Custom, Excise & Service Tax Tribunal
Commissioner Of Customs-Import - ... vs Essar Power Gujarat Limited on 3 April, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
CUSTOMS APPEAL NO: 86974 OF 2023
WITH
CROSS-OBJECTION NO: 85533 OF 2024
(on behalf of respondent)
[Arising out of Order-in-Original No: 04/SJ(04)/PCC(ADJN.)/MUMBAI/2023-24
dated 24th May 2023 passed by the Principal Commissioner (Adjudication),
Mumba.]
Commissioner of Customs (Import-I)
New Customs House, Ballard Estate, Mumbai- 400 001. ... Appellant
versus
Vadinar Power Company Limited
P.O. Box No. 24, Khambhalia PO
Dist: Dev Bhumi Dwarka, Gujarat- 361 305. ...Respondent
WITH
CUSTOMS APPEAL NO: 86984 OF 2023
WITH
CROSS-OBJECTION NO: 85535 OF 2024
(on behalf of respondent)
[Arising out of Order-in-Original No: 02/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24
dated 18th May 2023 passed by the Principal Commissioner (Adjudication),
Mumba.]
Commissioner of Customs (Import-I)
New Customs House, Ballard Estate, Mumbai- 400 001. ... Appellant
versus
Essar Power MP Limited
Versus Prakash Deep, 10th Floor, 7th Tolstoy Marg
New Delhi - 110001 ...Respondent
WITH
C/86974, 87041, 86983 to 86985 & 86989/2023
2
CUSTOMS APPEAL NO: 86985 OF 2023
WITH
CROSS-OBJECTION NO: 85536 OF 2024
(on behalf of respondent)
[Arising out of Order-in-Original No: 02/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24
dated 18th May 2023 passed by the Principal Commissioner (Adjudication),
Mumba.]
Commissioner of Customs (Import-I)
New Customs House, Ballard Estate, Mumbai- 400 001. ... Appellant
versus
Essar Oil Limited
Khambhalia PO,Dist: Jamnagar, Gujarat- 361 305 ...Respondent
WITH
CUSTOMS APPEAL NO: 86989 OF 2023
WITH
CROSS-OBJECTION NO: 85534 OF 2024
(on behalf of respondent)
[Arising out of Order-in-Original No: 02/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24
dated 18th May 2023 passed by the Principal Commissioner (Adjudication),
Mumba.]
Commissioner of Customs (Import-I)
New Customs House, Ballard Estate, Mumbai- 400 001. ... Appellant
versus
Matrix Fertilizer and Chemicals Limited
Panagarh Industrial Park, Panagarh, Bardhman
West Bangal- 713 148 ...Respondent
WITH
CUSTOMS APPEAL NO: 86983 OF 2023
WITH
CROSS-OBJECTION NO: 85532 OF 2024
(on behalf of respondent)
C/86974, 87041, 86983 to 86985 & 86989/2023
3
[Arising out of Order-in-Original No: 02/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24
dated 18th May 2023 passed by the Principal Commissioner (Adjudication),
Mumba.]
Commissioner of Customs (Import-I)
New Customs House, Ballard Estate, Mumbai- 400 001. ... Appellant
versus
Essar Power Gujarat Limited
Salaya Administrative Building 44 KM, Post Box No.7,
Jamnagar-Okha Highway, Khambhalia PO,
Dist: Jamnagar, Gujarat- 361 305 ...Respondent
AND
CUSTOMS APPEAL NO: 87041 OF 2023
WITH
CROSS-OBJECTION NO: 85921 OF 2024
(on behalf of respondent)
[Arising out of Order-in-Original No: 04/SJ(04)/PCC(ADJN.)/MUMBAI/2023-24
dated 24th May 2023 passed by the Principal Commissioner (Adjudication),
Mumba.]
Commissioner of Customs (Import-I)
New Customs House, Ballard Estate, Mumbai- 400 001. ... Appellant
versus
Essar Bulk Terminal Salya Limited
ESSAR House, 11,Keshav Rao Khadye Marg
Mahalaxmi Mumbai, Mumbai-400034 ...Respondent
APPEARANCE:
Shri Shambtoonath, Special Counsel, for the appellant
Shri Vipin Jain, Shri Vishal Agrawal, Shri Karthik Dedhia, Ms Heema Dorhi,
Ms Sanjana Jain and Shri Kshitij Awarthi, Advocates for the respondents
CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL)
HON'BLE MR AJAY SHARMA, MEMBER (JUDICIAL)
C/86974, 87041, 86983 to 86985 & 86989/2023
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FINAL ORDER NO: 85743-85748/2025
DATE OF HEARING: 08/10/2024
DATE OF DECISION: 03/04/2025
PER: C J MATHEW
The genesis of the dispute in these appeals, pursued at the
instance of competent Committee of Chief Commissioners of Customs
aggrieved by the outcome in two adjudication proceedings, is
controversy over valuation and, that too, of alleged overvaluation of
imported goods which, in the context of tariff, bears no consequence of
deficiency in discharge of duties of customs. And the lack of cause
thereto is attributable to the bundling of the impugned goods within the
omnibus 'project imports', leviable to duties of customs at the rate
corresponding to tariff items enumerated below heading 9801 of First
Schedule to Customs Tariff Act, 1975, which has not been controverted
and, with that, eligibility to 'nil' rate on refinery and thermal power
projects with duty at 3% on fertilizer projects being beyond dispute.
Yet, proceedings were initiated by notice issued under section 124 of
Customs Act, 1962 proposing to hold the imported goods as liable to
confiscation, under section 111(m) of Customs Act, 1962, as a
necessary pre-requisite for the obvious intent of proposing imposition
of penalties under section 112 and section 114AA of Customs Act,
1962. The consummation, empowered from justifiable cause of
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5
discrepancy between price declared and value ascertained during
assessment, is now claimed to empower determination of value outside
the framework of assessment to enable confiscation.
2. Mindboggling as the proposition appears to be, ready
comprehension by persons less endowed with capacity for logic and
reasoning, as we must confess ourselves to be, prescribes glance at the
purpose and mechanics of the statute, viz., Customs Act, 1962 and
placement of the schema of transactions, distilled from the elaborate
narration, within that framework to adjudge the plea in the appeals
before us that the adjudication orders impugned here are neither legal
nor proper. The deployment of valuation framework, ensconced within
the still larger one of assessment to duty before imported goods may be
cleared for home consumption and normally for determination of
liability - either under section 17/18 of Customs Act, 1962 for
ascertaining duty or under section 28 of Customs Act for recovery of
undischarged duty liability - on goods, as bedrock for invoking section
111 of Customs Act, 1962 failed to pass muster with the adjudicating
authority for that very reason and, significantly so, is before us for
testing the proposition that settled law which the impugned order has
been founded on is distinguishable on facts relevant to this dispute.
Thus, we are not tasked with adjudging the correctness of the
proposition that confiscation under section 111 of Customs Act, 1962
is not merely consequence of breach of procedures stipulated elsewhere
C/86974, 87041, 86983 to 86985 & 86989/2023
6
in the statute for assessment of imported goods and export goods
through customs barrier for levy of duties authorized by law, as
envisaged in section 47 and section 50 of Customs Act, 1962, but may,
autonomously and solely, pressed into service, and by reference to
meanings assigned in section 2 of Customs Act, 1962 to words and
expressions that occur in section 111 (m) of Customs Act, 1962, even
in the face of irreversible finality in acts preceding clearance of goods
for home consumption, viz., no duties remain to be collected and no
prohibition in law attaches to the goods, forever obliterating existence
as 'imported goods' as far as customs jurisdiction is concerned. That
issue, controverted before the Tribunal in Knowledge Infrastructure
Systems Private Limited v. Additional Director General, Mumbai [2018
(6) TMI 1164-CESTAT MUMBAI], concluded with setting aside of
confiscation and penalties.
