Customs Valuation Rules to be applied sequentially in case of mis-declaration by importer.

Case:- M/s S R LITES SHRI AMERESH KUMAR GUPTA ,PARTENER SHRI ANIL KUMAR GUPTA , PARNER VERSUS COMMISSIONER OF CENTRAL EXCISE, KANPUR

Citation:-2013-TIOL-1098-CESTAT-DEL

Brief Facts:-The appellants firm - S.R. Lights imported two containers declared to be containing lighting fixtures, chandeliers, wall lamps, ceiling lamps, table lamps and floor lamps at ICD Agra and filed two bills of entry No.15/06 dated 6.2.2006 and 16/06 dated 6.2.2006 for their clearance. Imports had been made from M/s. Shenzhen Dhan Shi Industry Development Co. Ltd., China. Before examination of the goods by the customs, the officers of Directorate General of Intelligence Unit initiated inquiry and conducted 100% examination of the goods. In course of examination, mis-declaration with regard to description was found in respect of the items declared as "wall lamps", "table lamps" and "floor lamps". While the goods declared as 'wall lamps' were found to be wall clocks with LED, the goods declared as "table lamps" were found to be table lamps with SFL and the goods declared as "floor lamps" were found to be humidifiers. However, the quantity of humidifier was very small. In view of the mis-declaration in respect of certain items and also in view of the fact that the declared value per kg. of the goods appeared to be much lower than the per kg. value of the raw materials which go into the manufacture of these items viz. plastics, glass, galvanized sheets, stainless steel, H.R. Sheet, Aluminium, brass, copper, etc, the investigation officers were of the view that the declared value of the goods is on much lower side and is not acceptable. Accordingly, the inquiry was made to ascertain the actual value of the goods. In this regard, the officers sought opinion of the M/s.ORMA Lights, a dealer in these items and M/s. ORMA Lights vide quotation dated 18.2.2006 gave estimated wholesale market price of the various items covered under these bills of entries. On this basis applying Rule 7 of the Customs Valuation Rules, 1988, the officers determined the transaction value on the basis of the wholesale market price in India as informed by M/s. ORMA Lights. It was also found that while according to the provisions of EXIM policy in case of import of pre-packaged commodities, the MRP at which the imported goods were to be sold was required to be declared on the goods, but the same had not been declared and hence the goods appeared to be liable for confiscation under Section 111(d) of Customs Act, 1962, besides being liable for confiscation under Section 111(m) for misdeclaration of description (in some cases) and value. On this basis a show cause notice was issued to the appellant company and its partners for –

(a)   rejection of the declared transaction value and its enhancement in both the bills of entry to Rs.6,98,151/- and Rs.7,54,787/- ;

(b) determination of the customs duty payable in respect of the goods on the basis of enhanced transaction value as determined above;

(c)   confiscation of the imported goods under Section 111(d) and (m) of the Customs Act, 1962 and imposition of penalty under Section 112 of the Customs Act, on the importer, M/s. S.R. Lights; and

(d) imposition of penalty under Section 112 of the Customs Act, 1962 on Shri Amresh Kumar Gupta and Shri Anil Kumar Gupta, Partner of M/s. S.R. Lights.

The show cause notice was adjudicated by the Joint Commissioner vide order-in-original No.5/JC/Customs/Adj/2007-08 dated 26.06.2007 by which the allegations as made in the show cause notice were upheld and the value of the imported consignments was enhanced to the level as proposed in the show cause notice. The imported goods were also ordered to be confiscated under Section 111(d) and (m) of the Customs Act, 1962. But since the goods had been released provisionally pending the adjudication of the matter, redemption fine in lieu of confiscation was demanded in terms of the provisions of Section 125 of the Customs Act, 1962. Besides this, penalty was imposed on the appellant firm, M/s. S.R. Lights as well as on their partners, Shri Amresh Kumar Gupta and Shri Anil Kumar Gupta under Section 112 of the Customs Act, 1962. On appeal being filed by all the three appellants before the Commissioner (Appeals), the same were dismissed vide order-in-appeal dated 7.9.2007 against which these three appeals have been filed.

