Pernod Ricard India(P) Ltd vs Commr.Of Customs, Icd Tughlakabad

PERNOD RICARD INDIA (P.) LTD. -- APPELLANT

VERSUS

COMMISSIONER OF CUSTOMS, ICD -- RESPONDENT TUGHLAKABAD

WITH

[CIVIL APPEAL NO.1110 OF 2009]

J U D G M E N T

D.K. JAIN, J.:

1. These two appeals under Section 130E of the Customs Act, 1962 (for short "the Act") by the importer (hereinafter

referred to as "the appellant") (C.A. No. 5840 of 2008) as

well as by the revenue (C.A. No. 1110 of 2009) arise from

the final order dated 25th June 2008, passed by the Customs,

Excise and Service Tax Appellate Tribunal, Principal Bench,

New Delhi (for short "the Tribunal"), in Custom Appeal

No.559 of 2006. By the impugned order, while upholding the

decision of the Commissioner of Customs in determining the

value of the "Concentrate of Alcoholic Beverages" ("CAB" for short), imported by the appellant, under Rule 6 of the

Customs Valuation (Determination of Prices of Imported

Goods) Rules, 1988 (for short "the 1988 Rules"), the

Tribunal has directed the jurisdictional Commissioner to

redetermine the customs duty liability of the appellant

after making certain adjustments in the manner indicated in

the order.

2. As both the appeals call in question the same order, these

are being disposed of by this common order.

3. The case has had a chequered history and, therefore, in

order to appreciate the controversy, it would be necessary

to narrate the facts in detail.

The appellant (formerly named and styled as Seagrams India

Pvt. Ltd.) is a wholly-owned subsidiary of the Seagram Company

Ltd., Canada, established for manufacturing/blending of non-

molasses based spirits. The appellant imported CAB from M/s

Joseph E Seagram and Sons Ltd., Scotland, a wholly- owned

subsidiary of Seagram Company Ltd., Canada. The strength of CAB

imported was about 60%. It is not in dispute that the appellant

is a "related person" to the supplier and this fact was disclosed

to the Customs Authorities. The import of CAB was of four

varieties, each one meant for manufacturing four brands of scotch

whiskies, namely "100 Pipers", "Passport", "Something Special" and

"International Malts" (Royal Stag; Oaken Glow; Blenders Pride and Imperial Blue). The import of CAB was in wooden barrels and their

value was declared separately for assessment. The appellant

diluted the imported CAB by adding demineralised water and reduced

the strength to 42.8% v/v; packed them in bottles under respective

brands; paid State excise duty and sold these to the dealers for

ultimate sales to the consumers.

4. In the year 1999, the Directorate of Revenue Intelligence commenced investigation into the imports of CAB by the

appellant, which resulted in the issuance of two show cause

notices. The first show cause notice dated 19th December

2000 was issued proposing demand of differential duty of

customs amounting to Rs.37,96,70,451/- in respect of imports

relating to the period from January 1995 to June 2000 and

the second show cause notice dated 16th August 2001 was

issued demanding differential duty of customs of

Rs.12,08,42,462/- relating to imports during the period July

2000 to May 2001. Penal action was also proposed in both

the show-cause notices.

5. Against show-cause notice dated 19th December 2000, the appellant filed a writ petition before the High Court of

Delhi. Vide its order dated 27th August 2001, the High Court

directed that the notice issued under Section 28 of the Act

be treated as notice for finalization of the provisional

assessment in terms of Section 18(2) of the Act. While

disposing of the petition, the High Court observed that the authorities were free to decide as to whether any notice in

terms of Section 111/124 of the Act was warranted. At the

same time, the High Court granted liberty to the appellant

to seek its remedy as per law in the event of issuance of

such a show cause notice.

6. The Commissioner of Customs adjudicated upon both the show cause notices by a common order dated 31st May 2002,

finalizing the assessments and confirming the demand of

Rs.40.37 crores as against proposed demand of Rs.50.04

crores. The Commissioner classified the imported CAB under

the Chapter heading 2808.30 as whisky as against the claim

of the appellant under the Chapter heading 2808.10.