3. The challenge to that order before the Hon'ble High Court of
Bombay was dismissed for want of jurisdiction and appeal, preferred
thereafter before the Hon'ble Supreme Court, having been withdrawn
by Revenue, the adjudicating authority declared itself, and rightly so,
bound thereto and we consider it, even in the face of express submission
on behalf of appellant-Commissioner that issue of law remained
undecided, no less binding on the Committee of Chief Commissioners
of Customs/Principal Chief Commissioners whose statutory remit does
not traverse beyond appeals before the Tribunal. Neither are we tasked
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to legitimize the documents discarded by the adjudicating authority,
even if pivotal to the. Case of the investigation, from the binding
decision of the Tribunal in Commissioner of Customs (Import), NS-III,
Raigad v. Adani Power Maharashtra Ltd [(2023) 3 Centax 169 (Tri-
Bom), mandating acceptability for sustaining allegations only to the
extent of provenance established in the manner set out in section 138C
of Customs Act, 1962. Challenge to this was dismissed by the Hon'ble
Supreme Court and, notwithstanding its brevity, bound the adjudicating
authority who, and rightly so, followed it no less than it does the
Committee of Chief Commissioners of Customs. Simply put, the
Committee of Chief Commissioners/Principal Chief Commissioners is
empowered to seek relief only from the Tribunal and to plead for
reversal of a decision of the Tribunal that has not been set aside by the
Hon'ble Supreme Court is not only demonstrative of disregard for
judicial discipline but would also open the floodgates to perpetual
litigation which is the bane of judicial efficiency that Tribunals were
intended to achieve. To burden an assessee with the test of disproving
copies of documents which are unacknowledged by, or of
discountenancing disclosures by persons whose existence is unknown,
to domestic law is to entrust draconian jurisdiction to agencies of
delegated authority; more so, when the statute provides for certification
and relevance and, especially, when the exchequer is not prejudiced in
consequence. The design of 'ways and means' to the exchequer is
C/86974, 87041, 86983 to 86985 & 86989/2023
8
erected on levies and not on detriments; the budgetary blueprint for
mobilization of resources in the national economy places no premium
on fines and penalties.
4. Learned Counsel for respondents, whose memoranda of cross-
objections to the grounds of appeal are also before us, made several
submissions and not the least of which was that, with the Tribunal,
having, in the several disputes supra, held the propositions of elasticity
of jurisdiction and adequacy of evidence to be untenable, the appellants
were left with little to no traction in pursuing these appeals and appeals
reflected nothing but obduracy on the part of investigative agencies
unwilling to be confined within statutory empowerment that the
adjudicating authority was loath to transgress. However, his principal
contention, and on the factual matrix in the show cause notices, was
that affirmation of the grounds on which the impugned order is now
sought to be set aside would be tantamount to criminalizing 'none too
extravagant' trading margins in international transactions merely on the
whims of a tax collector here and there, bereft of both expertise and
experience in matters of business, to normalize 'ethical profits' as
perceived by them. According to him, it is nobody's case that the funds
for discharge of owings to vendors, or intermediaries, did not belong to
the buyers and their structuring of commercial engagement, that did not
evade duty or bring in goods barred from domestic trade, was not of
concern to a tax collector bound by the framework of Customs Act,
C/86974, 87041, 86983 to 86985 & 86989/2023
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1962.
5. The cases themselves relate to import of capital goods for
capacity scaling through setting up of thermal power plant at Salaya by
M/s Essar Power Gujarat Ltd and at Mahan by M/s Essar Power MP
Ltd, capacity enhancement for refining of crude oil at Vadinar by M/s
Essar Oil Ltd and capacity building by setting up of urea fertilizer plant
at Durgapur by M/s Essar Projects (India) Ltd, as 'engineering,
procurement and construction (EPC)' contractor, for M/s Matrix
Fertilizers & Chemicals Ltd, as well as setting up of marine material
handling facility at Salaya by M/s Essar Bulk Terminal Salaya Ltd and
setting up of co-generation power plant at Vadinar crude refining
facility by M/s Vadinar Power Company Ltd. Clearances were effected
against invoices issued under supply contract of each of these with M/s
Global Supplies (UAE) FZE. The goods, such as 'boiler turbine
generator (BTG) and 'balance of plant (BOP)' among others, were
sourced from several 'original equipment manufacturers (OEM)' in
Peoples' Republic of China mostly and elsewhere on 'back-to-back'
transactions of M/s Global Supplies (UAE) FZE with importers on the
one hand and with suppliers on the other. The clearances were
permitted under section 47 of Customs Act, 1962 as having discharged
appropriate levies and were not prohibited for import into India.
6. Underlying the allegation in the show cause notices that the
C/86974, 87041, 86983 to 86985 & 86989/2023
10
goods had been overvalued at time of import is a melange of
investigative unveilings. The negotiations with 'original equipment
manufacturers (OEM)' were alleged, from statements of several of the
top management of importing, and other, companies, to have been
handled by representatives of the Essar Group and that installation, in
several instances, was done by the 'original equipment manufacturers
(OEM)' while the goods were invariably shipped from source to
destinations in India without even the pretence of bills of lading
switched at intermediate ports. Scrutiny of the documents obtained
from the negotiating and facilitating banks enabled inference that most
of the transactions were not only connectible as 'back-to-back'
contracts but also for identifying amounts transmitted by M/s Global
Supplies (UAE) FZE to the corresponding 'original equipment
manufacturers (OEM)' for the supplies effected to importers. Several
of the invoices raised by M/s Global Supplies (UAE) FZE on the
importers were suggested, and outrightly from the terms therein as 'LC'
and 'TTLC' for onward transmission and retention respectively, as
amenable to this disaggregation; those which did not were tested for
conformity with the 'back-to-back' invoices for which M/s Global
Supplies (UAE) FZE was contractually obliged to recompense
corresponding 'original equipment manufacturers (OEM)' towards
supply of goods.
7. From the contracts, invoices and statements, including the catena
C/86974, 87041, 86983 to 86985 & 86989/2023
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of obligations for shipping from source and for installation at
destination devolving on 'original equipment manufacturers (OEM)' as
well as payment schedules benchmarked to specified milestones, it was
determined in the show cause notices that, barring some stray and
outlier procurements, M/s Global Supplies (UAE) FZE was but a
supernumerary in the flow of documents and flow of payments
notwithstanding the justification offered about the commercial intent in
routing transactions through them. From detailed scrutiny of the
ownership pattern of the importing companies and M/s Global Supplies
(UAE) FZE, it was deduced that, though the stakes, direct or indirect,
of the promoters of the importing entities had, since, altered, it was,
during the relevant period, very much a 'related person' of the
importers within the meaning of rule 2(2)(iv) of Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007. The
conclusion in the show cause notice that
'1.25.9.........Thus, it appeared that at least during the period from
10-12-2016 to 28-05-2014, GSF continued to be a subsidiary of
EPL, the efforts to severe the link on paper through sham
transactions notwithstanding....
xxx
1.27.5.....
(xi) Last but not the least, the singular thrust of the submissions
that the price negotiated with GSF was fair, objective and at arm's
length, appeared to be misleading, as it was not an open
competitive tendering, rather an in-house affair....'
