Legal principle

Undervaluation must be proved by the department through evidence or information of contemporaneous imports of like goods at higher prices, and mere suspicion of the invoice or reliance on foreign export declarations—without showing how they were procured—cannot justify rejecting the transaction value and resorting to Rule 8 of the Customs Valuation Rules.

Court decision

The Supreme Court dismissed the department's appeals with no costs, holding that both the department and the adjudicating authority were not justified in rejecting the import invoice price and enhancing it by straightaway invoking Rule 8 of the Customs Valuation Rules when there was no evidence before them to do so; CESTAT was therefore justified in setting aside the order in original.

Facts

M/s Ganpati Overseas, owned by Yashpal Sharma, imported about twenty consignments of tuners and saw filters from M/s Arise Enterprises, Hong Kong (owned by his co-brother Suresh Chandra Sharma) during 1997-98 and 1998-99. Based on secret information, DRI investigated and alleged gross under-invoicing, relying on Section 108 statements of both Sharma (who admitted declaring lower prices and retaining the differential in India), export declarations before the Hong Kong Customs showing higher prices, and Yashpal Sharma's arrest under Section 135. DRI issued a show cause notice under Section 124 read with the proviso to Section 28(1), proposing differential duty of Rs. 1,16,09,181, valuation under Rule 8 of the Customs Valuation Rules, 1988, confiscation under Sections 111(d) and 111(m), penalty under Section 112(a), and interest. The Commissioner of Customs (Adjudication-1), Mumbai enhanced the value and imposed penalties, but CESTAT by order dated 27.06.2008 set aside the value enhancement and penalties, prompting the Commissioner's appeals under Section 130-E.

Key provisions

• Section 14(1), Customs Act, 1962 — Valuation of goods
• Section 108, Customs Act, 1962 — Power to summon persons to give evidence and produce documents
• Section 2(41), Customs Act, 1962 — Definitions
• Section 28(1), Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 111(d), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 135, Customs Act, 1962 — Evasion of duty or prohibitions
• Section 156, Customs Act, 1962 — General power to make rules
• Section 112(a), Customs Act, 1962 — Penalty for improper importation of goods
• Section 114A, Customs Act, 1962 — Penalty for short-levy or non-levy of duty in certain cases
• Section 2(q), The Foreign Exchange Management Act, 1999 — Definitions.
• Section 22, Customs Act, 1962 — Abatement of duty on damaged or deteriorated goods
• Section 130, Customs Act, 1962 —  Appeal to High Court