7. Being aggrieved by the order of adjudication, the appellant filed an appeal before the Tribunal. Vide order dated 25th

March 2003, while accepting the claim of the appellant that

CAB should be classified under heading 2808.10, the Tribunal

rejected the plea of the appellant that in spite of the fact

that the supplier was a "related person", the value declared

by them should be accepted in terms of Rule 4(3)(b) of the

1988 Rules. Nevertheless, the Tribunal remanded the matter

to the adjudicating authority for a fresh consideration on

the question of applicability of Rule 6 as it felt that the

appellant had not been granted adequate opportunity to put

forth their case against the proposal to apply Rule 6. The

Tribunal, however, permitted the Commissioner to proceed under Rule 7 or 8 in the event of his accepting the

appellant's plea that Rule 6 could not be applied. Relevant

portion of the order is extracted below:-

"...We are also of the view that while working out the provisions of Rule the Commissioner has not taken into consideration all the relevant factors. While fixing the value under Rule 6, the authority has to look into the definition of the term `similar goods' under Rule 2(e) and that the conditions contained therein are satisfied. Clauses (b) and (c) of sub-rule (1), sub-rule(2) and sub- rule(3) of Rule 5 are made applicable to Rule 6 also. We find that there is no proper consideration of the above provisions by the Commissioner while arriving at the value under Rule 6. The appellant is justified in complaining that comparison was not made with the transaction of similar goods sold for export to India and imported at or about the time as the goods being valued, especially in the case of the goods covered by the second show cause notice dated 16 th September, 2001. Comparison is made with imports which had taken place in January 1999, May 1999 and December 1998 for valuing the goods imported during the period July 2000 to May 2001."

8. The appellant challenged the said order before this Court by way of an appeal under Section 130E of the Act, which was dismissed

on 21st November 2003. The appellant pleaded that invocation of

Rule 6 by the Commissioner in the final adjudication order was

beyond the scope of the show cause notice, in as much as, in the

show cause notice itself it was observed that Rule 6 could not

be applied because of non-availability of requisite data for

adjustments required to be made under the said Rule. It was

asserted that the value of CAB imported had to be determined as

per Rule 4(3)(b) of 1988 Rules.

9. Pursuant to the order of the Tribunal, dated 25 th March 2003,

the Commissioner passed a fresh order dated 29th August 2003 and

held that Rule 6 was applicable on the facts of the instant

case. He accordingly, confirmed the demand of duty of customs

amounting to Rs.39.96 crores. The said order was again

challenged by the appellant in the Tribunal, mainly on the

ground that the value of imported CAB could not be determined

under Rule 6. In the alternative, it was pleaded that even the

quantification of the value under Rule 6 was seriously flawed.

10. Accepting the alternative submission of the appellant relating to the errors committed by the Commissioner while determining

the assessable value of CAB on the basis of the transaction

value of "similar goods", by its order dated 29th June 2005, the

Tribunal again set aside the order of adjudication by the

Commissioner and remanded the matter back to him with certain

directions. Since the observations of the Tribunal contained in

paragraphs 7 and 13 have some bearing on the merits of the rival

stands on behalf of the parties, these are extracted hereunder:

"7. We are not going into the above mentioned issue about the appropriateness of Rule 6 for two reasons. Firstly, we had left this Rule open to the adjudicator in our remand order and no appeal had been filed against that order. Secondly, the present appeal can be disposed of after considering the appellant's contentions in terms of Rule 6."

"13. As already noted we are not going into the submissions made by the appellant against valuation under (sic) Rule 6. Instead, the appeal is being disposed of after considering the alternate submissions relating to errors committed while determining the assessable values based on the transaction value of similar goods."

The final direction by the Tribunal reads as follows:

"From the above, it is clear that the valuation of the items in question should be re-done by using lowest transaction value of Findlaters for determining the price of 100 Pipers. Further, due adjustments towards quantity difference and retail price difference should be made wherever warranted. In order to facilitate such revaluation, we set aside the impugned order and remit the case to the Commissioner for fresh adjudication. Both sides would be at liberty to present data relevant to the above issues."

11. This decision of the Tribunal was not put in issue by the appellant before a higher forum. Pursuant to and in furtherance

of the directions issued by the Tribunal in the said order, the

Commissioner passed a fresh adjudication order on 20th June 2006,

confirming a total differential duty of Rs.40.37 crores, which

happened to be more than the duty amount of Rs.39.96 crores as

confirmed in the second adjudication order.

