HP India Cleared by CESTAT as Customs’ Revaluation of Imported CDs Held Invalid Without Proper Transaction Value Rejection
Pranav B Prem
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has ruled that the re-determination of value of CDs imported by HP India is not sustainable in law as the transaction value declared by the importer was not rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
Background of the Case
M/s Hewlett Packard (HP) India Sales Private Limited imported Quick Recovery (QR) CDs containing Microsoft operating systems and other drivers from Mentor Media Ltd., Singapore. These QR CDs were provided to customers for recovery and reinstallation of operating systems and drivers in the event of system crashes. The declared transaction value for these CDs included only the cost of the blank CD and the duplication charges, but not the value of the software content.
The Directorate of Revenue Intelligence (DRI), Bengaluru initiated an investigation suspecting undervaluation. The CDs, valued provisionally at ₹7,12,33,603/-, were seized and later released. Subsequently, two show cause notices dated 25.05.2010 were issued: one proposing confiscation and penalty under Section 112 of the Customs Act and the other demanding differential duty under Section 28(1) of the Act.
The Principal Commissioner, in the order dated 29.07.2020, confirmed the duty demand of ₹23,98,72,726/-, imposed a redemption fine of ₹1,50,00,000/- under Section 125, and penalties under Section 114A on HP India and Section 112(a) on its employees, Shri V. Sridharan and Shri B.S. Ravishankar.
Observations by the Tribunal
The Tribunal highlighted that valuation must primarily be determined as per Section 14 of the Customs Act read with Rule 3 of the 2007 Rules, which mandates adoption of transaction value unless rejected under Rule 12. The Tribunal noted that neither the show cause notice nor the impugned order provided valid reasons for rejecting the declared transaction value under Rule 12 or Rule 10A (of the 1988 Rules applicable earlier).
As per the Tribunal: “The responsibility of the importer is confined to truthfully declaring the transaction value in the Bill of Entry. There is no requirement for the importer to anticipate rejection of the transaction value or predict the value that may be determined later by the adjudicating authority.” Thus, the Tribunal ruled that re-determination of the value without rejection of the transaction value was not permissible.
The Tribunal further held that the confiscation under Section 111(m) of the Customs Act could not be sustained since the goods were not undervalued by omission or misdeclaration but based on the importer’s good faith reliance on the transaction value.
Regarding the Penalties
The Tribunal set aside all penalties imposed under Sections 112, 114A, and 114AA:
Section 112 penalties require that goods be liable for confiscation under Section 111, which was not sustained.
Section 114A applies in cases of collusion, willful misstatement, or suppression of facts—all of which were absent here.
Section 114AA relates to false declarations or documentation. There was no evidence of such misconduct by HP India.
The Tribunal emphasized that: “All penalties are contingent on either the sustenance of the confiscation or willful misdeclaration. As neither is proven, the penalties are liable to be set aside.”
Findings on Limitation
The Tribunal also noted that the extended period of limitation invoked under the proviso to Section 28(1) was not justifiable in the absence of suppression or willful misstatement. Therefore, the demand of differential duty itself was unsustainable on this ground.
Verdict
In light of these findings, the Tribunal allowed HP India’s appeal and set aside the duty demand, redemption fine, confiscation order, and all associated penalties. The appeals filed by Shri V. Sridharan and Shri B.S. Ravishankar were also allowed, and the Revenue’s appeal for additional penalties was dismissed. The impugned order dated 29.07.2020 was thus quashed in its entirety, entitling HP India and its employees to consequential reliefs.
Appearance
For HP India, V. Sridharan and BS Ravishankar - Shri V. Lakshmikumaran, learned counsel assisted by Ms. Rubel Bareja and Shri Anurag Kapur
For Revenue- Shri Mihir Ranjan, Special Counsel
Cause Title: M/s Hewlett Packard Sales Pvt. Limited v. Principal Commissioner of Customs ACC (Import) Commissionerate
Case No: Customs Appeal No. 50203 OF 2021 [With 3 Ors.]
Coram: Hon’ble Justice Mr. Dilip Gupta [President], Hon’ble Mr. P.V. Subba Rao [Member (Technical)]
[Read/Download order]
