Onus to prove under-invoicing of import on Customs: SC

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Onus to prove under-invoicing of import on Customs: SC

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NEW DELHI. Ruling against the arbitrary loading on invoice value by the Customs Department; the Supreme Court vide a recent ruling AIT-2007-249-SC has ruled that 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. 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.

T H E F A C T S

The respondent had imported six consignments of ceramic capacitors and one consignment of diodes from Hong Kong during the above period. The goods were shipped from Hong Kong by M/s Compo Export of Hong Kong and M/s Pearl Industrial Company of Hong Kong. The price of ceramic capacitors was declared by the respondent in its Bill of Entry @ HK$ 6.00 per 1000 pcs. whereas the price of diodes was declared @ HK $ 29406 CIF as reflected in the invoices. On 27.4.1998 a show cause notice was issued by the Assistant Commissioner of Customs, Calcutta alleging inter alia that as per the overseas investigation report of the Hong Kong Customs and Excise Department the declared price did not represent the transaction value under Rule 4 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 ("Customs Valuation Rules") as the price actually paid appeared to be different than the declared price and that the importer had under-invoiced the value of the goods to evade huge amount of the Government's revenue.
In the show cause notice the Assistant Commissioner had specifically invoked Rule 8 of the Customs Valuation Rules, 1988, which was subsequently given up by the Department. Be that as it may, the importer was asked to show cause as to why the value of the consignments in question should not be enhanced based on the export declaration under Rule 8 of the Customs Valuation Rules made by the Foreign Supplier. Accordingly, vide the aforestated show cause notice, the Assistant Commissioner raised a demand for the differential duty of Rs. 28,04,831.40 and fine in lieu of confiscation. In reply, the importer denied the above allegations. In reply, it was submitted that the show cause notice was based solely upon the purported investigation report of Hong Kong Customs and Excise duty; that the said report was accompanied by xerox copies of the export declarations; that the xerox copies did not bear the seal or signature of the customs officials in Hong Kong; that the authenticity of the declaration was doubtful; that the declarations were not the correct reproduction of the original and that there were endorsements to the effect that the documents shall not be used against any third party or in any legal proceedings. In other words, the importer contended that the charge of under-valuation cannot be based on xerox copies of the declarations which were not even certified by the competent authority in Hong Kong. According to the importer, such declarations had no bearing upon the actual sale price of the goods in the hands of Hong Kong exporters. According to the importer, there was no allegation in the show cause notice that it had paid higher value to the supplier than that declared by it in the Bill of Entry. Before the Assistant Commissioner, the importer supported the declared price mentioned in the Bill of Entry by relying upon various contemporaneous imports made during the above period by other importers whereas the price declared for identical goods was the same as the price declared by the importer in the present case in its Bill of Entry.
The show cause notice and the demand levied was confirmed. Aggrieved by the aforesaid decision, the matter was carried in appeal to the Tribunal which allowed the appeal by holding that xerox copies of the export declarations, even though procured from Hong Kong customs will not make such declarations genuine declarations.

T H E R U L I N G:

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. (Para 6)
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 reaches the customs barrier. Therefore, the invoice price is not sacrosanct. 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(1A) 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. Under-valuation has to be proved.
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. If the Department wants to allege under-valuation, it must make detailed inquiries, collect material and also adequate evidence. When under-valuation is alleged, the Department has to prove it by evidence or information about comparable imports. For proving under-valuation, 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' 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 under-valuation.
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. 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.

(Click here for full text of Ruling AIT-2007-249-SC)