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Sri Venkatesh Enterprises v. Commissioner Of Customs, Chennai

CESTAT
Mar 1, 2005
Smart Summary (Beta)

Structured Summary of the Tribunal Order (Pronounced 1-3-2005)

Factual and Procedural Background

The appellants imported items declared as "old and used incomplete HEAVY DUTY photocopier-CLC 700" of Japanese origin and filed Bill of Entry No. 1545 dated 30-09-2004. The declared invoice value (from M/s. Techno Trading Services Pvt. Ltd., Singapore) was S$73,800 = US$43,169 = Rs. 20,07,360 (C&F). The importers produced an overseas Chartered Engineer's certificate dated 13-09-2004 and a set of shipping and commercial documents (proforma invoice, purchase order, packing list, Bill of Lading, Bill of Exchange and a Cargo Clearance Permit).

The customs respondent directed physical inspection by local Chartered Engineers (M/s. Moody International (India) Pvt. Ltd.), who assessed the goods at Rs. 42.84 lakhs (FOB). The respondent concluded the declared value did not reflect the real transaction value and that, being second-hand, valuation could require Rule 8 of the Customs Valuation Rules (CVR) using objective comparables. The respondent also held that the goods were not "capital goods" under the relevant EXIM Policy and were restricted for import under para 2.17 of the Foreign Trade Policy (with DGFT circulars cited), so import without licence attracted confiscation under Section 111 of the Customs Act read with Section 3(3) of the Foreign Trade (D & R) Act, 1992; penal liability under Section 112(a) of the Customs Act was also alleged.

A show-cause notice (SCN) was issued proposing (i) rejection of transaction value and determination of CIF at US$103,730 = Rs. 48,23,445 (based on a contemporary import price from a Kolkata Bill of Entry), (ii) confiscation under Section 111(d) and (m) read with Section 3(3) FT(D&R) Act, and (iii) penalty under Section 112(a). The Commissioner determined value under Rule 8 (after allowing 10% abatement for missing parts) as C&F US$101,750 = Rs. 47,31,375 and CIF US$103,730 = Rs. 48,23,445; held the machines to be restricted (not capital goods), confiscated them with a redemption fine of Rs. 7,09,000 (15% of C&F) and imposed penalty Rs. 3,30,000 (7% of C&F). The appellants appealed against the adjudicating authority's decision.

The Tribunal heard both sides, called for production of contemporaneous documents (including a Kolkata Bill of Entry and invoice), and pronounced its order on 1-3-2005.

Legal Issues Presented

  1. Whether the transaction value declared by the importer ought to be accepted under Rule 4(1) of the Customs Valuation Rules read with Section 14(1) of the Customs Act, or whether there were valid reasons under Rule 4(2) to reject it.
  2. If the declared transaction value is rejected, whether the assessing authority may sequentially apply Rules 5 to 7 of the CVR or proceed under Rule 8 (valuation on available objective and quantifiable data) for second-hand goods.
  3. Whether the imported second-hand photocopiers qualify as "capital goods" freely importable under the relevant EXIM/Foreign Trade Policy or were restricted items requiring specific import licence, thereby attracting confiscation under Section 111.
  4. Whether the redemption fine and the penalty imposed by the Commissioner were reasonable in quantum given the correct valuation and the established legal position.

Arguments of the Parties

Appellants' Arguments

  • The declared transaction value was supported by the supplier's invoice and accompanying documents; there was no evidence of clandestine remittance, mutuality of interest or other indicia required to reject the transaction value under Rule 4(2).
  • The Commissioner did not state valid reasons under Rule 4(2) for rejecting the transaction value, and therefore could not proceed to apply Rules 5–7 or determine value under Rule 8.
  • Reliance on Supreme Court authority (Eicher Tractors and Tolin Rubbers) and Tribunal decisions (National Imaging Systems; Competent Business Machines; Spice Communications; Anish Kumar Spinning Mills) to support acceptance of transaction value and to challenge the Commissioner’s rejection of the overseas Chartered Engineer’s certificate without a finding of fraud or inauthenticity.
  • Contemporaneous higher import prices alone could not sustain an inference of undervaluation without comparison on relevant factors such as year of manufacture and extent of usage/physical condition.
  • Challenged the Commissioner’s classification that the machines were not capital goods, relying on Tribunal precedents that found similar second-hand photocopiers to be capital goods importable without restriction.

