 17. More details here.

The High Court found that there was an abject failure on the part of the proper officer in the case to disclose or communicate the reasons on the basis of which a reasonable doubt came to be raised with respect to declared value.

It cited Commissioner of Customs vs. South India (2007) where the Supreme Court had underscored that the burden of proving incorrect valuation lies on the Department.

“Therefore, the proper officer could not be said to have been relieved of its obligation to pass a speaking order in terms of Section 17(5). The process of rejecting the declared value and reassessing the transaction value is statutorily required to be preceded by the proper officer having drawn an opinion of why the declared value was not liable to be accepted before consequently proceeding to reassess the value. While the said reassessment may not be framed in elaborate terms, it would necessarily have to be reflective of the reasons which weighed upon the respondent to form the opinion that the declared value was not liable to be accepted,” it said.

Accordingly, the importers were granted relief.

Case title: Niraj Silk Mills v. Commissioner Of Customs (ICD) (and other connected matters)

Case no.: CUSAA 26/2022

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