2023INSC881 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 4735-4736 OF 2009

COMMISSIONER OF CUSTOMS

(IMPORTS), MUMBAI APPELLANT(S)

VERSUS

M/S GANPATI OVERSEAS THR OUGH ITS

PROPRIETOR SHRI YASHPAL SHARMA & ANR. RESPONDENT(S)

J U D G M E N T

UJJAL BHUYAN, J.

Since both the appeals arise out of the common judgment

and final order dated 27.06.2008 passed by the Customs, Excise and

Service Tax Appellate Tribunal, West Zonal Bench at Mumbai with

parties also being the same, the two appeals were heard together and

are being disposed of by this common judgment and order.

2. The appeals have been filed by the Commissioner of

Customs (Imports), Mumbai under Section 130-E of the Customs

Act, 1962 against the common judgment and final order dated

27.06.2008 passed by the Customs, Excise and Service Tax

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Appellate Tribunal, West Zonal Bench at Mumbai ( briefly the

‘CESTAT’ or ‘the Tribunal’ hereinafter) in Appeal Nos. C/1347 and

1374 of 2002.

3. The issue that arises in the two appeals is whether the

CESTAT was justified in holding that enhancement of value of the

imported goods and the penalties imposed by the Commissioner of

Customs (Adjudication-1), Mumbai on the respondents could not be

sustained and consequently in setting aside the same?

4. A brief recital of facts would be in order.

4.1. Show cause notice dated 17.12.1999 was issued to the

respondents by the Additional Director General, Directorate of

Revenue Intelligence, New Delhi. It was mentioned therein that

secret information was received by the Directorate of Revenue

Intelligence that M/s Ganpati Overseas had imported tuners from

Hong Kong at grossly under invoiced prices, thereby evading huge

customs duty. The information revealed that the firm M/s Ganpati

Overseas was owned by one Mr. Yashpal Sharma; the Hong Kong

based supplier M/s Arise Enterprises was owned by his relative Mr.

Suresh Chandra Sharma; the imported goods were cleared from Air

Cargo Complex, Sahar, Mumbai and that M/s National Shipping

Agency, Mumbai had acted as the Customs House Agent.

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4.2. Upon receipt of such information, Directorate of Revenue

Intelligence carried out investigation wherefrom it could be gathered

that M/s Ganpati Overseas had imported twenty consignments

during the years 1997-98 and 1998-99. It was found that M/s

Ganpati Overseas had imported mainly tuners from M/s Arise

Enterprises, Hong Kong and had also imported about three-four

consignments of saw filters alongwith the tuners. Directorate of

Revenue Intelligence obtained information from the Consulate

General of India at Hong Kong that M/s Arise Enterprises, Hong

Kong belonged to one Mr. Suresh Chandra Sharma who alongwith

his wife Mrs. Kusum Sharma were the directors. When Mr. Suresh

Chandra Sharma visited India in March, 1999, his statement was

recorded on 08.03.1999 under Section 108 of the Customs Act, 1962

(referred to as the ‘Customs Act’ hereinafter). In his statement, Mr.

Suresh Chandra Sharma stated that M/s Ganpati Overseas

belonged to Mr. Yashpal Sharma who was his co-brother. He stated

that M/s Ganpati Overseas was in the business of importing

electronic goods since 1997-98. He had supplied tuners and saw

filters to M/s Ganpati Overseas through his firm M/s Arise

Enterprises from Hong Kong.

4.3. Mr. Suresh Chandra Sharma admitted that the rate of

tuners per piece as shown in the invoices by M/s Arise Enterprises

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did not reflect the actual price. He had deliberately mentioned lower

price with the intention of saving customs duty in respect of the

goods imported by his co-brother, Mr. Yashpal Sharma. The actual

price of the tuners was quite high. The differential amount i.e. the

difference between the actual price and the declared price was

retained in India which he used to collect from Mr. Yashpal Sharma.

4.4. Mr. Yashpal Sharma was also summoned whereafter his

statement was recorded under Section 108 of the Customs Act on

15.03.1999. Apart from narrating the factum of importing the goods

by showing prices much lesser than the actual price meant to evade

customs duty, he stated that the amount of payment disclosed in the

import documents were sent by him to Mr. Suresh Chandra Sharma

through the banking channel, whereas, the balance differential

amount used to be handed over to Mr. Suresh Chandra Sharma on

his visits to India.

4.5. It was mentioned that price of tuners so imported as per

the sales vouchers was in the range of Rs. 40-60 per piece but the

actual market value of these tuners was in the range of Rs. 200-325

per piece. In this manner, the respondents had evaded customs duty

amounting to a total of around rupees twenty five to thirty lakhs

approximately.

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4.6. Mr. Yashpal Sharma was arrested on 15.03.1999 under

Section 135 of the Customs Act. He was enlarged on bail on

30.03.1999 by the Additional Sessions Judge, Patiala House, New

Delhi subject to the condition that a sum of rupees ten lakhs should

be deposited in the office of the Directorate of Revenue Intelligence

on 30.03.1999 and a further sum of rupees twenty lakhs should be

so deposited within a period of forty-five days. Both the amounts

were accordingly deposited.

4.7. From a scrutiny of the relevant materials including

export declarations, it was found that the price of tuner as per the

export declarations filed by the exporter before the Hong Kong

Customs and Excise Department was Hong Kong $67.67 per piece

which was much higher as compared to the price declared in the

invoice by M/s Ganpati Overseas before the Indian customs

authority at the time of importation of the goods. In this connection,

the Directorate of Revenue Intelligence prepared two charts; as per

chart-I, M/s Ganpati Overseas had evaded customs duty to the

extent of Rs. 1,07,41,419.00 on import of nineteen consignments.

Likewise, Directorate of Revenue Intelligence prepared chart-II which

dealt with importation of 3200 pieces of tuners which were made in

Taiwan. It was noted that the value of the goods declared before the

customs authority was Hong Kong $19200 whereas the actual value

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was Hong Kong $211468.07 as per export declaration before the

Hong Kong Customs and Excise Department. Thus, according to the

Directorate of Revenue Intelligence, M/s Ganpati Overseas ha d

evaded customs duty to the tune of Rs. 8,67,762.00. The price of

goods as shown in the import documents by M/s Ganpati Overseas

was found to be much less than the real price of the goods, i.e., at

the price at which those were supplied from Hong Kong. Therefore,

the import valuation was rejected in terms of Section 14 of the

Customs Act and the Customs Valuation (Determination of Price of

Imported Goods) Rules, 1988 (briefly, the ‘Customs Valuation Rules’

hereinafter).

4.8. The show cause notice proposed that the value of

imported goods should be determined under Rule 8 of the Customs

Valuation Rules on the basis of the value given in the export

declarations obtained from the Hong Kong Customs and Excise

Department. Alleging that respondents had wilfully misdeclared and

suppressed the correct value of the imported goods with an intent to

evade duties of customs, Directorate of Revenue Intelligence invoked

the extended period of limitation as per the proviso to Section 28(1)

of the Customs Act. It was mentioned that M/s Ganpati Overseas

was liable to pay the differential customs duty of Rs. 1,07,41,419.00

leviable on the import of tuners, saw filters etc. as per chart-I and

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Rs. 8,67,762.00 as per chart -II, the total amount being Rs.

1,16,09,181.00. Respondents were therefore called upon to show

cause as to why the aforesaid amount of customs duty should not

be demanded and recovered from them and also as to why the

imported goods should not be confiscated under Sections 111(d) and

111(m) of the Customs Act, besides appropriation of the amount of

Rs. 30 lakhs already deposited. Respondents were further called

upon to show cause as to why penalty under Section 112(a) of the

Customs Act should not be imposed upon them and as to why

interest should not be levied on the evaded customs duty.

4.9. The noticees were directed to submit their reply to the

Commissioner of Customs, Air Cargo Complex, Sahar Airport,

Mumbai within the stipulated time. It was mentioned that the show

cause notice was issued under Section 124 of the Customs Act read

with the proviso to Section 28(1) of the aforesaid Act.

5. M/s Ganpati Overseas through its lawyer replied to the

aforesaid show cause notice on 20.05.2000. While denying all the

allegations in totality, it was mentioned that the Commissioner of

Customs vide his letter dated 07.04.2000 had rejected the request of

M/s Ganpati Overseas for supply of certain documents sought for,

on the ground that those documents were not relied upon. It was

submitted that those documents might have relevance while

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preparing the defence and that absence of those documents would

handicap the noticees in putting forth a proper defence. While

reiterating the request for such documents, the noticees submitted

what they called an interim reply.

