COMMISSIONER OF CUSTOMS, MUMBAI
Civil
Appeal No. 6492 of 1998, decided on 14-11-2000Valuation
(Customs) - Transaction value, how to be determined - Subject to three
conditions laid down in Section 14(1) of Customs Act, 1962 of time, place and
absence of special circumstances, price of imported goods is to be determined
under Section 14(1A) in accordance with the Customs Valuation (Determination of
Price of Imported Goods) Rules, 1988 - The “special circumstances” have been
statutorily particularised in Rule 4(2) and in the absence of these exceptions
it is mandatory for customs to accept the price actually paid or payable for
the goods in the particular transaction - “Payable” in Rule 4(1) envisages a
situation where payment of price may be deferred - Customs view that it allows
determination of the ordinary international value of the goods to be
ascertained on the basis of data other than the price actually paid for the
goods, in keeping with the overriding effect of section 14(1), not correct. [paras 6, 8, 9, 10, 11, 12, 21]
Valuation (Customs) - “Transaction value” in Rule 4 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 is confined to the particular transaction (i.e. to the goods under assessment); otherwise subsequent Rules 5 to 8 which refer to other transactions and data would become redundant - It is only when ’the’ transaction value is rejected, 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 determined under Rule 4(1) and does not fall under any of the exceptions in Rule 4(2), there is no question of determining the value under the subsequent Rules - Section 14 of Customs Act, 1962. [paras 13, 14]
Valuation (Customs) - Price list of the foreign supplier/ manufacturer is not a proof of transaction value invariably and existence of the price list cannot be the sole reason to reject the transaction value - A price list is really no more than a general quotation - It does not preclude discounts which may be granted for a variety of reasons including stock clearance - Production of price list cannot discharge the onus cast on customs authorities to prove the existence of special circumstances indicated in Section 14(1) of Customs Act, 1962 and particularised in Rule 4(2) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - Declared value of old stock which was only 23% of foreign supplier’s price list accepted, Tribunal’s order set aside and appeal allowed. [paras 9, 22, 23]
Valuation (Customs) - Discount - Meaning - A discount is a commercially acceptable measure which may be resorted to by a vendor for a variety of reasons including stock clearance - Section 14 of Customs Act 1962. [para 22]
Valuation (Customs) - “Ordinarily” in Section 14(1) of Customs Act, 1962 implies the exclusion of “extraordinary” or “special” circumstances as indicated in the section and particularised in Rule 4(2) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. [paras 6, 11]
Basant Industries v. Addl. Collector
— 1996 (81) E.L.T. 195
(S.C.) — Distinguished_____[Paras
17, 21]
Mirah Export Pvt. Ltd. v. Collector — 1998 (98) E.L.T. 3 (S.C.) — Distinguished_____[Paras 4, 19, 21]
Padia Sales Corporation v. Collector
— 1993 (66) E.L.T. 35
(S.C.) — Distinguished_______[Paras
3, 17, 19, 21, 22]
Sharp Business Machines Pvt. Ltd. v. Collector
— 1990 (49) E.L.T. 640
(S.C.) — Distinguished_______[Paras
5, 18, 19, 21]
REPRESENTED BY : S/Shri
Joseph Vellapally, Sr. Advocate, S. Swa-minathan, Tarun Gulati, R. Santhanam,
Rajinder Singhvi and Ashok Kumar, Advocates with him, for the Petitioner.
S/Shri T.L.V. Iyer, Sr. Advocate, S. Wasim A. Qadri and P.
Parmeswaran, Advocates, for the Respondents.
[Judgment per
: Ruma Pal, J.]. - M/s. Eicher
Tractors Ltd., the appellant before us, manufacturers tractors and tractor
engines in India. From 1955 the appellant imported bearings of a specific size
for their tractors and tractor engines from M/s. NTN Corporation, Osaka, Japan.