Respondent / Revenue Arguments (as represented by the SDR and Commissioner)

  • The local Chartered Engineers' inspection report assessed the goods at substantially higher value (Rs. 42.84 lakhs FOB), creating doubt about the declared value.
  • Because the goods were second-hand, their value could not reliably be determined under Rules 5–7 and required determination under Rule 8 using objective comparables (contemporary import price from a Kolkata import of similar model).
  • The goods were not "capital goods" per the EXIM/Foreign Trade Policy as clarified by DGFT circulars, making the imports restricted in absence of specific licence and liable to confiscation under Section 111.
  • The Commissioner proceeded to enhance value and impose confiscation, redemption fine and penalty based on the above findings.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai (Supreme Court) Principle that only after rejecting the declared transaction value on grounds specified in Rule 4(2) can the assessing authority proceed to apply Rules 5 to 7 sequentially. The Tribunal relied on this authority to hold that the Commissioner could not apply Rules 5–7 (or determine valuation via comparables) without first establishing a Rule 4(2) ground for rejection of transaction value.
Tolin Rubbers Pvt. Ltd. v. Commissioner of Customs, Cochin (Supreme Court) Reiterated that assessable value determined under Rule 8 may be set aside where lower authorities fail to show reasons under Rule 4(2) for rejecting transaction value. Used to support the Tribunal's conclusion that absence of Rule 4(2) reasons requires acceptance of declared transaction value and setting aside of valuation under Rule 8.
National Imaging Systems v. Commissioner of Customs [Final Order No.156/2004-NB(A), dated 25-2-2004] (Tribunal) Invoked by appellants in support of accepting declared values and contesting valuation adjustments. Cited by appellants; Tribunal noted reliance but applied its own analysis regarding comparability and Rule 4(2) requirements.
Competent Business Machines v. Commissioner of Customs, Tiruchirapalli [Final Order No.18/05-NB(A), dated 31-12-2004] (Tribunal) Principles relating to comparison of transaction values and the requirement for proper comparability (year of manufacture, origin, extent of usage) before enhancing valuation by reference to contemporaneous imports. The Tribunal followed this decision to reject the Commissioner’s comparison with the Kolkata import, because the comparables were of doubtful origin and lacked year/usage data.
Spice Communications Ltd. v. Commissioner of Customs, New Delhi (Tribunal) Support for the proposition that transaction value negotiated between buyer and supplier should be accepted under Rule 4(1) in absence of Rule 4(2) grounds. The Tribunal cited this line of cases to direct acceptance of the declared transaction value under Rule 4(1) read with Section 14(1) where Rule 4(2) grounds are not established.
Anish Kumar Spinning Mills v. Commissioner of Customs, Tuticorin (Tribunal) Addressed the question of rejection of overseas Chartered Engineer's certificates and the circumstances (fraud, inauthenticity, irrelevance) under which rejection is justified. The appellants relied on this decision to challenge the Commissioner’s rejection of the supplier's Chartered Engineer certificate; the Tribunal considered that rejection without specific adverse finding was not justified.
BE-Office Automation Pvt. Ltd. & Anr. v. Commissioner of Customs, Mumbai [2004 (63) RLT 125 (CESTAT-Del.)] Held in that case that old and used photocopiers were 'capital goods' and importable without restriction (as found by that Bench in its factual context). The Tribunal observed that BE-Office Automation could not be followed on present facts because it was not clear that it dealt with the same policy period and that the DGFT circular upholding restriction was not before that Bench; accordingly, BE-Office Automation was not followed to defeat confiscation in the present case.
SKD Commercial v. Commissioner of Customs, Nhava Sheva [2004-TIOL-909-CESTAT-MLIMJ] (Tribunal) Applied BE-Office Automation. The Tribunal noted SKD merely followed BE-Office Automation and therefore did not take precedence where DGFT circular (restricting import) was relevant in the present policy period.

