The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has set aside a customs duty demand of ₹1,00,42,831 on imported second-hand printing machinery, holding that the Revenue’s allegations of undervaluation were unsupported by reliable documentary evidence and that the technical reports relied upon did not explain how the revised values had been calculated.
The bench of R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) quashed confiscation, redemption fines totalling ₹1.48 crore and penalties imposed on the importer and its two directors and found that the proceedings suffered from serious evidentiary and procedural defects, including denial of cross-examination, failure to comply with the requirements for confiscation and issuance of a duty demand without first finalising a provisional assessment.
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The dispute arose from imports of old and used offset printing machines through Kolkata Port. At the time of import, the machines were examined, Chartered Engineers’ valuation reports were obtained, and Customs enhanced the declared invoice values before permitting clearance on payment of duty.
The Directorate of Revenue Intelligence conducted searches at the importer’s Delhi premises and seized printing machines on suspicion of undervaluation.
A show cause notice dated May 22, 2012, subsequently proposed further enhancement of value, recovery of differential customs duty, confiscation and penalties. The proceedings under appeal concerned 39 machines: 27 seized machines, 11 machines imported and sold earlier, and one machine cleared under provisional assessment.
By an order dated January 17, 2014, the Commissioner of Customs (Port), Kolkata, confirmed differential duty of ₹31,68,988 on the 27 seized machines, ₹57,88,802 on the 11 previously imported machines and ₹10,85,041 on the provisionally assessed machine.
The Commissioner also imposed redemption fines of ₹50 lakh, ₹80 lakh and ₹18 lakh, respectively. The importer faced penalties of ₹89,57,790 under Section 114A and ₹10,85,041 under Section 112 of the Customs Act, 1962.
The Revenue defended the reassessment on the ground that overseas enquiries through COIN offices revealed higher values declared by foreign suppliers at the ports of loading.
It also relied on reports prepared by two representatives of the Regional Institute of Printing Technology, Jadavpur, to contend that the imported machinery had been undervalued. According to the department, the Chartered Engineers’ certificates used during the original assessments were unreliable, making a fresh valuation necessary.
The importer disputed both sources of evidence. It argued that Customs had already examined the machinery and enhanced its values at clearance, and that any further enhancement required convincing evidence establishing defects in those assessments.
It also challenged the methodology adopted in the later reports and sought cross-examination of the persons responsible for them.
Overseas Letter Had No Supporting Documents
On examining the show cause notice, relied-upon documents and adjudication order, the tribunal found that the documentary record did not substantiate the Revenue’s account of its overseas enquiries.
Although the department referred to enquiries through offices in New York, Brussels, London and Hong Kong, the tribunal found only the Brussels correspondence among the relied-upon documents.
That letter did not identify the relevant Bills of Entry or provide details of the machines investigated. It also did not explain how the enquiry was conducted or include documents supporting the assertion that the declared value was lower by approximately ₹22.50 lakh.
The bench consequently held that the letter had no evidentiary value for establishing the alleged undervaluation.
Technical Knowledge Did Not Establish Valuation Expertise
The tribunal separately questioned the foundation of the technical reports relied upon to increase the machinery’s assessable value.
It distinguished knowledge of a machine’s mechanical, electrical or electronic functioning from expertise in determining the market or depreciated value of second-hand machinery. The Revenue had not produced documents establishing the institute’s capability to undertake such valuation or the qualifications and experience of the two persons presented as experts.
The reports did not disclose their designations or educational and technical qualifications. Although the inspections were said to have taken place in the presence of DRI officials and the importer’s representatives, those persons were neither identified nor shown as having signed the documents.
The tribunal also noted that the copies displayed “Sd/-” against the experts’ names rather than their signatures, raising doubts about the reports’ authenticity.
More fundamentally, the reports merely listed particulars such as make, model, year of manufacture, country of origin and an approximate value. They did not explain the original price, period of use, depreciation or method used to arrive at the revised figure.
The bench rejected these reports as a basis for enhancing the value of the imported machinery.
The importer had expressly requested cross-examination of the two technical experts, Simadri Biswas and Rupak Das, to challenge their valuation conclusions.
The tribunal found that the adjudicating authority had ignored the request without recording or explaining its refusal. It treated this as a serious violation of natural justice, particularly because the disputed reports formed a central basis of the undervaluation allegations.
The bench referred to the Punjab and Haryana High Court’s decision in G-Tech Industries v. Union of India, concerning the statutory procedure for relying on statements under Section 9D of the Central Excise Act, and noted the corresponding provision in Section 138B of the Customs Act.
For the 27 seized machines, the tribunal held that neither the overseas material nor the technical reports provided a sustainable basis for reassessment.
It therefore set aside the differential duty demand of ₹31,68,988 and the redemption fine of ₹50 lakh.
The bench also found a separate procedural defect in confiscation. The machines had been seized and provisionally released, but no notice complying with Section 124 had been issued for their confiscation.
Referring to the Madras High Court’s decision in Hiseins Exim v. The Additional Commissioner, the tribunal emphasised that Section 28 proceedings for recovery of duty and Section 124 proceedings concerning confiscation and penalties serve distinct purposes. In this case, the notice issued under Section 28 could not substitute compliance with Section 124.
The tribunal reached the same conclusion for the 11 machines that had been imported, assessed, cleared and sold before the investigation.
It found that these machines had undergone examination by Customs and were supported by Chartered Engineers’ certificates. In comparing the material, the bench considered the Chartered Engineer’s explanation of his valuation approach logical, while finding the later technical reports deficient.
The differential duty demand of ₹57,88,802 and redemption fine of ₹80 lakh were consequently quashed.
The tribunal also held that the machines were unavailable for confiscation and that nothing established their clearance under a bond or undertaking. Relying on the Larger Bench decision in Shiv Kripa Ispat Pvt. Ltd., it found an additional basis for setting aside the redemption fine.
For the remaining machine, the tribunal found that Customs had raised a demand under Section 28 without first finalising its provisional assessment.
The bench held that the prescribed process for finalisation had to precede such a demand. It further found that the same defective valuation evidence failed to establish undervaluation of this machine.
It accordingly set aside the differential duty of ₹10,85,041, confiscation and redemption fine of ₹18 lakh.
The tribunal also accepted the challenge on limitation.
It observed that the machines had been cleared after assessment by Customs, with Chartered Engineers’ certificates placed before the assessing authorities. The Revenue’s subsequent undervaluation allegation remained uncorroborated, and no case of suppression was established.
The bench additionally found that demands relating to two Bills of Entry within the group of 11 machines, involving approximately ₹6.61 lakh, and four Bills of Entry within the seized-machinery group, involving approximately ₹5.08 lakh, had been raised beyond even the five-year extended period.
Applying the reasoning in Suraj Impex v. Commissioner of Customs, the tribunal held that the extended period could not be invoked merely because the department later alleged undervaluation where material particulars had been disclosed and Customs had examined and assessed the goods.
It consequently held the proceedings time-barred as well.
With the duty demands and confiscation findings set aside, the tribunal held that the importer’s penalties under Sections 114A and 112 could not survive.
The penalties imposed on appellant under Section 112(a) and (b) were also quashed because the underlying case against the importer had failed.
The tribunal set aside the impugned adjudication order, allowed all three appeals and held that the appellants would be entitled to consequential relief, if any, in accordance with law.
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