The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has allowed three appeals filed by the Department holding that documents received through proper channels from Chinese/Hong Kong Customs authorities could be relied upon under Section 139 of the Customs Act, 1962 for establishing undervaluation of imported goods.

The bench of  Dr. Rachna Gupta (Officiating President) and Hemambika R. Priya (Technical Member) has observed that the importer’s transaction value was rightly rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and the subsequent re-determination of value followed the prescribed sequential valuation mechanism.

The case arose from three departmental appeals challenging separate orders passed by the Commissioner (Appeals), New Delhi, which had rejected demands for differential customs duty against the importer.

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The amounts involved in the three appeals were ₹20,08,933, ₹32,85,849 and ₹18,26,677.37, respectively. The Department alleged that the importer had misdeclared the goods and their value and had thereby evaded customs duty.

The dispute originated from an investigation initiated after information was received by Customs on January 9, 2012, regarding suspected misdeclaration of an imported consignment. Customs officers examined the import documents at ICD Ballabgarh on January 12, 2012.

The goods had been declared as “Urea Houseware – Trays and Bowls.” However, upon examination, Customs found 19 excess cartons containing bowls. Goods bearing the “DOLPHIN” brand were also detected, and doubts arose regarding their correct classification. Samples were consequently drawn and sent to the Central Revenue Control Laboratory (CRCL) for testing.

The CRCL report dated January 20, 2012 found that the samples consisted of kitchenware mainly composed of polymeric material, namely Urea Formaldehyde Resin, along with inorganic filler ranging from 2.20% to 7.20%.

Statements of the importer’s proprietor and his father were subsequently recorded under Section 108 of the Customs Act. The importer acknowledged the test report and accepted that the imported goods were made of Urea Formaldehyde. An amount of ₹3 lakh was deposited towards additional customs duty.

The investigation also revealed that the importer had cleared approximately 20 similar consignments during the preceding five years.

The Customs Department subsequently obtained documents relating to the imported goods from outside India through an overseas enquiry. According to the investigation, the importer had systematically undervalued the goods.

The Department alleged that the undervaluation remained substantially consistent over the years. The investigation led to the issuance of show cause notices proposing recovery of differential customs duty. The demands were initially confirmed by the adjudicating authorities but were later set aside by the Commissioner (Appeals), leading to the Department’s appeals before CESTAT.

The Department argued that the actual declarations made before Chinese Customs showed values substantially higher than those declared before Indian Customs. It also alleged that the importer had submitted incorrect or forged invoices before Indian Customs and had misdeclared the quantity, brand and classification of the imported goods.

The Department contended that these circumstances justified rejection of the declared transaction value under Rule 12 of the Customs Valuation Rules, 2007.

The importer, on the other hand, argued that the Department’s case was primarily based on documents obtained from abroad which were allegedly not admissible or properly authenticated.

It was contended that the foreign documents were in Chinese language, did not bear appropriate signatures or seals and had not been adequately authenticated. The importer also argued that the documents did not establish that it had actually paid any amount over and above the declared transaction value.

The importer further submitted that the Customs Valuation Rules required the Department to follow the valuation methods under Rules 4 to 9 sequentially after rejecting the declared transaction value, which, according to the importer, had not been done.

A central issue before the Tribunal was whether the documents received from Chinese/Hong Kong Customs authorities could be relied upon under Section 139 of the Customs Act, 1962.

The Tribunal examined Section 139, which creates presumptions regarding certain documents, including documents received from a place outside India during investigation of an offence under the Customs Act when such documents are tendered in evidence.

The provision attaches a presumption to the authenticity and, in specified circumstances, the truth of the contents of documents covered by the section, unless the contrary is proved.

The Tribunal found that the declarations obtained from the Consulate in Hong Kong regarding the consignments fell within Section 139(ii) because they were documents received from outside India in the course of the investigation.

Consequently, the Tribunal held that a presumption of correctness was attached to those documents unless the importer could establish otherwise.

The Tribunal rejected the importer’s objection that the documents could not be relied upon because of deficiencies in their form.

It noted that Customs had initiated an overseas enquiry through proper channels. The relevant documents were received from the Consulate of Hong Kong and were forwarded to the Department through official communications.

The Tribunal also took note of the comparative chart prepared by Indian Customs, based on the trade declarations received from Chinese Customs and their English translation. According to the material considered by the Tribunal, the goods were described differently before the two Customs authorities.

Before Indian Customs, the goods were declared as “Houseware – Trays and Bowls,” whereas before Chinese Customs they were reportedly declared as plastic pallets and plastic products. The values declared before Chinese Customs were also substantially higher than those declared before Indian Customs, even after appropriate adjustments for freight and insurance.

