2019 (4) TMI 1444 - SC - Customs

Application of valuation rules - comparing value with import from other countries - import of branded goods from related party - undervaluation of goods - electrical decorative lights - Recovery of duties not levied or short-levied or erroneously refunded - Suppression of facts - non-declaration of brand of imported goods , intentionally - HELD THAT - The electrical decorative lightings, normally, are not highly branded products, exceptions apart. It does appear that even though the imports were under the brand names Diyas and mAntra , they were not trademarks of such nature as would make them an exclusive product. It also appears that there has been some mix up in the understanding of a trademark protection, as the same has been compared with patented goods . Thus, data was certainly available, which could have been utilised to obtain the pricing for imports from the U.K., of identical goods or similar goods. The irony is that if the competent authority thought that these were goods where trademark was of significance, it could not simultaneously have ignored the imports under the same trademark, from different countries, where there were no related parties. Naturally, there would have to be made adjustments for the distance from which the import was made, or the size of the consignment, if applicable, as set out in Rules 3 to 5. There was really no occasion to straightaway proceed to determine the transactional value by relying on Rules 7 to 9 - there is no doubt this principle of sequential application would apply, especially in view of sub-Rule (4) of Rule 3, which provides that there has to be a sequential implementation of the Rules, i.e., that Rules 3 to 5 would have to be exhausted first, and only in the eventuality of an inability to apply the Rules would the assessing authority proceed to impose Rules 7 to 9. Thus, there appears to be a fundamental mistake committed in the manner of implementation of the statutory Rules. Once the statutory Rules exist and provide for sequential implementation, the assessing authority has no option but to proceed in accordance with those Rules, in that manner. The matter remitted back to the Principal Commissioner of Customs (Preventive), Customs, New Delhi, to proceed afresh with the matter in accordance with the observations aforesaid, and thus, it is Rules 3 to 5 which would have to be applied first, as it is provided for the Rules to apply sequentially - appeal allowed by way of remand.

Summary

Issues Involved:
1. Alleged undervaluation of imported goods.
2. Non-declaration of brand names.
3. Related party transactions influencing price.
4. Sequential application of Customs Valuation Rules.

Detailed Analysis:

1. Alleged Undervaluation of Imported Goods:
The appellant, M/s. Diyas Mantra Lighting Private Limited, was accused of undervaluing imported electric decorative lightings to evade customs duty. The Principal Commissioner of Customs revalued the import consignments, resulting in the imposition of differential duties and penalties. The appellant contested the valuation method under Rule 7 and Rule 9 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, arguing that the competent authority misapplied the scheme of the Rules.

2. Non-declaration of Brand Names:
The show cause notice alleged that the appellant did not declare the brand names 'Diyas' and 'mAntra' and undervalued the goods. The appellant argued that these brands were not well-known enough to affect the value significantly. For imports from China, the brand 'Diyas' was declared, and consignments were cleared after physical verification, indicating that the brands did not have intrinsic market value.

3. Related Party Transactions Influencing Price:
The appellant was accused of importing goods from a related party in the UK, thereby influencing the price. The appellant contended that imports were made from three different sources, including China and Spain, which were not related parties. The pricing from these unrelated sources could be used as the transactional value for the consignments, with necessary adjustments for distance and other factors.

4. Sequential Application of Customs Valuation Rules:
The appellant argued that the valuation should follow the sequential application of Rules 3 to 5 before proceeding to Rules 7 to 9, as mandated by Rule 3(4). The Supreme Court agreed, emphasizing that the assessing authority must exhaust Rules 3 to 5 sequentially. The Court noted that the competent authority erred by not considering the transactional value of identical or similar goods from unrelated sources before applying Rules 7 to 9.

Conclusion:
The Supreme Court set aside the orders of the Principal Commissioner of Customs and the CESTAT, remitting the matter back to the Principal Commissioner to re-evaluate the case in accordance with the sequential application of Rules 3 to 5. The Court allowed the appellant to raise all available legal pleas during the re-evaluation. The appeals were allowed, with parties bearing their own costs.