The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld a customs duty demand and penalties against an importer of embroidery threads and its director after finding that imported goods were deliberately undervalued and part of the consideration was paid to the overseas supplier through unauthorized channels.
The bench of Justice S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) dismissed the appeals filed by the importer and its director, affirming the findings of the customs authorities.
The case arose from imports of approximately 2.35 lakh kilograms of embroidery threads from China between March 2005 and October 2006. The importer had filed 27 Bills of Entry at Jawaharlal Nehru Port and Chennai Port, declaring the goods under Customs Tariff Item 5403 4190 and clearing them for home consumption after paying customs duty based on the declared invoice values.
However, intelligence gathered by the Directorate of Revenue Intelligence (DRI), Ahmedabad, indicated that the importer was allegedly suppressing the actual value of imported goods and remitting additional amounts to the foreign supplier through unofficial channels, thereby evading customs duty.
During the investigation, the company’s director gave a voluntary statement on December 19, 2006, explaining the modus operandi. He produced supplementary invoices reflecting higher actual values and admitted that undervaluation had been adopted. The importer also paid differential customs duty amounting to ₹24.81 lakh during the investigation.
Based on these findings, DRI issued a show cause notice seeking recovery of differential duty, confiscation of goods, and imposition of penalties.
The matter was initially adjudicated by customs authorities, who confirmed the allegations. Although the Tribunal had earlier remanded the case for fresh consideration due to inadequate opportunity of personal hearing, the adjudicating authority again confirmed the demand. The Commissioner (Appeals) subsequently upheld the order, leading to the present appeals before CESTAT.
The appellants contended that the entire case was based primarily on admissions made by the director and supplementary invoices relating to only six consignments. They argued that the department had failed to produce independent evidence or contemporaneous import data for the remaining consignments.
Relying on judicial precedents, including the Supreme Court’s ruling in Commissioner of Customs v. South India Television (P) Ltd., the appellants argued that undervaluation could not be sustained without evidence of comparable import values.
The Tribunal noted several crucial facts that remained undisputed throughout the proceedings the director had explained the mechanism through which part payments were made to the overseas supplier outside normal banking channels. Supplementary invoices evidencing suppressed value were produced during investigation. The director’s statement was voluntary and was never retracted. Details regarding the suppressed value in all 27 consignments were furnished during the investigation. The importer deposited ₹24.81 lakh towards differential duty during the investigation.
The Bench observed that customs valuation must be determined under Section 14 of the Customs Act, 1962 read with the Customs Valuation Rules. Where additional payments are made as a condition of sale, such payments form part of the transaction value and must be included in assessable value for customs purposes.
Rejecting the importer’s contention that comparable import data was necessary, the Tribunal held that the case was not based on hypothetical valuation or comparison with identical goods. Instead, the demand was founded on direct evidence of actual additional payments made by the importer to the foreign supplier.
The Bench emphasized that the authorities had redetermined the value on the basis of actual suppressed consideration admitted by the importer and evidenced through supplementary invoices. Therefore, the valuation exercise was in accordance with Rules 3, 4 and 9 of the Customs Valuation Rules.
According to the Tribunal, once evidence demonstrated that part of the consideration had been concealed from customs authorities and paid through unofficial channels, the declared transaction value lost credibility and required enhancement to reflect the actual price paid.
The Tribunal distinguished the Supreme Court’s decision in South India Television, noting that the apex court had granted relief in the absence of evidence establishing undervaluation or comparable import values.
In contrast, the present case involved direct evidence obtained during investigation, including supplementary invoices and the director’s own admissions regarding differential payments and undervaluation. Consequently, the Tribunal held that the precedent relied upon by the appellants was inapplicable.
The Tribunal further held that the penalties imposed on both the importing company and its director were legally sustainable. Given the established suppression of actual transaction value and the resulting short payment of customs duty, the Bench found no reason to interfere with the penalty provisions invoked by the department.
Dismissing both appeals, CESTAT upheld the order of the Commissioner (Appeals) and confirmed the customs duty demand, confiscation-related consequences, and penalties imposed on the importer and its director.
The Tribunal concluded that the evidence on record clearly established undervaluation through suppression of actual consideration paid to the overseas supplier, thereby justifying recovery of differential duty and penal action under the Customs Act.
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