This 33 year relationship was snapped in 1988 when the appellant started
utilising bearings manufactured for them in India by M/s. HMT Ltd. The Japanese
vendor was left with a stock of the bearings which had been manufactured by it
for the appellant anticipating the appellant’s continued custom. Not finding
any customer for the bearings, by letter dated 12th February, 1993 the vendor's
agent in India offered to sell the 1989 stock of 3579 bearings to the appellant
at a price of Japanese Yen (JY) 826 per piece. The appellant found the offer
competitive and agreed to buy the bearings from the vendor at the price
offered. An order was placed by the appellant on the vendor on 17th April,
1993. The bearings were shipped from Japan and arrived in India. The appellant
filed the Bill of Entry on 3rd December, 1993 together with the invoice dated
6th October, 1993 with the Custom authorities.
2.The Assistant Commissioner of Customs was not satisfied that the value of the bearings as declared by
the appellant was the value of the bearings for the purposes of levying customs
duty. He issued a notice on 14th December, 1993 to the appellant. The appellant
gave a detailed reply setting out the facts noted earlier. The Assistant
Commissioner noted that the declared price was only 23% of the vendor’s list
price and was of the view that the 77 per cent discount allowed to the
appellant by the vendor was not normal and could not be accepted for the
purpose of determining the price of the bearings under Section 14 of the
Customs Act, 1962 and Rule 4 of the Customs Valuation (Determination of Price
of Imported Goods) Rules, 1988 (referred to briefly as the ‘Rules’). The
Assistant Commissioner determined the price of the bearings at JY 2507 per
piece under Rule 8. In arriving at this figure, the Assistant Commissioner took
the list price of the vendor and deducted 30 per cent on account of discount,
which, according to the terms of agency between the vendor and its Indian
agent, was the maximum permissible discount allowable.
3.The appellant preferred an appeal before the Commissioner of Customs (Appeals), Mumbai. The Commissioner
allowed the appeal. The respondent preferred an appeal before the Customs,
Excise and Gold (Control) Appellate Tribunal. The Tribunal allowed the appeal
by its order dated 23rd September, 1998. The Tribunal accepted the reasoning of
the Assistant Commissioner and relied upon the decision of this Court in Padia Sales Corporation v. CC - 1993 (66) E.L.T. 35 (S.C.) = 1993
Supp (4) SCC 57 to hold that “specially quoted price was not acceptable in
preference to the ordinary price in the course of international trade”.
According to the Tribunal, the ordinary price of the bearings in question was
as mentioned in the vendor’s price list. The decision of the Tribunal has been
assailed before us by the Appellant.
4.According to the appellant, Rule 8 of the Rules, could not have been relied on by the Assistant
Commissioner without determining the value of the bearings under Rule 4. It was
submitted that giving of discounts was a normal incidence of commerce and given
the circumstances of the case a discount of 77% was perfectly justified.
Reference was made to the decision in Mirah
Export Pvt. Ltd. v. Collector of
Customs - 1998 (98)
E.L.T. 3 where discounts ranging between 50% to 70% were found to be
acceptable. According to the appellant, the reason given by the Assistant
Collector for not accepting the actual price paid for the bearings as the true
value of the transaction was erroneous particularly when there was no
allegation of under-valuation.
5.The respondent contended that the principle for valuation of imported goods was to be found in Section
14(1) of the Act, which provides for the determination of the value on the
basis of the international sale price. It is argued that the Rules would have
to be read subject to Section 14(1) and that the use of the words 'price
payable' in Rule 4 meant the market value of the goods in international trade.
While conceding that the onus was on the Customs authority to establish the
market value of the imported goods, the respondent claimed that the onus had
been discharged by proof of the vendor's price list. In support of this
argument, the respondent relied on Sharp
Business Machines Pvt. Ltd., Bangalore v. Collector of Customs, Bangalore - 1990 (49) E.L.T. 640 (S.C.) = 1991
(1) SCC 154.
6.Under the Act customs duty is chargeable on goods. According to Section 14(1) of the Act, 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 the value has to be determined 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 of importation - in the course of
international trade. The word ‘ordinarily’ necessarily implies the exclusion of
“extraordinary” or “special” circumstances. This is clarified by the last
phrase in Section 14 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..........”. Subject to these three
conditions laid down in Section 14(1) of time, place and absence of special
circumstances, the price of imported goods is to be determined under Section
14(1A) in accordance with the rules framed in this behalf.