12. As expected, the appellant challenged the said order by

preferring yet another appeal to the Tribunal. Inter-alia,

observing that in the first remand order the question of

applicability of Rule 6 was left to be decided by the

adjudicator and in the second remand order, dated 29th June 2005,

the Tribunal did not go into the applicability of the said rule

and allowed the appeal on the basis of alternative pleas of the

appellant, the Tribunal decided to go into the question of

applicability of Rule 6. Upon re-consideration of the issue,

the Tribunal upheld the decision of the Commissioner in

determining the value of the imports under Rule 6. However, partly accepting the appeal, the Tribunal held that the

appellant will be entitled to further adjustments in the value

of CAB determined on the basis of the value of similar goods, on

account of: (i) imports of substantially higher volumes of CAB;

and (ii) where the retail price of bottled whisky was

substantially lower than those of the comparable brands. It

was, however, clarified that once the assessable value was

determined for any brand by following the above method, the

assessable value shall not be enhanced till a higher import

price of the similar goods was noticed. The Tribunal also laid

down the following methodology for making the adjustments on

account of difference in volume of imports and the retail

price:-

"The price difference between each variety of CAB of the importer (say PI - Price of Import) and the corresponding CAB of competitor (say PC - Price of Comparable goods) shall be arrived at first as PC-PI; thereafter value of the import of CAB of each brand shall be determined as PI+80% of (PC- PI). In other words, instead of adding the entire difference it shall be restricted to 80% i.e. by reducing the difference by 20%.

We direct that the adjustments on account of difference in retail prices shall be made in the manner prescribed below. The percentage of difference between the retail price of any brand of the appellant with the corresponding brand being compared shall be arrived at and to that extent the value of CAB of the competitor's import shall be reduced to arrive at the assessable value for CAB imported by the appellant.

The above determination is subject to the following conditions:-

(a) The value of any brand to be adopted shall not be higher than the value adopted by the Commissioner in his second order dated 28.09.2003.

(b) The value of any brand to be adopted shall not be lower than the value declared by the importer."

13. Being dissatisfied with the order/directions of the Tribunal, as

stated above, both the parties are before us in this appeal.

14. We have heard Mr. V. Lakshmikumaran, learned counsel appearing

for the appellant and Mr. B. Bhattacharya, learned Additional

Solicitor General for the revenue.

15. Learned counsel for the appellant strenuously urged that both the authorities below have committed a serious error of law by

holding that the value of the imported CAB is to be determined as

per the procedure prescribed in Rule 6 of the 1988 Rules. It was

argued that having regard to the fact that scotch whisky is a

specialty goods and is not commercially interchangeable, the CAB

imported by the appellant and by others cannot be said to be

`similar goods' as defined in Rule 2(1)(e) of the 1988 Rules. It

was submitted that determination of similarity in terms of Rule

2(1)(e) by the Commissioner and affirmed by the Tribunal is

fallacious for the reasons: -- (i) in specialty goods, the

comparison of goods on the basis that such goods broadly contain

the same components is misleading in as much as while all scotch

whiskies are made from malt, have an age of at least three years

and sold at the same concentration at the retail level yet such

comparisons obliterate the inherent differences on the basis of

which consumer preferences are decided. Different scotch whiskies

have different tastes depending on the casks in which the scotch whisky is aged, the temperature during the ageing process, water

used for making the scotch, the ingredients used etc.

Additionally, blended scotch whiskies are blends of other scotch

whiskies and blending formulae are kept secret, making each

blended scotch whisky a unique product in the market; (ii) the

CAB imported do not have the same quality, reputation and

trademark. The concentrate imported by the appellant has a

particular trademark i.e. 100 Pipers, Passport and Something

Special 12 Years Old, which have certain quality and very little

reputation in the Indian market whereas the concentrate imported

by their competitors, having the trademark of Black Dog 12 Years

Old, Black & White and VAT 69 have different quality and

reputation as they are relatively very well known brands being

sold in India for several decades and (iii) the variation in

price is largely due to the branding and individual preferences

and, therefore, some goods command a premium price as compared to

others, which is the case with regard to scotch whisky market

also. The appellant and their competitors spend significantly on

branding for differentiating their products and such branding,

coupled with individual preferences, render such goods as not

similar. Similarity cannot be determined on the basis of

similarity in the prices at which the goods manufactured out of

the imported goods are sold in the retail market in as much as

retail price of the same brand can, in fact, be more or less in

different States when compared with competitors' brand.

