Commnr. Of Customs, Vishakhapatnam vs M/S. Aggarwal Industries Ltd

COMMISSIONER OF CUSTOMS, -- APPELLANT

VISHAKHAPATNAM

VERSUS

M/S AGGARWAL INDUSTRIES LTD. -- RESPONDENT

WITH

CIVIL APPEAL NO. 1699 OF 2006

CIVIL APPEAL NO. 2129 OF 2006

CIVIL APPEAL NO. 2114 OF 2006

CIVIL APPEAL NO. 2518 OF 2006

CIVIL APPEAL NO. 2519 OF 2006

CIVIL APPEAL NO. 2520 OF 2006

CIVIL APPEAL NO. 2522 OF 2006

CIVIL APPEAL NO. 2523 OF 2006

CIVIL APPEAL NO. 2853 OF 2006

CIVIL APPEAL NO. 3197 OF 2006

CIVIL APPEAL NO. 3487 OF 2006

CIVIL APPEAL NO. 3564 OF 2006

AND

CIVIL APPEAL NO. 5006 OF 2007

JUDGMENT

D.K. JAIN, J.:

1. This batch of appeals arises out of final orders dated 4th

August, 2005 in Appeal No. C/139-140/02; C/209/02;

C/288/03; C/291-93/03; C/299/03; C/243/02; C/264/02 &

C/313/03; 5th August, 2005 in Appeal No. C/265/03, 22nd June

2005 in Appeal No. C/213/02 and 29th December, 2006 in

Appeal No. C/300/03 passed by the Customs, Excise &

Service Tax Appellant Tribunal South Zonal Bench, Bangalore

(for short "the Tribunal"). By the impugned orders, the

Tribunal has allowed the appeals preferred by the

respondents-importers.

2. Since all the appeals involve a common question of law, these

are being disposed of by this common judgment. However,

in order to appreciate the controversy, the facts emerging

from C.A. No. 2521 of 2006, which was treated as the lead

case, are being adverted to. These are as follows:

On 26th June 2001, the respondent entered into a contract

with foreign suppliers viz: M/s Wilmar Trading Pvt. Ltd.,

Singapore, for import of 500 Metric tons of crude sunflower seed

oil at the rate of US $ 435 CIF/Metric ton. Under the contract, the

consignment was to be shipped in the month of July 2001 but as

the mutually agreed time for shipment was extended to `Mid

August 2001' vide Addendum dated 31st July 2001, the goods

were actually shipped on 5th August 2001. On filing of the bill of

entry, the goods were assessed provisionally, pending

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verification of contemporary price, the original documents and

the test report from the government chemical examiner.

3. On verification of the documents filed, the Adjudicating

Authority noticed certain discrepancies in the shipment

period. Accordingly, on 5th October 2001, he issued a

demand letter to the respondent under Rule 10A of the

Customs Valuation (Determination of Price of Imported

Goods) Rules, 1988 (for short "CVR 1988") to show cause as

to why the contract price be not rejected and the Customs

duty be not determined by adopting contemporary invoice

price on which other importers had entered into contract for

supply of the same item either with the same supplier or

other suppliers in the same country. Since the imputation in

the show cause notice has a material bearing on the

determination of the issue involved, the relevant portion of

the notice is extracted below:

"As per the condition incorporated in the contract

dated 26.6.2001, the goods are to be shipped during

the month of July 2001. Whereas the goods were

shipped after expiry of the Shipment period i.e. on

5.8.01. By the time of actual shipment i.e. during

August 2001, the international market prices of the

Crude Sunflower Seed Oil (Edible Grade) have

increased drastically. Hence, the contract price is

not acceptable in terms of Section 14(1) read with

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Rule 4 of Customs Valuation (Determination of Price

of Imported Goods) Rules, 1988."

4. In short, the case of the revenue was that when actual

shipment took place, after the expiry of the original shipment

period, the international market price of crude sunflower

seed oil had increased drastically, and, therefore, the

contract price could not be accepted as the `transaction

value' in terms of Rule 4 of CVR 1988.

5. In response, the plea of the respondent was that the contract

envisaged extension of time for shipment but the exporter

was bound to supply the oil at the agreed price despite delay

of one month in shipment and further that in the absence of

any evidence to show that they had paid or agreed to pay an

extra price to the exporter for the consignment, the

transaction value had to be the invoice price. However, the

said plea did not find favour with the Adjudicating Authority.

Accordingly, he confirmed the demand indicated in the

demand letter and ordered the respondent to pay the

differential amount of duty. Respondent's first appeal to the

Commissioner (Appeals) was unsuccessful.