C/86974, 87041, 86983 to 86985 & 86989/2023
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would, shorn of the judgmental portion that has nothing to do with, and to
the extent of being beyond the competence of a creature of Customs Act,
1962 to determine let alone suggest, suffice merely to embark upon scrutiny
of influence that the alleged relationship had on transacted price and not as
conclusion of superfluity. The last, in particular, suggests that the
adjudicating authority was being called upon to adjudge value for
conformity with section 14 of Customs Act, 1962 by the standards of
government procurement and in a manner not contemplated in a statute. We
dare say that this is a throwback to that antiquity in time when international
consensus on 'valuation' was yet to be on the agenda of trade between
countries.
8. The narration in both the notices are about determination of amount
retained by M/s Global Supplies (UAE) FZE from these transactions and
the analysis of shareholding pattern of the corporate entities that were
dovetailed as tool, in terms of Customs Valuation (Determination of Value
of Imported Goods) Rules, 2007, for re-determination of value which, upon
comparison with value declared in bill of entry for assessment at the time
of import, was depicted as the gap between payable and paid to the 'original
equipment manufacturers (OEM)' and doubling up as purported
overpayment for being pegged as ceiling for penalties to be imposed as well
as trigger for recourse to 'surrogate value' from the 'red flag' of
relationship. And with this comparison of values, detriment intended for
misdeclaration was proposed as fitting within the confines of obligations in
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13
rule 11 of Customs Valuation (Determination of Value of Imported Goods)
Rules, 2007 to bring the initiated process right where it all commenced.
Leaving aside the painstakingly assembled details, this is the distilled spirit
of the two notices containing the proposals for imposition of penalties under
section 112 and section 114AA of Customs Act, 1962.
9. Here is where the firm ground of margins payable to M/s Global
Supplies (UAE) FZE and the interlocking of stakes among the
companies in the Essar Group in the path to the outcome proposed in
the notice group gives way to quicksand. The bridging of these islands
of facts, without prejudice to their veracity, rests on the causeway of
reasonableness of inference and adequacy of evidence for the simple,
straightforward reason that the tool, viz., Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007, is, of itself,
purpose-designed, and purpose-driven as evident from significant re-
design thrice and significant tinkering once in the last six decades or so,
and accepted, for want of any other option, for deployment in
ascertaining approximations to assist in, and tolerated to that extent for,
assessment to duties of customs. The quantifying of valuation gap,
between declared and re-determined, have been deduced from
segregation of 'LC' and 'TT' invoices raised by M/s Global Supplies
(UAE) FZE on the importers from the which is good only for the optics
until the evidence acquires acceptability in the manner required in law
and the computation of re-determined value is not in conflict with
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Customs Valuation (Determination of Value of Imported Goods) Rules,
2007. The validation of segregation was secured through comparison
with documents obtained from facilitating, and co-operating, banks. A
goodly portion, however, lacks wherewithal for this segregation and
relies upon payments made to 'original equipment manufacturers
(OEM)' - either of SWIFT remittances or documents retired by them -
obtained from those very banks. The Tribunal, in Commissioner of
Customs (Import), NS-III, Raigad v. Adani Power Maharashtra Ltd
[(2023) 3 Centax 169 (Tri-Bom)], had occasion to consider the
evidentiary value of such offerings from dealing banks and were, in
near identical circumstances, held as barred for introduction in
adjudication proceedings save such as are in accord with section 138C
of Customs Act, 1962.
10. Being punitive machinery in a statute, concerned solely with
goods and designed to deter non-discharge of duties authorized by law,
and incidentally also are, from the unique positioning of officers of
customs, set out in section 3 of Customs Act, 1962, as 'proper officers'
therefrom for specific enabling provisions therein at intersection of
route by which goods were shipped with the geographical accesses to
the territory of India, entrusted with ensuring that such goods as are
interdicted domestically by municipal laws do not enter the territory,
Hence, the detriment attached to breach of stipulations attended upon
by the machinery provisions, designed for exercise of control over
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goods on land or on conveyances in territorial waters or airspace, are to
be contextually applied. The notice is not supported by law, as
legislatively enacted of judicially determined, for deeming these
punitive provisions as having agency of their own and not merely to
afford enforcement authority to officers of customs in performing the
two specific delegations of sovereignty of the State that are set out in
section 47 and section 51 of Customs Act, 1962. All other facets of
international commerce - money flows and document flows - are only
handmaids to the primary delegations therein. The core of the
investigation stems from, and is grounded in, 'value' in section 111(m)
of Customs Act, 1962 - as one of the several triggers enumerated
therein for confiscation; these appear to correspond, in ordinal
hierarchy, with movement of goods, from on to off the conveyance,
and even the extent to which the onus traverses in accordance with
severity from prohibited through dutiable to all goods. The
empowerment to confiscate imported goods is, therefore, contextual
and not absolute and intent in the alteration of
'any durable or prohibited goods which do not correspond in
any material particular'
as it originally was, to
'any goods which do not correspond in respect of value or any
other particular',
as altered by The Customs, Gold (Control) and Central Excises and Salt
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(Amendment) Act, 1973, with signification attending on 'value' and of
not just 'prohibited and dutiable goods' claimed as conferring
jurisdiction is not exactly supported by overt declaration in the
substituting enactment or approved in judicial determination. Indeed, it
is highly unlikely that policy formulation, in that era of backbreaking
tariff and deterring non-tariff barriers, was prompted as much by
consequence of overvaluation of goods, to which was appended double
handicap of high impost and fewer goods, as with undervalued imports
compensated for by undervalued exports. And this, in the regime of
Customs Valuation Rules, 1963 characterized by vesting of unfettered
discretion in customs authorities to counter overvaluation. We cannot,
as laid down by the Tribunal in Knowledge Infrastructure Systems
Private Limited v. Additional Director General, Mumbai [2018 (6) TMI
1164-CESTAT MUMBAI], subscribe to the proposition that section 111
(m) of Customs Act, 1962 is, of itself, enabling provision authorizing
re-determination of value to confiscation as a route to appropriate
empowerment for imposing penalty under section 112 of Customs Act,
1962.
11. It cannot but be said that value, in its commonly understood
meaning, is the price that the average buyer pays at retail stage for a
product. International trade occurs across borders of domestic law
jurisdiction and each consignment is of such magnitude that negotiated
prices are the norm rather than exception. Factored in such negotiations
C/86974, 87041, 86983 to 86985 & 86989/2023
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are aspects, and not restricted to further disposal of a particular
consignment, extending over entirety of supply under contract or
possibly beyond supply for mitigating risks in a project because all of
these offer opportunities for gains. A cocooned existence is unlikely to
sense atmosphere of business strategy that pervades business decisions.
Except when statutorily prescribed, pricing is unfettered with only
buyer and seller being privy to it. The cost of levies is only a component
in such transactions and levying agency is only of peripheral
significance where pricing is concerned; these are humbling realities
that do not enter the consciousness of agencies of governance let alone
tax administrators. It is for such reason that 'value' for assessment to
duties is legal fiction and, therefore, in the realm of government policy
for consistency and of legislative intervention for certainty thereof.