The Tribunal therefore concluded that the Department had sufficiently established that the foreign documents had been obtained through proper channels from competent authorities.

An important observation of the Tribunal was that Section 139 does not mandate that documents covered by the provision must necessarily be produced in their original form.

The Tribunal noted that the documents relied upon were copies of declarations received through official channels and that they had been stamped by Indian Customs. The Department had also prepared an English-language chart based on the overseas documents.

The importer had objected to the documents being in a foreign language. However, the Tribunal observed that there was no impediment to the importer obtaining a translation if it wished to demonstrate that the Department’s translated version was incorrect. No contrary translation or comparable document was produced by the importer.

The Tribunal distinguished earlier decisions relied upon by the Commissioner (Appeals), observing that in those cases the foreign documents had not been shown to have been obtained through proper channels. In the present matter, an overseas enquiry had specifically been initiated and the documents had been received through official channels.

The Tribunal relied upon earlier decisions including Orson Electronics Pvt. Ltd., Décor Rubber Industries and Martwin Electronics in support of its conclusion.

The importer also argued that the foreign documents were not authenticated in accordance with the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948.

CESTAT rejected this contention, holding that the 1948 legislation provides a mechanism for diplomatic and consular officers to administer oaths and perform notarial acts abroad. According to the Tribunal, the availability of such a mechanism could not be converted into a mandatory requirement under customs law for every foreign document relied upon in an investigation.

Where documents are independently obtained from reliable foreign authorities such as Customs and are accompanied by a covering communication duly authenticated by those authorities, the Tribunal found no legal impediment to relying upon them.

The Tribunal ultimately held that the foreign Customs declarations constituted sufficient evidence under Section 139 of the Customs Act.

It found that the overseas material corroborated the Department’s allegation that the goods declared before Indian Customs differed from the declarations made before Chinese Customs, both in description and value.

The Tribunal also took into account the CRCL report, which established that the goods were Urea Formaldehyde Resin-based kitchenware, as well as the importer’s own statements and payment of ₹3 lakh towards differential duty.

CESTAT attached significance to the statements recorded from the importer under Section 108 of the Customs Act.

The Tribunal observed that the statements had been recorded by gazetted Customs officers and were therefore admissible in evidence. It further held that the importer had acknowledged the undervaluation in the statements recorded during the investigation.

The Tribunal reiterated the established distinction between Customs officers and police officers for purposes of the evidentiary treatment of statements recorded under Section 108. It referred to Supreme Court precedents concerning the evidentiary value of voluntary statements made before Customs officers.

The Tribunal consequently concluded that the importer had clearly admitted the undervaluation reflected in the Bills of Entry filed before Indian Customs.

The Tribunal next examined whether Customs had correctly rejected the declared transaction value.

It noted that the physical examination of the goods had revealed misdeclaration of quantity as well as brand name. According to CESTAT, these findings were sufficient to create a legitimate basis for rejecting the declared transaction value under Rule 12 of the Customs Valuation Rules, 2007.

Once the declared transaction value is rejected, the valuation must proceed through the prescribed methods under Rules 4 to 9.

The Tribunal explained that Rule 4 deals with identical goods, Rule 5 with similar goods, while Rule 7 provides a deductive method and Rule 8 a computed value method. Rule 9 operates as the residual method where valuation cannot be determined under the preceding provisions.

The Tribunal further noted that Rule 6 permits the importer, in the circumstances specified therein, to opt for computed value under Rule 8 instead of proceeding through the deductive method under Rule 7.

Rejecting the importer’s argument that the valuation procedure had not been followed sequentially, CESTAT held that the re-determined value was based on the value of identical goods received from the same exporter.

The Tribunal also noted the importer’s admission that similar goods had been imported continuously during previous years. In these circumstances, the Tribunal concluded that the valuation methodology had been followed in accordance with the applicable rules.

The Tribunal also upheld the penalty imposed under Section 114A of the Customs Act.

Section 114A provides for a penalty equal to the duty or interest determined in cases involving short-levy or non-levy of duty attributable to collusion, wilful misstatement or suppression of facts.

Since the Tribunal upheld the differential customs duty demand, it held that the corresponding mandatory penalty under Section 114A was also sustainable.

The Tribunal held that the Commissioner (Appeals) had erred in rejecting the documents received from Chinese Customs.

According to CESTAT, those documents established that the values declared before Indian Customs were substantially lower than the values declared by the exporter before Chinese Customs and were admissible under Section 139 of the Customs Act.

The Tribunal accordingly set aside the impugned orders of the Commissioner (Appeals) and allowed all three departmental appeals.

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