16. Learned counsel then submitted that even if the goods in question

are treated as similar goods, Rule 6 cannot be applied because no

suitable adjustments can be made for quantity difference.

According to the learned counsel, apart from the fact that any

goods, such as scotch whiskies, which are specialty goods, the

variations in consumer preferences and the value of trademark and

reputation are difficult to ascertain and adjust, there cannot be

"demonstrated evidence" for quantifying such differences and,

therefore, Rule 6 cannot be applied.

17. Learned counsel for the appellant also urged that the formula devised by the Tribunal, directing loading of the

price of imports with 80% of the price differential owing

to the differential in quantity imported is arbitrary. It

was urged that since the quantity imported by the appellant

is 500% to 1500% of the quantity imported by the identified

brands, an adjustment of at least 40% from the price of

such identified brands should have been allowed by the

Tribunal. In support of the proposition that deduction to

the extent of 50% in cases of whole sales were allowed,

reliance was placed on a decision of this Court in Metal

Box India Ltd. Vs. Collector of Central Excise, Madras1. It

was, thus, pleaded that the order of the Tribunal,

approving the application of Rule 6 deserves to be set

aside. In the alternative, it was urged that if this Court

comes to the conclusion that Rule 6 is to be applied for

1 (1995) 2 SCC 90 determining the value of CAB, comparison should be made for

each year with the lowest price of other imports during the

year with at least 40% reduction from the list price to

take care of quantity differences.

18. Per contra, Mr. Bhattacharya, while supporting the decision of the Tribunal, in so far as the question of applicability

of Rule 6 was concerned, submitted that the Tribunal

committed a serious error of law in re-examining the said

question. It was contended that apart from the fact that

second remand order dated 29th June 2005, whereby the

Tribunal had directed the Commissioner to apply Rule 6 and

re-determine the value of CAB after making adjustments

wherever warranted, was not questioned by the appellant, in

view of the dismissal of their appeal by this Court against

Tribunal's order dated 25th March 2003, the said issue had

attained finality and the appellant was estopped from

raising it before any forum.

19. In support of revenue's appeal, learned counsel submitted

that the direction by the Tribunal to the Commissioner to

give adjustment of 20% while determining the value of the

imported CAB is vitiated because no evidence in this behalf

was produced by the appellant before the Commissioner.

Referring to para 4 of the interpretative note to Rule 5 of

the 1988 Rules, learned counsel asserted that no adjustment

on account of difference in quantity can be granted unless there is "demonstrated evidence" on the basis whereof

reasonableness and accuracy of the adjustment could be

established.

20. In rejoinder, Mr. V. Lakshmikumaran argued that the

appellant was fully justified in agitating before the

Tribunal the issue with regard to the applicability of Rule

6. It was submitted that since the applicability of Rule 6

had been left to the adjudicator to decide in the first

remand order, the question of applicability of Rule 6 arose

before the Tribunal only in the second round. In second

round again, appellant's appeal having been disposed of on

their alternative submissions regarding Rule 6, the

appellant's submission on applicability of Rule 6, in fact,

came up for consideration before the Tribunal for the first

time in the third round of appellant's appeal before the

Tribunal. It was, thus, argued that filing or non filing of

an appeal against the two earlier orders of the Tribunal is

irrelevant.

21. The questions arising for determination are:-

(i) Whether the Tribunal was justified in re-examining the question of applicability of Rule 6?

(ii) If the answer to question (i) is in the affirmative, then whether the value of the CAB for the purpose of levying duty of customs is to be determined as per the procedure prescribed in Rule 6 or in terms of some other Rule?

(iii) Whether the direction by the Tribunal regarding adjustment to the tune of 20% in the price difference between CAB of the appellant and the corresponding CAB of the competitor, on account of volume of imports, is justified?

