CESTAT Chennai Sets Aside Customs Allegations on Valuation, Related Party, and Product Classification

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 04.08.2026

CESTAT Chennai Sets Aside Customs Allegations on Valuation, Related Party, and Product Classification

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chennai recently delivered a significant order in the case involving M/s. Conybio Healthcare (India) Pvt. Ltd. (Conybio India) and the Principal Commissioner of Customs, Chennai. This case revolved around allegations of customs undervaluation, related party transactions, and misclassification of imported healthcare products. The Tribunal’s detailed judgment provides important insights into customs law, valuation rules, and the evidentiary standards required for such cases.

Background of the Case

Conybio India, a private limited company based in Chennai, imports and sells Far InfraRed Bio-Ceramic healthcare products from Malaysia. The company was investigated by the Special Intelligence and Investigation Branch (SIIB) based on intelligence inputs suggesting undervaluation of imports and excessive foreign exchange remittances.

Four show cause notices (SCNs) were issued for the period April 1999 to March 2004, alleging:

• Undervaluation of imported goods
• Concealment of the real supplier’s identity through intermediary companies
• Payments made over and above declared invoice values
• Misclassification of certain products (notably “Cony Takara”)

The total differential duty demanded was over Rs. 32.5 crores, with additional penalties and proposals for confiscation of goods.

Key Allegations by Customs Authorities

1. Control and Relationship:
   • Customs alleged that Conybio India was under the administrative and financial control of Conybio (M) Sdn. Bhd., Malaysia (Conybio Malaysia).
   • Intermediary entities (Bryncoch United, Reka Network, Rekamacro Resources) were claimed to be facades to hide the real supplier and relationship.
2. Undervaluation:
   • Customs claimed that declared transaction values were only 50% of the actual prices, with parallel invoices and additional payments made to the Malaysian parent.
3. Misclassification:
   • The product “Cony Takara” was classified by the importer as a medicament (CTH 3004), but Customs sought to reclassify it as a skin-care product (CTH 3304).
4. Remittance of Excess Foreign Exchange:
   • Authorities alleged that Conybio India remitted foreign exchange in excess of declared values, including consultancy payments and dividend earnings.

Conybio India’s Defense

Conybio India strongly denied all allegations, arguing:

• Imports were on a principal-to-principal basis from independent suppliers.
• No evidence of related party transactions or control as per Customs Valuation Rules.
• No payments were made over and above invoice values; parallel invoices were merely proforma documents related to an aborted investment proposal.
• The classification of “Cony Takara” as a medicament was correct, based on its therapeutic use.
• The Department failed to provide contemporaneous import evidence or legally admissible material to justify rejection of declared values.

Findings of the Adjudicating Authority

The original adjudicating authority upheld the Department’s case, confirming the entire demand, interest, and penalties, but did not impose a redemption fine due to non-availability of goods for confiscation.

Appeals and Cross-Objections

• The Customs Department appealed the non-imposition of redemption fine and non-inclusion of interest in penalties.
• Conybio India filed cross-objections challenging the findings on undervaluation and reclassification.

CESTAT Chennai’s Analysis and Final Order

1. On Relationship and Control

• The Tribunal found no conclusive evidence that Conybio Malaysia exercised administrative or financial control over Conybio India.
• Correspondence cited by Customs was linked to an aborted investment proposal, with no proof of share allotment or actual control.

2. On Actual Supplier and Payments

• The Tribunal held that Bryncoch Malaysia was the actual supplier for the relevant imports, and payments matched the declared invoice values.
• Parallel invoices from Conybio Malaysia were deemed proforma and not evidence of additional payments.
• No evidence of remittance of foreign exchange over and above declared values was found.

3. On Related Party Transactions

• The Tribunal clarified that the concept of “members of the same family” under Customs Valuation Rules applies only to natural persons, not companies.
• No directorship, shareholding, or control was established between Conybio India and the Malaysian entities.

4. On Misdeclaration of Retail Sale Price (RSP)

• The Tribunal found that the Department failed to provide documentary evidence (invoices) used to determine RSP, violating principles of natural justice.
• There was no legal provision for redetermination of RSP post-import during the relevant period.

5. On Classification of “Cony Takara”

• The Tribunal ruled that “Cony Takara” should be classified as a medicament (CTH 3004), not as a skin-care product (CTH 3304), based on its therapeutic use and HSN Explanatory Notes.

6. On Redemption Fine and Penalties

• Since the goods were not available for confiscation, redemption fine was not imposable.
• With the main allegations not proved, penalties were also not sustainable.

Conclusion and Impact

The CESTAT Chennai set aside the adjudicating authority’s order, allowed Conybio India’s cross-objections, and rejected the Department’s appeals. The Tribunal’s order underscores the importance of:

• Concrete evidence over assumptions in customs valuation disputes
• Strict adherence to legal definitions of related parties
• The necessity of providing all relied-upon documents to the affected party
• Proper classification based on product use and international guidelines

This judgment serves as a reference for importers, customs practitioners, and legal professionals dealing with complex valuation and classification disputes under Indian customs law.

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Source: CESTAT Chennai

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