CESTAT Delhi Sets aside Enhanced valuation, penalty, and redemption fine

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi allowed the appeal filed by Krishna Impex International, quashing the allegations of customs duty evasion, undervaluation, and associated penalties. The Tribunal held that the department failed to follow mandatory procedures under Section 14 of the Customs Act, 1962, and the Customs Valuation Rules, 1988, before rejecting the declared value of imported goods.

Background of the Case

Appellant: Krishna Impex International, Delhi
Dispute Origin: DRI search operation in 2008 alleging undervaluation of imported Tussah Silk Yarn from China
Key Trigger: Statement by proprietor Shri Amarnath Jhunjhunwala admitting possible undervaluation
Goods Assessed Under: Multiple Bills of Entry from 2005 to 2008
Key Legal Provisions Invoked by Customs:
- Section 14 of the Customs Act, 1962
- Rule 4 and Rule 10A of the Customs Valuation Rules, 1988
- Penalties under Sections 112(a), 114A, 114AA, and redemption fine

Customs Department’s Allegations

The appellant had allegedly undervalued the imported yarn, showing artificially lower prices in invoices to evade customs duty.
Admitted undervaluation (though ambiguous) in a statement recorded under Section 108.
Paid ₹10 lakh voluntarily as part of differential duty post-investigation.

Appellant’s Defense

The statement of the proprietor used phrases like “might be”, which denote uncertainty, not a conclusive admission.
No corroborative evidence of excess payment or dual invoicing was provided by the Department.
The department failed to follow sequential rules under the Customs Valuation Rules, including failure to provide:
- Contemporaneous import data
- Comparable product pricing
- Reasoned rejection of declared value

CESTAT’s Legal Analysis and Key Observations

Valuation Rules Must Be Sequentially Applied:
- The tribunal cited the Supreme Court ruling in Eicher Tractors Ltd. v. Commissioner of Customs, reaffirming that transaction value under Rule 4 is the basis for valuation, and rejection must be reasoned and procedurally sound.
Mere Statement Not Sufficient:
- Use of the phrase “might be undervaluation” cannot be treated as an unequivocal admission of guilt.
- Admission without evidence cannot be the sole basis for reassessment.
No Proof of Higher Payment:
- There was no evidence that Krishna Impex paid anything beyond the invoice amount.
- Banking channel payments were not challenged or contradicted by the Department.
Precedents Cited:
The Tribunal relied on a series of landmark cases:
- Red Elan Distributors v. Commr. of Customs – transaction value accepted due to lack of additional payment proof.
- Junaid Kudia v. Commr. of Customs – statements alone cannot prove undervaluation.
- CMR Nikkei India Pvt. Ltd. v. Commr. of Customs – acceptance of reassessment doesn’t substitute mandatory legal compliance.
Burden of Proof Lies with Customs:
- As per South India Televisions (P) Ltd. and Neeraj Silk Mills, the onus is on the department to prove undervaluation with cogent evidence.
- Without demonstrating contemporaneous import prices or export declarations’ validity, declared invoice value must stand.

Final Verdict

Rejection of Transaction Value – Unwarranted
Enhanced Valuation – Set Aside
Penalties & Redemption Fine – Quashed
Appeal Allowed in Full

Legal Significance

This judgment reiterates foundational principles of customs valuation:

Due process is non-negotiable – procedural lapses render valuation enhancement illegal.
Statements without evidence are insufficient to prove fraud.
Transaction value is sacrosanct, unless disproved with verified, independent, and contemporaneous material.

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Source: CESTAT Delhi

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