Customs Valuation Cannot Be Based on Unproved Export Declarations

Supreme Court Limits Customs Adjustment Based on Export Data

In a significant decision for importers and multinational enterprises, the Supreme Court ruled that the Customs Department cannot unilaterally enhance the assessable value of imports based on unproved export declarations made by overseas related parties. The Court emphasized that such documents, without independent verification or supporting evidence, are insufficient to displace the transaction value declared by the importer under Section 14 of the Customs Act, 1962.

The matter arose when the department sought to increase the customs duty on imported machinery by relying on the supplier’s export invoice filed abroad, which allegedly reflected a higher value. The petitioner, however, contended that the exported goods were not identical and were sold under different commercial conditions. The Court accepted this, holding that Rule 3 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 — which mandates transaction value as the primary method — cannot be circumvented without clear evidence of undervaluation or manipulation.

The Court observed: "Mere disparity in pricing between domestic and export markets, without more, does not furnish a legal basis to reject the declared value."

Implications for Practitioners

The decision strengthens the evidentiary threshold required for customs valuation adjustments, particularly in related-party transactions. It underscores the need for authorities to conduct substantive SVB (Special Valuation Branch) inquiries and obtain verifiable data before invoking Rule 10 adjustments. Practitioners should ensure that documentation supporting arm’s-length pricing, including transfer pricing studies and comparative data, is maintained to counter speculative demands.