Over the years, the framework legislation and enabling Rules have
evolved to assure that consistency and certainty. Consistency and
certainty in administering customs levies not only requires no less than
strictest adherence to the confines of extent Rules but also mandates its
deployment for the purpose intended. Value in the commercial world,
which transcribes as price and enforceable at that, is a combination of
several short-term and long-term factors that only the parties to the
transaction are privy too. It is of concern only to the two parties and
only of relevance to tax authorities to the extent that tax is not escaped;
value is, thus, deemed - by law and by international consensus - for
C/86974, 87041, 86983 to 86985 & 86989/2023
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customs purposes and, to the extent of non-conformity of price with the
template of 'transaction value', is mouldable again in accordance with
the definitive law enacted and notified for the purpose. Neither is the
transaction price subject to interventional rectification by customs
authorities nor is the value amenable to determination outside the
legislated scheme of valuation. It does not, therefore, surprise that, in
the face of this matrix of enacted law, notified statutory instrument and
judicial decisions, the adjudicating authority found itself disdaining the
proposals in the notice and it only remains to evaluate the review by
Chief Commissioners of Customers for having discerned some aspects
in the notice that may render the impugned order, in portion or of
entirety, to be other than legal and proper.
12. In the notice issued in connection with 222 consignments of M/s
Essar Power Gujarat Ltd proposing revision of value from ₹
2514,52,94,423 to ₹1876,81,27,973, 226 consignments of M/s Essar
Power Madhya Pradesh Ltd proposing revision of value from ₹
2428,55,15,153 to ₹1871,61,75,614, 350 consignments of M/s Essar
Oil Ltd proposing revision of value from ₹ 2854,64,92,111 to ₹
2189,97,10,661 and 92 consignments of M/s Essar Projects India Ltd
proposing revision of value from ₹ 1510,59,23,423 to ₹ 760,04,42,662,
that was dropped by order1 of Principal Commissioner of Customs
(Adjudication), Mumbai, the re-determination was sought on the
1
[order-in-original no. 02/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24 dated 18th May 2023]
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ground that
'1.28.5 In the Bills of Entry featured in Annexures C1 to
C4 of the SCN, it had been held out by the respective importers
that the value declared therein represented the Transaction
Value paid or payable for the goods imported, which appeared
to be not correct, legally or factually for the following
reasons:-
(i) Essar Group entities viz, EPGL, EPMPL, EOL & EPIL
and GSF, the so called buyers and the seller were not
different. GSF appeared to be only a front and
intermediary invoicing agent, for inflating the invoice
value as part of the modus-operandi This was evident
from the foregoing discussions.
(ii) Goods were directly supplied/shipped to India by
respective OEMs and there was no scope for any
legitimate value addition at the hands of GSF. Besides,
scale of extent of value inflation (by about 100% in case
of EPIL and about 30% - 35% in case of others) by the
intermediary (GSF), when seen in the overall context
(as discussed elsewhere), did not appear to indicate any
bonafide value addition activity, nor did it appear to be
commercially prudent or justified. The value inflation at
the hand of the intermediary (GSF) appeared to be not
related to value of imported goods, but more of a
mechanism to siphon money out of India, under the
guise of import remittance. The OEMs (HPECL in
particular} were contractually responsible not only for
design, engineering, manufacture & supply of
equipments but also for commissioning of the
equipments and performance test thereof, which they
did at site.
C/86974, 87041, 86983 to 86985 & 86989/2023
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(iii) The respective importers i.e. EPGL, EPMPL, EOL &
EPIL knew who the OEM/Actual Suppliers of goods
were. Not only the officers of importing entity visit them
overseas, but also the engineers of OEMs (particularly
HPECL) were at site to ensure installation and
commissioning. Consignments were being shipped
directly to India. Under the circumstances, normal
commercial prudence and due. diligence would not
justify payment of such inflated price of about 100% in
case of EPIL and about 30% - 35% in case of others
over and above the OEM invoice price, that too to by an
entity with no technical competence/expertise and no
wherewithal of value addition.
(iv) Without prejudice to the above, the so called supplier
(GSF) and the importers viz. EPGL, EPMPL, EOL &
EPIL (who were all Essar Group entities) were related
to each other which was not declared to the Customs
Authorities in India. The declared value was not
acceptable as the 'Transaction Value as per the
Customs Valuation (Determination of value of Imported
goods) Rules,-2007 (in short the CVR' 2007')read with
Section 14 of the Customs Act, 1962 inasmuch as it
appeared that the relationship had influenced the
Transaction Value.
(v) GSF appeared to be a front of the Essar Group for
acting as an intermediary invoicing agent for over-
valuation. It was acquired by them and they continued
to control it (distancing on paper notwithstanding),
there was employee mobility between GSF and other
entities of the Essar Group as apparent from fact that
almost all the employees assigned to work in GSF were
either ex-employees of the Essar Group or con-
C/86974, 87041, 86983 to 86985 & 86989/2023
21
currently worked for GSF while under employment for
one or more Essar Group entities. AH these, not only
obliterated the distinction between the Essar Group
entities and GSF, but also established commonality of
interest.
(vi) OEM-invoice value had been traditionally recognised
as the most authentic value which was recognised in
law. Rule 11 of the CVR-2007 lists manufacturer's
invoice as a relevant document for determination of the
value of the imported goods, particularly when goods
were imported from or through a person other than the
manufacturer or producer,
1.28.6 Thus, the transaction between GSF and
EPGL/EPMPL/EOL/EPIL (including one by Matix) being
apparently a sham transaction for reasons set out above, the
same was, therefore, liable to be rejected under the provisions
of Rule 12 of the CVR, 2007. Rule 11 of the Rules, prescribes
various documents required for ascertaining correctness of the
declared value. One of the prescribed documents was
manufacturer's invoice. Rule 4 of the CVR-2007 provided that
subject to the provisions of Rule 3, the value of the imported
goods would be the Transaction Value of identical goods sold
for export to India and imported at or about the same time as
the goods being valued. In the present case, the goods in
question themselves have been shown as sold to the
intermediary invoicing agent i.e. GSF but have been directly
shipped to India by the OEMs/ Actual Suppliers. GSF
appeared to have merely acted as an intermediary invoicing
agent for inflating the invoice. Thus, the invoice value of the
manufacturer (OEM/Actual Supplier) appeared to be the
actual value of goods. Rule 4 refers to value of identical goods
being sold for export to India and imported at or about the
C/86974, 87041, 86983 to 86985 & 86989/2023
22
same time. The ambit of identical goods covered same goods,
being identical in all respects. Therefore, the price available
in. such OEM invoices appeared to be the actual Transaction
Value of the same goods (Identical goods-Rule 4)-being the
same set of goods, covered by two different sets of invoices it
was obvious that there was no material difference of any kind
in description, quantity, make, or the manufacturer. Therefore,
the value was required to be re-determined under the
provisions of Rule 4 of the CVR, 2007 read -with Section 14 of
the Customs Act, 1962.'
for 149 consignments, 84 consignments, 213 consignments and 79
consignments respectively on the premise that 'identical goods',
notwithstanding definition in rule 2(1)(d) of Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007,
encompassed 'goods being valued' - a leap of law over a cliff. For the
remaining consignments, and based on inferences from other
documents and transactions in the absence of 'back-to-back' payments,
recourse was had to rule 9 of Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007 consequent upon sequential
elimination of the preceding ones as applicable.