5.1. It was mentioned that Mr. Yashpal Sharma was the

proprietor of the noticee firm which was engaged in the business of

import of tuners etc. during the years 1997-98 and 1998-99. The

imports were made from M/s. Arise Enterprises, Hong Kong. At the

time of clearance, the bills of entry were filed through the Customs

House Agent and the imported goods were cleared after proper

assessment by the customs authority on payment of due customs

duty. Those goods were subsequently sold in the local market. In all,

twenty consignments were imported. The noticees thereafter

described and furnished the details of two types of tuners which were

imported over a period of about nine months consisting of twenty

consignments.

5.2. The noticees adverted to the allegations made in the show

cause notice that the price declared by the noticees was not correct

and was on the lower side, as proved by the statements of Mr. Suresh

Chandra Sharma and Mr. Yashpal Sharma recorded under Section

108 of the Customs Act as well as by the export declarations filed by

M/s Arise Enterprises before the Hong Kong Customs and Excise

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Department. It was pointed out that the two statements of Mr.

Suresh Chandra Sharma and Mr. Yashpal Sharma could not be

termed as voluntary under any circumstances. Those inculpatory

statements were obtained through coercion and under duress. It was

pointed out that the statement of Mr. Yashpal Sharma was

structured in such a manner as to tally entirely with the statement

of Mr. Suresh Chandra Sharma. That apart, statement of Mr.

Yashpal Sharma was contradictory to his own statement made

before the Additional Sessions Judge where he had stated that there

was no under valuation or under invoicing of the goods imported.

Therefore, it was contended that both the statements were not at all

reliable. Further, Mr. Yashpal Sharma vide letter dated 25.08.1999

had retracted the statement made by him under Section 108 of the

Customs Act.

5.3. Regarding the export declarations filed by M/s Arise

Enterprises before the Hong Kong customs authority, it was

submitted that it was not known as to when these declarations were

forwarded by the Consulate General of India, Hong Kong to the

Directorate of Revenue Intelligence, New Delhi. The copies relied

upon by the department were unattested and photocopies, thus

unreliable. That apart, when the noticees contacted M/s Arise

Enterprises, Hong Kong, it was acknowledged that due to error on

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the part of the staff, value of the goods was incorrectly shown in the

export declarations. The mistake was subsequently rectified

whereafter M/s Arise Enterprises lodged a second set of declarations

before the Hong Kong customs authority and paid the penalty which

was levied.

5.4. It was stated that the noticees were informed by the Hong

Kong supplier that the tuners, saw filters etc. were being offered to

them on stock clearance basis at lower prices. It was for this reason

that the goods were sold to the noticees at lower prices, details of

which were mentioned in paragraph 11 of the reply.

5.5. After saying so, it was pointed out that different prices in

export declarations and in import invoices did not necessarily mean

that the price shown in the export declarations was correct and that

the one declared in the import invoices was incorrect.

5.6. The reply also touched upon the method of valuation as

well as the valuation of the goods by the customs authority in India.

After adverting to various provisions of the Customs Valuation Rules,

it was asserted that the price at which the goods of the respondents

were assessed and cleared was more or less correct. It was pointed

out that the department could not adduce any single piece of

evidence to arrive at the so called correct value of the goods. No value

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of identical or similar goods could be produced. No evidence of

market value was adduced. No attempt to find out the price per unit

was made for a comparison. That apart, no incriminating document

or material was produced to establish under valuation. There was no

evidence as to how remittances over and above the invoice price were

made. One and only ‘evidence’ relied upon by the department was

the initial value shown in the export declarations which was declared

to be incorrect by the supplier itself and later on rectified. Thus, there

was no mis-declaration either in respect of description of the goods

or value of the goods. No question of confiscation under Sections

111(d) and 111(m) of the Customs Act was made out. That apart, the

goods were not prohibited ones, the import of which would warrant

confiscation. In any view of the matter, the goods on being cleared

by the customs authority were sold by the noticees much before the

issuance of the show cause notice. Therefore, there cannot be any

confiscation of such goods. In so far deposit of Rs. 30 lakhs by Mr.

Yashpal Sharma is concerned, the same was to fulfil the bail

condition imposed by the Additional Sessions Judge. Since there was

no short payment of customs duty, question of appropriation of the

aforesaid amount did not arise; neither any penalty was imposable

nor interest leviable. M/s Ganpati Overseas, therefore, requested the

Commissioner to drop the proceedings.

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6. Reply of the respondents was found to be not acceptable.

Therefore, the case was taken up for adjudication. Accordingly, the

case was transferred to Commissioner of Customs (Adjudication-1),

New Customs House, Mumbai for the purpose of adjudication.

During the adjudication process, personal hearing was afforded to

the respondents.

6.1. Adjudicating authority noted that the customs

department had alleged under valuation of the goods in question

resulting in evasion of customs duty to the tune of Rs.

1,16,09,181.00. To prove under valuation, the department had relied

upon the price mentioned in the export declarations filed by the

supplier before the Hong Kong customs authority in respect of

nineteen consignments. The price so declared was considered as the

correct transaction value. In respect of one more consignment where

export declaration was not available, department had proposed

enhancement of the price of the goods on the basis of the other export

declarations. Adjudicating authority did not accept the contention of

the respondents that the price mentioned in the export declarations

filed before the Hong Kong customs authority could not be accepted.

Distinguishing the facts of the two cases relied upon by the

respondents, the adjudicating authority took the view that even if the

copies of the export declarations available with the Directorate of

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Revenue Intelligence were not attested or were xerox copies, it would

not make those copies unreliable or unauthentic. Therefore, taking

into account the fact that the supplier M/s Arise Enterprises had

acknowledged that those declarations were filed by them, which was

not denied by the respondents, the adjudicating authority held that

there was no reason to doubt the veracity of the export declarations

even if those were unattested and were mainly xerox copies.

Accordingly, the adjudicating authority held that the information

obtained was correct and genuine.

6.2. On the contention that statements of Mr. Yashpal

Sharma and Mr. Suresh Chandra Sharma were not voluntary and

therefore could not be relied upon, adjudicating authority held that

both of them in their statements recorded under Section 108 of the

Customs Act had admitted to having under-invoiced the price of the

goods and had voluntarily paid Rs. 30 lakhs towards payment of

evaded customs duty during the investigation. They had also

explained in their statements the modus operandi adopted by them

and the manner of transfer of the differential amount. Therefore, the

adjudicating authority opined that he had no reason to accept the

plea of the respondents that the statements of Mr. Yashpal Sharma

and Mr. Suresh Chandra Sharma were not voluntary and should not

be relied upon. This plea was taken only as an afterthought.

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6.3. Contention of the respondents that the declared price

was correct when compared with contemporaneous imports was also

not accepted by the adjudicating authority as the invoices of the

contemporaneous imports did not reveal the specification, quality

etc., of the products.

6.4. Adjudicating authority also rejected the contention of the

respondents that the supplier M/s Arise Enterprises had purchased

the goods in question on stock clearance basis at a lower price and

for this reason it could sell the goods to M/s Ganpati Overseas at a

lower price. According to the adjudicating authority, this was again

an afterthought and an invented argument as the noticees had not

declared that the goods were purchased in stock lot. Neither invoices

nor export declarations as well as the bills of entry or any other

document on record suggested that the subject goods were

purchased in stock lot at a price lower than the normal one. Rather,

such a plea would support the allegation of the department that the

invoice price was not a normal price and coupled with the fact that

the parties were relatives, had rendered the invoice price

unacceptable for assessment in terms of Section 14(1) of the

Customs Act read with Rule 2(2) of the Customs Valuation Rules.

Since neither the transaction value of similar goods nor

contemporary prices etc. were available, resort to Rules 5, 6 and 7

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for determining the assessable value of the goods was not possible.

Therefore, Rule 8 of the Customs Valuation Rules was correctly

applied.

6.5. Holding that the export declarations reflected the true

transaction value which was misdeclared by the importer to evade

customs duty, the adjudicating authority vide the order-in-original

dated 17.06.2002 held that the proviso to Section 28(1) of the

Customs Act was applicable. Consequently, M/s Ganpati Overseas

was held liable to pay the differential customs duty of Rs.

1,16,09,181.00 alongwith interest forthwith. For misdeclaration and

under valuation, the goods in question were held liable for

confiscation under Sections 111(d) and 111(m) of the Customs Act.