22. Having carefully perused the orders of remand passed by the Tribunal on 25th March 2003 and 29th June 2005, we are of the

opinion that the issue with regard to the applicability of Rule

6 of the 1988 Rules for valuation of CAB had attained finality

on the summary dismissal of the appellant's appeal by this Court

vide order dated 21st November 2003. It is clear from a bare

reading of the observations of the Tribunal in its order dated

25th March 2003, extracted in para 11 supra that remand to the

Commissioner for fresh adjudication was confined only to the

errors committed while determining the assessable values based

on the transaction value of "similar goods". Thus, in

principle, the Tribunal proceeded on the premise that the

valuation had to be done as per the procedure laid down in Rule

6. This is also evident from appellant's pleadings when they

challenged the order of remand inter-alia, contending in their

appeal under Section 130E of the Act that Rule 6 had no

application on the facts of their case and the value of imported

CAB by them had to be determined as per Rule 4(3)(b)of the 1988

Rules. The appeal was, however, dismissed in limine. In our

opinion, once a statutory right of appeal is invoked, dismissal

of appeal by the Supreme Court, whether by a speaking order or

non speaking order, the doctrine of merger does apply, unlike in the case of dismissal of special leave to appeal under Article

136 of the Constitution by a non-speaking order.

23. The nature, concept and logic of doctrine of merger was explained elaborately in Kunhayammed & Ors. Vs. State of

Kerala & Anr.2. Speaking for a bench of three learned

Judges, R.C. Lahoti, J. (as His Lordship then was)

observed: (SCC p. 370, para 12)

"12. The logic underlying the doctrine of merger is that there cannot be more than one decree or operative orders governing the same subject-matter at a given point of time. When a decree or order passed by an inferior court, tribunal or authority was subjected to a remedy available under the law before a superior forum then, though the decree or order under challenge continues to be effective and binding, nevertheless its finality is put in jeopardy. Once the superior court has disposed of the lis before it either way

-- whether the decree or order under appeal is set aside or modified or simply confirmed, it is the decree or order of the superior court, tribunal or authority which is the final, binding and operative decree or order wherein merges the decree or order passed by the court, tribunal or the authority below. However, the doctrine is not of universal or unlimited application. The nature of jurisdiction exercised by the superior forum and the content or subject- matter of challenge laid or which could have been laid shall have to be kept in view."

The Court further observed:

"41. Once a special leave petition has been granted, the doors for the exercise of appellate jurisdiction of this Court have been let open. The order impugned before the Supreme Court becomes an order appealed against. Any order passed thereafter would be an appellate order and would attract the applicability of doctrine of merger. It would not make a difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one. Whenever this 2 (2000) 6 SCC 359 Court has felt inclined to apply its mind to the merits of the order put in issue before it though it may be inclined to affirm the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the same order and at times the orders are quite brief. Nevertheless, the order shows the exercise of appellate jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court."

24. In the present case, the appellant preferred statutory appeal under Section 130E of the Act against order of the Tribunal

dated 25th March 2003 and, therefore, the dismissal of appeal by

this Court though by a non-speaking order, was in exercise of

appellate jurisdiction, wherein the merits of the order impugned

were subjected to judiciary scrutiny. In our opinion, in the

instant case, the doctrine of merger would be attracted and the

appellant is estopped from raising the issue of applicability of

Rule 6 in their case.

25. In the view we have taken, we are fortified by a decision of this Court in V.M. Salgaocar & Bros. Pvt. Ltd. Vs. Commissioner

of Income Tax3, wherein the Court was called upon to consider

the effect of dismissal of an appeal under Section 261 of the

Income Tax Act, 1961 by a non speaking order. Speaking for the

Bench, D.P. Wadhwa, J. while drawing distinction between an

order dismissing in limine a special leave petition under

Article 136 of the Constitution and an appeal under Article 133,

and drawing support from the decision of this Court in Supreme

3 (2000) 5 SCC 373 Court Employees' Welfare Association Vs. Union of India & Anr.4,

held that former case does not but the latter does attract the

doctrine of merger. The Court observed thus:-

"Different considerations apply when a special leave petition under Article 136 of the Constitution is simply dismissed by saying 'dismissed' and an appeal provided under Article 133 is dismissed also with the words 'the appeal is dismissed'. In the former case it has been laid by this Court that when a special leave petition is dismissed this Court does not comment on the correctness or otherwise of the order from which leave to appeal is sought. But what the court means is that it does not consider it to be a fit case for exercise of its jurisdiction under Article 136 of the Constitution. That certainly could not be so when appeal is dismissed though by a non-speaking order. Here the doctrine of merger applies. In that case, the Supreme Court upholds the decision of the High Court or of the Tribunal from which the appeal is provided under clause (3) of Article 133. This doctrine of merger does not apply in the case of dismissal of special leave petition under Article 136. When an appeal is dismissed the order of the High Court is merged with that of the Supreme Court."