Appellant contention:-The appellant has submitted that except for the items declared as "wall lamps" and "floor lamps" which on examination were found to be wall clocks and humidifiers, there was no misdeclaration in respect of other items, that the table lamps were actually table lamps fitted with CFL and it cannot be said that the description had been mis-declared, that while the quantity of humidifiers is very small, there is no mis-declaration in respect of the items declared as "wall lamps", that no evidence has been adduced by the Department in supports of its allegation of undervaluation, as no bill of entry showing contemporaneous import of identical goods or similar goods at higher price has been produced, that transaction value cannot be rejected on the basis of price of raw material in the domestic market, that for this purpose, the price of raw materials in the country of export has to be taken into account, that there was absolutely no basis for rejection of declared transaction value, that even if the declared transaction value is rejected, the transaction value has to be ascertained by sequentially applying Rule 5, 6, 6A, 7, 7A and 8 of the Customs Valuation Rules 1988, that the department cannot jump directly to Rule 7 and determine the transaction value by deductive method, even this rule has not been correctly applied to as the wholesale prices quoted by M/s. ORMA Lights, is not the wholesale price of identical or similar goods imported into India, that M/s. ORMA is not even importer of these items, while the entire valuation proposed by the department is based on the price for the items quoted by M/s. ORMA Lights, which are without any basis, that in another adjudication proceedings where in respect of similar goods imported from China, the declared value was sought to be enhanced based on the same price quotation of M/s. ORMA Lites, the Proprietor of M/s. ORMA Lites his during cross examination stated that he had never imported such lights and had not given any quotation, that when the price quotation purported to be of M/s. ORMA Lites is forged, no reliance can be placed on the same, that since there is no misdeclaration of value, the goods are not liable for confiscation under Section 111(m), that no findings have been given in the impugned order as to how the provisions of Exim Policy have been contravened and as such the goods are not liable for confiscation under Section 111(d) and that in view of the above submissions, the impugned order is not sustainable.

Respondent contention:-The respondent is findings of the Commissioner (Appeals) and emphasized that in respect of certain items i.e. items declared as "wall lamps", "floor lamps", and "table lamps", there was mis-declaration with regard to description inasmuch as these items were found to be wall clock with LED, table lamps with CFL and humidifiers respectively, that when there is mis-declaration of description, the mis-declaration of value is implied, that when value as well as description of these three items had been mis-declared, the value of the other items also become suspect, that since price of the contemporaneous import of identical goods or similar goods was not available, Rule 7 of the Valuation Rules based on the domestic market wholesale price of the identical or similar goods imported by other importers has been correctly applied, that the goods imported are pre-packaged commodity and since MRP had not been declared, the same have been correctly confiscated under Section 111(d) and that in view of this, there is no infirmity in the impugned order.

Reasoning of judgment:-We have considered the submission from both the parties and perused the record, we find that the items imported, as described in the supplier's invoices are chandelier lamps, ceiling lights, glass, wall lamps, spot lights, floor lamps, down lamps and table lamps. It is only the three items- wall lamps, table lamps and floor lamps which on examination were found to be wall clock with LED, table lamp with CFL and humidifiers. In respect of other items, there is no allegation of mis-declaration of description.

In respect of the goods declared as "table lamp", we are of the view that since the goods on examination were found to be table lamp with CFL, it cannot be said that there was mis-declaration as a table lamp with light bulb fitted in it would also be a table lamp. Thus, it is only the items mentioned in the invoice as "floor lamps" and "wall lamps" which can be said to have been mis-declaration with regard to description and since description is misdeclared, the declared value also become suspect, and the same would have to be rejected. Therefore, we hold that transaction value of items declared as "floor lamps" and "wall lamps" has been correctly rejected. However, once the declared transaction value is rejected, the same has to be determined by sequentially applying Rule 5, 6, 7, 7A and 8 of the Customs Valuation Rules, 1988, as Rule 3(ii) ibid clearly provides that if the value cannot be determined under the provisions of Rule 3 (i), the value shall be determined by proceeding sequentially through Rule 5 to 8. Therefore, before applying Rule 7, the price at which contemporaneous imports have been made of "identical goods" or "similar goods", within the meaning of these terms as defined in Customs Valuation Rules, 1988 has to be ascertained. In this case, there is absolutely no discussion as to whether the contemporaneous import price of identical goods or similar goods within the meaning of these terms as defined in Rule 2(c) and 2(e) of the Customs Valuation Rules was available or not. We also find that there is absolutely no evidence to show as to how M/s. ORMA Lites have quoted the value of different items and whether the value of the items quoted is of the "similar goods" or "identical goods" imported and whether the prices are for sale in greatest aggregate quantity. It is also doubtful as to whether M/s. ORMA Lites is an importer, as Proprietor of M/s.ORMA Lites in course of his cross examination in course of adjudication proceedings of another case of import of similar goods from China has stated that he has not imported such goods and has even denied to have signed the quotation. In view of this, quotation of M/s. ORMA Lites cannot be the basis for applying Rule 7 and, therefore, the value has to be determined either by applying Rule 7 A or by best judgement method under Rule 8 for which this matter would have to be remanded to the original adjudicating authority.

