CESTAT Chennai Sets Aside Allegations of Undervaluation in Silk Imports

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 15.12.2025

CESTAT Chennai Sets Aside Allegations of Undervaluation in Silk Imports

In a significant ruling, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai, has set aside allegations of undervaluation and misdeclaration against M/s Sino Import and Export Pvt Ltd and its director, in connection with the import of raw silk and tussah silk. The appeals, arising from Order-in-Original No. ​ 109388/2024, were heard and decided by the Hon’ble Members Technical and Judicial. ​

Background of the Case

The case revolved around allegations that Sino Import and Export Pvt Ltd had misdeclared the origin and undervalued imported raw silk and tussah silk from Uzbekistan, China, and Vietnam between January 2019 and November 2022. The Directorate of Revenue Intelligence (DRI) conducted investigations, including searches and analysis of documents, and issued a Show Cause Notice (SCN) alleging that the importer had evaded customs duties by misdeclaring the transaction value and origin of the goods. ​

The adjudicating authority confirmed the demands of differential duty amounting to Rs. ​ 1,10,21,861, imposed penalties on the importer and its director, and ordered the confiscation of goods under Section 111 of the Customs Act, 1962. ​ Aggrieved by the decision, the appellants challenged the order before the CESTAT. ​

Key Issues in the Case

The Tribunal examined several critical issues, including:

1. Rejection of Transaction Value: The department alleged undervaluation based on unsigned invoices and export documents from Uzbekistan Customs, which were not provided to the importer. ​
2. Non-Compliance with Section 138C: The appellants argued that the documents relied upon by the department were not certified as required under Section 138C of the Customs Act, rendering them inadmissible. ​
3. Reliance on Statements: The department relied on statements made by Appellant under Section 108 of the Customs Act, but the mandated procedure under Section 138B for testing the relevancy of such statements was not followed. ​
4. Comparison with Other Importers: The department compared the declared transaction values with average unit prices of similar goods imported by other Indian importers, which the appellants contended was not a valid basis for rejecting their declared values. ​

Key Findings of the Tribunal ​

After a detailed examination of the evidence and arguments, the Tribunal made the following observations:

• The department failed to provide authenticated copies of the export documents from Uzbekistan Customs, which were crucial to substantiate the allegations of undervaluation. ​
• The unsigned invoice relied upon by the department lacked evidentiary value, and the failure to provide certified documents violated the principles of fairness and justice. ​
• The statements of Appellant were deemed irrelevant as the procedure under Section 138B was not followed, and the department did not allow cross-examination of the deponent. ​
• The comparison of transaction values with average unit prices of other importers was found to be flawed, as it did not account for factors such as quantity, quality, and negotiation terms. ​

Tribunal’s Decision

The Tribunal held that the department failed to prove the allegations of undervaluation with credible evidence. ​ It emphasized that the burden of proof lies with the department to establish undervaluation, which cannot be based on mere suspicion or unsubstantiated documents. ​ The Tribunal also highlighted the importance of adhering to statutory requirements under Sections 138B and 138C of the Customs Act. ​

As a result, the Tribunal set aside the impugned order in its entirety, including the demands for differential duty, penalties, and confiscation of goods. The appeals were allowed with consequential relief to the appellants. ​

Significance of the Ruling

This judgment underscores the importance of adhering to procedural requirements and evidentiary standards in customs investigations. ​ It reiterates the principle that allegations of undervaluation must be supported by concrete evidence and cannot be based on assumptions or unverified documents. ​ The decision also highlights the need for transparency and fairness in adjudication proceedings, ensuring that importers are given access to all relevant documents and the opportunity to cross-examine witnesses. ​

The ruling serves as a reminder to both importers and authorities about the importance of compliance with legal provisions and the need for a fair and just adjudication process. ​ It is a landmark decision that reinforces the principles of natural justice and sets a precedent for similar cases in the future. This case is a testament to the importance of robust legal representation and adherence to procedural safeguards in customs disputes. Importers and stakeholders in the trade community can draw valuable lessons from this ruling to ensure compliance and protect their rights.

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Source: CESTAT Chennai

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