26. Moreover, in the instant case the issue with regard to the applicability of Rule 6 had attained finality for yet

another reason. It is manifest from the Tribunal's order

dated 29th June 2005, that the scope and purpose of remand to

the Commissioner was limited. As it is evident from the

afore-extracted paragraphs of the said order of the

Tribunal, that the Tribunal categorically declined to go

into the issue about the appropriateness of Rule 6, with the

result that the finding of the Commissioner in his order

passed pursuant to Tribunal's earlier order dated 29th August

2003, regarding applicability of Rule 6 remained undisturbed

4 (1989) 4 SCC 187 and in fact attained finality, in as much as, the appellant

did not question the correctness of the remand order passed

by the Tribunal on 29th June 2005. Keeping in mind the

factual scenario, we are of the opinion that the Tribunal

erred in re-opening and examining afresh the question as to

whether or not the value of CAB could be determined by

applying Rule 6 and, therefore, the objection of the revenue

in that regard deserves to be accepted. We order

accordingly.

27. In the light of our opinion on the first question, we deem

it unnecessary to assess the merits of the submissions made

by learned counsel for the parties on the question of

applicability of Rule 6 of the 1988 Rules.

28. This takes us to the last question, viz. whether or not the

direction of the Tribunal to the Commissioner to grant

adjustment @ 20% in the price difference between each

variety of CAB of the appellant and the corresponding CAB of

the competitor on account of higher volume of imports by the

appellant, for determining the value of the CAB is

justified?

29. The appellant as well as the revenue are both dissatisfied

with the said direction. The former claims that they should

get discount of at least 40%. The stand of the latter, to

the contrary, is that no demonstrated evidence, establishing the reasonableness and accuracy of the adjustment, having

been adduced, the appellant is not entitled to any

adjustment.

Rules 3, 5 and 6 of the 1988 Rules are relevant for our purpose

and they read as follows:-

"3. Determination of the method of valuation.--For the purpose of these rules,-

(i) the value of imported goods shall be the transaction value;

(ii) if the value cannot be determined under the provisions of clause (i) above, the value shall be determined by proceeding sequentially through Rules 5 to 8 of these Rules."

"5. Transaction value of identical goods.- (1)(a) Subject to the provisions of Rule 3 of these rules, the value of imported goods shall be the transaction value of identical goods sold for export to India and imported at or about the same time as the goods being valued.

(b) In applying this rule, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the value of imported goods.

(c) Where no sale referred to in clause (b) of sub-rule (1) of this rule, is found, the transaction value of identical goods sold at a different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both, shall be used, provided that such adjustments shall be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustments, whether such adjustment leads to an increase or decrease in the value.

(2) Where the costs and charges referred to in sub-rule (2) of Rule 9 of these rules are included in the transaction value of identical goods, an adjustment shall be made, if there are significant differences in such costs and charges between the goods being valued and the identical goods in question arising from differences in distances and means of transport.

(3) In applying this rule, if more than one transaction value of identical goods is found; the lowest such value shall be used to determine the value of imported goods."

"6. Transaction value of similar goods.- (1) Subject to the provisions of Rule 3 of these rules, the value of imported goods shall be the transaction value of similar goods sold for export to India and imported at or about the same time as the goods being valued.

(2) The provisions of clauses (b) and (c) of sub-rule (1), sub-rule (2) and sub-rule (3), of Rule 5 of these rules shall, mutatis mutandis, also apply in respect of similar goods."

30. Rule 12 of the 1988 Rules provides that the interpretative notes

specified in the Schedule to these rules shall apply for the

interpretation of the rules. Notes to Rule 5 read as under:-

"Notes to Rule 5

1. In applying rule 5, the proper officer of customs shall, wherever possible, use a sale of identical goods at the same commercial level and in substantially the same quantities as the goods being valued. Where no such sale is found, a sale of identical goods that takes place under any one of the following three conditions may be used :

(a) a sale at the same commercial level but in different quantities;

(b) a sale at a different commercial level but in substantially the same quantities; or

(c) a sale at a different commercial level and in different quantities.

