Full Judgment Text
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PETITIONER:
ALL INDIA GLASS MANUFACTURERS’ FEDERATION,NEW DELHI
Vs.
RESPONDENT:
COLLECTOR OF CUSTOMS, BOMBAY
DATE OF JUDGMENT13/08/1991
BENCH:
FATHIMA BEEVI, M. (J)
BENCH:
FATHIMA BEEVI, M. (J)
RANGNATHAN, S.
OJHA, N.D. (J)
CITATION:
1992 AIR 705 1991 SCR (3) 513
1991 SCC (4) 357 JT 1991 (3) 401
1991 SCALE (2)317
ACT:
Customs Act, 1962: Sections 22, 27--Import of goods as
per contract--Clearance of goods paying customs duty--Detec-
tion of supply of inferior goods--Payment of compensation by
sellers to importer--Whether amounts to reduction in
price--Whether refund of customs duty can be claimed.
HEADNOTE:
The appellant-Federation entered into a contract with a
Soda Company of Kenya, for supply of 5000 metric tonnes of
soda ash dense and the consignment arrived at Bombay on
23.12.1981. The goods were cleared on payment of customs
duty of Rs.32,15,904.21.
The appellant on distribution of the goods to various
members of the Federation, received complaints that the soda
ash which had been supplied was of sub-standard quality.
When the sellers as well as their agents were approached,
they sent a team of experts to examine the goods and on
inspection the goods were found defective. As per agreement
dated 9.2.1982, the sellers sent a credit note of US $
2,40,000 as compensation on account of the defective goods.
The amount remitted on account of the import made was only
US $ 5,35,000 as against the earlier contracted amount of US
$ 7,75,000.
In view of such reduction, the appellant filed a
refund application before the Customs Department to the tune
of Rs.9.95,892-65. The Assistant Collector rejected the
refund application as he was not satisfied to the extent of
deterioration of the goods before clearance as provided by
Section 22 of the Customs Act.
The appeal preferred was rejected by the Collector of
Customs on the reasoning that the damage wad discovered
after the goods were out of customs control.
The further appeal to the Tribunal was rejected hold-
ing that the alleged inferior nature of goods was discovered
after clearance.
514
Under Section 130E of the Customs Act, 1962, present
appeal was made to this Court, contending that the goods
supplied were not in accordance with the contractual speci-
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fication, the defects being inherent in nature resulted in
diminution in the real value of the goods and what had been
agreed upon by the foreign seller was reduction in price on
account of the defects, and claimed that it would be enti-
tled to refund of customs duty under Section 22 of the Act.
On the question, whether the appellant was entitled to
the refund of customs duty on account of the compensation
given by the seller to the appellant on supply of goods,
dismissing the appeal, this Court,
HELD: 1.01. When the value is assessed on the basis of
the invoice and the goods are cleared, the implication is
that no remission is allowed and no abatement has been
occasioned. There is no express provision which enables the
proper officer to make a re-assessment for the purpose of
remission on the ground that the goods at the time of their
importation or at the time of the clearance was sub-standard
or damaged and the invoice price does not represent the real
value. [520E-F]
1.02. Any error in the assessment of the value by itself
does not enable the importer to claim re-assessment or
refund. It has necessarily to be shown that on account of
the damaged or deteriorated condition of the imported goods
before or during the unloading of the goods in India, the
duty to be charged on the goods was proportionate to the
value of the damaged or deteriorated goods. [520G-521A]
1.03. The question of redetermining the value of the
imported goods can arise only in a case where such damage or
deterioration before the clearance is proved to the satis-
faction of the proper officer. When there had been no indi-
cation of any such condition and the duty has been assessed
on the basis of the invoice value and duty is paid, the
assessment would be binding. The importer on finding the
goods cleared and distributed not to his entire satisfaction
may have a claim in contract against the seller for provid-
ing sub-standard, damaged or deteriorated goods for the
value in the invoice, and it may be open to the buyer to
realize from the seller such damages as he would in law be
entitled to. That claim for damages cannot have any bearing
to the assessment at the time of the clearance. The price at
which the goods has been sold is represented by the invoice
price and whatever amount is realized on subsequent agree-
ment is only by way of compensation as damages. It cannot be
said that the damages thus received represents the differ-
ence in price that had been paid and that ought to have been
515
paid. When the seller had agreed to compensate the buyer for
the quality of the goods imported, the buyer does not get
the right to claim abatement of duty on the assumption that
the real price was something less than what has been indi-
cated in the invoice. [521A-D]
1.04. There is no material on record to show that there
had been a re-assessment of the value of the goods. What had
been estimated is only quantum of damages sustained by the
buyers and to that extent they had been compensated. That
arrangement between the buyer and the seller cannot be
linked with the assessment of duty and no claim for abate-
ment of duty under the provisions of Section 22 or a claim
for refund under Section 27 could be legitimately enter-
tained. [523A-B]
Biggin & Co. Ltd. v. Premanite, LD., Berry Wiggins &
L.D., [1951] 1 K.B. 422; Cehave NV v. Bremer, [1975] 3
A.E.R. 739; Ford Motor Company of India v. Secretary’ of
State for India, [1937-8] L.R. 659. A. 32 and Vaccum Oil Co.
v. Secretary of State for India, [1932] L.R. 59, IA 258,
referred to.