However, as the said goods were not available having been cleared

no order for confiscation was passed. Further, equivalent amount of

differential customs duty was imposed on M/s Ganpati Overseas as

a penalty under Section 114A of the Customs Act and in addition,

penalty of rupees five lakhs was imposed on Mr. Yashpal Sharma

under Section 112(a) of the Customs Act.

7. Aggrieved by the aforesaid order -in-original of the

adjudicating authority, respondents preferred appeals before the

CESTAT which were registered as Appeal Nos. C/1347 and 1374 of

2002.

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7.1. CESTAT opined that export declarations filed by the

foreign supplier before the Hong Kong customs authority could not

be relied upon for the purpose of enhancement of value. This was for

more than one reason. Firstly, those declarations were unattested

photocopies. Secondly, the supplier had filed another set of

declarations indicating the price as shown in the invoices of the

imports. Thirdly, for filing incorrect declarations which had to be

subsequently replaced by another set of declarations, the foreign

supplier had paid penalty before the Hong Kong customs authority.

Fourthly, no investigation was carried out by the customs authority

with the Hong Kong customs authority revealing anything to the

contrary. On that basis, CESTAT held that the price shown in the

initial export declarations could not form the basis for enhancing the

value of the goods.

7.2. CESTAT noted that nothing incriminating was recovered

from the importers in the form of text messages etc. CESTAT also

recorded that there was no evidence of contemporary imports which

had higher value. The foreign supplier had given explanation in

respect of the price initially declared in the export declarations,

which explanation was not discarded.

7.3. According to CESTAT, value in the export declaration

may be relied upon for ascertainment of assessable value under the

17

Customs Valuation Rules and not for determining the price at which

the goods are ordinarily sold at the time and place of importation.

CESTAT referred to and relied upon the decision of this Court in

Commissioner of Customs, Calcutta Vs. South India Television (P) Ltd.,

(2007) 6 SCC 373 wherein this court held that the burden lies upon

the department to prove under valuation by evidence or information

about comparable imports and if the charge of under valuation is

not supported by such evidence or information, the benefit of doubt

has to be given to the importer. On the basis of the aforesaid

decision, CESTAT recorded that there was not only no contrary

evidence of contemporaneous import but even the foreign supplier

had satisfactorily explained that the price initially shown in the

export declarations was incorrect which was subsequently amended

and accepted by the Hong Kong customs authority.

7.4. As regards the statements of Mr. Yashpal Sharma and

Mr. Suresh Chandra Sharma, the Tribunal observed that these

statements were retracted at the earliest available opportunity.

Decisions relied upon by the appellant, viz., Surjit Singh Chhabra Vs.

Union of India, 1997 (89) ELT-646 and in K.I. Pavunny Vs. Assistant

Collector, (1997) 3 SCC 721 did not advance the case of the

department. Tribunal observed that in the said decisions, this court

has held that the inculpatory portion of confessional statement of

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accused, even if retracted, could be relied upon to base conviction if

it is found to be voluntary and truthful; however, this Court sounded

a note of caution that prudence and practice would require that such

confessional statement should be corroborated by other evidence

adduced by the prosecution. Statement of Mr. Yashpal Sharma that

the actual market value of the tuners was in the range of Rs.200.00

and Rs.325.00 per piece which would make the market price thereof

in excess of Rs.700.00 after adding normal profit could not be taken

to be voluntary and true for the reason that tuners were supplied to

the respondents at negotiated price of four different rates i.e. HK$

4.00, 4.50, 5.50 and 6.00. In that view of the matter, Tribunal was

of the view that the loaded value proposed by the department would

not be correct since the proposed Free on Board (FoB) price would

be about Rs.372.00 per piece and CIF (Cost, Insurance and Freight)

value would be Rs. 454.00 per piece and the landing cost would be

Rs.660.00 per piece after adding customs duty.

7.5. CESTAT also noted that the importers i.e. respondents

had produced invoices of contemporaneous imports by M/s Bharat

Electronics and M/s K.S. International to show price comparable

with the price declared by them in respect of the goods in question.

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7.6. In the above backdrop, CESTAT vide the judgment and

order dated 27.06.2008 held that enhancement of the value of the

imported goods as well as the penalties imposed could not be

sustained. Accordingly, those were set aside and appeals filed by the

respondents were allowed.

8. It is this order of CESTAT which has been impugned in

the two appeals before us.

9. This court vide the order dated 24.07.2009 had issued

notice. Thereafter, the appeals were admitted on 10.12.2010.

10. Respondents have filed counter affidavit through Mr.

Yashpal Sharma. After narrating the facts, respondents have

supported the judgment and order passed by the CESTAT while

controverting all the contentions raised by the appellant.

Respondents have, therefore, sought for dismissal of the appeals.

11. Mr. Rupesh Kumar, learned counsel for the appellant has

assailed the judgment and order of CESTAT. He has asserted that

the appellant was justified in determining the value of the imported

goods under Rule 8 of the Customs Valuation Rules on the basis of

the declared value of the goods mentioned in the export declarations

filed by the supplier which were obtained from the Hong Kong

customs authority. The invoices presented by the respondents before

20

the customs authority did not represent genuine and actual

transaction.

11.1. The price declared in the invoice was much lower than

the value declared in the export declarations filed in Hong Kong.

Since it did not reflect the correct transaction value, the value

appearing in the import invoices did not fulfil the criteria of Section

14(1) of the Customs Act and Rule 4 of the Customs Valuation Rules

as per which the transaction value of the imported goods is the price

actually paid or payable when sold for export to India.

11.2. He submits that the export declarations filed by the

foreign supplier before the Hong Kong customs authority was not the

sole basis for increasing the value of the subject goods. There were

sufficient materials on record to prove under valuation. Both Mr.

Suresh Chandra Sharma, director of the supplier firm and Mr.

Yashpal Sharma, proprietor of the importer, in their statements

under Section 108 of the Customs Act had admitted under valuation.

In his statement, Mr. Yashpal Sharma had stated that the supplier

M/s Arise Enterprises, Hong Kong belonged to his co-brother Mr.

Suresh Chandra Sharma. Mr. Suresh Chandra Sharma used to send

the goods on his own and that he had never sent any written or oral

order for supply. As and when M/s Arise Enterprises would dispatch

21

the goods, Mr. Suresh Chandra Sharma would inform Mr. Yashpal

Sharma over telephone to whom the goods were to be sold, in what

quantity and at what price. Thereafter, he used to sell the goods at

the settled price and receive the payments. He had stated that he

was not aware of the actual price of the goods imported from Hong

Kong. The amount of payment as per the import documents wer e

sent by him to Mr. Suresh Chandra Sharma through banking

channel and the balance amount he used to handover to Mr. Suresh

Chandra Sharma whenever he visited India.

11.3. Learned counsel has highlighted the fact that the

supplier in Hong Kong and the importer in India were related parties.

Therefore, the contention that the foreign supplier had filed another

set of export declarations wherein the price shown in the invoices

matched with that shown in the import documents in India was an

afterthought to frustrate the proceedings initiated by the customs

authority.

11.4. He further submits that where the importer like the

respondents had not laid any basis for acceptance of the invoice price

as transaction value, then the authorities would be legally justified

to initiate fixation of price under Rule 5 onwards under the Customs

Valuation Rules. According to him, the department had to take

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recourse to Rule 8 of the aforesaid Rules straightaway instead of

proceeding through Rules 5, 6 and 7 as neither transaction value of

similar goods nor contemporary prices were available. Therefore, the

adjudicating authority had rightly invoked Rule 8 while assessing

the transaction value to determine the short levy of customs duty

and for imposing penalty. CESTAT was not a t all justified in

interfering with such a reasoned order of the adjudicating authority.

In these circumstances, he seeks setting aside of the order of the

CESTAT dated 27.06.2008.

12. Per contra, Mr. V. Lakshmikumaran, learned counsel for

the respondents has supported the order of CESTAT and submits

that the appeals of the department wholly lacks merit and therefore

should be dismissed.

12.1. He submits that the Tribunal was fully justified in

holding that the price declared in the import invoice was correct. The

foreign supplier had withdrawn the original export declarations

earlier submitted before the Hong Kong customs authority and

thereafter had filed another set of declarations where the declared

price matched the price shown by the respondents in the import

invoices. The subsequent declarations were accepted by the Hong

23

Kong customs authority following which penalty was levied which

was paid by the supplier.

12.2. Mr. Lakshmikumaran, learned counsel submits that the

export declarations relied upon by the appellant were only

photocopies which were neither signed nor attested. As such, those

export declarations did not have any evidentiary value. He has

asserted that the price reflected in the import invoices was the sole

consideration for sale which satisfied the definition of transaction

value as per Rule 4 of the Customs Valuation Rules.