2. Having found a sale under any one of these three conditions adjustments will then be made, as the case may be, for :

(a) quantity factors only;

(b) commercial level factors only; or

(c) both commercial level and quantity factors.

3. For the purposes of rule 5, the transaction value of identical imported goods means a value, adjusted as provided for in rule5(1) (b) and (c) and rule 5(2), which has already been accepted under rule 4.

4. A condition for adjustment because of different commercial levels or different quantities is that such adjustment, whether it leads to an increase or a decrease in the value, be made only on the basis of demonstrated evidence that clearly establishes the reasonableness and accuracy of the adjustment, e.g. valid price lists containing prices referring to different levels or different quantities. As an example of this, if the imported goods being valued consist of a shipment of 10 units and the only identical imported goods for which a transaction value exists involved a sale of 500 units, and it is recognised that the seller grants quantity discounts, the required adjustment may be accomplished by resorting to the seller's price list and using that price applicable to a sale of 10 units. This does not require that a sale had to have been made in quantities of 10 as long as the price list has been established as being bona fide through sales at other quantities. In the absence of such an objective measure, however, the determination of a value under the provisions of rule 5 is not appropriate."

Notes to Rule 6 are also relevant for our purpose and read as

follows:

"Note to Rule 6

1. In applying rule 6, the proper officer of customs shall, wherever possible, use a sale of similar goods at the same commercial level and in substantially the same quantities as the goods being valued. For the purpose of rule 6, the transaction value of similar imported goods means the value of imported goods, adjusted as provided for in rule 6(2) which has already been accepted under rule 4.

2. All other provisions contained in note to rule 5 shall mutatis mutandis also apply in respect of similar goods."

31. Rule 6 (2) provides that the provisions of clauses (b) and (c)

of sub-rules (1) to (3) of Rule 5 of these rules shall mutatis mutandis also apply in respect of similar goods. A similar

stipulation appears in note (2) to Rule 6. Rule 5(1)(c)

provides that where no sale referred to in clause (b) of sub-

rule (1) of this rule, is found, the transaction value of

identical goods sold at different commercial level or in

different quantities or both, adjusted to take account of the

difference attributable to commercial level or to the quantity

or both shall be used, provided that such adjustments shall be

made on the basis of `demonstrated evidence', which clearly

establishes the reasonableness and accuracy of the adjustments.

Interpretative Note 4 to Rule 5 reiterates that such adjustment,

whether it leads to an increase or a decrease in the value, be

made only on the basis of `demonstrated evidence' that clearly

establishes the reasonableness and accuracy of the adjustment.

One of such evidences could be a valid price list containing

prices referring to different levels or different quantities.

32. The case of the revenue is that the term `demonstrated evidence' means some evidence to establish that the seller

had agreed to give some discount to the importer on the

listed price of the product on account of high volume of

purchase, which in common parlance is termed as bulk

discount and the production of such evidence is a pre-

requisite for any adjustment under the Rule. The stand of

the appellant, on the contrary, is that Rule 5(1)(c) and the

interpretative note (4) to Rule 5 only seek to clarify that

where identical goods are sold to two or more buyers at a time but are not at the same commercial level or quantity,

an "adjustment" shall be made to take account of the

difference attributable to commercial level or to quantity

or both. Their plea is that since the rule itself

recognizes that prices differ when quantity differs,

reference to `discount' in the interpretative note needs to

be viewed in a wider context because according to the

appellant, the expression "demonstrated evidence" is

broader in scope than the term `discount', which is used

only as an example of such evidence for adjustment. It is

also pleaded that tying the concept of "adjustment" to

`discount' would severely restrict the application of Rule

5 or 6 as a clear evidence of `discount' may not be

available in all cases though on the facts of a particular

case adjustment may be needed. In support of the

proposition that there is a difference between the concept

of "adjustment" and `discount', reliance was placed on the

decision of this Court in Commissioner of Central Excise,

Jaipur Vs. Rajasthan SPG. & WVG. Mills Ltd. & Anr.5, wherein

it was observed that the concept of `discount' and

`abatement' are different. It was also argued on behalf of

the appellant that it is a well accepted norm that higher

quantity of goods attract lower prices, which fact has

received judicial recognition by this Court in Mirah

Exports Pvt. Ltd. Vs. Collector of Customs6, Metal Box India 5 (2007) 13 SCC 129 6 (1998) 3 SCC 292 Ltd. (supra) and Basant Industries Nunhai, Agra Vs.