13. The notice, which culminated in the order2 of Principal
Commissioner of Customs (Adjudication), Mumbai dropping
proceedings against M/s Essar Power Gujarat Ltd, M/s Essar Power MP
Ltd, M/s Essar Oil Ltd and M/s Essar Projects (India) Ltd, had proposed
2
[order-in-original no.02/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24 dated 18th May 2023]
C/86974, 87041, 86983 to 86985 & 86989/2023
23
that 890 consignments, declared to be valued at ₹ 9299,32,25,110, with
a mark up of 38.83% over the actual of value of ₹ 6698,44,56,910 were
liable to confiscation under section 111(d) and section 111(m) of
Customs Act, 1962, in addition to liability for penalties under section
112 and section 114AA of Customs Act, 1962 by substitution with
surrogate value in accordance with rule 4 and rule 9 of Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007
upon rejection of declared value by recourse to rule 12 of Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007.
14. In the notice culminating in the order3 of Principal Commissioner
of Customs (Adjudication), Mumbai dropping proceedings against
orders M/s Essar Bulk Terminal Salaya Ltd and M/s Vadinar Power
Company Ltd, the same modus operandi, with the same M/s Global
Supplies (UAE) FZE in the thick of the transactions, was alleged to for
similar consequences to, and in relation to confiscation of,
consignments, declared to be valued at ₹ 588,39,88,850 with a markup
of 77% over the actual of value of ₹ 332,04,41,583. The contributions
of imports by M/s Vadinar Power Company Ltd to this consolidated
computation stood at 95.29% over the actual value of ₹ 239,1530,578
in 29 bills and of M/s Essar Bulk Terminal Salaya Ltd at 30.64 % over
the actual value of ₹ 92,89,21,005 in 8 bills. The imported goods,
3
[order-in-original no.04/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24 dated 18th May 2023]
C/86974, 87041, 86983 to 86985 & 86989/2023
24
declared to be valued at ₹ 239,15,20,578 and ₹ 92,89,21,005
respectively were proposed to be confiscated under section 111(d) and
section 111(m) of Customs Act, 1962, in addition to liability for
penalties under section 112 and section 114AA of Customs Act, 1962,
after placing them on notice of intent to reject the declared values by
substitution with surrogate value in accordance with rule 4 of Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007.
15. Three employees of noticees concerned were also called upon to
dispute liability to be imposed with penalties under different provisions
for their role in the imports effected by the six entities that were under
the sword of adjudicatory proceedings. Though proceedings were
dropped against them, too, there are no challenges to those by
Commissioner of Customs. In the light of similarity of issues, and
suggestion of identical modus operandi, the appeals before us are taken
up for disposal together. Several objections were raised by the
respondent-importers to alleged transgressions in the review that led to
these appeals. These are, for the moment, parked on the sidelines while
the grounds of appeal are dealt with and to be delved into should the
respondents be faced with detriments in the course of adjudging the
appeals.
16. The adjudicating authority, concluding that relationship between
importers and M/s Global Supplies (UAE) FZE was common ground
C/86974, 87041, 86983 to 86985 & 86989/2023
25
except for contention that a specificity of relationship from among
those in rule 2(2) of Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007 had not been brought on record, held the
notice to have failed to establish relationship as influencing the selling
price which was essential pre-requisite to ascertainment of outcome by
recourse, and as alternative to ascertainment triggered by rejection
under rule 12 of Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007, to 'surrogate value' from rule 4 to rule 9
therein. It was also noted that M/s Global Supplies (UAE) FZE had
been active enough in business well before the transactions with the
importers had commenced as to preclude their irrelevance in the actual
transactions and, particularly so, with the contracts themselves
remaining unquestionably authentic as far as the notice was concerned
as also that, while the 'mark-up' did came under scanner, the extent of
obligations devolving on M/s Global Supplies (UAE) FZE having, in
the absence of any allegations thereto, passed muster, the lack of
acknowledgement thereto jeopardized the grounds noted in review
leading to the appeal. It was further held, and upon examination of the
terms and conditions, that responsibility, critical to execution of the
projects, assigned to M/s Global Supplies (UAE) FZE was entailed with
liquidated damages for deviations therefrom. Noticing average
'markup' of 34% in the aggregate value of supplies to M/s Essar Power
Gujarat Ltd, 29.75% in that of supplies to M/s Essar Power Madhya
C/86974, 87041, 86983 to 86985 & 86989/2023
26
Pradesh Ltd and 29.94% in that of supplies to M/s Essar Oil Ltd, which
was held as not suggestive of abnormality or deviation and that, if so
by any stretch, the onus devolving on customs authorities to derive
monetary value from the appropriate method set out in Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007
had not been discharged. It was also noted that, with several instances
of lower values for comparison, and that, with the documents received
from sources not having been certified for provenance and
consequential inadmissibility as evidence, in conformity with the
decision of the Tribunal in re Adani Power Maharashtra Ltd, the
proposed revisions had no basis in law; and, especially so, with the
notices having disaggregated individual consignments for different
methods of valuation in the face of the entirety of contracts having to
be taken together from the absence of any controversy over clustering
as 'project imports' for determining rate of duty. The adjudicating
authority resisted the proposition of recourse to rule 4 of Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007 for
non-conformity with the comparison intended therein. Factoring in the
benchmark cost per megawatt adopted by the Central Electricity
Regulatory Commission (CERC), it was concluded that there was no
inflation of costs in the power projects in question here and, by
comparison with TATA-TCE report, was held also below that of others
in the fertilizer plant project.
C/86974, 87041, 86983 to 86985 & 86989/2023
27
17. Casting aside the technical issues, such as non-furnishing of all
relied upon documents and concluding of adjudications while under the
category of disputes to be kept in abeyance, that had been at the
forefront in the prelude to issue of the impugned order and now
rendered infructuous in the light of appeal against the adjudication on
merit instead of validity, the principal ground for appeal pertains to the
finding that the relationship of buyer and seller, undisputed as it was,
had been held as not having influenced the consideration for sale.
Details of the contract, drawn from the show cause notice, have been
cited as evidence of erroneous finding in the impugned order. There are
two aspects of disputation that should, for the nonce, be taken up. The
first is an inherent contradiction in insisting that the purported
relationship, as buyer and seller, is the key for recourse to 'surrogate
value' but, at the same time, overlooking determination of influence
that buyer-seller relationship had had on price. Likewise, the erasing of
the ostensible seller from the transaction while proposing acceptance of
price paid by ostensible seller to the 'original equipment manufacturers
(OEM)' as 'surrogate value' extinguishes conformity with the buyer-
seller engagement acknowledged for acceptance as 'value' in section
14 of Customs Act, 1962. This ground of appeal, in continuing to press
for 'surrogate value' without postulating significant influence that
relationship had on the price and by adoption of the consideration paid
by intermediary to supplier as 'surrogate value' without such
C/86974, 87041, 86983 to 86985 & 86989/2023
28
provisioning in the valuation scheme. Consequently, the question of
appropriateness of the finding that price has not been influenced by the
relationship is not of consequence thereof as, again, the recourse to
'surrogate value' has been misapplied. It should also be noted that the
proposal for re-determination in the notices themselves is premised on
rejection of declared value under rule 12 of Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 which, for
the purposes rule 3 therein, are mutually exclusive but enabling same
'surrogate values' with the same outcome but without pre-requisite of
rejection of declared
18. Besides reiterating the proposal for rejection of declared value,
as set out in the notices, along with that, notwithstanding the absence
of refuting the reasons adduced in the impugned order before arriving
at its conclusions for dropping the proceedings, proposing 'surrogate
value' to substitute for declared price in the notices, the reviewing
authority has also forayed into the financials of M/s Global Supplies
(UAE) FZE which is neither a party in the proceedings nor its financials
of any relevance insofar as the section 14 of Customs Act, 1962. Our
cautionary caveat on the expertise of tax administrators over business
domain and business strategy as well as relevance to the objectives and
purposes of Customs Act, 1962 is relevant to deal with this ground of
appeal. To look at a transaction, or even a set of transactions, outside
the framework of Customs Act, 1962 while authorized only to work
C/86974, 87041, 86983 to 86985 & 86989/2023
29
within it, poses the hazard of missing the wood for the trees.