12.3. According to Mr. V. Lakshmikumaran, there were no

evidence before the customs authority to prove under valuation.

Statements of Mr. Suresh Chandra Sharma and Mr. Yashpal Sharma

could not be relied upon to prove under valuation for more than one

reason. Firstly, when the two statements were recorded there was no

evidence available with the customs department to prove under

valuation. Secondly, both the statements were almost identical and

matched each other which would indicate that those were dictated

ones. Therefore, it is clearly evident that those were obtained under

coercion and undue pressure. Thirdly, the two statements were

retracted at the first available opportunity. Fourthly, the Additional

Sessions Judge, New Delhi while granting bail to Mr. Yashpal

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Sharma had recorded in his order dated 26.05.1999 that the

statement made was under coercion and pressure and therefore, the

same could not be termed as a voluntary statement. In the

circumstances, Tribunal was fully justified in not giving any

credence to the above two statements.

12.4. He further submits that though the appellant had placed

much emphasis on the fact that the parties are related and that filing

of the second set of export declarations was an afterthought, the

same is totally irrelevant. On the contrary, it is on record that the

second set of export declarations were accepted by the Hong Kong

customs authority by imposing penalty which was paid by the Hong

Kong supplier.

12.5. Asserting that there was no under valuation of the

imported goods, learned counsel submits that valuation of imported

goods is governed by the Customs Valuation Rules and not by price

declaration made by the supplier in another country. Appellant was

not justified in by-passing Rules 5, 6 and 7 of the Customs Valuation

Rules while determining the transaction value and straightaway

invoking Rule 8. Customs department had not made any effort to

gather evidence to determine transaction value of identical or similar

goods imported contemporaneously. In this connection, learned

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counsel has relied upon the decision of this court in Rabindra

Chandra Paul Vs. Commissioner of Customs, (2007) 3 SCC 93 and in

the case of South India Television (P) Ltd. (supra). He, therefore,

submits that there was no error or infirmity in the view taken by

CESTAT. Consequently, the appeals are liable to the dismissed.

13. Submissions made by learned counsel for the parties

have received the due consideration of the court.

14. Before we deal with the rival contentions, it would be

relevant to have a brief recap of the factual narrative. Based on an

intelligence input received by the Directorate of Revenue Intelligence

that M/s Ganpati Overseas had imported tuners etc. from Hong

Kong at grossly under invoiced prices thereby evading huge customs

duty, a show cause notice dated 17.12.1999 was issued to the

respondents. As per the show cause notice, M/s Ganpati Overseas

had imported twenty consignments of tuners and saw filters from

M/s Arise Enterprises, Hong Kong during the years 1997-1998 and

1998-1999. Mr. Suresh Chandra Sharma and his wife Mrs. Kusum

Sharma were the directors of M/s Arise Enterprises, whereas, Mr.

Yashpal Sharma was the proprietor of M/s Ganpati Overseas. Mr.

Yashpal Sharma and Mr. Suresh Chandra Sharma were co -brothers.

14.1. Statements of Mr. Suresh Chandra Sharma and Mr.

Yashpal Sharma were recorded under Section 108 of the Customs

26

Act. In their respective statements which virtually complimented

each other, they admitted that the price of goods as per the export

declarations filed by the foreign supplier before the Hong Kong

customs authority reflected the actual price. On import, the price

was kept intentionally low to avoid paying due customs duty. Actual

price of the goods was quite high. The difference between the actual

price and the declared price was retained in India, which Mr. Suresh

Chandra Sharma used to collect from Mr. Yashpal Sharma whenever

he visited India. However, the two statements were subsequently

retracted on the ground that those were obtained under coercion and

duress.

14.2. Mr. Yashpal Sharma was arrested on 15.03.1999 under

Section 135 of the Customs Act. He was en larged on bail on

30.03.1999 by the Additional Sessions Judge, Patiala House, New

Delhi conditional upon depositing Rs.30 lakhs, which he deposited.

In his bail order, the Additional Sessions Judge recorded that the

statement made by Mr. Yashpal Sharma und er Section 108 of the

Customs Act was forcibly taken, and, therefore, could not be relied

upon.

14.3. It has come on record that the foreign supplier had

admitted before the Hong Kong customs authority that price of the

27

goods declared in the initial export declarations was not correct

because of mistake committed by the staff. It thereafter submitted a

second set of export declarations where the price of the goods

declared matched the price of the goods at the time of import in India.

This was accepted by the Hong Kong customs authority but on

payment of penalty which was paid by the supplier.

14.4. Be that as it may, the show cause notice proposed levy of

higher customs duty with interest; confiscation of the imported

goods; and imposition of penalty.

14.5. Respondents submitted their reply denying all the

allegations. The show cause notice was adjudicated upon by the

Commissioner of Customs (Adjudication-1), Mumbai. In his order-

in-original dated 17.06.2002 the adjudicating authority accepted the

price mentioned in the initial export declarations filed by the supplier

before the Hong Kong customs authority in respect of nineteen

consignments. In respect of one consignment where export

declaration was not available, adjudicating authority accepted the

price mentioned in respect of the nineteen consignments.

Adjudicating authority brushed aside the objection raised by the

respondents that copies of the export declarations available with the

Directorate of Revenue Intelligence were not attested and were

28

simply xerox copies. Adjudicating authority took the view that merely

because the copies of the export declarations were not attested or

were xerox copies, those would not become unreliable or

unauthentic. According to the adjudicating authority, the supplier

had acknowledged those export declarations. Therefore, he held that

information obtained by the Directorate of Revenue Intelligence

based on the export declarations was correct and genuine.

14.6. He also rejected the objection of the respondents that

statements of Mr. Yashpal Sharma and Mr. Suresh Chandra Sharma

were not voluntary and therefore could not be relied upon. According

to the adjudicating authority, both the two persons had admitted to

under invoicing of the price and this was buttressed by the fact that

Mr. Yashpal Sharma had voluntarily paid Rs.30 lakhs towards the

evaded customs duty during the investigation stage. Such objection

was therefore held to be only an afterthought.

14.7. Further contention of the respondents that the declared

price is correct when compared with the contemporaneous imports

was not accepted by the adjudicating authority on the ground that

invoices of contemporaneous imports did not reveal the specification,

quality, etc. of the products.

14.8. Adjudicating authority also rejected the contention of the

respondents that the supplier had purchased the goods on stock

29

clearance basis at a lower price for which reason it could sell the

goods to M/s Ganpati Overseas at lower price. Such a contention

was held to be an afterthought as M/s Ganpati Overseas did not

produce any invoice etc. of purchase of goods on stock clearance

basis. Since neither transaction value of similar goods nor price of

contemporaneous imports etc. were available, adjudicating authority

held that the department had rightly invoked Rule 8 of the Customs

Valuation Rules instead of going through Rules 5, 6 and 7

sequentially.

14.9. The order-in-original was assailed by the respondents in

appeals before the CESTAT. Vide the judgment and order dated

27.06.2008, CESTAT set aside the order-in-original passed by the

adjudicating authority. CESTAT recorded that the initial export

declarations filed by the foreign supplier before the Hong Kong

customs authority could not be relied upon for enhancing the

declared value of the imported goods. Copies of those export

declarations available with the department were unattested

photocopies. That apart, the foreign supplier had filed a second set

of export declarations before the Hong Kong customs authority

declaring the price as shown in the invoices of the imports. This was

accepted by the Hong Kong customs authority but on imposition of

penalty on the supplier which was paid by the supplier. CESTAT

30

noted that no investigation was carried out by the customs authority

with the Hong Kong customs authority to support their allegation.

Therefore, CESTAT held that the value of the goods shown in the

initial export declarations could not form the basis for enhancing the

value. Nothing incriminating was recovered from the importers.

There was no evidence before the customs department of any

contemporaneous import having higher value. Thus, the department

could not prove under-valuation by adducing evidence.

14.10. As regards statements of Mr. Yashpal Sharma and Mr.

Suresh Chandra Sharma, CESTAT observed that those statements

were retracted at the earliest available opportunity. In the absence

of any corroborative material or evidence, CESTAT declined to give

much credence to the two statements.

14.11. Further, it was observed that while respondents had

produced invoices of contemporaneous imports by M/s Bharat

Electronics and M/s K.S. International at price comparable with the

price declared by the respondents, those were summarily rejected by

the adjudicating authority without the department discharging the

burden to prove the contrary.