Court's Reasoning and Analysis

The Tribunal proceeded through a fact-sensitive analysis that can be summarised in the following logical steps, relying only on what is stated in the order:

  1. Document Production and Comparison: The Tribunal directed production of the contemporaneous Kolkata Bill of Entry and invoice. Those documents (BE No. 201363 dated 23-8-2004 and Invoice No. 4321 dated 15-6-2004) showed discrepancies: the invoice indicated CIF US$250 for one used CANON CLC-700 while the Bill of Entry mentioned US$640; country-of-origin entries differed (U.S.A. or U.S.A./Japan) and were not itemised; the appellants' goods were of Japanese origin. The Tribunal found that the Revenue compared goods of Japanese origin with goods of American or doubtful origin without itemwise origins or year/usage data for the comparables.
  2. Insufficiency of Comparability: The Tribunal emphasized that comparability requires relevant details (year of manufacture, extent of usage/condition). The documents produced did not furnish the year of manufacture or extent of usage for the Kolkata import, whereas the appellants' goods were shown to be manufactured during 1995–2001. The show-cause notice and the impugned order did not attempt a proper comparison of year of manufacture or extent of usage. On this ground, the Tribunal rejected the Department's reliance on the Kolkata contemporaneous import as a valid comparable.
  3. Examination of the Grounds for Doubt under Rule 4(2): The Tribunal reviewed the bases the Commissioner relied on to entertain doubt about declared value: (a) the local Chartered Engineer's report (Rs. 42.84 lakhs FOB) and (b) the Kolkata contemporary import price. However, the Tribunal noted that the adjudicating authority itself discarded the local Chartered Engineer's report in the impugned order, undermining reliance on that report to create a "doubt." The contemporaneous import comparison was also found invalid for lack of proper comparability. Thus, the Tribunal concluded the Revenue failed to establish any of the specific grounds under Rule 4(2) for rejecting the transaction value.
  4. Legal Principle Governing Sequential Application of Valuation Rules: The Tribunal applied the legal principle (from Eicher Tractors and Tolin Rubbers) that the assessing authority may only move to other valuation methods (Rules 5–7 or Rule 8) after validly rejecting the transaction value under Rule 4(2). Because the Revenue did not establish Rule 4(2) grounds, the Tribunal held the assessing authority erred in enhancing valuation under Rule 8.
  5. Acceptance of Transaction Value: In consequence of the foregoing, the Tribunal directed acceptance of the declared transaction value under Rule 4(1) read with Section 14(1) of the Customs Act and set aside the enhanced valuation determined under Rule 8 by the Commissioner.
  6. Policy/Confiscation Issue: Separately, the Tribunal examined the DGFT clarification (Policy Circular No.19 (RE-2003)/2002-07 dated 1-11-2003) which clarified that second-hand photocopier machines were covered under "Second Hand Goods" and import of such goods was governed by para 2.17 of the EXIM Policy and could not be permitted under EPCG without licence. The appellants did not rebut the Commissioner's finding that the DGFT clarification applied to the relevant period (by virtue of para 1A(4) of Foreign Trade Policy 2004-09). The Tribunal therefore upheld the Commissioner's conclusion that the import without specific licence violated the Import Policy and attracted confiscation under Section 111(d).
  7. Quantum of Redemption Fine and Penalty: Because valuation was set at the declared transaction value (C&F Rs. 20,07,360), the Tribunal reduced the redemption fine (previously Rs. 7.09 lakhs based on enhanced valuation) proportionately to Rs. 3,00,000 after considering relevant factors under Section 125. The Tribunal also reduced the penalty under Section 112(a) from Rs. 3.30 lakhs to Rs. 75,000 because the allegation of misdeclaration of value was rejected, though the policy breach (import without licence) was sustained.

Holding and Implications

Holding:

The Tribunal set aside the adjudicating authority's valuation determination under Rule 8 and directed that the goods be assessed to customs duty on the basis of the transaction value declared by the importer (C&F Rs. 20,07,360). The Tribunal upheld the Commissioner's confiscation decision under Section 111(d) (import without required licence) but reduced the redemption fine and the penalty to Rs. 3,00,000 and Rs. 75,000 respectively. The appeal was disposed of accordingly.

