2022 (4) TMI 1214 - AT - Customs

Jurisdiction - power of Directorate of Revenue Intelligence (DRI) to issue SCN - HELD THAT - Learned counsel for the respondent submits that he is giving up on the question of competence of DRI to issue the SCN and will not rely on M/S CANON INDIA PRIVATE LIMITED VERSUS COMMISSIONER OF CUSTOMS 2021 (3) TMI 384 - SUPREME COURT and will argue on merits and that the respondent has a very strong case on merits. Accordingly, with concurrence of both sides, this appeal is taken up for hearing for a decision on merits ignoring the jurisdictional issue as it has been given up by the learned counsel for the respondent. Valuation of imported goods - Fitness Equipments - Under-valuation - rejection of declared value - enhancement of value - pen-drives - admissible evidence or not - Section 138C of the Customs Act - Section 65B of the Evidence Act - Section 3 of the Information Technology Act, 2000 - principles of natural justice - section 13 of Customs Act - HELD THAT - The default position is that the valuation has to be done on the basis of the transaction value and not based on any fixed value. If there are a hundred transactions between the importer and the overseas seller at different prices, for each transaction, the value under section 14 shall be that transaction value. Simply because the price is higher in any particular transaction, such price cannot be applied to other transactions to determine duty. Conversely, the importer cannot claim to pay duty on a lower value than the transaction value in any consignment even if other consignments were sold to the same importer by the same overseas supplier at lower prices. Valuation has to be done for each import as per that transaction value. There is also no provision to take the average price to determine the duty if the transaction values are available. In this case, DRI officers found that the invoice which was presented along with the Bill of Entry was a trader s invoice for a value which was substantially lower than the price at which the trader himself had purchased the goods. Both the manufacturer s invoice on the trader and the trader s invoice on the importer were for exactly the same consignment with the same details as they were back to back orders - According to the Revenue, the trader s invoices are fraudulent and manipulated invoices. Insofar as the first part of the demand indicated in paragraph 10 (a) above is concerned, the EXCEL sheets in the pen drive as well as the invoices recovered during the searches form the basis for the doubt. As far as the second and third parts of the demand indicated in paragraphs 10 (b) and 10 (c) are concerned, the doubt is based on projections. The proposal to reject the transaction value in respect of those imports listed in WORKSHEET II to the SCN is based on the EXCEL sheet recovered from the Pen drive recovered from the residence of Shri Sachdev of the respondent and the copies of invoices recovered from the office of the respondent. As for the imports listed in WORKSHEET IIIA to the SCN and WORKSHEET IV to the SCN, they are based on projections and extrapolations. Since the officers found some reason to reject the transaction value in imports covered by WORKSHEET II, it is also proposed to be rejected in the imports covered by the other two worksheets. There are no legal provision by which the transaction value can be rejected by extrapolation. If the transaction value is higher in any one case, that, by itself cannot form the basis for assessment of other imports. Conversely, if the transaction value in any one case is lower, the importer cannot ask for that to be the basis for assessment of all other imports. A single value has to be reckoned for assessment of all imports only if it is a tariff value fixed by the Board under Section 4 (2) - Undervaluation of goods is a serious charge which entails not only re-determination of duty and recovery of duty but also penalties. If one is found to have undervalued goods in one case, inference cannot be drawn that he has undervalued in all other imports as well. Penalties and pecuniary liabilities based on extrapolation is impermissible and is inconsistent with the legal principles known. If Central Excise officers find that a truck of goods has been clandestinely removed by the manufacturer on a day, it cannot be presumed that the manufacturer has been clandestinely removing one truck of goods every day for the past five years. Each case must be examined only based on the evidence in it. Since each assessment is a quasi-judicial order based on the transaction value in it, transaction values cannot be rejected under Rule 12 by extrapolations. They can be rejected if the officer has reasonable belief based on the evidence in that case, that the transaction value is not true and accurate - the rejection of the transaction value in the imports covered in Worksheets IIIA and IV of the SCN by extrapolation and re-determination of the value have no legal basis and need to be set aside. Consequently, the demands in these cases by re-determination of the values cannot also sustain. There is nothing on record to show that the procedure prescribed under section 65B of the Evidence Act, section 3 of the Information Technology Act, 2000 or section 138C of the Customs Act were followed. Learned Departmental representative could not also produce anything on record to show that these were followed. Therefore, the pen-drive is inadmissible as evidence despite the vital information which it contained and which was relied upon by the Revenue. The mere fact that there was a difference between the two sets of invoices without questioning anyone or investigating as to why there is a difference cannot be a sufficient ground to reject the transaction value and redetermine it as per the manufacturer s invoice and recover differential duty. There are no reasons to interfere with the impugned order and accordingly, it is sustained - appeal dismissed.

Summary

Issues Involved:
1. Competence of DRI to issue SCN.
2. Alleged undervaluation of imported fitness equipment.
3. Rejection of transaction value under Rule 12 of the Customs Valuation Rules, 2007.
4. Admissibility of electronic evidence (pen-drive) under Section 138C of the Customs Act and Section 65B of the Evidence Act.
5. Methodology for determining the value of goods under Rule 9 of the Customs Valuation Rules, 2007.
6. Legal validity of extrapolation in determining undervaluation and duty.

Detailed Analysis:

1. Competence of DRI to issue SCN:
The Departmental Representative requested adjournment citing a pending review petition in the Supreme Court regarding the competence of DRI officers to issue SCN under Section 28, referencing the Canon India case. However, the respondent's counsel waived this jurisdictional issue, allowing the Tribunal to proceed on merits.

2. Alleged Undervaluation of Imported Fitness Equipment:
The respondent imported fitness equipment from China and Taiwan. DRI alleged undervaluation based on intelligence, searches, and recovered invoices indicating higher values from the manufacturer compared to the lower values declared by the respondent. The DRI claimed that the respondent paid the difference through non-banking channels, supported by evidence from a pen-drive.

3. Rejection of Transaction Value under Rule 12:
The adjudicating authority initially rejected the declared value under Rule 12, citing higher values in manufacturer’s invoices and entries in a pen-drive indicating additional payments. However, the Tribunal emphasized that each import must be assessed individually, and the transaction value can only be rejected if there is reasonable doubt based on evidence in that specific case, not by extrapolation.

4. Admissibility of Electronic Evidence:
The Tribunal scrutinized the admissibility of the pen-drive under Section 138C of the Customs Act and Section 65B of the Evidence Act. It found that the procedural requirements for admitting electronic evidence were not followed, rendering the pen-drive inadmissible. The Tribunal also noted the lack of corroborative evidence to support the entries in the pen-drive.

5. Methodology for Determining Value under Rule 9:
The SCN proposed re-determining the value using Rule 9 due to the absence of identical or similar goods' values. The Tribunal highlighted that Rule 9 should only be applied sequentially after exhausting other rules (Rules 4 to 8). The Tribunal found that the methodology adopted by the DRI, based on projections and extrapolations, lacked legal basis.

6. Legal Validity of Extrapolation:
The Tribunal rejected the practice of extrapolating undervaluation across multiple imports based on evidence from a few cases. It asserted that each import must be assessed individually, and penalties or duty demands cannot be based on presumptions or extrapolations. The Tribunal emphasized that undervaluation must be established with concrete evidence for each specific import.

Conclusion:
The Tribunal upheld the Commissioner’s order dropping the proceedings initiated by the SCN, finding no sufficient grounds to reject the transaction value or to rely on inadmissible electronic evidence. The appeal by the Revenue was rejected, reaffirming the necessity of concrete evidence and proper procedural adherence in customs valuation and adjudication processes.