14.12. In such circumstances, CESTAT vide the judgment and

order dated 27.06.2008 set aside the order-in-original and allowed

the appeals of the respondents.

31

15. As we have seen, bo th the department and the

adjudicating authority had relied upon the initial export declarations

filed by the foreign supplier before the Hong Kong customs authority

for the purpose of enhancing the value of the goods. CESTAT had

interfered with the same. We believe, CESTAT was justified in doing

so.

16. Proceeding alleging under-invoicing of price and thereby

evading customs duty by the respondents was initiated by the

Directorate of Revenue Intelligence and carried forward by the

customs department primarily on the basis of the price declared by

the foreign supplier in the first set of export declarations filed before

the Hong Kong customs authority. It was noticed that there was great

discrepancy in the price mentioned in the export declarations and

the price of the goods as per the import invoices. To support the

above allegations, the department relied upon copies of those export

declarations. Adjudicating authority brushed aside the objections

raised by the respondents that the copies of the export declarations

relied upon by the Directorate of Revenue Intelligence and the

department were not attested and were just xerox copies.

Adjudicating authority took the view that merely because the copies

of the export declarations were just xerox copies and were not

attested, the said fact did not make those documents unreliable or

32

unauthentic. It was held that the foreign supplier had accepted the

factum of filing those declarations which the noticees did not deny.

This finding of the adjudicating authority was negatived by the

CESTAT. The Tribunal, while accepting the objections of the

respondents that those declarations could not be relied upon for the

purpose of enhancement of value not only because those were

unattested photocopies but also for the reason that the foreign

supplier had explained that incorrect price was erroneously

mentioned in the first set of export declarations for which it filed a

second set of export declarations showing the price of goods in

question matching with the price as declared in the import invoices.

The second set of export declarations was accepted by the Hong Kong

customs authority but for showing incorrect price initially, imposed

penalty which was paid by the foreign supplier. CESTAT also noted

that no investigation was carried out by the customs authority with

the Hong Kong customs authority indicating anything incriminating

against the respondents. Therefore, CESTAT held that the value

shown in the first set of export declarations could not form any

reliable basis for enhancement of the value.

17. We concur with the view taken by CESTAT. First and

foremost, the export declarations relied upon by the appellant and

earlier by the Directorate of Revenue Intelligence were unattested

33

photocopies. Since those documents were used as a piece of evidence

against the respondents, it was necessary that those documents

were required to have been proved as is understood in law.

Unattested photocopies of the relied upon documents without

anyone proving or owning up the veracity of the same would not have

any evidentiary value. It is another matter that the very substratum

of these documents was subsequently removed when the foreign

supplier filed a second set of export declarations before the Hong

Kong customs authority showing lower price matching the price of

the goods declared in the import invoices. We need not go into the

reasons necessitating filing of the second set of export declarations

simply because, the Hong Kong customs authority had accepted the

second set of export declarations albeit imposition of penalty for mis-

declaration of price at the initial stage. It has also come on record

that the foreign supplier had paid the penalty. If this be the position,

there can be no justifiable reason for the appellant to harp upon the

price of the goods as per the initial export declarations by placing

reliance on the unattested photocopies of the first set of export

declarations to prove under-invoicing for the purpose of evading

customs duty.

18. This brings us to the statements of Mr. Suresh Chandra

Sharma and Mr. Yashpal Sharma recorded under Section 108 of the

34

Customs Act. Statement of Mr. Suresh Chandra Sharma was

recorded on 08.03.1999 whereas the statement of Mr. Yashpal

Sharma was recorded on 15.03.1999. Reference to the full details of

the two statements so made may not be relevant. Suffice it to say,

according to Mr. Suresh Chandra Sharma, Mr. Yashpal Sharma, who

was his co-brother, was the proprietor of the importer M/s Ganpati

Overseas. He had supplied tuners and saw filters to M/s Ganpati

Overseas through his firm M/s Arise Enterprises, Hong Kong. He

stated that the price of the goods shown in the import invoices did

not reflect the actual price. Price of the goods in the import invoices

was deliberately declared low with the intention of saving customs

duty. Actual price of the goods was quite high. While the invoice

amount after sale upon import used to be sent to him by Mr. Yashpal

Sharma through the banking channel, the differential amount was

retained in India by Mr. Yashpal Sharma who paid the same to Mr.

Suresh Chandra Sharma whenever he visited India.

18.1. Mr. Yashpal Sharma in his statement also stated more or

less the same thing as stated by Mr. Suresh Chandra Sharma. He

was arrested on 15.03.1999 itself under Section 135 of the Customs

Act. However, he was enlarged on bail on 30.03.1999 by the

Additional Sessions Judge, Delhi subject to deposit of Rs. 30 lakhs

within a specified period, which he paid. It has come on record that

35

the Additional Sessions Judge in his bail order dated 26.05.1999 had

mentioned that the statement of Mr. Yashpal Sharma recorded

under Section 108 of the Customs Act may not have been a voluntary

one. It may be mentioned that Mr. Yashpal Sharma vide his letter

dated 25.08.1999 had retracted the statement made by him under

Section 108 of the Customs Act. CESTAT noted the factum of

retraction of the statement and therefore, refused to give credence to

such confessional statement. In our view, no fault can be found with

the approach of the CESTAT.

19. Section 108 of the Customs Act deals with the power to

summon persons to give evidence and produce documents. Section

108 of the Customs Act as it stood at the relevant time is extracted

as under:-

108. Power to summon persons to give evidence and

produce documents.-

(1) Any gazetted officer of customs duly empowered by the

Central Government in this behalf shall have power to

summon any person whose attendance he considers

necessary either to give evidence or to produce a document

or any other thing in any inquiry which such officer is

making in connection with the smuggling of any goods.

(2) A summons to produce documents or other things may

be for the production of certain specified documents or

things or for the production of all documents or things of

a certain description in the possession or under control of

the person summoned.

(3) All persons so summoned shall be bound to attend

either in person or by an authorised agent, as such officer

may direct; and all persons so summoned shall be bound

36

to state the truth upon any subject respecting which they

are examined or make statements and produce such

documents and other things as may be required:

Provided that the exemption under section 132 of the Code

of Civil Procedure, 1908 (5 of 1908), shall be applicable to

any requisition for attendance under this section.

(4) Every such inquiry as aforesaid shall be deemed to be

a judicial proceeding within the meaning of section 193

and section 228 of the Indian Penal Code, 1860 (45 of

1860).

20. From a reading of the provisions of Section 108 of the

Customs Act, as it stood at the relevant point of time, we find that

any gazetted officer of customs duly empowered by the Central

Government had the authority to summon a person whose

attendance be considered necessary either to give evidence or to

produce a document or any other thing in any inquiry which such

officer was making with respect to the smuggling of any goods. A

person so summoned was bound to make a statement as regards the

subject which was being examined. Such an enquiry by the customs

officer would be deemed to be a judicial proceeding within the

meaning of Sections 193 and 228 of the Indian Penal Code.

21. While we are on Section 108 of the Customs Act, we may

also advert to Section 24 of the Evidence Act, 1882 which deals with

admissibility of a confession. Section 24 of the Evidence Act reads as

under:

37

24. Confession caused by inducement, threat or

promise, when irrelevant in criminal proceeding. ––A

confession made by an accused person is irrelevant in a

criminal proceeding, if the making of the confession

appears to the Court to have been caused by any

inducement, threat or promise, having reference to the

charge against the accused person, proceeding from a

person in authority and sufficient, in the opinion of the

Court, to give the accused person grounds which would

appear to him reasonable, for supposing that by making it

he would gain any advantage or avoid any evil of a

temporal nature in reference to the proceedings against

him.

22. From a reading of Section 24 of the Evidence Act what is

clear is that a confession made by an accused due to any

inducement, threat or promise having reference to the charge against

the accused person would be irrelevant in a criminal proceeding.

This court held in State of Punjab Vs. Barkat Ram 1962 (3) SCR 338

that customs officers are not police officers for the purpose of Section

25 of the Evidence Act which says that no confession made before a

police officer shall be proved as against a person accused of any

offence. A constitution bench of this court in Ramesh Chandra Mehta

Vs. State of West Bengal, AIR 1970 SC 940 held that customs officers

are entrusted with the powers specifically relating to collection of

customs duty and prevention of smuggling. For that purpose, they

are invested with the power to search any person on reasonable

suspicion, to summon a person to give evidence, to arrest such a

38

person if there is a reasonable suspicion that such a person is guilty

of an offence under the Customs Act etc.

