CESTAT Chandigarh Quashes ₹99.59 Lakh Demand, Says DGOV Guidelines Cannot Override Valuation Rules

The Chandigarh Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 28 July held that Directorate General of Valuation (DGOV) guidelines cannot override the Customs Valuation Rules, 2007. Also that Customs authorities cannot reject a declared transaction value solely on the basis of such guidelines or London Metal Exchange (LME) prices without evidence proving that the declared value was incorrect.

A Bench comprising Judicial Member S.S. Garg and Technical Member P. Anjani Kumar set aside the demand of Rs. 99.59 lakh along with interest and penalty imposed on Fire Stone Metal Pvt. Ltd. over alleged undervaluation of imported aluminium scrap. It stated:

“We find that these guidelines do not have any statutory force and they cannot override the provisions of Valuation Rules.”

Fire Stone Metal imported aluminium scrap from various countries between September 2018 and August 2023 and filed 183 Bills of Entry. Following an investigation, the Customs Department alleged undervaluation of the imports and rejected the declared transaction value under Rule 12 of the Customs Valuation Rules, which empowers rejection of declared value where there are doubts regarding its accuracy.

The Department re-determined the value under Rule 9 by relying on DGOV guidelines issued in November 2018, which were based on LME prices. It consequently confirmed a duty demand of Rs. 99.59 lakh along with interest and an equal penalty.

Fire Stone Metal argued that all 183 Bills of Entry had been assessed after scrutiny by the proper officer and, in several cases, the Department itself had enhanced the assessable value during assessment. It contended that once such assessments had attained finality, they could not be reopened merely on the basis of DGOV guidelines that lacked statutory backing.

It further submitted that the aluminium scrap was purchased from independent traders through arm's length transactions and not from manufacturers, making manufacturer invoices unavailable. It argued that LME prices could only act as market indicators and could not replace the valuation mechanism prescribed under the Customs Act and the Valuation Rules.

The Revenue defended the Commissioner's order, contending that the declared value was rightly rejected based on the investigation findings and DGOV guidelines.

The Tribunal noted that all 183 Bills of Entry had been assessed after verification and that the Department had itself enhanced the assessable value in some cases at the time of assessment. It held that after accepting those assessments, the Department could not subsequently reject the declared transaction value merely by relying on DGOV guidelines, particularly when there was no evidence showing that the declared value was incorrect.

It also relied on the Delhi High Court's decision in Niraj Silk Mills v. Commissioner of Customs, which held that reassessment of imported goods requires objective reasons to doubt the declared value and compliance with statutory safeguards under the Valuation Rules. It observed that valuation cannot be enhanced solely on the basis of external data such as the National Import Database (NIDB) or comparable market indices without independent corroborative evidence.

Reiterating the principle, the Bench stated:

“Once the assessment has been finalized and the department has not challenged the same, then subsequently on the basis of the guidelines issued by the Directorate of Valuation, the transaction value cannot be rejected because there is no evidence on record to show that the transaction value declared by the importer is not correct.”

Accordingly, the CESTAT held that the impugned order was contrary to settled legal principles, set it aside and allowed the appeal with consequential relief in accordance with law.

Counsel for Appellant: Mr. Kamaljeet Singh, Advocate

Counsel for Revenue: Mr. Varun Sharma, Authorized Representative