CESTAT Chennai Quashes Customs Duty Demand Over Inadmissible Electronic Evidence

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has recently set aside customs duty demands of over ₹11.24 crore raised against importers of lighting fixtures and allied goods from China.

The tribunal found that the Revenue's allegation of undervaluation rested on unverified electronic data and uncorroborated statements.

A bench of Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao allowed appeals filed by Suraj Impex, Spark Lites and Shri Rajesh Jain against an Order-in-Original passed by the Additional Director General (Adjudication), Directorate of Revenue Intelligence (DRI), Mumbai.

While setting aside the demand, the tribunal held,

"The cumulative effect of the above analysis is that the Revenue has failed to establish any objective basis for doubting the declared value. There is no evidence of additional consideration, no corroborated documentary evidence, and no reliable comparison with contemporaneous imports. The entire case rests on unverified electronic data and uncorroborated statements, which do not meet the legal threshold required under Rule 12. "

The dispute arose from a DRI investigation into imports of lighting fixtures and allied goods from China made by the appellants through Chennai Port between September 2013 and January 2015.

According to the department, searches conducted in January 2015 resulted in the seizure of pen drives and hard disks. Electronic data retrieved from those devices was later relied upon during the investigation. The Department alleged that the data indicated undervaluation of the imported goods.

Relying on this material and statements recorded during the investigation, the Department issued a show cause notice in November 2018. The notice proposed differential duty demands, confiscation of goods, redemption fine, and penalties.

The tribunal noted that transaction value is the primary basis for customs valuation. It observed that such value can be rejected only when the Department establishes valid grounds for doubting its truth or accuracy.

The tribunal further observed that the burden of establishing undervaluation rests on the Revenue. It held that rejection of declared value cannot be based on suspicion or conjecture.

Examining the evidence relied upon by the Department, the Tribunal found that the case rested substantially on electronic data allegedly retrieved from seized devices and statements recorded during the investigation.

It observed that the department had not produced the certificate required for the admissibility of electronic records. It also found that the authenticity, integrity, and chain of custody of the data had not been established.

The tribunal further observed that there was no evidence of extra remittance, additional consideration, or flow-back of funds to suppliers. It held that there was no material to indicate that the declared import values were incorrect.

The tribunal also noted that the alleged electronic records were not linked to specific import transactions. It observed that the records, at best, reflected indicative or tentative pricing.

The Tribunal found that the statements relied upon by the Department were not corroborated by independent evidence. It also noted that despite specific requests by the appellants, cross-examination of persons whose statements were relied upon had not been granted.

On the electronic evidence, the Tribunal observed:

"In the present case, it is an admitted position that no certificate under Section 138C (4) has been produced, nor has the Department established the chain of custody, authenticity or integrity of the devices and data. Consequently, the entire electronic evidence relied upon is rendered inadmissible in law."

The tribunal observed that the cumulative effect of non-supply of relied-upon documents, selective disclosure of electronic records and denial of cross-examination amounted to a violation of the principles of natural justice.

Having found the rejection of the declared transaction value unsustainable, the Tribunal nevertheless examined whether the Department had correctly re-determined the value of the imported goods.

It observed that the adjudicating authority had adopted standardised rates of ₹110 per kilogram and ₹225 per kilogram for different periods. The rates were applied without establishing comparability with contemporaneous imports of identical or similar goods.

The tribunal held that the mandatory sequential methodology prescribed under the Customs Valuation Rules had not been followed. It observed that the adjudicating authority had bypassed the statutory valuation framework. Instead, it adopted a method based on selective electronic data and assumptions.

The Tribunal also rejected the Department's reliance on contemporaneous import prices. It observed that no proper comparative analysis had been undertaken. The Tribunal further noted that there was no evidence of parallel invoices or additional consideration paid by the importers.

On limitation, the Tribunal noted that all imports had been made through regular Bills of Entry. The imports were assessed by Customs authorities at the time of clearance.

In several cases, values had been enhanced by Customs during assessment and duty had been paid accordingly. The Tribunal held that since the Department was already aware of the transactions, the allegation of suppression was not sustainable.

The Tribunal also noted that the investigation commenced in January 2015, while the show cause notice was issued only on November 15, 2018. It held that the Department had failed to establish the conditions necessary for invoking the extended period of limitation.

Accordingly, the Tribunal held, "The demands of differential duty confirmed against the appellants are set aside both on merits and on limitation."

As a consequence, the Tribunal also set aside the confiscation of goods, redemption fine and penalties imposed under the Customs Act.

The penalty imposed on Shri Rajesh Jain was also set aside. The tribunal found no independent evidence establishing a separate role attributable to him.

The appeals were allowed with consequential relief.

For Appellants: Advocate P.R. Renganath,

For Respondent: Anoop Singh, Authorised Representative.