23. For collecting evidence, the customs officer is entitled to

serve summons upon a person to produce a document or other thing

or to give evidence etc. However, he has no power to investigate a

customs infringement as an offence nor has he the power to submit

a report under the Code of Criminal Procedure. A customs officer is

not a police officer. Dealing with Sections 167(8) and 178(A) of the

Sea Customs Act, 1878, this court in Collector of Customs, Madras

Vs. D. Bhoormall, (1974) 2 SCC 544 held that provisions of the

Evidence Act and the Code of Criminal Procedure did not govern the

onus of proof under Section 167(8) of the Sea Customs Act. In such

proceedings, the customs officer was guided by the basic principles

of criminal jurisprudence and natural justice. The burden of proving

that the goods were smuggled goods was on the department. The

cardinal principle having an important bearing on the incidence of

burden of proof was that sufficiency and weight of the evidence was

to be considered according to the proof which it was in the power of

one side to prove and in the power of the other side to have

contradicted.

24. In Ramesh Chandra Mehta (supra), the objections as to

admissibility of a confessional statement under Section 25 of the

39

Evidence Act were rejected, holding that such a statement was

admissible in evidence in customs proceedings since customs

officers are not police officers.

25. This court in Naresh J. Sukhawani Vs. Union of India, AIR

1996 SC 522 clarified that a statement made before the customs

officer is not a statement recorded under Section 161 of the Criminal

Procedure Code, 1973. It is material piece of evidence collected by

the customs officer under Section 108 of the Customs Act.

26. A three-judge bench of this court in K.I. Pavunny Vs.

Assistant Collector, (1997) 3 SCC 721 considered the question as to

whether a retracted confessional statement would be inadmissible in

evidence in the context of the Customs Act. After holding that a

statement recorded under Section 108 of the Customs Act is

admissible in evidence, this court considered the next question as to

whether such a statement can form the sole basis for conviction. The

further question was whether a retracted confessional statement

requires corroboration from any other evidence. After referring to

various judicial pronouncements this court observed that there is no

prohibition under the Evidence Act to rely upon a retracted

confession to prove the prosecution case or to make the same the

basis for conviction of the accused. But practice and prudence would

40

require that the court would seek assurance by getting corroboration

from other evidence adduced by the prosecution.

27. Again, in Union of India Vs. Padam Narain Aggarwal, AIR

2009 SC 254, this court considered the provision of Section 108 of

the Customs Act in great detail and thereafter observed that the said

section obliges the person summoned to state the truth upon any

subject in respect of which he is being examined. He is not absolved

from speaking the truth on the ground that such a statement is

admissible in evidence and could be used against him. The provision

thus enables the custom officer to elicit the truth from the person

examined. The underlying object of Section 108 is to ensure that the

officer questioning the person gets all the truth concerning the

incident. However, a person called upon to make a statement before

the customs authorities is not an accused. The entire idea behind

Section 108 is that the customs officer questioning the person must

gather all the truth concerning the episode. If the statement so

extracted is untrue, its utility for the officer gets lost. Therefore,

statements recorded under Section 108 of the Customs Act are

distinct and different from statements recorded by a police officer

during the course of investigation under the Criminal Procedure

Code.

41

28. Thus, what is deducible from an analysis of the relevant

legal provisions and the corresponding judicial pronouncements is

that a customs officer is not a police officer. Further, the person

summoned and who makes a statement under Section 108 is not an

accused. However, a statement made by a person under Section 108

of the Customs Act before the concerned customs officer is

admissible in evidence and can be used against such a person.

Object underlying Section 108 is to elicit the truth from the person

who is being examined regarding the incident of customs

infringement. Since the objective is to ascertain the truth, the

customs officer must ensure the truthfulness of the statement so

recorded. If the statement recorded is not correct, then, the very

utility of recording such a statement would get lost. It is in this

context that the customs officer who is empowered under Section

108 to record statement etc. has the onerous responsibility to see to

it that the statement is recorded in a fair and judicious manner

providing for procedural safeguards to the concerned person to

ensure that the statement so recorded, which is admissible in

evidence, can meet the standard of basic judicial principles and

natural justice. It is axiomatic that when a statement is admissible

as a piece of evidence, the same has to conform to minimum judicial

standards. Certainly a statement recorded under duress or coercion

42

cannot be used against the person making the statement. It is for

the adjudicating authority to find out whether there was any duress

or coercion in the recording of such a statement since the

adjudicating authority exercises quasi-judicial powers.

29. Proceeding ahead, we find that the department, after

rejecting the price declared as per the import invoices, had invoked

Rule 8 of the Customs Violation Rules straightaway instead of going

through Rules 5, 6 and 7 thereof sequentially. This was approved by

the adjudicating authority after rejecting the submission of the

respondents that contemporaneous imports of similar goods by M/s

Bharat Electronics and M/s K.S. International had prices

comparable with the prices declared by the respondents in the

import invoices.

30. Before we deal with this aspect, we may advert to the

relevant legal provisions. Section 2 (41) of the Customs Act defines

the expression ‘value’. It says ‘value’ in relation to any goods means

the value thereof determined in accordance with the provisions of

sub-Section (1) of Section 14 (w.e.f. 10.10.2007 this definition has

been amended to include sub-Section (2) of Section 14 as well).

31. Section 14 of the Customs Act provides for valuation of

goods. Before the amendment in 2007, Section 14 read as under:

43

14. Valuation of goods for purposes of assessment- (1)

For the purposes of the Customs Tariff Act, 1975 (51 of

1975), or any other law for the time being in force

whereunder a duty of customs is chargeable on any goods

by reference to their value, the value of such goods shall

be deemed to be-

the price at which such or like goods are ordinarily sold,

or offered for sale, for delivery at the time and place of

importation or exportation, as the case may be, in the

course or international trade, where-

(a) the seller and the buyer have no interest in the business

of each other; or

(b) one of them has no interest in the business of the other,

and the price is the sole consideration for the sale or

offer for sale:

Provided that such price shall be calculated with reference

to the rate of exchange as in force on the date on which a

bill of entry is presented under Section 46, or a shipping

bill or bill of export, as the case may be, is presented under

section 50;

(1A) Subject to the provisions of sub-section (1), the price

referred to in that sub-section in respect of imported goods

shall be determined in accordance with the rules made in

this behalf.

(2) Notwithstanding anything contained in sub-section (1)

or sub-section (1A) if the Board is satisfied that it is

necessary or expedient so to do, it may, by notification in

the Official Gazette, fix tariff values for any class of

imported goods or export goods, having regard to the trend

of value of such or like goods, and where any such tariff

values are fixed, the duty shall be chargeable with

reference to such tariff value.

(3) For the purposes of this section-

(a) “rate of exchange” means the rate of exchange-

(i) determined by the Board, or

44

(ii) ascertained in such manner as the Board may direct,

for the conversion of Indian currency into foreign currency

or foreign currency into Indian currency;

(b) “foreign currency” and “Indian currency” have the

meanings respectively assigned to them in clause (m) and

clause (q) of section 2 of the Foreign Exchange

Management Act, 1999 (42 of 1999).”

32. Section 156 of the Customs Act confers general power

upon the Central Government to make rules consistent with the

Customs Act to carry out its purposes.

33. In exercise of the powers conferred by Section 156 of the

Customs Act read with Section 22 of the General Clauses Act, 1897

and in supersession of the Customs Valuation Rules, 1963 except in

respect of things done or omitted to be done before such

supersession, the Central Government has made the Customs

Valuation (Determination of Price of Imported Goods) Rules, 1988

(already referred to as the ‘Customs Valuation Rules’).

33.1. Rule 2(1)(c) defines “identical goods”. It means imported

goods-

(i) which are same in all respects including physical

characteristics, quality and reputation as the goods being

valued except for minor differences in appearance that do

not affect the value of the goods;

(ii) produced in the country in which the goods being

valued were produced; and

45

(iii) produced by the same person who produced the

goods or where no such goods are available, goods

produced by a different person.

However, such goods shall not include imported goods

where engineering, development work, art work, design

work, plan or sketch undertaken in India were completed

directly or indirectly by the buyer on these imported

goods free of charge or at a reduced cost for use in

connection with the production and sale for export of

these imported goods.

