2013 (8) TMI 795 - AT - Customs

Mis-declaration of value - Undervaluation of Goods Duty Short paid - Whether undervaluation was proved was to be decided on the basis of the facts of each case - The commodity involved and the parties involved also were relevant - In the case the commodity involved was sophisticated mechanical equipment and measuring instruments which were not sold in bulk - Extensive price negotiation was on record - Detailed justification why the manufacturer cannot give further discount was on record - So suddenly the prices cannot come down to 1/4th - In the facts and circumstances of the case the finding of the Commissioner was upheld that the transaction Value declared were liable to be rejected - Collector of Customs, Bombay v. Shibani Engineering Systems, Bombay 1996 (8) TMI 106 - SUPREME COURT OF INDIA - abnormally discounted prices cannot be accepted - the prices declared in the Bill of Entry merits were rejected and goods should be assessed on the basis of prices at which goods were offered in the records seized. Whether demand can be issued without challenging the assessment was also settled in UOI v. Jain Shudh Vanaspati Ltd. 1996 (8) TMI 108 - SUPREME COURT OF INDIA - the allegation was regarding mis-declaration of value as was evidenced from correspondence sized from the assesse - Where there was such mis-declaration or suppression the extended period of five years specified in Section 28 of the Customs Act was applicable - amount worked out for short levy of duty could not be accepted - the matter was remitted back to the adjudicating authority for re-quantification of short-levy - The penalties also need to be decided afresh in view of the likely reduction in duty liability

Issues Involved:
1. Allegation of undervaluation of imported goods.
2. Jurisdiction and scope of the Tribunal.
3. Calculation of differential duty.
4. Evidence supporting undervaluation.
5. Justification of price variation by Kemtech.
6. Time-barred notice.
7. Requirement of challenging assessment orders.
8. Reliance on transaction values.
9. Admissibility of evidence and documents.
10. Burden of proof regarding discounts.
11. Role and penalties for individuals involved.

Detailed Analysis:

1. Allegation of Undervaluation of Imported Goods:
The main appellant, Kemtech International Ltd. (Kemtech), was accused of undervaluing goods imported from M/s. Precision Engine Controls Corporation (PECC) during 2001-2003. The undervaluation was alleged based on the significant price difference between the declared import prices and the prices initially negotiated by GAIL with PECC and EMSG.

2. Jurisdiction and Scope of the Tribunal:
The Tribunal clarified that the loss caused to GAIL is not within its jurisdiction. The focus was solely on the alleged undervaluation and the resultant customs duty evasion.

3. Calculation of Differential Duty:
The Tribunal found the method used to calculate differential duty in the Show Cause Notice (SCN) faulty. The correct approach should involve determining the invoice value, applying the exchange rate on the import date, and then calculating the customs duty based on the actual import date.

4. Evidence Supporting Undervaluation:
The key evidence included:
- Prices at which goods were imported by GAIL before August 2000.
- Documents seized from Kemtech's premises showing negotiations and final prices.
- Statements from Kemtech's Director admitting undervaluation and voluntary payment of differential duty.

5. Justification of Price Variation by Kemtech:
Kemtech justified the price variation by stating that they paid 50% of the price in advance, bore the risk of currency fluctuations, and provided after-sales services. However, the Tribunal found these justifications insufficient to explain the significant price difference.

6. Time-Barred Notice:
The Tribunal held that the notice was not time-barred as the case involved mis-declaration and suppression, invoking the extended period of five years under Section 28 of the Customs Act.

7. Requirement of Challenging Assessment Orders:
The Tribunal referred to the Supreme Court's decision in UOI v. Jain Shudh Vanaspati Ltd., confirming that demand can be issued without challenging the assessment orders.

8. Reliance on Transaction Values:
The Tribunal found that the transaction values declared by Kemtech were not reliable. The prices quoted to GAIL provided reasonable profit margins, indicating that the declared values were abnormally low.

9. Admissibility of Evidence and Documents:
The Tribunal rejected certain documents, such as export declarations from the USA, due to lack of authentication and proper disclosure. However, the main evidence from Kemtech's correspondence was deemed sufficient to prove undervaluation.

10. Burden of Proof Regarding Discounts:
The burden of proving the genuineness of the abnormally high discounts shifted to Kemtech, which they failed to discharge. The Tribunal emphasized that the department was authorized to call for the manufacturer's invoice, which Kemtech did not produce.

11. Role and Penalties for Individuals Involved:
The appeals by the Director and Managing Director of Kemtech raised similar issues as the main appeal. The Tribunal held that penalties were imposable on these individuals due to the proven case of undervaluation. However, the quantum of penalties needed to be reassessed in light of the recalculated duty liability.

Conclusion:
The Tribunal rejected Kemtech's plea of no undervaluation but remitted the matter back to the adjudicating authority for re-quantification of duty liability and fresh decision on penalties. The appeals were partially allowed, focusing on the need for accurate duty calculation and appropriate penalties based on the revised duty liability.

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