SUPREME COURT OF INDIA
Rabindra Chandra Paul
Vs.
Commissioner of Customs (Prv.), Shillong
C.A.No.4498 of 20061
(S.H.Kapadia and B.S.Reddy, JJ.,)
27.02.2007
JUDGMENT
S.H.Kapadia, J.
1. Civil Appeal No. 4498/2006 : This is an appeal under Section 130E of the Customs
Act, 1962 against judgment and order No. M-299/Kol /06 dated 6-7-2006
passed by the Customs, Excise & Service Tax Appellant Tribunal, Kolkata
("the Tribunal"). It is an appeal filed by the assessee.
2. A short question which arises for determination in this civil appeal is
whether the Department, in the facts and circumstances, was justified in
invoking Rule 7A of Customs Valuation (Determination of Price of Imported
Goods) Rules, 1988 framed under Section 156 of the said 1962 Act.
3. Appellant-assessee purchased two consignments of Refined Soya-bean Oil from
M/s. United Edible Oils Ltd., Bangladesh. The goods imported were accompanied
with Invoice dated 4-10-2003 and Invoice dated 30-10-2003. The C & F value
of the Soyabean Oil (final product) showed the price to be Rs. 24.5C per kg.
calculated at the prevailing rate of US $. The Department called upon the
appellant to give the cost break-up of the imported goods. The details were
forwarded by the appellant to the Department vide letter dated 19-10-2003 along
with copy of the bills of entry. The appellant also obtained a certificate from
the Superintendent of Customs which stated that the consignments imported stood
assessed by the Assistant Commissioner of Customs at Rs. 27.17 and Rs. 31.96
respectively. The Department, however, refused to accept the rate of Rs. 27.17
and Rs. 31.96 respectively. On 5-12-2003 the Assistant Commissioner of Customs
gave a hearing to the appellant in the matter of finalization of the assessable
value of the said two consignments. The appellant contended that M/s. United
Edible Oils Ltd., Bangladesh was the manufacturer of Refined Soyabean Oil. The
said goods were manufactured from imported Crude Soyabean Oil (raw material).
The said raw material was imported by M/s. United Edible Oils Ltd., Bangladesh
from a foreign country under a valid invoice and bills of entry, copies whereof
were also submitted by the appellant herein to the Assistant Commissioner of
Customs. M/s. United Edible Oils Ltd., Bangladesh processed the said raw
material in their factory in Bangladesh into Refined Soyabean Oil (final
product) which was exported to the appellant. Before the Assistant
Commissioner, the appellant presented the actual price of the above raw
material plus processing charges plus transportation charges from the factory
gate to the point of exportation. The price declared, therefore, was the price
at the point of exportation. Before the Assistant Commissioner, the appellant submitted
the above documents. The appellant contended before the Assistant Commissioner
that the Assistant Commissioner was not entitled to invoke Rule 7A on the basis
of the cost break-up, particularly when there was no allegation that the price
declared was tainted. The appellant contended before the Assistant Commissioner
that the Department was not entitled to invoke Rule 7A and that the Department
was not justified in invoking Rule 7A when the declared price tallied with the
price of the Indian Refined Soyabean Oil (see page 'E' of the synopsis). By
Order dated 26-12-2003 the Assistant Commissioner of Customs confirmed the
demand raised by the Department fixing the assessable value at Rs. 31.66 per
kg. The Assistant Commissioner came to the conclusion that the Declared Price
of the final product was less than the Tariff Value indicated in the letter
issued by the Central Board of Excise and Customs dated 15-12-2004 under which
the Board had stated that the Tariff Value for Crude Soyabean Oil stood at US $
565 PMT vide Notification No. 105/2004-Customs (N.T.), dated 15-9-2004. In the
said letter, the Board further stated that it was logical to value the raw
material at prices higher than the Crude Soyabean Oil. On the basis of said
letter dated 15-12-2004 and Notification dated 15-9-2004 the Assistant
Commissioner of Customs fixed the assessable value of the Refined Soyabean Oil
at the above rate of Rs. 31.66 per kg. Accordingly, the Assistant Commissioner
directed the Department to complete the assessment and confiscate the goods
under Section 111(m) of Customs Act, 1962.