33.2. Likewise, Section 2(1)(e) defines “similar goods” to mean

imported goods-

(i) which although not alike in all aspects, have like

characteristics and like component materials which

enable them to perform the same functions and to be

commercially interchangeable with the goods being

valued having regard to the quality, reputation and the

existence of trademark;

(ii) produced in the country in which the goods being

valued were produced; and

(iii) produced by the same person who produce the

goods being valued, or where no such goods are available,

goods produced by a different person;

But it shall not include imported goods where

engineering, development work, art work, design work,

plan or sketch undertaken in India were completed

directly or indirectly by the buyer of these imported goods

free of charge or at a reduced cost for use in connection

with the production and sale for export of these imported

goods.

33.3. Rule 2(1)(f) defines “transaction value” to mean the value

determined in accordance with Rule 4 of the Customs Valuation

Rules.

46

33.4. Rule 2(2) mentions the instances where persons shall be

deemed to be “related”. In the context of the facts of the present case,

what may be of relevance is Rule 2(2)(viii) which says that persons

shall be deemed to be “related” only if they are members of the same

family. Therefore, the question is whether co-brothers can be

construed to be members of the same family? However, this aspect

may not require much deliberation in view of our discussions in

respect of the other issues.

34. Rule 3 of the Customs Valuation Rules reads as under:

3. Determination of the method of valuation ––For

the purpose of these rules, -

(i) the value of imported goods shall be the transaction

value;

(ii) if the value cannot be determined under the

provisions of clause (i) above, the value shall be

determined by proceeding sequentially through Rules 5

to 8 of these rules.

34.1. Thus, as per Rule 3, the valuation of imported goods shall

be the transaction value. However, if that value cannot be

determined, the value shall be determined by proceeding

sequentially through Rules 5 to 8 of the Customs Valuation Rules.

35. This brings us to transaction value dealt with in Rule 4

which is as under:

47

4. Transaction value. —(1) The transaction value of

imported goods shall be the price actually paid or payable

for the goods when sold for export to India, adjusted in

accordance with the provisions of Rule 9 of these rules.

(2) The transaction value of imported goods under sub-

rule (1) above shall be accepted:

Provided that –

(a) there are no restrictions as to the disposition or use of

the goods by the buyer other than restrictions which–

(i) are imposed or required by law or by the public

authorities in India; or

(ii) limit the geographical area in which the goods may be

resold; or

(iii) do not substantially affect the value of the goods;

(b) the sale or price is not subject to same condition or

consideration for which a value cannot be determined in

respect of the goods being valued;

(c) no part of the proceeds of any subsequent resale,

disposal or use of the goods by the buyer will accrue

directly or indirectly to the seller, unless an appropriate

adjustment can be made in acco rdance with the

provisions of Rule 9 of these rules; and

(d) the buyer and seller are not related, or where the

buyer and seller are related, that transaction value is

acceptable for customs purposes under the provisions of

sub-rule (3) below.

(3)(a) Where the buyer and seller are related, the

transaction value shall be accepted provided that the

examination of the circumstances of the sale of the

imported goods indicate that the relationship did not

influence the price.

(b) In a sale between related persons, the transaction

value shall be accepted, whenever the importer

48

demonstrates that the declared value of the goods being

valued, closely approximates to one of the following

values ascertained at or about the same time-

(i) the transaction value of identical goods, or of similar

goods, in sales to unrelated buyers in India;

(ii) the deductive value for identical goods or similar

goods;

(iii) the computed value for identical goods or similar

goods.

Provided that in applying the values used for comparison,

due account shall be taken of demonstrated difference in

commercial levels, quantity levels, adjustments in

accordance with the provisions of Rule 9 of these rules

and cost incurred by the seller in sales in which he and

the buyer are not related;

(c) substitute values shall not be established under the

provisions of clause (b) of this sub-rule.

36. To complete the narrative, we may mention that while

Rule 5 deals with transaction value of identical goods, Rule 6 deals

with transaction value of similar goods. On the other hand, Rule 6A

provides for determination of value when transaction value is not

available. Rule 7 which comes after Rule 6A provides for

determination of deductive value and Rule 7A provides for computed

value.

37. Where the value of imported goods cannot be determined

under the provisions of any of the aforesaid rules, the value shall be

49

determined using reasonable means as provided in Rule 8 i.e. the

residual method.

38. In Rabindra Chandra Paul (supra), this court referred to

its earlier decision in Eicher Tractors Limited Vs. Commissioner of

Customs, (2001) 1 SCC 315, and held as follows-

6. In Eicher Tractors Ltd. Vs. Commr. Of Customs, this

Court held that the principle for valuation of imported

goods is found in Section 14(1) of the Customs Act, 1962

which provides for the determination of the assessable

value on the basis of the international sale price. Under

the said Act, customs duty is chargeable on goods.

According to Section 14(1), the assessment of duty is to

be made on the value of the goods. The value may be fixed

by the Central Government under Section 14(2). Where

the value is not so fixed it has to be decided under Section

14(1). The value, according to Section 14(1), shall be

deemed to be the price at which such or like goods are

ordinarily sold or offered for sale, for delivery at the time

and place and importation in the course of international

trade. The word “ordinarily” implies the exclusion of

special circumstances. This position is clarified by the

last sentence in Section 14(1) which describes an

“ordinary” sale as one where the seller or the buyer have

no interest in the business of each other and the price is

the sole consideration for the sale or offer for sale.

Therefore, when the above conditions regarding time,

place and absence of special circumstances stand

fulfilled, the price of imported goods shall be decided

under Section 14(1-A) read with the Rules framed

thereunder. The said Rules are the Customs Valuation

Rules, 1988. It was further held that in cases where the

circumstances mentioned in Rules 4(2)(c) to (h) are not

applicable, the Department is bound to assess the duty

under transaction value. Therefore, unless the price

actually paid for the particular transaction falls within

the exceptions mentioned in Rules 4(2)(c) to (h), the

Department is bound to assess the duty on the

transaction value. It was further held that Rule 4 is

50

directly relatable to Section 14(1) of the Customs Act,

1962. Section 14(1) read with Rule 4 provides that the

price paid by the importer in the ordinary course of

commerce shall be taken to be the value in the absence

of any special circumstances indicated in Section 14(1).

Therefore, what should be accepted as the value for the

purpose of assessment is the price actually paid for the

particular transaction, unless the price is unacceptable

for the reasons set out in Rule 4(2). It was further held

that the word “payable” in Rule 4(1) must be read as

referring to the “particular transaction” and payability in

respect of the transaction contemplates as situation

where payment of price stands deferred. Therefore, Rule

4 is limited to the transaction in question. It was further

held that Rule 5 allows the transaction value to be

determined on the basis of identical goods imported into

India about the same time; Rule 6 allows fixation of

transaction value on the basis of the value of similar

goods imported into India about the same time. Where

there are no contemporaneous imports into India, the

value is to be decided under Rule 7 by a process of

deduction in the manner provided therein. If this is not

possible, then the value shall be computed under Rule 7-

A. It was further held that it is only when the transaction

value under Rule 4 is rejected, only then under Rule 3(ii)

the value shall be determined by proceeding sequentially

through Rules 5 to 8. Conversely, if the transaction value

can be decided under Rule 4(1) and does not fall under

any of the circumstances given in Rule 4(2), there is no

question of determining the value under the subsequent

rules. It was further held that discount is a recognised

feature of international trade and as long as those

discounts are uniformly available and as long as they are

based on commercial considerations, they cannot be

denied under Section 14.

7. The primary base for customs valuation is the

transaction value i.e. the price actually paid or payable

for the goods when sold for export to the country of

importation, subject to adjustment. The said price should

not be subject to any condition or consideration that

could prevent the value from being determined under

Rule 4(1). Where the Department has reason to doubt the

51

truth or accuracy of a declared value, it may ask the

importer to provide further explanation to the effect that

the declared value represents the total amount actually

paid or payable for the imported goods. If the declared

value is lower than the declared value of similar goods

imported by other buyers at or about the same time, it

can constitute “reason to doubt” the truth or accuracy of

the declared value indicated in the commercial invoice

(see Rule 10-A). Under Rule 8(2)(i) no value shall be

determined based on the selling price of the goods

produced in India. In cases where the Department fails

to establish circumstances mentioned in Rule 4(2), the

transaction value declared by the assessee cannot be

rejected and the price mentioned in the invoice should be

held to represent the transaction value.