Commitment to public interest, such as it is, grants neither the
jurisdiction nor the capacity for sufficient comprehension of business
strategizing to pontificate on the sensibility of a business decision. The
taxing statute, with its limited and oft repeated objectives, does not
confer that either.
19. The reviewing authority has saddled the importers with the onus
that the adjudicating authority, rightly, had placed on the investigation
to compute the monetary significance, or lack thereof, of contractual
obligations devolving on M/s Global Suppliers (UAE) by reiterating the
same facts and inferences therefrom as in the notice. There was no
requirement either for the adjudicating authority to fill the gaps in a
notice owing to which the reviewing authority was restricted inferences
drawn upon from facts in the notice that had been erroneously dealt
with in the impugned finding; there is no reference to facts in this
ground of appeal.
20. In what amounts to testing of judicial tolerance, as set out by the
Hon'ble Supreme Court in Union of India v. Kamalakshi Finance
Corporation Ltd, the reviewing authority has challenged the reliance
placed by the adjudicating authority on decisions of the Tribunal with
virtually a 'war cry: of resistance thus
C/86974, 87041, 86983 to 86985 & 86989/2023
30
'6.8 The Adjudicating Authority has relied in para 5.7.1 and
5.7.2 of the OIO, on the Hon'ble CESTAT, Mumbai's Order
in Customs Appeal No. 87758/2017 in case of Commr of
Customs, Import Vs. M/s Adani Power Maharashtra Ltd And
Ors. And Order in Customs Appeal No. 85473 of 2018 in
Commr of Customs (Import) V/s Maharashtra Eastern Grid
Power Transmission Company Ltd. (MEGPTCL) and Ors.
It is seen that as per judicial jurisprudence, the cases
mentioned above can be relied upon only If they are or similar
to the matter at hand. Though both are overvaluation cases, it
is not necessary that they are identical or similar to each other
in respect to the same legal and factual background, The
Adjudicating Authority has nowhere mentioned this aspect or
adduced evidence to show that both the above cases are
identical or similar to the impugned case at hand. It is seen
that the contract awarded in both the cases viz. M/s. Adani
Power Maharashtra Ltd. and M/s. Maharashtra Eastern Grid
Power Transmission Company Ltd. were after following the
International Competitive Bidding process and the lowest
bidder was awarded the contract. Further, in case of
Maharashtra Eastern Grid Power Transmission Company
Ltd., it was seen that it was a Special Purpose Vehicle formed
through a joint venture between Adani Enterprises Ltd. (AEL)
holding 74% of the share-holding and Maharashtra State
Electricity Transmission Company Ltd. (a Govt. of
Maharashtra of Maharashtra Enterprise) holding the balance
26%. In case of the Essar group and the supplier GSF, they
were all private entities and were also related to each other.
There is no dispute on this fact which has also been confirmed
by the Adjudicating Authority in the Order-in-original.
Further, as explained in para 20 of the SCN, many similarities
and commonalities have been mentioned in contracts between
GSF with various OEMs and GSF with the importers (Essar
C/86974, 87041, 86983 to 86985 & 86989/2023
31
Group companies) in India, which has been ignored by the
Adjudicating Authority.
It is pertinent to mention here that in case of Uttam
Galva Steels Ltd. Hon'ble High Court (Appeal No.
E/85253/14-Mum-Order No A/3339-3344/15/EB dated
06.10.2015) had passed an Order wherein it had refused to
blindly follow the Hon'ble Supreme Court judgement in case of
Super Synotex (CCE Vs. Super Synotex (India) Ltd. 2014 (301)
ELT 273(SC)) and had given due regards to the facts of the
case and provisions of law, and thereafter given a contrary-
decision. Hon'ble High Court in this Order held that- "We
therefore agree with the submissions of the learned senior
counsel Shri V.S. Nankani as also all other counsels and do not
find substance in the submission made by the learned
Commissioner (AR) that issue is already decided by Hon'ble
Supreme Court in the case of Super Synotex,"
Further, in case of Ashwani Kumar Singh Vs. U.P.
Public Service Commission (AIR 2003 SC 2661), the Hon'ble
Supreme Court held that reliance on a decision cannot be
placed without discussing whether it was rendered in the same
factual and legal background. Similarly, Hon'ble Supreme
Court in Megh Singh vs State of Punjab (AIR 2003 SC 3184)
has held, "Circumstantial flexibility, one additional or
different fact may make a world of difference between
conclusions in two cases or between two accused in the same
case. Each case depends on its own facts and a close similarity
between one case and another is not enough because a single
significant detail may alter the entire aspect."
Thus, in view of the above, it appears that the
Adjudicating Authority has erred in relying on the Hon'ble
CESTAT, Mumbai's Order in Customs Appeal No. 87758/2017
in case of Commr of Customs, Import Vs. M/s. Adani Power
C/86974, 87041, 86983 to 86985 & 86989/2023
32
Maharashtra Ltd. And Ors. and Order in Customs Appeal No.
85473 of 2018 in Commr of Customs (Import) V/s Maharashtra
Eastern Grid Power Transmission Company Ltd. (MEGPTCL)
and Ors to decide this SCN without adducing evidence to show
that both the cases are similar or identical.'
and we do not propose to dilate further on the citations therein solely
for dignifying a perverse suggestion.
21. The Tribunal, in Knowledge Infrastructure Systems Private
Limited v. Additional Director General, Mumbai [2018 (6) TMI 1164-
CESTAT MUMBAI], did rule on one aspect of the present proceedings
while another was dealt with in Commissioner of Customs (Import),
NS-III, Raigad v. Adani Power Maharashtra Ltd [(2023) 3 Centax 169
(Tri-Bom)] and the proposition of distinguishment on the basis of
manner of award of contract or commonalities of 'back-to-back'
contracts of the intermediary with have no bearing on the principle of
law settled therein. These submissions do not advance the cause pressed
in the review for discarding judicial precedent that did influence the
adjudicating authority. More so, in the light of its binding nature,
despite efforts to have these overturned or revisited, thus
'117. Another important issue that arises for consideration in this
appeal is as to whether the goods can be held liable for
confiscation under section 111 (d) and (m) of the Customs Act
when there is no case of short levy of duty and assertion that the
goods were prohibited in nature. The respondents have relied
upon the decision of the Tribunal in Knowledge Infrastructure
C/86974, 87041, 86983 to 86985 & 86989/2023
33
Systems Private Limited v. Additional Director General,
DRI 2019 (366) ELT A95 (Tri.- Mumbai), wherein Tribunal held
as follows:
"Confiscation under section 111 of Customs Act is not an end in
itself but has to be in respect of dutiable or prohibited goods
barring a few exceptions. Even in case of exception to
prohibited/dutiable goods, it is breach of Customs Act which
attract confiscation. For confiscation under section
111(m) ibid there is no judicial approval of proposition that goods
be held liable for confiscation without nexus with collection of
duty and enforcement of prohibitions or without breach of the
machinery provisions for safeguard of revenue and prevention of
smuggling."