As regards the other items in respect of which there is no mis-declaration of description, we find that there is absolutely no basis for rejecting the declared transaction value just on the basis of the price of glass, plastic and metals in India and adopting some assumed value addition. There is no evidence of contemporaneous import of identical goods or similar goods at higher prices. There is also no allegation that conditions for accepting declared value as mentioned in sub-rule (2) of Rule 4 of the Customs Valuation Rules are not satisfied. There is absolutely no justification for rejecting the declared transaction value of these goods based on the price of their raw materials in India. In view of this, we hold that there is no substance in the allegation of mis-declaration of value in respect of the goods other than the "wall lamps" and "floor lamps" and, therefore, neither the declared transaction value in respect of these goods can be rejected, nor the goods are liable for confiscation under Section 111(m).

As regards the confiscation of the goods under Section 111(d) for not affixing the MRP, in terms of Note 5 (e) of General Notes of the Foreign Trade Policy, all pre-packaged commodities imported in India shall, in particular, carry maximum retail sale price at which the commodity in packaged form may be sold to the ultimate consumer. This provision is applicable to the commodities imported in pre-packaged form. The impugned order does not give any finding as to whether the goods imported were in bulk packages or were in pre-packaged form meant directly for sale to ultimate consumers. Unless the goods imported were in pre-packaged form meant directly for sale for ultimate consumers, the provisions of Note 5 (e) of General Note of the Foreign Trade Policy readwith Section 11(1) of the Foreign Trade Development & Regulation Act, 1992 would not be applicable. On this point, there is no finding of the Commissioner. Therefore, for deciding the question of liability of the imported goods for confiscation under Section 111(d) of the Customs Act, 1962, the matter has to be remanded for de novo adjudication.

In view of the above discussion, while holding that –

(a)   there is no justification for rejecting the declared transaction value in respect of chandeliers lamps, ceiling lights, glass/spare parts, table lamps, down lamps, spot lights and the same has to be accepted and for the same reasons, these goods are not liable for confiscation under Section 111(m) of Customs Act, 1964;

(b) on account of misdeclaration of description in respect of the goods declared as "wall lamps" and "floor lamps", as the same were found to be "wall clocks with LEDs" and "humidifiers" respectively, their value has to be redetermined and the goods would be liable for confiscation under Section 111(m); and

(c)   the question of confiscation of the goods under Section 111(d) has to be decided only after giving a clear finding as to whether the goods imported were in pre-packaged form so as to attract the provisions of Note 5 (e) of General Note of the Foreign Trade Policy.
We set aside the impugned order and remand the matter to original adjudicating authority for de novo decision only on the following points:-

(a)   redetermination of the value of the goods declared as "wall lamps" and "floor lamps" which were found to be wall clocks with LED and humidifiers keeping in view our observations in this order, and

(b) liability of the goods imported for confiscation under Section 111(d) for not declaring MRP on the goods.

The quantum of penalty on the importer firm shall be in proportion to the value of the goods held to be liable for confiscation. No separate penalty on the partners would be required.

Decision:- The appeals stand disposed of as above.

Comment:-The essence of this case is that if the transaction value is sought to be rejected by the adjudicating authority, then the valuation should be according to the Customs Valuation Rules and that too must be applied sequentially. Further, in case of import of pre-packaged commodities, the MRP at which the imported goods are to be sold is required to be declared on the goods and if the same is not printed, the goods imported are liable for confiscation under Section 111(d) but for this it is primarily required to substantiate that the imported goods were in the form of pre-packaged commodities.

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PJ/Case Law/2013-14/1676

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