Penalties on customs valuation experts cannot survive when the underlying undervaluation proceedings are set aside.

Agarwal Graphic Machinery Pvt. Ltd. imported used offset-printing machinery.

The appellants, Chartered Engineers, inspected the machinery and provided valuation reports for Customs clearance, using methods including reverse indexation and depreciation under the Board’s Circular dated 19 November 1987.

Following an investigation into alleged undervaluation by the importer, the Commissioner imposed a penalty of ₹5,00,000 on each engineer, finding that they had failed to ascertain the correct value independently.

The Tribunal subsequently allowed the main importers’ appeals, setting aside the demand, confiscation and penalties, including the penalties on the appellants in that case.

The present appeals challenged the penalties imposed on the two Chartered Engineers.

1. Whether the penalties imposed on the appellants as Chartered Engineers could stand after the demand, confiscation and penalties against the main importers had been set aside.

2. Whether the penalties imposed on the appellants were sustainable in light of the Tribunal’s findings in the main importers’ appeals concerning the valuation evidence and the engineers’ valuation methodology.

The Tribunal applied the principle that penalties dependent on an underlying finding of undervaluation cannot survive where the underlying demand and related confiscation and penalties have been set aside.

It also relied on its findings in the main importers’ appeals that the valuation evidence relied on by the Revenue was not supported by cogent corroborative material and that the Chartered Engineer’s valuation method was reasoned and scientific in comparison with the competing expert report.

The Board’s Circular No. 493/124/86-Cus, dated 19 November 1987, was cited as prescribing guidance for valuing second-hand machinery.

The Tribunal noted that, in the main appeals, it had found the Revenue’s revaluation of the machinery arbitrary and unsupported by adequate evidence, and had set aside the confirmed demand, confiscation and penalties.

Because the penalties against the present appellants arose from the same undervaluation proceedings, and the underlying findings against the importers had been set aside, the Tribunal held that the penalties on the engineers could not survive.

It held that they would be entitled to consequential relief, if any, in accordance with law.