The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that customs authorities cannot reject the declared transaction value of imported goods merely by relying on National Import Database (NIDB) data without establishing that the comparison relates to similar goods.

The bench of Dr. Rachna Gupta (Officiating President) and Hemambika R. Priya (Technical Member) set aside the enhancement of the value of imported watch movements and the consequential demand relating to 14 past consignments. However, it upheld duty on the undeclared quantities in two live consignments, calculated using the declared unit value of ₹9.89, and retained the penalty under Section 114AA of the Customs Act, 1962.

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The dispute arose from an investigation into watch movements imported by the appellant through its authorised courier, Signature Logistics. Acting on intelligence suggesting misdeclaration of quantity and substantial undervaluation, customs authorities detained a consignment for examination at the air cargo facility in New Delhi.

The examination conducted on October 20, 2022, revealed watch movements bearing the description “MIYOTA JAPAN CWMJ”, without jewels and with batteries. Customs alleged that the quantity substantially exceeded the quantity declared in the courier bill of entry.

The investigation subsequently covered two live consignments and 14 earlier consignments. A show cause notice dated July 17, 2023, proposed rejection of the declared assessable value, recovery of differential customs duty amounting to ₹12,00,284, interest, penalties and confiscation.

The Commissioner of Customs, Air Cargo (Export), New Delhi, confirmed the proposals through an adjudication order dated October 4, 2023. The importer challenged that order before the tribunal.

The importer first questioned the validity of the proceedings on the ground that its sole proprietor, Dharampal Gupta, had died on February 23, 2023, before the issuance of the show cause notice.

Its counsel argued that the Customs Act did not provide for continuation of such proceedings against the legal heirs of a deceased sole proprietor. The importer relied on several decisions, including the Supreme Court’s ruling in Shabina Abraham v. Commissioner of Central Excise.

The tribunal, however, examined the role of the proprietor’s sons, Rajesh Gupta and Rupesh Gupta, who held powers of attorney and were involved in conducting the business.

Referring to Sections 2(26) and 2(3A) of the Customs Act, the bench noted that the definition of an importer includes a beneficial owner, while beneficial ownership extends to a person exercising effective control over imported goods.

The tribunal found that Rajesh Gupta’s statement and the documentary records established his effective control over the business and the imports. It also referred to documentary evidence concerning the powers of attorney held by the sons.

On those facts, the bench held that the authorised signatories and power-of-attorney holders could be held liable for duty, interest, penalty and fine concerning imports effected through them during the proprietor’s lifetime. It therefore rejected the importer’s preliminary objection.

On valuation, the importer argued that customs had mechanically rejected the transaction value by relying on NIDB data, statements and retail prices from e-commerce websites.

It submitted that the department had not established any payment beyond the invoice value, additional consideration, a relationship between the buyer and seller, or any flow-back of money.

The tribunal examined the transaction-value framework under Section 14 of the Customs Act and found that the department had failed to produce adequate evidence showing that the declared price was incorrect.

The authorities had adopted a value of ₹76.58 per piece from NIDB data. However, the bench found no evidence establishing that this figure related to products similar to the imported MIYOTA watch movements.

The adjudication order had also relied on an invoice issued by Supreme Import Export Limited, Hong Kong, treating it as evidence of similar goods. The tribunal observed that the order did not discuss the description of the goods covered by that invoice and that the invoice itself was not part of the record.

In those circumstances, the bench held that reliance on the document did not satisfy the requirements of the valuation rules.

The tribunal concluded that NIDB data alone could not justify rejection of the declared transaction value. It found that the department had not discharged its burden of supporting the substituted value of ₹76.58 per piece with evidence.

Accordingly, the rejection and enhancement of the declared unit value were set aside.

Although the importer succeeded on valuation, the tribunal found that the quantity of imported watch movements had admittedly been incorrectly declared.

In its findings, the bench recorded that the first live consignment contained 36,000 pieces against a declaration of 5,000 pieces, while the second contained 27,000 pieces against a declaration of 6,000 pieces.

The operative portion of the order therefore confirmed duty on the undeclared quantities of 31,000 and 21,000 pieces respectively, using the declared unit value of ₹9.89 per watch movement.

The decision thus distinguished between the unsupported enhancement of the unit price and the admitted failure to declare the full quantity. Rejection of the higher valuation did not eliminate the duty payable on the additional goods.

The tribunal also rejected the enhancement of assessable value relating to 14 past bills of entry.

It found that the action concerning those consignments rested on the department’s findings about the two live consignments. Once the alleged undervaluation of the live consignments was not established, the consequential enhancement of the value of past imports could not survive.

The bench also set aside the confiscation findings. With respect to the past consignments, it noted that the goods had already been cleared.

Although the importer had separately argued that previously finalised assessments could not be reopened in the manner adopted by the department, the tribunal’s relief followed its conclusion that the valuation enhancement lacked evidentiary support.

The tribunal found that the substantial discrepancy in the declared quantity made it difficult to accept the importer’s claim of bona fides.

It held that the penalty under Section 112(a)(ii) was not sustainable in view of its findings on confiscation. However, it expressly upheld the penalty imposed under Section 114AA.

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