CESTAT Delhi Cuts Customs Duty Demand From ₹5.53 Crore To ₹7.9 Lakh Over Arbitrary Revaluation of Imported Good

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has reduced a customs duty demand against Jaipur-based watch manufacturer Rochi Ram & Sons from about ₹5.53 crore to ₹7.9 lakh.

It held that Customs authorities did not follow the valuation procedure prescribed under the Customs Valuation Rules after rejecting the declared import values.

A tribunal comprising Judicial Member Rachna Gupta and Technical Member P.V. Subba Rao observed that Customs authorities were justified in rejecting the declared transaction values.

It, however, held that the department was required to re-determine the value of the imported goods by following the valuation methods prescribed under law.

"Nothing in the Annexures or in the operative part of the impugned order indicates as to which Valuation Rule was adopted to re-determine the value of which good under which Bill of Entry and why," the tribunal observed.

The dispute arose from imports of watch parts and watch movements from Hong Kong through multiple ports. The Directorate of Revenue Intelligence alleged that Rochi Ram & Sons and five related companies had undervalued the imported goods. It also alleged that the importer had not disclosed its relationship with overseas suppliers and had suppressed the actual value of the imports.

The Commissioner of Customs rejected the declared transaction values and re-determined the value of the imported goods. The order confirmed a differential customs duty demand of about ₹5.53 crore. It also confiscated the goods, imposed redemption fines and levied penalties on the importer and four individuals.

Before the tribunal, Rochi Ram & Sons argued that the valuation exercise carried out by Customs was contrary to law. It also contended that the department had relied on statements and documents without permitting cross-examination.

The tribunal agreed that the declared transaction values could be rejected because the importer and the overseas suppliers appeared to be related entities. That relationship gave Customs authorities reasonable grounds to doubt the truth and accuracy of the declared values.

It, however, ruled that once the declared values were rejected, Customs authorities had to determine the value sequentially under the Customs Valuation Rules. They could not adopt arbitrary methods in place of the procedure prescribed under the rules.

The tribunal found that for several categories of imported goods, the Commissioner enhanced the declared values by applying an average undervaluation of 60 per cent under the residual valuation method. It observed that this approach was adopted instead of relying on contemporaneous imports of identical or similar goods where such material was available.

"Values of Watch movements of Chinese origin (paragraph 188.16), watch cases with accessories (paragraph 188.17) plastic straps, plastic straps PU, Nylon straps and Velcro straps and various miscellaneous items (paragraph 188.19) were all re-determined under Rule 8 by arbitrary loading of value considering that there was an average undervaluation of 60%. Use of such arbitrary values is explicitly prohibited under Rule 8(2) (vi) and hence the re-determination of values to this extent and the consequential confirmation of demands cannot be sustained," the tribunal held.

The tribunal nevertheless upheld a customs duty demand of about ₹7.9 lakh with interest. It found that this part related to specific consignments for which the revised valuation was supported by the applicable valuation rules or contemporaneous import data.

The tribunal set aside the remaining duty demand. It also set aside the confiscation of goods, redemption fines, and penalties imposed on Rochi Ram & Sons.

It further set aside penalties imposed on Nanak Das Moolrajani and Neeraj Moolrajani, who were directors of Rochi Ram & Sons, as well as Om Prakash Pareek and Ishwar Das Moolrajani.

For Appellant: Shri Keshav Krishnan appeared as proxy counsel for the appellants seeking adjournment,

For Revenue: Shri R.P. Sharma appeared as Special Counsel for the Revenue.