CESTAT Delhi Sets Aside Allegations of Misdeclaration and Undervaluation in Coral Import

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 26.12.2025

CESTAT Delhi Sets Aside Allegations of Misdeclaration and Undervaluation in Coral Import

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, recently delivered a significant judgment in the case of M/s Kartik Traders & Others vs. Commissioner of Customs, ICD Tughlakabad, New Delhi. ​ The case revolved around allegations of misdeclaration and undervaluation of imported goods, specifically “Processed Coral Waste,” under Bill of Entry No. ​ 417629 dated 03.11.2005. ​ The Tribunal, after a detailed examination of the evidence and legal precedents, set aside the duty demand and penalties imposed on the appellants. ​

Background of the Case

The case originated from an investigation initiated by the Directorate of Revenue Intelligence (DRI) in 2008 against M/s Kartik Traders, the appellant, which was engaged in importing and trading herbal medicinal materials and other products. ​ The investigation focused on two Bills of Entry: No. ​ 100964 dated 03.08.2005 and No. ​ 417629 dated 03.11.2005. ​ The DRI alleged that the appellant had imported 500 kg of “Processed Coral Waste” from E.T.N. ​ Industries Ltd., Hong Kong, and declared the CIF value as USD 5,900. ​ However, the department enhanced the value to USD 13 per unit, claiming that the goods were misdeclared and undervalued. ​

The investigation relied heavily on overseas inquiries conducted with Dubai Customs regarding a previous consignment imported under Bill of Entry No. ​ 100964. Dubai Customs reported that the actual value of the goods in the earlier consignment was USD 12,400, contrary to the declared value of USD 2,600. Based on this information, the department alleged that the goods imported under Bill of Entry No. ​ 417629 were also misdeclared and undervalued, leading to the issuance of a Show Cause Notice on 24.10.2008.

Arguments Presented

Appellants’ Submissions ​

The appellants, represented by their learned counsel, argued that the impugned order was erroneous and based on extrapolation rather than direct evidence. ​ Key points raised by the appellants included:

1. No Independent Investigation: The department failed to conduct an independent investigation into the subject Bill of Entry (No. ​ 417629). ​ Instead, the duty demand was raised based on extrapolation from the earlier consignment under Bill of Entry No. ​ 100964, which is impermissible under the law. ​
2. Lack of Substantive Evidence: The department did not provide any direct or material evidence to substantiate the allegations of misdeclaration and undervaluation. ​ The entire case was based on retracted statements and evidence from a different consignment.
3. Validity of Statements: The appellants contended that the statements recorded under Section 108 of the Customs Act were taken under duress and were retracted through affidavits. ​ They argued that these statements could not be relied upon as the procedure under Section 138B of the Customs Act was not followed. ​
4. Invoice and Supplier Declaration: The appellants provided invoices and declarations from the supplier, E.T.N. ​ Industries Ltd., Hong Kong, certifying that the goods were “Processed Coral Waste” valued at USD 5,900. ​ These documents were not adequately addressed or rebutted in the impugned order. ​
5. Extended Period of Limitation: The appellants argued that the extended period of limitation was invoked without valid evidence of fraud, suppression, or misrepresentation, making the demand unsustainable. ​

Department’s Submissions ​

The department argued that the goods were misdeclared as “Processed Coral Waste” instead of “Coral” and that the actual transaction value was suppressed. ​ They relied on the overseas inquiry report from Dubai Customs regarding the earlier consignment and statements from individuals, which allegedly confirmed the undervaluation. ​ The department contended that the retraction of statements was invalid as it was made after a significant delay. ​

CESTAT’s Observations and Judgment

After hearing both parties, the Tribunal made the following observations:

1. Extrapolation is Impermissible: The Tribunal emphasized that each import is an independent assessment and cannot be based on projections or extrapolations from previous investigations. ​ It cited the case of Principal Commissioner v. Sachdev Overseas Fitness Pvt. ​ Ltd., which held that transaction values cannot be rejected based on extrapolation. ​
2. Lack of Independent Evidence: The Tribunal noted that the department failed to provide direct evidence of misdeclaration or undervaluation for the subject Bill of Entry. ​ The reliance on the earlier consignment’s investigation was insufficient to confirm the duty demand. ​
3. Supplier’s Documentation: The Tribunal highlighted that the appellants had provided invoices and declarations from the supplier, E.T.N. ​ Industries Ltd., Hong Kong, certifying the nature and value of the goods. ​ These documents were not adequately addressed or rebutted by the department. ​
4. Retraction of Statements: The Tribunal observed that the retraction of statements, though delayed, could not be disregarded without proper examination. It also noted that the department failed to comply with the mandatory procedure under Section 138B of the Customs Act, making the statements inadmissible. ​
5. Extended Period of Limitation: The Tribunal found that the department did not provide sufficient evidence to justify invoking the extended period of limitation under Section 28 of the Customs Act.
6. Legal Precedents: The Tribunal referred to several case laws, including Truwoods Pvt. ​ Ltd. vs. Commissioner of C. Ex ​., Vishakhapatnam and Commissioner of Customs vs Ganpati Overseas, to reinforce its stance that allegations of undervaluation must be supported by direct evidence and cannot be based on assumptions or extrapolations. ​

Final Decision

The Tribunal concluded that the department’s reliance on extrapolation and retracted statements, without substantive evidence, was legally unsustainable. ​ It set aside the impugned order, including the duty demand and penalties imposed on the appellants. ​ The appeals were allowed, and the judgment was pronounced on 19.12.2025. ​

Key Takeaways

1. Importance of Direct Evidence: The judgment underscores the necessity of direct and substantive evidence in cases of alleged misdeclaration and undervaluation. ​ Extrapolation from previous investigations is not a valid basis for confirming duty demands. ​
2. Admissibility of Statements: Statements recorded under Section 108 of the Customs Act must comply with the procedure under Section 138B to be admissible as evidence. ​ Retractions, even if delayed, must be considered.
3. Invoice and Supplier Declarations: Importers should ensure proper documentation, including invoices and supplier declarations, to substantiate their claims during disputes. ​
4. Extended Period of Limitation: The extended period of limitation under Section 28 of the Customs Act can only be invoked with credible evidence of fraud, suppression, or misrepresentation. ​

This judgment serves as a reminder of the importance of adhering to legal principles and evidentiary requirements in customs investigations. ​ It also highlights the need for importers to maintain accurate documentation and transparency in their transactions to avoid disputes with customs authorities.

Source: CESTAT Delhi

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