4. Being aggrieved by Order dated 26-12-2003 passed by the Assistant
Commissioner of Customs, the appellant preferred an appeal under Section
128A(3) of Customs Act, 1962. This appeal was filed before the
Commissioner (A). By Order dated 30-6-2004 the Commissioner came to the
conclusion that there was no reason for the Assistant Commissioner of Customs
to invoke Rule 7A, particularly when the Department had not alleged that the
sale was not in the ordinary course of trade. It was further held that there
was no reason to invoke Rule 7A since the import did not attract any of the
circumstances enumerated in Rule 4(2)(c) to (h). According to the Commissioner
(A), the only ground on which the Assistant Commissioner had invoked Rule 7A
was that the appellant was given abnormal discounts. According to the
Commissioner (A), in the present case there was nothing to show that the
discounts obtained were abnormal. In the circumstances, the Commissioner held
that the Department was not correct in rejecting the transaction value in terms
of Rule 4(1).
5. Aggrieved by the decision of the Commissioner (A), the matter was carried in
appeal to the Tribunal (CESTAT). The matter was carried in appeal by the Department.
By a cryptic order, the Tribunal stated that on the facts and circumstances of
the case, the Department was right in invoking Rule 7A. Hence this civil
appeal.
6. In the case of Eicher Tractors Ltd. v. Commissioner of Customs1,
Mumbai reported in this Court held that the principle for valuation of imported
goods is found in Section 14(1) of Customs Act, 1962 which provides
for the determination of the assessable value on the basis of the international
sale price. Under the said Act, customs duty is chargeable on goods. According
to Section 14(1), the assessment of duty is to be made on the value of the
goods. The value may be fixed by the Central Government under Section 14(2).
Where the value is not so fixed it has to be decided under Section 14(1). The
value, according to Section 14(1), shall be deemed to be the price at which
such or like goods are ordinarily sold or offered for sale, for delivery at the
time and place and importation in the course of international trade. The word
"ordinarily" implies the exclusion of special circumstances. This
position is clarified by the last sentence in Section 14(1) which describes an
"ordinary" sale as one where the seller or the buyer have no interest
in the business of each other and the price is the sole consideration for the
sale or offer for sale. Therefore, when the above conditions regarding time,
place and absence of special circumstances stand fulfilled, the price of
imported goods shall be decided under Section 14(1A) read with the rules framed
thereunder. The said Rules are the Customs Valuation Rules, 1988. It was
further held that in cases where the circumstances mentioned in Rule 4(2)(c) to
(h) are not applicable, the Department is bound to assess the duty under
Transaction value. Therefore, unless the price actually paid for the particular
transaction falls within the exceptions mentioned in Rule 4(2)(c) to (h), the
Department is bound to assess the duty on the Transaction value. It was further
held that Rule 4 is directly relatable to Section 14(1) of Customs Act,
1962. Section 14(1) read with Rule 4 provides that the price paid by the
importer in the ordinary course of commerce shall be taken to be the value in
the absence of any special circumstances indicated in Section 14(1). Therefore,
what should be accepted as the value for the purpose of assessment is the price
actually paid for the particular transaction, unless the price is unacceptable
for the reasons set out in Rule 4(2). It was further held that the word
"payable" in Rule 4(1), must be read as referring to the
"particular transaction" and payability in respect of the transaction
contemplates as situation where payment of price stands deferred. Therefore
Rule 4 is limited to the transaction in question. It was further held that Rule
5 allows the transaction value to be determined on the basis of identical goods
imported into India about the same time; Rule 6 allows fixation of transaction
value on the basis of the value of similar goods imported into India about the
same time. Where there are no contemporaneous imports into India, the value is
to be decided under Rule 7 by a process of deduction in the manner provided
therein. If this is not possible, then the value shall be computed under Rule
7A. It was further held that it is only when the transaction value under Rule 4
is rejected, only then under Rule 3(ii) the value shall be determined by
proceeding sequentially through Rules 5 to 8. Conversely, if the transaction
value can be decided under Rule 4(1) and does not fall under any of the
circumstances given in Rule 4(2), there is no question of determining the value
under the subsequent rules. It was further held that discount is a recognized
feature of international trade and as long as those discounts are uniformly
available and as long as they are based on commercial considerations, they
cannot be denied under Section 14.