118. Learned special counsel for the appellant submitted that the
decision of the Tribunal in Knowledge Infrastructure was
delivered without considering the past decisions and properly
appreciating the provisions of the Customs Act and this decision is
also under challenge before the Supreme Court. It needs to be
noted that in early hearing application, the department opposed
the prayer for an early hearing for the reason the decision of the
Tribunal in Knowledge Infrastructure is applicable to the facts of
this case.'
and, though undeliberated therein owing to
'119. However, as the allegation of over-valuation has not been
established, it is not necessary to examine this aspect.'
the changed circumstances, occasioned by
'It is pointed out before us that Civil Appeal Diary No.21189/2021
already stands dismissed as withdrawn on 27.09.2021.
Out of two connected matters, one of them is not on Board before
us today which is mentioned in the Office Report i.e. Civil Appeal
Diary No.21188/2021. Civil Appeal Diary No.2188/2021 is taken
on Board.
C/86974, 87041, 86983 to 86985 & 86989/2023
34
The current matter and Civil Appeal Diary No.21188/2021 are
dismissed as withdrawn leaving the question of law open.
We appreciate the stand taken by the Government in not entering
into futile litigation. The appeals are dismissed as withdrawn
accordingly.'
in order4 of the Hon'ble Supreme Court, in Additional Director
General, Mumbai v. Knowledge Infrastructure Systems Private
Limited, precludes such stand on behalf of appellant-Commissioner
here.
22. Learned Special Counsel intimated that, even as the impugned
order found no quarrel with the proposition of 'relationship' between
'vendor on record', M/s Global Supplies (UAE), FZE and the several
respondents in the two sets of appeals, the conclusion of the
adjudicating authority on conformity of declared value with the
template in section 14 of Customs Act, 1962 fails the test of logic. He
implied, thereby, that the relationship, as established, when
concatenated with 'markup' over the price charged on the related
supplier by the original manufacturer sufficed for affirmation of
proposal to invoke rule 12 of Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007 as prelude to discard of declared
price with consequences, as set out therein, to follow in the manner
proposed in the notices. He contended that the adjudicating authority
4
[order dated 24th January 2023 in civil appeal no. 1666/2020]
C/86974, 87041, 86983 to 86985 & 86989/2023
35
had, wrongly, lent credence to the objection of the noticees that lack of
specific identification from among the enumerations of 'questionable
relationship' in the Rules sufficed to ignore the consequences of the
established relationship inasmuch as the notice did highlight (iv), (vi)
and (viii) of rule 2 therein.
23. It was further contended by him that the condoning of error, upon
claim of the respondents during adjudication, in not notifying customs
authorities of the relationship, as set out in the notice, was improper as
the consequence of non-disruption of declared value was prejudicial to
the interests of the State. He submitted that the adjudication order had
failed to take note of the criticality of this deficiency which, in the light
of circular5 of Central Board of Excise & Customs (CBEC), had
precluded reference to 'special valuation branch (SVB)' that would
have enabled customs authorities to prevent the consummation which
benefitted the importers. He argued that the adjudicating authority had,
in repetition of a pattern, wrongly inferred that the notice failed to
establish that the relationship, not overtly disowned, had influenced the
price of the transaction inasmuch as the notices could not be any more
clear on such cause and consequence. To buttress this contention, he
highlighted the contents of 'back-to-back' contracts, viz., between
manufacturers and M/s Global Supplies (UAE), FZE as well as between
the latter and the respondents, for demonstrating the chronological, as
5
[circular no. 5/2016-Cus dated 9th February 2016]
C/86974, 87041, 86983 to 86985 & 86989/2023
36
well as substantive, similitude of contractual emendations thereto
across the imports.
24. According to Learned Special Counsel, the prices, both as
factually uncontested and in magnitude of inflation, on the two legs of
'back-to-back' contracts, cannot be ignored and he contended that the
intermediary was insinuated with mala fide intent. He pointed out that
the show cause notice, reflecting the painstaking and meticulous
investigation covering a set of documents obtained from banks of the
intermediary and correlation of the two - that filed for customs
assessment in India and that recording the transaction of 'original
equipment manufacturers (OEM)' with common vendor on record - for
each of the importers through bills of lading issued by the shipping
company for contracted direct delivery in India, could only have had
one consummation, viz., resounding approval of the several proposals
therein. For our benefit, he surveyed the several documents that had
been relied upon and the scheme of valuation that accorded legitimacy
to the charge of commission of offence, i.e., misdeclaration of value,
owing to which the goods were liable to confiscation under section
111(d) and section 111(m) of Customs Act, 1962.
25. Learned Counsel for respondents set out the context for the
several grounds of appeal to contend that these had no bearing on the
principal issue in dispute: that the buyer and seller were related and that
C/86974, 87041, 86983 to 86985 & 86989/2023
37
this relationship had influenced the price in the transaction which, in
terms of rule 3 of Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007, was of essence to discard the value in
the bills of entry before proceeding to determine the appropriate
'surrogate value', albeit sequentially, from among the options in the
Rules. He pointed out that impugned order was unambiguous in holding
that the determination of relationship was vague inasmuch as
conformity with the specific of 'questionable' permutation was not
apparent in the notice. He submitted that the adjudicating authority had
also, with reference to the evidence marshalled in the notice, concluded
that the all too inalienable essentiality for discard of declared value, viz.,
of price having been influenced by the relationship, was not established.
He argued that the appeal, at the instance of the Chief Commissioners
of Customs, does not venture to suggest either specifics of relationship
from among those enumerated or the existence of evidence of price
having been influenced thereupon. He even went on to suggest that the
absence of reference to any judicial decisions or of deliberations at the
'high table' made manifest in directives to the several customs houses
should even point to the intent of the said framework in rule 3 of
Customs Valuation (Determination of Value of Imported Goods) Rules,
2007 for ensuring that appropriate duties of customs were not withheld
from the exchequer by masking the 'true value' of imported goods
through dubious device of related intermediary with no fiscal detriment
C/86974, 87041, 86983 to 86985 & 86989/2023
38
of consequence to the importer.
26. He contended that the notice, and the grounds of appeal, were
founded on an exercise that was of no consequence to the exchequer,
as evident from the absence of recourse to section 28 of Customs Act,
1962, and that any other purpose, unarticulated and, more so, from that
very deficit, is foray into jurisdiction beyond Customs Act, 1962. He
further argued that, on behalf of Revenue, this aspect was brought up
before the Tribunal, in re Knowledge Infrastructure Systems Private
Limited, and the portrayal of the insertion of 'value', by amendment6 in
section 111(m) of Customs Act, 1962 as intended to confer jurisdiction,
independent of assessment under section 17 of Customs Act, 1962, for
'appraisal of value' as weapon to confiscate under section 111 of
Customs Act, 1962 did not, for reason of any authentic provenance for
such submission being unavailable, find favour. According to him, that
discard of the sole ground for appropriation of jurisdiction - other than
the two, of collecting duties on imported goods and of preventing goods
that were under prohibition from being imported - raised questions
about the scope for turning machinery provisions for assessment into
an instrument for deprivation of ownership permitted, by law, only as
consequence of the machinery provisions being deployed for ensuring
that duties as prescribed in law are not withheld from the exchequer.