7.The rules which have been framed are the Customs, Valuation (Determination of Price of Imported
Goods) Rules, 1988. The rules came into force on 16th August, 1988. Under Rule
3(i) “the value of imported goods shall be the transaction value”. “Transaction
value”' has been defined in Rule 2(f) as meaning the value determined in
accordance with Rule 4. Rule 4(1) in turn states :
“The
transaction value of imported goods shall be the price actually paid or payable
for the goods when sold for export to India, adjusted in accordance with the
provisions of Rule 9 of these rules.”
8.Reading Rule 3(i) and Rule 4(1) together, it is clear that a mandate has been cast on the authorities to
accept the price actually paid or payable for the goods in respect of the goods
under assessment as the transaction value. But the mandate is not invariable
and is subject to certain exceptions specified in Rule 4(2) namely :
(a) there are no restrictions as to the
disposition or use of the goods by the buyer other than restrictions which -
(i) are imposed or
required by law or by the public authorities in India;
or
(ii) limit the
geographical area in which the goods may be resold; or
(iii) do not
substantially affect the value of the goods;
(b) the sale or price is not subject to same
condition or consideration for which a value cannot be determined in respect of
the goods being valued;
(c) no part of the proceeds of any
subsequent resale, disposal or use of the goods by the buyer will accrue
directly or indirectly to the seller, unless an appropriate adjustment can be
made in accordance with the provisions of Rule 9 of these rules; and
(d) the buyer and seller are not related, or
where the buyer and seller are related, that transaction value is acceptable
for customs purposes under the provisions of sub-rule (3).”
9.These exceptions are in expansion and explicatory of the special circumstances in Section 14(1)
quoted earlier. It follows that unless the price actually paid for the
particular transaction falls within the exceptions, the Customs authorities are
bound to assess the duty on the transaction value.
10.The respondent’s submission is that the phrase “the transaction value” read in conjunction with the
word “payable” in Rule 4(1) allows determination of the ordinary international
value of the goods to be ascertained on the basis of data other than the price
actually paid for the goods. This, according to the respondent, would be in
keeping with the overriding effect of Section 14(1). We cannot agree.
11.It is true that the Rules are framed under Section 14(1A) and are subject to the conditions in Section
14(1). Rule 4 is in fact directly relatable to Section 14(1). Both Section
14(1) and Rule 4 provide that the price paid by an importer to the vendor in
the ordinary course of commerce shall be taken to be the value in the absence
of any of the special circumstances indicated in Section 14(1) and
particularised in Rule 4(2).
12.Rule 4(1) speaks of
the transaction value. Utilisation of
the definite article indicates that what should be accepted as the value for
the purpose of assessment to customs duty is the price actually paid for the
particular transaction, unless of course the price is unacceptable for the
reasons set out in Rule 4(2). “Payable” in the context of the language of Rule
4(1) must, therefore, be read as referring to “the particular transaction” and payability in respect of the transaction envisages a situation
where payment of price may be deferred.
13.That Rule 4 is limited to the transaction in question is also supported by the provisions of the other
Rules each of which provide for alternate modes of valuation and allow evidence
of value of goods other than those under assessment to be the basis of the
assessable value. Thus, Rule 5 allows for the transaction value to be
determined on the basis of identical goods imported into India at the same
time; Rule 6 allows for the transaction value to be determined on the value of
similar goods imported into India at the same time as the subject goods. Where
there are no contemporaneous imports into India, the value is to be determined
under Rule 7 by a process of deduction in the manner provided therein. If this
is not possible the value is to be computed under Rule 7A. When value of the
imported goods cannot be determined under any of these provisions, the value is
required to be determined under Rule 8 “using reasonable means consistent with
the principles and general provisions of these rules and sub-section (1) of
Section 14 of the Customs Act, 1962 and on the basis of data available in
India.” If the phrase ‘the transaction value’ used in Rule 4 were not limited
to the particular transaction then the other Rules which refer to other
transactions and data would become redundant.
14.It is only when
the transaction value under Rule 4 is
rejected, then under Rule 3(ii) the value shall be determined by proceeding
sequentially through Rules 5 to 8 of the Rules. Conversely if the transaction
value can be determined under Rule 4(1) and does not fall under any of the
exceptions in Rule 4(2), there is no question of determining the value under
the subsequent Rules.