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6. Being dissatisfied with the order of the Commissioner

(Appeals), the respondent took the matter in further appeal to

the Tribunal. As aforestated, by the impugned common

order in the cases before us, the Tribunal has set aside the

order of the Commissioner (Appeals) and held that there was

no basis for demand of differential duty by ignoring the

invoice price. Placing reliance on the decision of this Court

in Eicher Tractors Ltd., Haryana Vs. Commissioner of

Customs, Mumbai1, the Tribunal held as follows:

"In the above mentioned case, the Supreme Court

has held that in the absence of `special

circumstances, price of imported goods is to be

determined under Section 14(1)(A) in accordance

with the Customs Valuation Rules, 1988. The `special

circumstances' have been statutorily particularized

in Rule 4(2) and in the absence of these exceptions, it

is mandatory of Customs to accept the price actually

paid or payable for the goods in the particular

transaction. In all the cases, we find that the

transaction value has been arrived at purely on

commercial considerations based on contracts. The

supplier, in order to honour the contracts, supplied

the goods at the contracted price. There is also no

allegation that the appellants paid to the supplier

more than the contracted value. Under these

circumstances, there are actually no grounds to

reject the transaction value."

7. Hence these appeals by the revenue.

1 2000 (122) E.L.T. 321 (SC) : (2001) 1 SCC 315

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8. Mr. R.P. Bhatt, learned senior counsel, appearing for the

revenue submitted that in the light of the invoices, in

possession of the adjudicating authority, showing

contemporaneous import of the crude sunflower seed oil at

much higher price, the adjudicating authority was justified in

invoking Rule 10A of CVR 1988 and in rejecting the invoice

price declared by the respondent-importer. It was argued

that the contemporary invoices clearly indicated that at the

time of actual shipment of the goods, the international market

price was much higher and therefore, the transaction value

declared by the respondent could not be accepted in terms

of Rule 4 of CVR 1988. Placing reliance on the decision of this

Court in Commissioner of Customs (Gen), Mumbai Vs.

Abdulla Koyloth2, learned senior counsel contended that in

the light of cogent contemporaneous imports, showing much

higher market price of identical goods as on the date of

shipment of goods, the transaction value had been rightly

rejected in terms of Section 14(1) read with Rule 4(2) of CVR

1988.

9. Per contra, Mr. Shyam Divan, learned senior counsel,

appearing for the respondent contended that in the absence

2 (2010) 13 SCC 473

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of any material even remotely showing that the market price

of crude sunflower seed oil at the time of execution of the

contract by the respondent was higher than what was

recorded in the invoice, the adjudicating authority had no

reason to doubt the genuineness or the accuracy of the

declared value, so as to attract Rule 10A of CVR 1988. It was

pointed out that under clause 7 of the special conditions

under the contract, entered into between the respondent and

the foreign supplier, the respondent was obliged to extend

the period of shipment and therefore, addendum dated 31st

July, 2001 was signed, whereunder, except for the change in

the period of shipment all other conditions, including the

price of crude sunflower seed oil remained unchanged. It

was argued that in the absence of any material brought on

record by the revenue indicating that as on the date of

contract, i.e. 26th June 2001, the market price of the crude

sunflower seed oil was more than the contracted price, none

of the special circumstances enumerated in Sub-rule 2 of the

Rule 4 of CVR 1988 were attracted and thus, the revenue was

bound to accept the invoice price as the transaction value.

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10. Before evaluating the rival submissions, it would be useful

to have a bird's eye view of the relevant provisions. Section

14 of the Customs Act, 1962 (for short "the Act"), in so far as it

is relevant for the present appeals, reads as follows:

"14. Valuation of goods for purposes of

assessment.--(1) For the purposes of the Customs

Tariff Act, 1975 (51 of 1975), or any other law for the

time being in force whereunder a duty of customs is

chargeable on any goods by reference to their value,

the value of such goods 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

or exportation, as the case may be, in the

course of international trade, where the seller

and 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:

Provided that such price shall be calculated

with reference to the rate of exchange as in

force on the date on which a bill of entry is

presented under section 46, or a shipping bill

or bill of export, as the case may be, is

presented under section 50;

(1A) Subject to the provisions of sub-section (1), the

price referred to in that sub-section in respect of

imported goods shall be determined in accordance

with the rules made in this behalf.

(2) Notwithstanding anything contained in sub-

section (1) or sub-section (1A), if the Central

Government is satisfied that it is necessary or

expedient so to do it may, by notification in the

Official Gazette, fix tariff values for any class of

imported goods or export goods, having regard to

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the trend of value of such or like goods, and where

any such tariff values are fixed, the duty shall be

chargeable with reference to such tariff value.

........................................................................

........................................................................"

According to Rule 2(1)(f) of CVR 1988 "transaction value"

means the value determined in accordance with Rule 4 of CVR

1988. The relevant portion of Rule 4 reads as follows:-

"4. Transaction value.-- (1) 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.

(2) The transaction value of imported goods under

sub-rule (1) above shall be accepted:

Provided that --

a. the sale is in the ordinary course of trade under

fully competitive conditions;

b. the sale does not involve any abnormal discount

or reduction from the ordinary competitive

price;

c. the sale does not involve special discounts

limited to exclusive agents;

d. objective and quantifiable data exist with regard

to the adjustments required to be made, under

the provisions of rule 9, to the transaction value;

e. there are no restrictions as to the disposition or

use of the goods by the buyer other than

restrictions which --

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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;

f. 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;

g. 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

h. 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).

.....................................................................

...................................................................."