6
[Act no. 36 of 1973]
C/86974, 87041, 86983 to 86985 & 86989/2023
39
27. The scheme of valuation, as set out in the extant Rules, is for the
price to be the transaction value and, thereby, the value for assessment
where duties of customs are to be charged on the basis of value. The
optimal description of acceptable price, in rule 3 of Customs Valuation
(Determination of Value of Imported Goods Rules), 2007, is also
considered to be the default, save for any additions pertaining to costs
and services related to the imported goods warranted by rule 10 of
Customs Valuation (Determination of Value of Imported Goods Rules),
2007, except in two specified and mutually exclusive circumstances,
viz., transaction between related parties with the relationship having
influenced price or upon discard by recourse to rule 12 of Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007,
permitting substitution with 'surrogate value' by sequential application
of rule 4 to rule 9 therein, as the 'gold standard' of 'transaction value',
as the governing concept, had been elevated to the substance itself in,
with amendment of 2007 to, section 14 of Customs Act, 1962.
Therefore, just as additional consideration transmitted to seller permits
recast of 'price' as enhanced substitute so would the amount, to the
extent of evidenced flowback yielding returns to the buyer directly and
surreptitiously or as indirect benefit, depress the assessable value
clearly within the ambit of rule 3 of Customs Valuation (Determination
of Value of Imported Goods) Rules, 2007. Beyond that, recourse to rule
3 therein is not tenable.
C/86974, 87041, 86983 to 86985 & 86989/2023
40
28. The impugned notice has made no suggestion, let alone offered
evidence, of flowback to the importers to warrant reduction in declared
value. Nor is there a suggestion in the grounds of appeal that crucial
evidence of such flowback has been overlooked by the adjudicating
authority. Recourse to rule 3 of Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007, in the absence of evidence
suggesting flowback, to depress the price is not sustainable. The
adjudicating authority has posited conversely, viz, recourse, as
mandated in rule 3(4) and upon discard of declared price in
circumstances envisaged in rule 12 of Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007, was not had
to 'transaction value' of 'identical' or 'similar' goods of which there is
no whisper in the show cause notice let alone of 'computed' value or
'deductive' value set out in rule 7 and rule 8 therein. The finding in the
impugned order that the failure, thereby, to carry through the
consequence of discard under rule 12 of Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 discredits the
discard cannot be faulted.
29. Per contra, the re-determination, by adoption of price, truncated
to the extent of 'unacceptable value addition' in the 'document chain',
is tantamount to freezing the 'consideration chain' at a stage prior to
the last in the billing for the very goods under assessment; it is neither
in accord with 'surrogate value' drawn from other legitimate
C/86974, 87041, 86983 to 86985 & 86989/2023
41
transactions permitted to be appropriated for re-assessment by recourse
to rule 4 to rule 9 of Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007 nor 'depressed'/ 'enhanced'
consideration for the goods under assessment permitted by rule 3 of
Customs Valuation (Determination of Value of Imported Goods) Rules,
2007. The 'transaction value' in rule 4 therein is intended to be drawn
from consignment of 'identical goods' which 'goods under assessment'
is not and the 'price' of 'goods under assessment' is alterable only in
the manner permitted in rule 3 of Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007. Synthesis of the two has neither
approval in law nor precedent of judicial determination. Arbitrary
curtailment of 'price' of 'goods under assessment' has no place in the
contemporary scheme of valuation and is, for that very reason, cause
for the precis of the findings in the impugned order adumbrated supra;
that, with valuation scheme, having evolved as an international
distillation of national experiences in assessment over the years, it is
not be allowed to regress to those days of unfettered discretion that held
sway.
30. That the present exercise in the show cause notices was, indeed,
such throwback to the 'neanderthal' prototype preceding the General
Agreement in Trade and Tariffs (GATT) valuation, and even the
Brussels Definition of Value (BDV), is evident from
C/86974, 87041, 86983 to 86985 & 86989/2023
42
'14(1) For the purposes of the Indian Tariff Act, 1934, 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-
(a) 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 of international trade,
where the buyer and seller have no interest in the business of each
other and the price is the sole consideration for the sale or offer for
sale;
(b) where such price is not ascertainable, the nearest
ascertainable equivalent thereof determined in accordance with
rules made in this behalf
XXXXXXX'
in section 14, as at the time of enactment of Customs Act, 1962, and
before some form of semblance to the extant scheme of valuation was
brought about by Customs (Amendment) Act, 1988 with substitution by
'14(1) For the purposes of the Indian Tariff Act, 1934, 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 of international trade, where the buyer and seller
have no interest in the business of each other and the price is the
sole consideration for the sale or offer for sale;
(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.
C/86974, 87041, 86983 to 86985 & 86989/2023
43
XXXXXXX'
under which authority the detailed, and comprehensive, Customs
Valuation (Determination of Price of Imported Goods) Ruled, 1988
came to be notified for the beginning of structured valuation regime
that eventually evolved into what we have today.
31. In those tentative days and to give effect to original concept of
'value', Customs Valuation Rules, 1963 were notified and it was in
'......
(b) If the value cannot be determined under Cl. (b), it may be based
on the value at which such goods or comparable goods produced or
manufactured by the person who has produced or manufactured the
goods to be assessed are ordinarily sold or offered for sale under
competitive conditions to buyers in countries outside India... '
of rule 3 therein that authority for methodology adopted in the notice
and espoused in the grounds of appeal may be found to exist. Not too
regretfully, that has been consigned to the archives only to be
occasionally recalled, and though maybe nostalgically by customs
authorities of an ilk, by others for reflecting on what once was to
measure advances in seamless international trade made since then. Be
that as it may, such enlarged authority does not exist anymore and that
the said Rules have been overhauled, not once but twice, during the last
six or so decades should be caution enough to preclude such
adventurism of regressive time travel. Moreover, that most elastic of
C/86974, 87041, 86983 to 86985 & 86989/2023
44
prescriptions for 'surrogate value' does, with the express bar of
'(2) No value shall be determined under the provisions of this rule
on the basis of
......
(v) the price of the goods for export to a country other than India; .......' in rule 9 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 precludes resort to the price payable or paid by M/s Global Supplies (UAE), FZE to 'original equipment manufacturers (OEM)' and, who being based in another country, renders that price to be for export to them.
32. The grounds of appeal, to the extent concerned with justifying non-applicability of the leading judgements on disputes about overvaluation before the Tribunal, are not to be dignified by being even taken into consideration. To do so would be at the cost of judicial discipline and to the detriment of the responsibility assigned, especially on valuation and classification, to the Tribunal in the appellate hierarchy of national jurisdiction. The attempt by a subordinate executive authority to have the findings therein re-considered, after the Central Government withdrew its appeal in one and lost its appeal in the other, is not in keeping with the finality attributable to judicial determination. Both in the normative of business operations as well as in interpretation of laws, individuals may have, and are entitled to, their C/86974, 87041, 86983 to 86985 & 86989/2023 45 own opinion but to graft that viewpoint as institutional thinking is disservice to the institution of which they are custodians for a time as well as unacceptable from a tax administrator created by, and bound within, a taxing statute.
33. The scheme of valuation does not stand in support of the manner in which the value has been sought to be substituted in the notice. The facts evinced are not sufficient to tear down the weave of commercial engagement and for recourse, thereby, to discard of declared value. The mark-up is not of such unreasonable magnitude as to suggest that transaction should be penalized for obfuscation. Even without pressing into service the law, as judicially determined, on jurisdictional competence and on evidentiary value of documents for visiting penalties on the respondents under Customs Act, 1962, and as found in the impugned order too, the facts alone suffice to erase the proposals in the notice.
34. In the facts and circumstances, as set out supra, we find no merit in this appeal, seeking the impugned order to be set aside, and is, accordingly, dismissed.
(Order pronounced in the open court on 03/04/2025) (AJAY SHARMA) (C J MATHEW) Member (Judicial) Member (Technical) */as