7. The primary base for Customs Valuation is the Transaction Value, i.e., the
price actually paid or payable for the goods when sold for export to the
country of importation, subject to adjustment. The said price should not be
subject to any condition or consideration that could prevent the value from
being determined under Rule 4(1). Where the Department has reason to doubt the
truth or accuracy of a declared value, it may ask the importer to provide
further explanation to the effect that the declared value represents the total
amount actually paid or payable for the imported goods. If the declared value
is lower than the declared value of similar goods imported by other buyers at
or about the same time, it can constitute "reason to doubt" the truth
or accuracy of the declared value indicated in the commercial invoice (see Rule
10A). Under Rule 8(2)(i) no value shall be determined based on the selling price
of the goods produced in India. In cases where the Department fails to
establish circumstances mentioned in Rule 4(2), the transaction value declared
by the assessee cannot be rejected and the price mentioned in the Invoice
should be held to represent the transaction value.
8. Applying the above principles to the facts of the present case, we find that
the Department had erred in invoking Rule 7A. Firstly, there was no allegation
made by the Department stating that the transaction was tainted. The appellant
has proved that the transaction was at arm's length. There was no evidence
before the Department to show that the price was pegged at a lower level on
account of the circumstances mentioned in Rule 4(2). Secondly, the Department
has not even alleged that on account of discounts the price stood pegged at a
lower level. Thirdly, we may point out that in a given case, the
Department would be entitled to invoke Rule 7A. For example, in matters of
agro-processing, processing of seeds, refined oil from crude oil etc., the cost
of the raw material has a crucial role to play in the method of costing. In
such cases, crude oil which is the raw material is the major component of the
refined oil (final product). In such cases, if the cost of the raw material
exceeds the price of the final product then in that event the Department can
invoke Rule 7A. However, in the present case, even assuming for the sake of
argument that Rule 7A applies, the Assistant Commissioner of Customs while
applying Rule 7A has followed a peculiar method. She has examined the cost
break-up. She rejects the cost of the raw material but, at the same time, she
accepts the processing charges (figures supplied by the appellant). Rule 7A
refers to Computed Value in contradistinction to Rule 7 which refers to
Deductive Value. Computed value under Rule 7A is the value of the imported
goods consisting of the cost or value of materials plus amount for profit and
cost or value of all other expenses under Rule 9(2). Further, Rule 7A is
subject to the provisions of Rule 3. Rule 3 applies in cases where the buyer
and seller are related. In the present case, there is no finding given that the
buyer and seller are related. In the interpretative note to Rule 7A, value of
imported goods is to be determined by examining the costs of production of the
goods and the said interpretative note clarifies that Rule 7A should be applied
to those cases where the buyer and seller are related. Further, if the officer
wants to proceed under Rule 7A, the cost or value has got to be decided on the
basis of the commercial accounts of the producer, provided that such accounts
are consistent with the accounting standards applicable in the country where
the goods are produced. In the present case, the producer is from Bangladesh.
There is no finding that M/s. United Edible Oils Ltd. has not followed the
accounting system of that country (Bangladesh). In such cases, normally the
Department should call upon the assessee to furnish the value/cost of raw
materials plus all costs (direct, indirect, fixed and variable) plus profit at
an average rate. In such cases, the Department should call upon the assessee to
produce a certificate from the Chartered Accountant of the foreign seller
indicating the turnover, profit and other details on the basis of which
computation of the Deductive Value under Rule 7 could be determined. This
exercise had not been done in the present case. As stated above, in the present
case, the Assistant Commissioner has rejected the cost of raw materials and, at
the same time, she has accepted the value of the processing charges. Therefore,
even if Rule 7A was to be applied, which, in our opinion, is not attracted,
still the computation made under Rule 7A by the Assistant Commissioner was
erroneous. None of these aspects have been considered by the Tribunal in
the impugned judgment.
9. Accordingly, the civil appeal stands allowed, the impugned judgment of the
Tribunal (CESTAT) in Appeal No. M-299/Kol/06 dated 6-7-2006 is set aside and
the Order of the Commissioner (A) stands confirmed with no order as to costs.
Civil Appeal No. 4753 of 2006
10. In view of our judgment in Civil Appeal No. 4498/06 (supra), the impugned
judgment of the Tribunal (CESTAT) in Appeal No. A-76/Kol/2005 dated 17-1-2005
is also set aside. This civil appeal is allowed with no order as to costs.
Judgment Referred.
1(2001) 1 SCC 0315