15.The Assistant Collector in this case determined the value of the imported goods under Rule 8.
The question is whether he should have determined the transaction value under
Rule 4 at the price actually paid by the appellant for the 1989 bearings.
Naturally, if Rule 4 applies to the facts of this case, the Assistant
Collector's reasoning under Rule 8 must, by virtue of language of Rule 3(ii), be
set aside.
16.The Assistant Collector appears to have proceeded on the law as it was prior to the 1988 Rules when
‘special considerations’ on the basis of which a transaction was held not to be
an ordinary sale in the course of international trade within the meaning of
Section 14(1), had not been statutorily particularised.
17.As to what would constitute such "special consideration" has been considered in several
decisions of this Court. For example, a special quotation for the importer
singling him out from other importers in India was held to be a special
consideration in Padia Sales Corporation v.
Collector of Customs, Bombay (supra)
justifying the rejection of price paid as the transaction value. On the other
hand in Basant Industries v. Addl. Collector of Customs, Bombay -
1996 (81) E.L.T. 195
(S.C.), a special quotation for an "old and valued customer” was upheld as
not being a special.
18.The decision in
Sharp Business Machines Pvt. Ltd.,
relied upon by the respondent is another case where the transaction value was
rejected. In that case, the importer had wrongly mis-described the imported
goods and sought to defraud the Revenue by attempting to surreptitiously import
items prohibited under the import policy. It was found that there was
justification, in the circumstances, for rejecting the price shown in the
invoice. The transaction value having been rejected, assessment of value was
made on the basis of the price list of the foreign vendor.
19.Both the decisions
Padia Sales Corporation and Sharp Business Machines Pvt. Ltd. were
distinguished subsequently in Mirah
Exports Pvt. Ltd. v. Collector of
Customs - 1998 (98)
E.L.T. 3. As the facts of this case are somewhat similar to the case before
us, it is dealt with in some detail.
20.Mirah Exports
Pvt. Ltd. along with other
importers had imported bearings at high rates of discount. The declared value
was rejected by the Customs authorities, on the basis of the price list of the
vendors. This Court set aside the decision of the respondent authorities
accepting the argument that a discount is a recognised feature of international
trade practice and that as long as those discounts are uniformly available to all
and based on logical commercial bases, they cannot be denied under Section 14.
It appears from the judgment that a distinction was drawn between a discounted
price special to a particular customer and discounts available to all
customers.
21.As already noted all these cases dealt with imports made prior to the coming into force of the Rules in
1988. Now the ‘special considerations’ are detailed statutorily in Rule 4(2).
22.In the case before us, it is not alleged that the appellant has mis-declared the price actually
paid. Nor was there a mis-description of the goods imported as was the case in Padia Sales Corporation. It is also not
the respondent's case that the particular import fell within any of the
situations enumerated in Rule 4(2). No reason has been given by the Assistant
Collector for rejecting the transaction value under Rule 4(1) except the price
list of vendor. In doing so, the Assistant Collector not only ignored Rule 4(2)
but also acted on the basis of the vendor's price list as if a price list is
invariably proof of the transaction value. This was erroneous and could not be
a reason by itself to reject the transaction value. A discount is a
commercially acceptable measure, which may be resorted to by a vendor for a
variety of reasons including stock clearance. A price list is really no more
than a general quotation. It does not preclude discounts on the listed price.
In fact, a discount is calculated with reference to the price list. Admittedly
in this case discount up to 30% was allowable in ordinary circumstances by the
Indian agent itself. There was the additional factor that the stock in question
was old and it was a one time sale of 5 year old stock. When a discount is
permissible commercially, and there is nothing to show that the same would not
have been offered to any one else wishing to buy the old stock, there is no
reason why the declared value in question was not accepted under Rule 4(1).
23.In the circumstances, production of the price list did not discharge the onus cast on the Customs
authorities to prove that the value of the 1989 bearings in 1993 as declared by
the appellant was not the “ordinary”
sale price of the bearings imported.
24.The decision of the Tribunal accepting the determination of value by the Assistant Collector cannot,
therefore, be sustained. We accordingly allow the appeal by setting aside the
judgment under appeal but without any order as to costs.