Implications:

  • Direct effect on the parties: The declared transaction value must be accepted for assessment; the importation is nonetheless held to have contravened import policy (restriction on second-hand photocopiers) and the goods are liable to confiscation subject to redemption on payment of the reduced fine of Rs. 3,00,000; the importer is liable to a reduced penalty of Rs. 75,000.
  • Broader jurisprudential implication: The Tribunal applied and reiterated existing authorities (not creating new precedent) reaffirming that Rule 4(2) grounds must be established before rejecting transaction value and proceeding to other valuation methods. The order notes that DGFT clarifications about import restrictions are binding for interpretation of the applicable EXIM/Foreign Trade Policy.

Pronounced in open court on 1-3-2005.

Show all summary ...

[Order per : P.G. Chacko, Member (J) (Oral)]. - The appellants imported from Singapore what was declared as “old and used incomplete HEAVY DUTY photocopier-CLC 700” of Japanese origin and filed Bill of Entry No. 1545, dated 30-9-2004 along with invoice dated 11-9-2004 of M/s. Techno Trading Services Pvt. Ltd., Singapore, for clearance of the goods at Customs House, Pondicherry. The value of the goods declared in the Bill of Entry was S $ 73800 = US $ 43169 = Rs. 20,07,360/- (C&F) based on the invoice. The importer also submitted a Chartered Engineer’s certificate dated 13-9-2004 from the supplier for the declared value and year of manufacture of the goods. They also produced proforma invoice dated 18-8-2004, purchase order dated 1-9-2004, packing list, Bill of Lading and Bill of Exchange along with Cargo Clearance Permit dated 16-9-2004 issued by Singapore Customs. They requested for clearance of the goods on the basis of the B/E declarations. The respondent, however, directed inspection of the goods by local Chartered Engineers [M/s. Moody International (India) Pvt. Ltd.] who, after inspection of the goods, appraised the value of the goods at Rs. 42.84 lakhs (FOB). From the Inspection Report of the local Chartered Engineers, it appeared to the respondent that the declared value of the goods did not reflect the real transaction value. The goods being second-hand, it was also felt that its value could not be determined under Rules 5 to 7 of the Customs Valuation Rules (CVR, for short) and the same required to be determined under Rule 8 of the said Rules on the basis of “available objective and quantifiable data”, like contemporary import price. It, further, appeared to the respondent that the imported goods were not covered under the definition of “capital goods” under the relevant EXIM Policy and attracted the restriction for import under para 2.17 of the Foreign Trade Policy 2004-2009 read with DGFT’s Policy Circulars No. 16/2003, dated 29-9-2003 and 19/03, dated 11-11-2003. The respondent, therefore, took the view that the subject import without specific licence was in contravention of Foreign Trade Policy and hence the goods were liable for confiscation under Section 111 of the Customs Act read with Section 3(3) of the Foreign Trade (D & R) Act, 1992. Further, the importer was suspected to have deliberately undervalued the goods apart from having imported them in contravention of law, thereby attracting the penal liability under Section 112(a) of the Customs Act.

2.On the above basis, a  show-cause notice was issued to the appellants for (i) rejecting the transaction value of the goods and determining their value as US $ 1,03,730 = Rs. 48,23,445/- (CIF) on the basis of contemporary import price [US $ 576 (CIF) per unit] of “CANON Heavy Duty colour photocopier CLC 700” imported through Kolkata port in August, 2004 (ii) confiscating the goods under Section 111(d) and (m) of the Customs Act read with Section 3(3) of the FT (D&R) Act, 1992 and (iii) imposing penalty on the appellants under Section 112(a) of the Customs Act. The appellants contested the proposals in the SCN, on the strength of documentary evidence (of value of the goods) produced with the Bill of Entry as well as on the strength of judgments of the Supreme Court and the Tribunal. The Commissioner rejected their contentions and proceeded to determine the assessable value of the goods under Rule 8 of the CVR, after noting that the importer had not contested the proposal for enhancement of value on the basis of contemporary import price at Kolkata port. Accordingly, after allowing 10% abatement for missing parts of the imported photocopiers, the Commissioner, under Rule 8, determined the C&F value of the subject goods as US$ 101750 = Rs. 47,31,375, wherefrom the CIF value of the goods was computed as US $ 103730 = Rs. 48,23,445/-. He also held that the second-hand photocopying machines were only office equipments and not capital goods freely importable under the relevant EXIM Policy. As the machines had been imported without licence, he confiscated them, with option for redemption on payment of a fine of Rs. 7,09,000/-, being 15% of the C&F value determined under Rule 8. The Commissioner also imposed on the importer a penalty of Rs. 3,30,000/-, being 7% of the C&F value determined under Rule 8. The present appeal is against this decision of the adjudicating authority.