11. On a plain reading of Sections 14(1) and 14(1A), it is clear

that the value of any goods chargeable to ad valorem duty is

deemed to be the price as referred to in Section 14(1) of the

Act. Section 14(1) is a deeming provision as it talks of

deemed value of such goods. The determination of such

price has to be in accordance with the relevant rules and

subject to the provisions of Section 14(1) of the Act.

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Conjointly read, both Section 14(1) of the Act and Rule 4 of

CVR 1988 provide that in the absence of any of the special

circumstances indicated in Section 14 (1) of the Act and

particularized in Rule 4(2) of CVR 1988, the price paid or

payable by the importer to the vendor, in the ordinary course

of international trade and commerce, shall be taken to be the

transaction value. In other words, save and except for the

circumstances mentioned in proviso to Sub-rule (2) of Rule 4,

the invoice price is to form the basis for determination of the

transaction value. Nevertheless, if on the basis of some

contemporaneous evidence, the revenue is able to

demonstrate that the invoice does not reflect the correct

price, it would be justified in rejecting the invoice price and

determine the transaction value in accordance with the

procedure laid down in CVR 1988. It needs little emphasis

that before rejecting the transaction value declared by the

importer as incorrect or unacceptable, the revenue has to

bring on record cogent material to show that

contemporaneous imports, which obviously would include

the date of contract, the time and place of importation, etc.,

were at a higher price. In such a situation, Rule 10A of CVR

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1988 contemplates that where the department has a `reason

to doubt' the truth or accuracy of the 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. Needless to add that

`reason to doubt' does not mean `reason to suspect'. A mere

suspicion upon the correctness of the invoice produced by an

importer is not sufficient to reject it as evidence of the value

of imported goods. The doubt held by the officer concerned

has to be based on some material evidence and is not to be

formed on a mere suspicion or speculation. We may hasten

to add that although strict rules of evidence do not apply to

adjudication proceedings under the Act, yet the Adjudicating

Authority has to examine the probative value of the

documents on which reliance is sought to be placed by the

revenue. It is well settled that the onus to prove under-

valuation is on the revenue but once the revenue discharges

the burden of proof by producing evidence of

contemporaneous imports at a higher price, the onus shifts to

the importer to establish that the price indicated in the

invoice relied upon by him is correct.

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12. In Eicher Tractors Ltd. (supra), relied upon by the Tribunal,

this Court had held that the principle for valuation of

imported goods is found in Section 14(1) of the Act 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 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

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goods shall be decided under Section 14(1A) read with the

Rules framed thereunder. The said Rules are CVR 1988. It

was further held that in cases where the circumstances

mentioned in Rules 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 a

particular transaction falls within the exceptions mentioned in

Rules 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 the Act. 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). (Also See:

Rabindra Chandra Paul Vs. Commissioner of Customs

(Preventive), Shillong3.)

13. Applying the above principles to the facts in hand, we are of

the opinion that the revenue erred in rejecting the invoice

3 (2007) 3 SCC 93

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price. As stated above, in the present case the whole

controversy arose on account of difference in price of the

same commodity, contracted to be supplied under different

contracts entered into at different points in time. As

aforesaid, in the instant case, admittedly the contract for

supply of crude sunflower seed oil @ US $ 435 CIF/PMT was

entered into on 26th June 2001. It could not be performed on

time because of which extension of time for shipment was

agreed to between the contracting parties. It is true that the

commodity involved had volatile fluctuations in its price in

the international market but having delayed the shipment,

the supplier did not increase the price of the commodity even

after the increase in its price in the international market. This

fact is also proved by the actual amount paid to the supplier.

There is no allegation of the supplier and importer being in

collusion. It is also not the case of the revenue that the

transaction entered into by the respondent was not genuine

or under-valued. Nor was there a misdescription of the

goods imported. It is also not the case of the revenue that the

subject imports fell within any of the situations enumerated in

Rule 4(2) of CVR 1988. It is manifest from the show cause

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notice, extracted in para 3 supra, that the contract value was

not acceptable to the Adjudicating Authority in terms of

Section 14(1) of the Act read with Rule 4 of CVR 1988 merely

because by the time actual shipment took place in August

2001, international price of the oil had increased drastically.

No other reason has been ascribed to reject the transaction

value under Rule 4(1) except the drastic increase in price of

the commodity in the international market and the difference

in price in the invoices in relation to the goods imported

under contracts entered by the respondents in the month of

August 2001. In our opinion, the import instances relied upon

by the revenue could not be treated as instances indicating

contemporaneous value of the goods because contracts for

supply of the goods in those cases were entered into almost

after a month from the date of contract in the present cases,

more so, when admittedly there were drastic fluctuations in

the international price of the commodity involved. We are,

therefore, of the opinion that the revenue was not justified in

rejecting the transaction value declared by the respondents

in the invoices submitted by them.

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14. For the foregoing reasons, we do not find any merit in

these appeals. All the appeals are dismissed accordingly,

with no order as to costs.

........................................................J.

(D.K. JAIN)

...........................................................J.

(SUDHANSU JYOTI MUKHOPADHAYA)

NEW DELHI;

OCTOBER 17, 2011.

ARS

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