Customs Duty Demand, Penalties Imposed In Alleged Undervaluation And Misdeclaration Of Imported Automobile Parts Case Quashed: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a substantial customs duty demand, confiscation orders and penalties imposed in connection with alleged undervaluation and misdeclaration of imported automobile parts, holding that the Department failed to justify rejection of the declared transaction value and violated principles of natural justice. The Bench of Dr. Rachna Gupta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member) found that the customs authorities had incorrectly treated the imported goods as “branded”, relied on inadequate valuation methodology, and proceeded without following mandatory statutory procedures The case stemmed from imports of automobile parts cleared under Bills of Entry filed in October and November 2017. Acting on intelligence inputs, customs authorities alleged that the importer had deliberately misdeclared the brand and value of the goods. Although the goods were initially cleared for home consumption, they were subsequently examined by the Special Intelligence and Investigation Branch (SIIB) while still within the customs bonded area During examination and subsequent searches at warehouses and associated premises, a large quantity of auto parts was seized on the allegation that around 80% of the goods bore names of reputed international brands, even though no brand had been declared in the Bills of Entry. Based on this, the Department alleged intentional suppression, rejected the declared transaction value, re-determined the value under the Customs Valuation Rules, confirmed differential duty exceeding ₹45 lakh, ordered confiscation with redemption fine, and imposed heavy penalties under the Customs Act, 1962 CESTAT noted that the Department’s core assumption—that the goods were genuine branded products—was not supported by evidence. Verification from brand owners revealed that, barring one instance where a product was confirmed as spurious, no conclusive proof was produced to establish that the goods were genuine branded items. On the contrary, the record showed that many items merely carried fake or spurious markings on packaging to enhance marketability, which could not justify treating them as branded goods for valuation purposes. Importantly, the Tribunal observed that the adjudicating authority itself had accepted that there was no undervaluation in respect of unbranded goods. Despite this, the declared values of even unbranded items were enhanced without any clear rationale or supporting contemporaneous import data. The Bench held that such an approach was contrary to Section 14 of the Customs Act, which mandates acceptance of transaction value unless the Department discharges the burden of proving otherwise. The Tribunal was particularly critical of the valuation exercise undertaken by customs authorities. It held that rejection of transaction value under Rule 12 of the Customs Valuation Rules, 2007, must be followed by re-determination strictly in a sequential manner under Rules 4 to 9. In the present case, the authorities had jumped directly to alternative valuation methods without demonstrating why earlier rules were inapplicable, nor did they rely on any comparable import data of identical or similar goods. The Bench further noted that there was no evidence of any extra consideration paid by the importer to overseas suppliers beyond the invoice value. In fact, statements on record indicated that payments were made strictly as per invoices, further weakening the Department’s case on undervaluation. The CESTAT also found serious procedural lapses. Although the importer had initially waived the issuance of a written show cause notice, the Tribunal held that this did not absolve the authorities from adhering to statutory timelines and basic principles of natural justice. No proper opportunity was given to the importer to respond to the basis on which values were enhanced, and adjudication orders were passed well beyond the prescribed period following seizure of goods. The Bench held that non-issuance of a show cause notice within the mandated timeframe and failure to confront the importer with valuation material went to the root of the proceedings, rendering the entire adjudication unsustainable in law. The CESTAT set aside the orders in their entirety, including rejection of declared value, confirmation of differential duty, confiscation of goods, and imposition of penalties. The Tribunal concluded that the customs authorities had failed to comply with the mandate of the Customs Act and Valuation Rules, and that the proceedings were vitiated both on merits and on account of procedural violations. Case Details Case Title: M/s. Barfo Impex Versus Principal Commissioner, Customs – New Delhi (ICD TKD) Case No.: Customs Appeal No. 51792 of 2022 Date: 19.12.2025 Counsel For Appellant: B.L. Garg, Advocate Counsel For Respondent: Rajesh Singh, Authorized Representative Click Here To Read Order Read More: Undervaluation, Misdeclaration Allegations Solely Based On Extrapolation From Different Import Transaction Not Sustainable: CESTAT

Customs Duty Demand, Penalties Imposed In Alleged Undervaluation And Misdeclaration Of Imported Automobile Parts Case Quashed: CESTAT

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