3.Heard both  sides. Ld. Counsel for the appellants submitted that the declared value, which was supported by the supplier’s invoice and other documentary evidence produced by them, was liable to be accepted as the respondent had no case that there had been any clandestine remittance by them in excess of the invoice value or that there was mutuality of interest between the importer and the supplier. No valid reason with reference to Rule 4(2) was stated by the Commissioner to reject the declared value. It was argued that, without rejecting the declared value on valid grounds under Rule 4(2), it was not open to the Commissioner to proceed to determine the assessable value of the goods through sequential application of Rules 5 to 7 of Customs Valuation Rules. In this

connection, learned counsel relied on the Supreme Court’s judgments in Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai - (S.C.) and Tolin Rubbers Pvt. Ltd v. CC, Cochin - (S.C.). The Tribunal’s decision in the case of National Imaging Systems v. CC [Final Order No. 156/2004-NB(A), dated 25-2-2004] was also relied on in this connection. It was argued that the transaction value of the goods was the price paid or payable. The supplier’s invoice was conclusive proof of the price paid or payable. All other documents produced by the importer also supported the transaction value declared by the importer. The department could not gather any incriminating material from the importer or the supplier to prove that the former undervalued the goods. Merely because any contemporaneous import price for similar goods was found to be higher than the value declared by the assessee, it could not be inferred, without comparing the year of manufacture, physical condition etc. of the machines, that the assessee had undervalued the goods. In this connection, counsel relied on the Tribunal’s Final Order No. 18/05-NB(A), dated 31-12-2004 in Competent Business Machines v. CC, Tiruchirapalli [ (Tribunal)]. The value declared by the appellants was the price fixed by negotiation between them and the supplier and the same was liable to be accepted under Rule 4(1) of the CVR. There was no evidence in the hands of the department to show that the price so negotiated and fixed was influenced by any consideration other than commercial. In this regard, reliance was placed on the decision of the Tribunal in Spice Communications Ltd. v. CC, New Delhi - (Tri.-Delhi). Referring to the Commissioner’s rejection of the overseas Chartered Engineer’s Certificate, it was contended by counsel that such rejection was not justifiable in the absence of a finding that the certificate was not genuine or authentic or that it was obtained fraudulently or that it was not relevant. Ld. Counsel contextually relied on the Tribunal’s decision in Anish Kumar Spinning Mills v. CC, Tuticorin - (Tri.-Chen.). Counsel also challenged the Commissioner’s finding that the imported photocopier machines were not capital goods and hence restricted for import. In this connection, he cited the Tribunal’s decision in the cases of BE-Office Automation Pvt. Ltd. & Anr. v. CC, Mumbai [2004 (63) RLT 125 (CESTAT-Del.)], SKD Commercial v. CC, Nhava Sheva [ (Tribunal) = 2004-TIOL-909-CESTAT-MLIMJ] and Competent Business Machines (supra). Ld. SDR reiterated the findings of the Commissioner.

 4.After hearing both sides, we directed the SDR to produce copies of the contemporaneous Bill of Entry and Invoice and the appellants to furnish details of the goods. Both sides have produced certain documents/details and we have perused the same. Bill of Entry No. 201363, dated 23-8-2004 (copy produced by SDR) covers a good number of old and used photocopiers, which include “old and used photocopier CANON CLC-700”. This document is accompanied by a copy of Invoice No. 4321, dated 15-6-2004 issued by Seam’s International (supplier). These documents show that the goods covered thereunder were imported through Kolkata port by one M/s. Atul Commodities (P) Ltd., Kolkata. The invoice indicates the CIF value (at Kolkata) of “one used CANON photocopier CLC-700” as US $ 250 whereas the Bill of Entry mentions it as US $ 640. The country of origin shown in the Bill of Entry for all items covered thereunder is U.S.A and that shown in the invoice for all items covered thereunder is U.S.A., Japan without itemwise mention of country of origin. The goods imported by the appellants are all of Japanese origin. It thus appears that the subject goods of Japanese origin have been compared with goods of American or doubtful origin. The subject goods were manufactured during 1995-2001 as per data produced by both the DR and the advocate. But no information is available as to the year of manufacture of the second-hand photocopier taken for comparison. The show-cause notice issued to the appellants admitted that the extent of usage would influence the price. However, it did not attempt any comparison of the subject machines with the machine imported through Kolkata port, with reference to year of manufacture or extent of usage. Such comparison is not forthcoming in the impugned order either.