39. The dispute involved in South India Television (P) Ltd.

(supra), was as regards the assessable value of ceramic capacitors

and diodes imported by the importer from the foreign supplier at

Hongkong. The price declared by the importer was not accepted by

the customs authority on the basis of overseas investigation report

whereafter Rule 8 of the Customs Valuation Rules was invoked. This

court examined and analysed Section 2(41) and Section 14(1) of the

Customs Act in the following manner:

10. We do not find any merit in this civil appeal for the

following reasons. Value is derived from the price. Value

is the function of the price. This is the conceptual

meaning of value. Under Section 2(41), “value” is defined

to mean value determined in accordance with Secti on

14(1) of the Act. Section 14 of the Customs Act, 1962 is

the sole repository of law governing valuation of goods.

The Customs Valuation Rules, 1988 have been framed

only in respect of imported goods. There are no rules

governing the valuation of export goods. That must be

done based on Section 14 itself. In the present case, the

52

Department has charged the respondent importer

alleging misdeclaration regarding the price. There is no

allegation of misdeclaration in the context of the

description of the goods. In the present case, the

allegation is of under invoicing. The charge of under

invoicing has to be supported by evidence of prices of

contemporaneous imports of like goods. It is for the

Department to prove that the apparent is not the real.

Under Section 2(41) of the Customs Act, the word “value”

is defined in relation to any goods to mean the value

determined in accordance with the provisions of Section

14(1). The value to be declared in the bill of entry is the

value referred to above and not merely the invoice price.

11. On a plain reading of Section 14(1) and Section 14(1-

A), it envisages that the value of any goods chargeable to

ad valorem duty has to be the deemed price as referred

to in Section 14(1). Therefore, determination of such price

has to be in accordance with the relevant rules and

subject to the provisions of Section 14(1). It is made clear

that Section 14(1) and Section 14(1-A) are not mutually

exclusive. Therefore, the transaction value under Rule 4

must be the price paid or payable on such goods at the

time and place of importation in the course of

international trade. Section 14 is the deeming provision.

It talks of deemed value. The value is deemed to be the

price at which such goods are ordinarily sold or offered

for sale, for delivery at the time and place of importation

in the course of international trade where the seller and

the buyer have no interest in the business of each other

and the price is the sole consideration for the sale or for

offer for sale. Therefore, what has to be seen by the

Department is the value or cost of the imported goods at

the time of importation i.e. at the time when the goods

reach the customs barrier. Therefore, the invoice price is

not sacrosanct.

39.1. This court held that before rejecting the invoice price, the

department has to give cogent reasons for such rejection. This is

because the invoice price forms the basis of the transaction value. In

53

this regard, this court held that under valuation has to be proved. If

the department wants to allege under valuation, it must make

detailed inquiries, collect material and also adequate evidence. If the

charge of under valuation cannot be supported either by evidence or

information about comparable imports, the benefit of doubt must go

to the importer. The charge of under invoicing has to be supported

by evidence of prices of contemporaneous imports of like goods. It

has been held as follows:

12. However, before rejecting the invoice price the

Department has to give cogent reasons for such rejection.

This is because the invoice price forms the basis of the

transaction value. Therefore, before rejecting the

transaction value as incorrect or unacceptable, the

Department has to find out whether there are any

imports of identical goods or similar goods at a higher

price at around the same time. Unless the evidence is

gathered in that regard, the question of importing Section

14(1-A) does not arise. In the absence of such evidence,

invoice price has to be accepted as the transaction value.

Invoice is the evidence of value. Casting suspicion on

invoice produced by the importer is not sufficient to reject

it as evidence of value of imported goods. Undervaluation

has to be proved. If the charge of undervaluation cannot

be supported either by evidence or information about

comparable imports, the benefit of doubt must go to the

importer. If the Department wants to allege

undervaluation, it must make detailed inquiries, collect

material and also adequate evidence. When

undervaluation is alleged, the Department has to prove it

by evidence or information about comparable imports.

For proving undervaluation, if the Department relies on

declaration made in the exporting country, it has to show

how such declaration was procured. We may clarify that

strict rules of evidence do not apply to adjudication

proceedings. They apply strictly to the courts'

54

proceedings. However, even in adjudication proceedings,

the AO has to examine the probative value of the

documents on which reliance is placed by the

Department in support of its allegation of

undervaluation. Once the Department discharges the

burden of proof to the above extent by producing evidence

of contemporaneous imports at higher price, the onus

shifts to the importer to establish that the invoice relied

on by him is valid. Therefore, the charge of under

invoicing has to be supported by evidence of prices of

contemporaneous imports of like goods.

39.2. Reverting to Section 14(1) of the Customs Act, this court

held that it is for the department to prove that the invoice price is

incorrect. When there is no evidence of contemporaneous imports at

a higher price, the invoice price is liable to be accepted. This is what

this court has said:

13. Section 14(1) speaks of “deemed value”. Therefore,

invoice price can be disputed. However, it is for the

Department to prove that the invoice price is incorrect.

When there is no evidence of contemporaneous imports

at a higher price, the invoice price is liable to be accepted.

The value in the export declaration may be relied upon

for ascertainment of the assessable value under the

Customs Valuation Rules and not for determining the

price at which goods are ordinarily sold at the time and

place of importation. This is where the conceptual

difference between value and price comes into

discussion.

40. Section 14 of the Customs Act and Rules 3 and 4 of the

Customs Valuation Rules again came up for consideration before

this court in Varsha Plastics Private Limited (supra). As regards

55

Section 14(1) of the Customs Act, this court analysed the said

provision in the following manner:

19. Section 14(1) of the Act prescribes a method for

determination of the value of the goods. It is a deeming

provision. By legal fiction incorporated in this section, the

value of the imported goods is the deemed price at which

such or like goods are ordinarily sold or offered for sale

for delivery at the time and place of importation in the

course of international trade.

20. The word “ordinarily” in Section 14(1) is a word of

significance. The ordinary meaning of the word

“ordinarily” in Section 14(1) is “non-exceptional” or

“usual”. It does not mean “universally”. In the context of

Section 14(1) for the purpose of “valuation” of goods,

however, by use of the word “ordinarily” the indication is

that the ordinary value of the goods is what it would have

been in the course of international trade at the time of

import. Section 14(1), thus, provides that the value has

to be assessed on the basis of price attached to such or

like goods ordinarily sold or offered for sale in the

ordinary course of events in international trade at the

time and place of transportation.

40.1. After adverting to the procedural aspects provided in the

Customs Valuation Rules, more particularly in Rules 3 and 4 thereof,

this court referred to its earlier decision in Eicher Tractors Limited

(supra) and held that the price paid by the importer to the vendor in

the ordinary course of commerce shall be deemed to be the value in

the absence of any special circumstances indicated in Section 14(1)

and particularised in Rule 4(2). However, when the transaction value

under Rule 4 is rejected, the value shall be determined by proceeding

56

sequentially through Rules 5 to 8 of the Customs Valuation Rules.

This court held as follows:

23. In Eicher Tractors this Court held that the value,

according to Section 14, shall be deemed to be the price

at which such or like goods are ordinarily sold or offered

for sale, for delivery at the time and place of importation

in the course of international trade. It was further held

that by Rule 4(1) mandate has been cast on the

authorities to accept the price actually paid or payable

for the goods in respect of the goods under assessment

as the transaction value but this mandate is subject to

certain exceptions specified in Rule 4(2). It was also held

by this Court in Eicher Tractors [(2001) 1 SCC 315] that

both Section 14(1) of the Act and Rule 4 provide that the

price paid by the importer to the vendor in the ordinary

course of commerce shall be deemed to be the value in

the absence of any of the special circumstances indicated

in Section 14(1) and particularised in Rule 4(2). However,

when the transaction value under Rule 4 is rejected, the

value shall be determined by proceeding sequentially

through Rules 5 to 8 of the Rules.

40.2. This court also referred to the decisions in Rabindra

Chandra Paul (supra) and South India Television (P) Ltd. (supra) to

reiterate the recognised legal position that transaction value can be

rejected if the invoice price is not found to be correct but it is for the

department to prove that the invoice price is incorrect.

41. Thus, on a cumulative analysis of the facts and the legal

position as alluded to hereinabove, we have no hesitation in coming

to the conclusion that both the department as well as the

adjudicating authority were not justified in rejecting the import

57

invoice price of the goods as not correct and enhancing the price by

straightaway invoking Rule 8 of the Customs Valuation Rules when

there was no evidence before them to do so. In these circumstances,

CESTAT was justified in setting aside the order in original.

42. We, therefore, do not find any error or infirmity in the

impugned judgment and order of CESTAT. The appeals filed by the

department are devoid of merit and those are accordingly, dismissed.

No costs.

.………………………………J.

[B. V. NAGARATHNA]

…………………………………J.

[UJJAL BHUYAN]

NEW DELHI;

06.10.2023