LME Prices Cannot Substitute Contemporaneous Import Data for Aluminium Scrap Valuation: CESTAT Ahmedabad Rules in Favour of Agarwal Metals & Alloys

Background and Context

CESTAT Ahmedabad delivered a significant ruling in the matter of Agarwal Metals & Alloys Vs C.C.-Kandla, setting aside the entire customs duty demand, confiscation orders, and associated penalties that had been imposed on the basis of alleged undervaluation of imported aluminium scrap. The appeals were filed by M/s Agarwal Metals & Alloys (hereinafter referred to as AMA), its partners Mr. Vipul Agarwal and Mr. Samir Agarwal, and Mr. Ramesh Kumar H. Jain, challenging Order-in-Original No. KND/Custom/000/Com/19/18-19 dated 26.03.2019 passed by the Commissioner of Customs, Kandla.

The Tribunal's decision reinforces a well-established but frequently contested legal position: departmental circulars and London Metal Exchange (LME) price benchmarks cannot override the statutory Customs Valuation Rules, and where contemporaneous import data is available on record, the valuation exercise must begin there — not with indicative commodity exchange prices for virgin metal.

Facts of the Case

AMA is engaged in the manufacture of Aluminium Alloy Ingots. To meet its raw material requirements, it regularly imported various grades of aluminium scrap — including Tense, Trump, Twist, Twitch, Taint, Tread, Throb, Tassel, Testy, and others — from suppliers based in Europe, the Middle East, and the USA. These imports were effected through the ports of Nhava Sheva, Kandla, and ICD Tughlakabad.

The Directorate of Revenue Intelligence (DRI) initiated an investigation against AMA and several other importers of aluminium scrap on the basis of information suggesting systematic undervaluation. Searches were conducted at AMA's premises, and statements were recorded from its partners, high-seas sellers, customs house agents, and other importers.

The investigation culminated in a Show Cause Notice (SCN) dated 28.03.2008, which alleged that AMA had been declaring grossly undervalued prices for the imported scrap and remitting the differential consideration to overseas suppliers' representatives in cash through hawala channels.

Basis Adopted by the Department for Revaluation

The SCN relied upon the following materials to substantiate the charge of undervaluation:

• DGOV Alert Circular No. 14/2005 dated 16.12.2005 (issued under F.No. Val/TECH/37/2005 by the Directorate of Valuation), which formed the primary basis for revaluation by applying discount bands to LME prices of virgin aluminium
• Statements recorded from Mr. Vipul Agarwal and Mr. Samir Agarwal (partners of AMA)
• Three insurance policies seized from AMA's office premises
• A report obtained through the First Secretary (Trade), Embassy of India, Brussels, relating to one import consignment
• Third-party materials, including email correspondences and documents recovered in the investigation of M/s Sunland Alloys

The differential customs duty demanded across the three ports was as follows:

These demands were sought to be recovered under the proviso to Section 28(1) of the Customs Act, 1962, along with interest under Section 28AB and penalties under Section 112 and Section 114A of the Customs Act, 1962.

The adjudicating authority confirmed the demands via the impugned order dated 26.03.2019, with the limited exception of 20 Bills of Entry that had been provisionally assessed and were therefore held to be outside the scope of Section 28. Penalty was imposed on AMA under Section 114A of the Customs Act, 1962, and on the co-appellants under Section 112(b).

Key Submissions Made on Behalf of the Assessee

Coverage by the Sunland Metal Judgment

Counsel for AMA contended at the outset that the present dispute was squarely governed by the Tribunal's earlier decision in Sunland Metal Recycling Industries / Sunland Alloys Vs C.C. (CESTAT Ahmedabad), Final Order No. A/11871-11874/2019 dated 01.10.2019. It was pointed out that:

• The factual matrix in the Sunland Metal case and the present case was substantially identical
• The evidence relied upon by the Revenue — namely, the DGOV Alert Circular No. 14/2005 and the related statements — was the same in both matters
• The Tribunal in Sunland Metal had categorically held that contemporaneous import values could not be bypassed in favour of LME-based pricing for aluminium scrap valuation

Contemporaneous Import Prices Were Comparable

A detailed comparison chart was submitted during the personal hearing, setting out the import prices declared by AMA alongside those declared by importers in the Sunland Metal and Baheti Metals cases (the latter reported as Pushpak Metal Corporation Vs Commissioner of Customs, 2014 (312) E.L.T. 381, CESTAT Ahmedabad). The chart demonstrated that:

• AMA's declared prices were either at par with or higher than those of the contemporaneous importers
• The CBEC had accepted the decision in the Pushpak Metal Corporation case without filing further appeal, implying departmental acceptance of those price levels
• Since comparable contemporaneous imports at substantially similar or lower prices had been accepted by the Revenue in those cases, the revaluation exercise in AMA's case on the basis of LME prices was not sustainable