5.We have  examined the records and considered the submissions. The adjudicating authority has noted in his Order that the importer did not contest the enhancement of value. Ld. SDR has also submitted to this effect. However, it is seen that, in their reply to the SCN issued by the department, they contested the proposal for enhancement of value of the goods. In the appeal before us also, the main challenge is against the enhancement of value. Thus valuation of the goods has ever been in dispute in this case. The valuation done by the adjudicating authority cannot be upheld on a premise that, at the time of clearance of the goods, the importer had chosen to pay duty on the enhanced value. Such payment of duty by the importer did not preclude him from contesting the show-cause notice subsequently issued for enhancing value. The adjudicating authority should have thought for a moment that the very purpose of the notice was to elicit objections (if any) of the party.

6.Ld. Commissioner, in the  impugned order, held that the second-hand photocopiers imported by the appellants were only office equipments and not ‘capital goods’ freely importable under the relevant EXIM Policy. As no import licence was produced by the party, the Commissioner held that the import was in violation of the Foreign Trade Policy and hence the goods were liable to be confiscated under Section 111 of the Customs Act. The appellants’ counsel has relied on a few decisions, to challenge this finding. In the case of Competent Business Machines (supra), old and used photocopiers imported by the party were held to be ‘capital goods’ importable without restriction as the Revenue could not show any prohibition under the Import Policy in respect of second-hand photocopiers. In the instant case, however, the Revenue has been able to show that, during the relevant period, there was a restriction for import of second-hand photocopiers. DGFT’s Policy Circular No. 19 (RE-2003)/2002-07, dated 1-11-2003 had clarified as under :

“……….it is further clarified that the second-hand Photocopier Machines, Air Conditioners, Diesel Generating Sets etc., are also covered under the definition of “Second Hand Goods” and their import is governed by the Provisions of Para 2.17 of EXIM Policy, 2002-07. In view of this, Second Hand Photocopier Machines, Air Conditioners, Diesel Generating Sets, etc., can also not be permitted for import under EPCG Scheme under the provisions of Para 5.1 of EXIM Policy even if these are less than ten years old and even for Service Providers”.
The appellants’ Bill of Entry indicates that the import was in terms of para 2.17 of EXIM Policy 2004-2009. They have not rebutted the Commissioner’s finding that, by virtue of para 1A (4) of Foreign Trade Policy 2004-09, the DGFT’s clarification in respect of para 2.17 of the previous Policy was applicable to para 2.17 of the present Policy (2004-09). It is an established position that DGFT is the authority competent to interpret/clarify provisions of Export & Import Policy of the Government of India. As per that authority’s clarification, second-hand photocopier was a restricted item for import during the period relevant to this case and the same could be imported only under specific licence. The appellants have not even claimed, in the appeal, that their import is not under EPCG Scheme or that the DGFT’s Policy circular is not applicable to the period of the subject import. Their only grievance is that the DGFT’s clarification is not correct. They cannot challenge the DGFT’s circular before us. We can only say that, under the relevant Import Policy as clarified by DGFT, specific import licence is required for second-hand photocopiers, even if the machines are less than ten years old. The machines imported by the appellants are covered by this restriction. Therefore, their import, without licence; attracts Section 111(d) of the Customs Act. The confiscation of the machines under this provision of law cannot be faulted. The decision in BE-Office Automation (supra), wherein second-hand photocopiers imported by the party was held to be capital goods and to be eligible for unrestricted import, cannot be followed in the facts of the present case inasmuch as it is not discernible from the cited order as to whether the import was during the same policy period as in the present case. In any case, the DGFT’s circular was not before the Bench which passed the order in BE-Office Automation. We note that, in the case of SKD Commercial (supra), the West Zonal Bench was simply following the decision in BE-Office Automation (supra). We, therefore, uphold the confiscation ordered under Section 111(d). The question now is, whether the quantum of redemption fine imposed by the Commissioner is reasonable. Since, under Section 125 of the Customs Act, quantum of redemption fine depends on the value of the goods, we shall address this question along with the penalty-related issues after dealing with the valuation issue.