Additional Collector of Customs, Bombay7. Responding to the

stand of the revenue that on the facts of the case, no

adjustment was warranted, the appellant asserts that the

issue of adjustment has reached finality as the correctness

of the second remand order, whereby the Tribunal had

remanded the matter to the Commissioner in view of the

mistake in the application of Rule 6, had not been

questioned by the revenue. In the said order, the Tribunal

had held that due adjustments towards quantity differences

and retail prices difference should be made wherever

warranted. Thus, recognizing that in the present case some

"adjustments" were called for.

33. We are of the considered opinion, that bearing in mind

the object behind the provision for "adjustment" in terms

of Rule 5(1)(c), the fine distinction between the words

"adjustment" and `discount' sought to be brought out by

the appellant is of no relevance to the controversy at

hand. The provision is clear and unambiguous meant to

provide some adjustment in the price of identical goods,

imported by two or more persons but in different

quantities. It is plain that such "adjustment" may not

necessarily lead to a decrease in the value. It may result

in an increase as well. Reference to the word `discount'

in the interpretative note is by way of an illustration to 7 1995 Supp (3) 320 indicate that a seller's price list is one of the relevant

pieces' of evidence to establish the factum of quantity

discount by the seller. It is manifest that "adjustment"

in terms of Rule 5(1)(c) of 1988 Rules, for the purpose of

determination of value of an import, can be granted only on

production of evidence which establishes the reasonableness

and accuracy of adjustment and higher volumes of imports

per se, would not be sufficient to justify an

adjustment, though it may be one of the relevant

considerations.

34. Therefore, in so far as the question of "adjustment" in terms of Rule 5(1)(c) is concerned, we are in agreement

with the Tribunal that the revenue having accepted the

order of remand dated 29th June 2005, cannot now turn around

and contend that no adjustment whatsoever is warranted.

Similarly, there may also be some substance in the

observation of the Tribunal that generally when the

transactions are in large volumes over a long period, grant

of discount is a normal commercial practice but again a

commercial practice, per se, cannot be treated as

conclusive evidence for determining real price of a

consignment. In our opinion, therefore, in the absence of

some documentary evidence indicating that any

rebate/discount was given to the appellant by the supplier,

adjustments under Rule 5(1)(c) cannot be justified.

35. In the present case, it is evident from the impugned order

that though the Tribunal had felt that requisite evidence

to establish the range of adjustment was lacking and for

that purpose, according to it, the matter was required to

be remanded to the Commissioner but being influenced by the

fact that there had already been three rounds of appeals to

the Tribunal, it undertook the exercise itself. We are

convinced that this approach of the Tribunal was not in

order and therefore, in the absence of any demonstrated

evidence, its direction for ad-hoc adjustment @ 20%, cannot

be sustained.

36. In the result, the appeal preferred by the importer-

appellant is dismissed and the revenue's appeal is allowed.

The order of the Tribunal under appeal, in so far as it

pertains to the applicability of Rule 6 of 1988 Rules, is

affirmed, however, the direction with regard to the

adjustment on account of volume of imports of CAB by the

appellant @ 20% in the price difference between each

variety of CAB imported by the appellant and the

corresponding CAB of the competitor, is set aside.

37. In the circumstances, there will be no order as to costs.

..........................................J. (D.K. JAIN) ...........................................J. (T.S. THAKUR) NEW DELHI;

JULY 26, 2010.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5840 0F 2008 PERNOD RICARD INDIA (P.) LTD. -- APPELLANT

VERSUS

COMMISSIONER OF CUSTOMS, ICD -- RESPONDENT TUGHLAKABAD

WITH

[CIVIL APPEAL NO.1110 OF 2009]

O R D E R

In the judgment pronounced on 26th July, 2010, in

paragraph No. 24, the words, "judiciary scrutiny shall be

read as "judicial scrutiny."

.................J. [ D.K. Jain ]

.................J. [ T.S. THAKUR ]

New Delhi, August 26, 2010