Customs Valuation Rules 2007: Declared Value Cannot Be Rejected Without Contemporaneous Import Evidence, Says CESTAT

CHENNAI — The customs department cannot reject an importer's declared value and enhance it on the strength of figures drawn from the National Import Database alone, the Customs, Excise and Service Tax Appellate Tribunal has held, setting aside an order that had raised the assessable value of consignments of polyester fabric by forty per cent and demanded differential duty with penalty. The Chennai bench allowed the importer's appeal on 12 October in Riverline Imports v. Commissioner of Customs.

"The burden is on the department to show the price was not the price," the tribunal said.

How customs valuation works

Section 14 of the Customs Act, 1962 charges duty on the transaction value of imported goods — the price actually paid or payable for the goods when sold for export to India, with the additions that Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 prescribes for costs such as commissions, royalties and freight. Rule 3 requires the transaction value to be accepted unless one of the listed conditions fails — a restriction on the buyer's use of the goods, a condition for which a value cannot be determined, a flow-back of proceeds to the seller, or a relationship between buyer and seller that has influenced the price — or unless the proper officer rejects it under Rule 12.

Rule 12 is the gateway. Where the officer has reason to doubt the truth or accuracy of the declared value, the officer may ask the importer for further information and documents; if reasonable doubt persists after the reply, the officer must communicate the grounds, hear the importer, and record a reasoned rejection. Only then do the alternative methods apply, and they apply in sequence: identical goods (Rule 4), similar goods (Rule 5), the deductive method (Rule 7), the computed method (Rule 8) and the residual method (Rule 9).

What the tribunal held

1. Rule 12 was not followed. The assessing officer had raised the value in the bill of entry by reference to database entries without issuing a query, recording reasons or hearing the importer. The tribunal held, following the Supreme Court in Commissioner of Customs v. Sanjivani Non-Ferrous Trading (2018) and Century Metal Recycling v. Union of India (2019), that an enhancement without a prior rejection of the transaction value under Rule 12 is unsustainable.
2. The database is not evidence. The department relied on the average declared value of other consignments of polyester fabric imported through Chennai and Nhava Sheva in the preceding three months. The tribunal held that the database records declared values of other importers' goods, not the transaction value of identical or similar goods within Rules 4 and 5; without the underlying bills of entry, showing the description, grammage, width, quantity, country of origin, commercial level and date of each consignment, there was nothing to compare.
3. The importer's evidence stood unrebutted. The importer produced the contract, the supplier's price list, the bank remittance for the invoiced amount and the supplier's export declaration. Following Eicher Tractors v. Commissioner of Customs (2001) and Commissioner of Customs v. South India Television (2007), the tribunal held that where the importer establishes the price paid, the department must prove that the invoice did not reflect the real transaction.
4. No penalty. With the enhancement set aside, the confiscation under Section 111(m) and the penalty under Section 112 fell with it.

The burden is on the department to show the price was not the price.

From the order

Why database figures keep coming back

The National Import Database compiles declared values from bills of entry across ports and is a legitimate tool for flagging consignments whose values look low. The error, repeated in order after order, is to treat the flag as the finding. The Rules allow comparison only with the transaction value of goods that are identical or similar in every material respect and imported at or about the same time at the same commercial level; a database average, which mixes grades, quantities and suppliers, is none of those things. The 2023 Customs (Assistance in Value Declaration of Identified Imported Goods) Rules give the department a separate procedure for goods identified as prone to undervaluation, with additional declarations from importers, but they do not dispense with Rule 12.

What it means for importers

• Keep the price trail. The contract or purchase order, the supplier's price list or quotation, the proforma and commercial invoices, the bank remittance and the supplier's export declaration together establish the transaction value. Produce them at the first query.
• Insist on the Rule 12 process. Ask for the grounds of doubt in writing and for the bills of entry the department relies on. An enhancement made without that process can be challenged on that ground alone.
• Do not accept enhancement under protest without reasons. Clearing goods on an enhanced value to avoid demurrage is common; a written protest preserves the right to appeal, but an assessment accepted without protest is difficult to reopen.
• Know the appeal route. Commissioner (Appeals) within sixty days, then the tribunal; questions of valuation go from the tribunal directly to the Supreme Court under Section 130E.

The Counsel will report any appeal by the department. Importers facing a valuation query or enhancement should take advice from a qualified customs practitioner before accepting an assessment.

This report is for general information only and does not constitute legal advice. Readers should consult a qualified lawyer about their own circumstances. Case citations are to The Counsel Reports (TCR) unless otherwise stated.