7.On the  valuation issue, it has been contended by learned counsel that the transaction value declared by the importer was liable to be accepted in the absence of reasons under Rule 4(2) for rejecting the same. The impugned order states that it appeared to the department from the inspection report of the local Chartered Engineer (wherein an amount of Rs. 42.84 lakhs (FOB) was estimated as the price of the subject goods) that the declared value of the goods was abnormally low and did not reflect the real transaction value. It, thus, appears that it was on the basis of the local Chartered Engineer’s report that the Customs authorities developed a doubt about the truth and accuracy of the value declared by the importer. But, we find, the local Chartered Engineer’s report was discarded by the adjudicating authority itself, which fact casts a shadow of doubt on the reasonability of the “doubt” entertained by the Customs authorities. The next factor considered by the adjudicating authority for holding that the importer had undervalued the goods is the contemporary import price of one “old & used photocopier CLC 700” imported through Kolkata port in August, 2004. As the impugned order did not mention particulars of the Bill of Entry covering the contemporary import, we directed the SDR to produce the Bill of Entry and connected invoice. We have already noted our observations (vide para 4) with regard to the documents produced by the DR. Based on those observations, we find that the Revenue has not established that only comparables were compared. It is found that the subject goods of Japanese origin manufactured in 1995-2001 were compared with goods of doubtful origin whose year of manufacture or extent of use was not known. Hence, following the decision in Competent Business Machines (supra), we reject the Commissioner’s comparison of the declared price of the subject goods with the price of the goods covered under Bill of Entry No. 201363. As rightly submitted by learned advocate, no good reason under Rule 4(2) was shown by the adjudicating authority for rejecting the declared value of the subject goods. Only after rejecting the transaction value on a ground specified under Rule 4(2) of the CVR and established by evidence, can the assessing authority proceed to determine the value of the goods by sequentially following Rules 5 to 7 as held by the apex court in the case of Eicher Tractors (supra). This legal position was reiterated by the apex court in the case of Tolin Rubbers (supra), wherein the assessable value of second-hand machinery determined under Rule 8 of the CVR on the basis of a Chartered Engineer’s certificate was set aside by the court after finding that none of the lower authorities had shown any reason with reference to Rule 4(2) for rejecting the transaction value declared by the importer. As rightly pointed out by learned counsel, the Revenue has not shown that the transaction value negotiated between the appellants and the supplier was influenced by any consideration other than commercial or that any amount in excess of the said value was paid to the supplier. The Revenue has failed to establish; any ground under Rule 4(2) for rejecting the transaction value. In the circumstances, it is incumbent on the Customs authorities to accept the transaction value under Rule 4(1) read with Section 14(1) of the Customs Act as consistently held by this Tribunal in a line of cases including Spice Communications (supra). For the reasons already noted, we set aside the enhanced valuation done by the Commissioner under Rule 8 and direct that the subject goods be assessed to duty on the basis of the transaction value declared by the importer.

8.The  Commissioner has imposed a fine of Rs. 7.09 lakhs for redemption of the confiscated goods valued at Rs. 47,31,375/- (C&F). Now that the transaction value of Rs. 20,07,360/- (C&F) of the goods stands accepted, the redemption fine requires to be reduced proportionately. We reduce the same  to Rs. 3,00,000/- (Rupees Three lakhs only) after considering all relevant factors under Section 125. The Commissioner has imposed a penalty of Rs. 3.30 lakhs on the importer under Section 112(a) of the Customs Act. We have already rejected the Department’s allegation of misdeclaration of value, though their charge that the importer committed breach of Foreign Trade Policy through import of office equipments without licence has been sustained.

Therefore, the importer’s penal liability gets reduced. Considering the facts and circumstances of the case, we reduce the penalty to Rs. 75,000/- (Rupees Seventy-five thousand only).

9.The impugned  order is set aside on the valuation issue and upheld on the confiscation-related issues, but with reduction of quanta of redemption fine and penalty as above. The appeal is disposed of accordingly.

(Pronounced in open court on 1-3-2005)