Supreme Court Upholds Customs Valuation: Global Technologies Loses Appeal (March 15, 2024)

Date of the Judgment: March 15, 2024

Citation: 2024 INSC 204

Judges: Abhay S. Oka, J., Pankaj Mithal, J.

When can customs authorities reject the declared value of imported goods? The Supreme Court of India recently addressed this question in a case involving the import of camera stabilizer devices. The court examined whether the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) correctly upheld the rejection of the declared value of imported goods and the imposition of penalties for undervaluation. The bench consisted of Justice Abhay S. Oka and Justice Pankaj Mithal, with the judgment authored by Justice Abhay S. Oka.

Case Background

M/s Global Technologies and Research (the appellant) regularly imported camera stabilizer devices. On February 16, 2018, they imported a consignment of these devices, with an invoice dated January 30, 2018, valued at USD 20,353 (CF). The invoice was from M/s. Guilin Zhishen Information Technology Co. Ltd. in China. The dispute centered around three categories of goods:

• Camera Stand (3 Axis Stabilizer – CRA02, Unpopular Brand)
• Camera Stand (3 Axis Stabilizer – CRA01, Unpopular Brand)
• Dual Handle (Unpopular Brand, Parts of Camera Stand)

Customs officials, based on intelligence, examined the goods and alleged gross undervaluation. The goods were seized on February 21, 2018, due to misdeclaration and undervaluation. The appellant claimed the goods were imported from the manufacturer and their value was listed on online trading websites. They also submitted a letter from the manufacturer stating the goods were a lower version. The department conducted a market survey on March 26, 2018.

Timeline

Course of Proceedings

The adjudicating authority rejected the declared assessable value of Rs. 12,87,742 and assessed the value at Rs. 66,18,575. They also ordered recovery of differential customs duty of Rs. 16,22,228, imposed a redemption fine of Rs. 9,93,000, and penalties of Rs. 2,00,000 and Rs. 3,31,000 on the importer under Sections 112(a) and 114AA of the Customs Act, respectively. The Commissioner (Appeals) allowed the appeal on December 17, 2020. However, the Committee of Commissioners directed the Department to appeal against this order on November 2, 2021. The CESTAT allowed the appeal on September 29, 2022, restoring the original order of the adjudicating authority.

Legal Framework

The case primarily revolves around Section 14 of the Customs Act, 1962, which deals with the valuation of goods for customs purposes, and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Section 14 of the Customs Act states that the value of imported goods shall be the transaction value, which is the price actually paid or payable for the goods when sold for export to India. However, this value can be rejected under certain circumstances as per the Customs Valuation Rules.

Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, allows the rejection of declared assessable value if it is found that the goods are undervalued. The rules also define what constitutes “identical goods” and “similar goods,” which are crucial in determining whether the declared value is acceptable.

Section 111 of the Customs Act deals with confiscation of improperly imported goods, while Sections 112(a) and 114AA deal with penalties for improper importation and fraudulent declarations, respectively.

Section 129A of the Customs Act provides for appeals to the CESTAT and also empowers the Committee of Commissioners to review orders passed by the Appellate Commissioner of Customs or Commissioner of Customs (Appeals) and direct the filing of an appeal before CESTAT if the order is deemed not legal or proper. Section 129D deals with similar powers of the Committee of Commissioners when orders are passed by the Principal Commissioners of Customs as adjudicating authority.

Arguments

Appellant’s Submissions:

• The review order by the Committee of Commissioners under Section 129A(2) of the Customs Act was time-barred, as it was passed more than 10 months after the Commissioner (Appeals) order.
• The CESTAT ignored the definitions of ‘identical’ and ‘similar’ goods under the Customs Valuation Rules.
• The goods imported earlier were not comparable to the current consignment. Specifically:
  • Item 1 (Camera Stand – CRA02) was different from the earlier “Camera Stand (Zhiyun Crane 2 Model CRA02)” due to different hardware and software. The manufacturer’s letter indicated it was a lower version.
  • Item 2 (Camera Stand – CRA01) was different from the earlier “Camera Stand (Zhiyun Crane, Type Monopod)” with different features.
  • Item 3 (Dual Handle) was different from the earlier “Dual Handle for Camera Stand (for Zhiyun Crane)”.
• The Commissioner (Appeals) correctly found that the earlier goods were neither identical nor similar.

