The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that customs authorities cannot reject the transaction value declared by an importer merely on the basis of the Directorate of Valuation’s guidelines or London Metal Exchange (LME)-based valuation data in the absence of cogent evidence demonstrating undervaluation.
Setting aside a customs duty demand of nearly ₹99.60 lakh, the bench of Justice S. S. Garg (Member-Judicial) and P. Anjani Kumar (Member-Technical) ruled that departmental guidelines do not possess statutory force and cannot override the Customs Valuation Rules.
The bench quashed the Order-in-Original which had enhanced the assessable value of imported aluminium scrap and confirmed customs duty demand, interest, and an equivalent penalty under Section 114A of the Customs Act.
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The appellant had imported aluminium scrap of different grades from countries including the United Kingdom, the United States, Germany, Hong Kong, Saudi Arabia and the UAE over a five-year period. Following an investigation by the Special Intelligence and Investigation Branch (SIIB), the Customs Department alleged that the importer had undervalued the consignments by declaring prices lower than those indicated in the Directorate of Valuation’s guidelines based on LME prices.
Consequently, the department rejected the declared transaction value under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and re-determined the value under Rule 9, resulting in a demand of approximately ₹99.60 lakh along with interest and equal penalty.
The importer challenged the demand, contending that it had purchased scrap from independent traders rather than manufacturers and therefore manufacturer invoices were not available. It argued that all documents in its possession, including supplier invoices, had been produced before the authorities and that the customs assessments had already been completed after due scrutiny of 183 Bills of Entry, many of which had even undergone value enhancement at the time of assessment wherever considered necessary.
The Tribunal observed that all the Bills of Entry had been assessed after examination by the proper customs officers, and in several instances the assessable value had already been revised during assessment. Since those assessments were never challenged by the department, they had attained finality.
The Bench held that the department could not subsequently reopen completed assessments solely by relying upon valuation guidelines issued by the Directorate of Valuation, particularly when those very guidelines were already in existence at the time the Bills of Entry were originally assessed.
A significant aspect of the judgment is the Tribunal’s reiteration that the Directorate of Valuation’s guidelines are merely administrative in nature and do not possess the force of law.
The Bench held that such guidelines cannot override the statutory framework contained in the Customs Act, 1962 and the Customs Valuation Rules. Unless Customs is able to produce reliable evidence demonstrating that the declared transaction value is incorrect, the transaction value cannot be discarded merely because it differs from LME-based reference prices or departmental valuation guidelines.
The Tribunal also accepted the importer’s contention that aluminium scrap purchased through independent commercial negotiations cannot automatically be valued with reference to London Metal Exchange prices.
It noted that the actual price of imported scrap depends upon numerous commercial considerations, including quality, quantity, negotiation, payment terms, availability of buyers and sellers, and market conditions. Therefore, LME prices may serve only as a commercial reference and cannot replace the statutory valuation mechanism prescribed under the Customs Act.
While deciding the appeal, the Tribunal placed substantial reliance on the Delhi High Court’s decision in Niraj Silk Mills v. Commissioner of Customs, which comprehensively interpreted Rule 12 of the Customs Valuation Rules.
The High Court had held that before rejecting a declared transaction value, customs authorities must possess objective and legally sustainable reasons to doubt the declared value. Such reasons must be properly recorded and communicated to the importer. It further held that reassessment cannot be based solely on external databases such as NIDB or valuation references without corroborative evidence establishing undervaluation.
Following the ratio laid down by the Delhi High Court, the Chandigarh Bench concluded that the Revenue had failed to produce any independent evidence showing that the declared transaction value was incorrect or that the imports involved any extra-commercial consideration.
Holding that the rejection of the transaction value was legally unsustainable, the Tribunal set aside the Order-in-Original confirming the customs duty demand, interest and equal penalty.
Accordingly, the appeal filed by the importer was allowed with consequential relief, reaffirming that completed customs assessments cannot be reopened solely on the basis of non-statutory valuation guidelines or benchmark prices in the absence of concrete evidence of undervaluation.
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