2025 (3) TMI 583 - AT - Customs

Valuation of imported goods - thoroughbred horses - rejection of declared value - to be valued under Rule 10A of the Customs Valuation (Determination of Price of Imported Goods) Rules 1988 or as per Rule 8 of the 1988 Rules? - levy of penalty - HELD THAT - In determination of value of the imported goods through the residual method the explicit prohibition on basing it on the domestic price in the country of export is as per an international agreement. It is part of Rule 8 of the 1988 Rules and also its successor Rule 9 of the 1997 Rules. In the impugned order after rejecting the transaction value under Rule 10A of the 1988 Rules it was re-determined under Rule 8 of 1988 Rules as per the auction prices of those horses in Ireland with some adjustments. It is found that if the declared value is rejected under Rule 10A of the 1988 Rules it has to be re-determined sequentially under Rules 4, 5, 6, 7, 7A and 8 of 1988 Rules. The SCN has specifically recorded in paragraph 7.4 that Rules 4, 5, 6, 7, and 7A cannot be applied to this case and for that reason proceeded to determine the value under Rule 8 of the 1988 Rules. Therefore remanding the matter to the Commissioner would serve no purpose whatsoever because the only Rule which could have been applied in the facts of the case as per the SCN itself is Rule 8 but in view of the prohibition in sub-rule (2) (iii) of this Rule the value cannot be determined based on the auction prices. The entire allegation of undervaluation is only based on the auction prices. The proposals for demand of duty confiscation fine and penalties are solely based on the re-determination of the values of the horses based on the auction prices. Conclusion - i) The rejection of the declared transaction value under Rule 10A was justified due to significant discrepancies with auction prices. ii) The imposition of penalties and fines was set aside as they were based on the flawed re-determination of value. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the transaction value declared by the importer, M/s. Doaba Stud & Agriculture Farm, for the imported thoroughbred horses was correctly rejected under Rule 10A of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.
Whether the re-determination of the value of the imported horses under Rule 8 of the 1988 Rules, based on auction prices in Ireland, was legally permissible.
Whether the penalties and fines imposed on the importer and its partner under various sections of the Customs Act, 1962, were justified.

2. ISSUE-WISE DETAILED ANALYSIS

Rejection of Declared Transaction Value under Rule 10A

Relevant Legal Framework and Precedents: Rule 10A of the 1988 Rules allows for the rejection of the declared transaction value if the proper officer has reasonable doubt about its truth or accuracy. The Customs Act, Section 14, supports this by allowing for re-determination of value in certain cases.
Court's Interpretation and Reasoning: The Court noted that the declared prices were significantly lower than the auction prices in Ireland, providing a strong basis for the rejection of the declared value under Rule 10A.
Key Evidence and Findings: The Directorate General of Revenue Intelligence (DRI) found that the horses were sold at auction in Ireland for much higher prices shortly before their import, which was a fraction of the declared value.
Application of Law to Facts: The Court agreed with the Revenue's argument that the significant discrepancy between the auction prices and the declared values justified the rejection of the declared transaction value.
Treatment of Competing Arguments: The appellants did not contest the rejection of the declared value under Rule 10A, focusing instead on the method of re-determination.
Conclusions: The rejection of the declared transaction value under Rule 10A was upheld.

Re-determination of Value under Rule 8

Relevant Legal Framework and Precedents: Rule 8 of the 1988 Rules provides a residual method for determining value when it cannot be determined under previous rules. It explicitly prohibits using the domestic market price of the country of export.
Court's Interpretation and Reasoning: The Court found that using auction prices from Ireland as a basis for re-determination violated Rule 8(2)(iii), which prohibits using domestic market prices of the country of export.
Key Evidence and Findings: The auction prices were used to re-determine the value, which the Court found to be inconsistent with the prohibition in Rule 8(2)(iii).
Application of Law to Facts: The Court determined that the auction prices in Ireland were indeed domestic prices and thus could not be used under Rule 8.
Treatment of Competing Arguments: The Revenue argued that auction prices were not domestic prices since anyone could participate, but the Court rejected this, stating that the auction still constituted a domestic market.
Conclusions: The re-determination of value under Rule 8 based on auction prices was incorrect and not permissible.

Imposition of Penalties and Fines

Relevant Legal Framework and Precedents: Penalties and fines were imposed under sections 28, 28AB, 111, 114A, and 112 of the Customs Act, contingent on the re-determined value.
Court's Interpretation and Reasoning: Since the re-determination of value was found to be incorrect, the basis for penalties and fines was invalidated.
Key Evidence and Findings: The penalties were based on the re-determined values, which were set aside.
Application of Law to Facts: With the re-determined values being unsustainable, the penalties and fines could not stand.
Treatment of Competing Arguments: The Revenue suggested remanding the case to apply the correct rule, but the Court found this unnecessary given the specific findings in the SCN.
Conclusions: The penalties and fines were set aside as they were based on the incorrect re-determination of value.

3. SIGNIFICANT HOLDINGS

The Court held that the rejection of the declared transaction value under Rule 10A was justified due to significant discrepancies with auction prices.
It was determined that the re-determination of value under Rule 8 using auction prices from Ireland was impermissible under Rule 8(2)(iii), which prohibits using domestic market prices of the country of export.
The imposition of penalties and fines was set aside as they were based on the flawed re-determination of value.
The appeals were allowed, and the impugned order was set aside with consequential relief to the appellants.

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