Respondent’s Submissions:

• Section 129A(2) of the Customs Act does not prescribe a time limit for the Committee of Commissioners to exercise its powers.
• Although Section 129D prescribes a 30-day limitation for similar actions by the Committee of Commissioners, the present case is governed by Section 129A(2).
• The delay was due to the COVID-19 pandemic, during which the Supreme Court extended limitation periods.
• The goods were described as “unpopular models” without a valid explanation for the change in status within a few months.
• The market survey did not find any low versions of the goods.
• The earlier imported items were similar or identical to the current consignment.
• The adjudicating authority and CESTAT correctly found that Item Nos. 1 and 3 were identical and Item No. 2 was similar to previously imported goods.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues addressed were:

1. Whether the review order passed by the Committee of Commissioners under Section 129A(2) of the Customs Act was time-barred.
2. Whether the CESTAT erred in upholding the rejection of the declared assessable value of the imported goods by misinterpreting the definitions of ‘identical’ and ‘similar’ goods under the Customs Valuation Rules.
3. Whether the goods imported earlier were comparable to the current consignment.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed the ratio in Commissioner of Central Excise and Service Tax, Noida v. Sanjivani Non-ferrous Trading Pvt. Ltd. [(2019) 2 SCC 378]*, stating that the transaction value should be accepted unless there is a valid reason to reject it based on the import of identical or similar goods at a higher price.
• The Court interpreted Section 14 of the Customs Act, 1962, to mean that the transaction value should be accepted unless there is a valid reason to reject it.
• The Court interpreted Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, to mean that the declared value can be rejected if the goods are undervalued.
• The Court interpreted Section 111, 112(a) and 114AA of the Customs Act, 1962, to mean that the confiscation of goods and imposition of penalties were valid.
• The Court interpreted Section 129A of the Customs Act, 1962, to mean that there is no time limit for the Committee of Commissioners to exercise its powers.
• The Court interpreted Section 129D of the Customs Act, 1962, to mean that it has a specific limitation period of three months, but this does not apply to Section 129A.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the factual findings of the adjudicating authority and the CESTAT, which concluded that the imported goods were either identical or similar to previously imported items. The Court also emphasized that the transaction value should be accepted unless there is a valid reason to reject it, and the undervaluation of the goods was a valid reason in this case. The Court also considered the extraordinary circumstances of the COVID-19 pandemic in determining the reasonableness of the delay in the Committee of Commissioners’ decision.

The Court’s reasoning can be summarized as follows:

The Court considered the appellant’s arguments regarding the differences in the goods but ultimately sided with the factual findings of the lower authorities, noting that the goods were indeed similar or identical. The Court also emphasized that the Committee of Commissioners’ decision was not unreasonably delayed, considering the COVID-19 pandemic.

The Court quoted from the judgment of Commissioner of Central Excise and Service Tax, Noida v. Sanjivani Non-ferrous Trading Pvt. Ltd. [(2019) 2 SCC 378]:

“Therefore, normally, the assessing officer is supposed to act on the basis of price which is actually paid and treat the same as assessable value/transaction value of the goods. This, ordinarily, is the course of action which needs to be followed by the assessing officer. This principle of arriving at transaction value to be the assessable value applies. That is also the effect of Rule 3(1) and Rule 4(1) of the Customs Valuation Rules, namely, the adjudicating authority is bound to accept price actually paid or payable for goods as the transaction value.”

The Court also noted:

“We find that except for the description as an “unpopular brand,” the products appear to be identical/similar.”

“Detailed reasons have been recorded in the order-in-original as to why the transaction value of the imported goods has been discarded. Cogent reasons have been assigned to arrive at the assessable value.”

Key Takeaways

• Customs authorities can reject the declared value of imported goods if they find evidence of undervaluation, especially when compared to the prices of identical or similar goods.
• The transaction value should be accepted unless there is a valid reason to reject it.
• The Committee of Commissioners has the power to direct the filing of an appeal against the order of the Commissioner (Appeals), and there is no specific time limit for exercising this power under Section 129A(2) of the Customs Act.
• Delays in administrative actions can be excused due to extraordinary circumstances like the COVID-19 pandemic.

Directions

The Supreme Court did not issue any specific directions in this case.

Development of Law

The ratio decidendi of the case is that the transaction value of imported goods should be accepted unless there is a valid reason to reject it based on the import of identical or similar goods at a higher price. The Supreme Court reiterated the principles laid down in Commissioner of Central Excise and Service Tax, Noida v. Sanjivani Non-ferrous Trading Pvt. Ltd. [(2019) 2 SCC 378]. This case clarifies that the Customs authorities can reject the declared value if the goods are undervalued and that the Committee of Commissioners can direct the filing of an appeal against the order of the Commissioner (Appeals) without any specific time limit under Section 129A(2) of the Customs Act. There is no change in the previous position of law.

Conclusion

The Supreme Court dismissed the appeal of M/s Global Technologies and Research, upholding the decision of the CESTAT. The Court found no error in the CESTAT’s decision to restore the order of the adjudicating authority, which had rejected the declared assessable value of the imported goods and imposed penalties for undervaluation. The Court emphasized that the transaction value should be accepted unless there is a valid reason to reject it, and the undervaluation of the goods was a valid reason in this case. The Court also considered the extraordinary circumstances of the COVID-19 pandemic in determining the reasonableness of the delay in the Committee of Commissioners’ decision.