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Halsbury’s Laws of England, para 574 at page 121, Vol.
12; referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1661 of 1990.
From the Judgment and Order dated 26.10. 1989 of the
Customs Excise and Gold (Control) Appellate Tribunal, New
Delhi in Appeal No. CD/SB/A No. 424 of 1983(A) in Order No.
729/89-A.
H.N. Salve, Ms. Meenakshi Arora, Ms. Ayesha Khatri, Ms.
Shirin Jain and Ms. Indu Malhotra for the Appellant.
KTS Tulsi, Additional Solicitor General, A.S. Rao
and p. Parmeshwaran for the Respondent.
The Judgment of the Court was delivered by
FATHIMA BEEVI, J. The appellant is a federation of
glass manufacturers in India. The Federation entered into a
contract with M/s. Magadi Soda Company Ltd., Kenya, for
supply of 5000 metric ’ tomes of soda ash dense at the rate
of US $ 155 per metric tome c.i.f. Bombay. The consignment
arrived from Mombasa, Kenya on 23.12. 198 1. The goods
were cleared on payment of customs duty of
516
Rs.32, 15,904.21 from Bombay. The appellant on distribution
of the goods to various members of the federation, received
complaints that the soda ash which had been supplied was of
sub-standard quality.’The sellers M/s. Crescent Dyes &
Chemicals as well as their agents were approached. They sent
a team of experts to examine the goods. The inspection
confirmed that the goods were defective. As per agreement
dated 9.2. 1982, M/s. Crescent Dyes & Chemical sent a Credit
note of US $ 2,40,000 as compensation on account of the
defective goods sent by M/s. Magadi Soda Company Ltd. The
amount remitted on account of the import made was only US $
5,35,000 as against the earlier contracted amount of US $
7,75,000.
In view of such reduction, the appellant filed a refund
application before the Customs Department to the tune of
Rs.9.95,892.65. The Assistant Collector was not satisfied as
to the extent of deterioration of the goods before clearance
as provided by Section 22 of the Customs Act and rejected
the refund application vide order dated 19.7.1982.
The appeal preferred against the order dated 19.7.1982
was rejected by the Collector of Customs on 23.12. 1982 on
the reasoning that the damage was discovered after the goods
were out of customs control. The further appeal to the
Tribunal was also unsuccessful. The Tribunal by the order
dated 26.10. 1989 held that the alleged inferior nature of
goods was discovered after clearance.
This appeal is filed under Section 130E of the Customs
Act, 1962 against the order of the Tribunal dated 26.10.
1989.
The question involved in the present appeal is whether
the appellant is entitled to the refund of customs duty on
account of the compensation given by the seller to the
appellant on supply of goods?The appellant who imported the
goods detected defects and the foreign supplier accepted the
defects and damages and agreed for payment of compensation.
According to the appellant, goods supplied were not in
accordance with the contractual specification. The defects
’being inherent in nature resulted in diminution in the real
value of the goods and what had been agreed upon by the
foreign seller is reduction in price on account of these
defects. The appellant claimed that it would be entitled to
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refund of customs duty under Section 22 of the Act for
reasons set out thus. The value to be assessed under Section
14 of the Act is the real price at which goods imported are
ordinarily sold at the time and place of importation and not
the price erroneously indicated
517
by the seller at the time of filling the bill of entry. The
buyer who successfully sets up diminution of price on ac-
count of breach of warranty, which claim is accepted by the
seller, can seek refund or adjustment in the customs duty
payable where the duty has been paid erroneously on the full
price prior to such diminution. The claim under Section 22
of the Act would be maintainable where imported goods were
defective and had deteriorated in quality even prior to the
import when the assessment has to be on the basis of the
real value of goods.
The contract dated 30.9.1981 is for the supply of 5000
metric tonnes of soda ash dense. The complaint was that the
sodium carbonate content was less than the specified 97%,
that there was moisture in the soda ash dense supplied and
hence it had turned lumpy. M/s. Crescent Dyes & Chemicals
Ltd. was the agent of the seller M/s. Magadi Soda Company
Ltd. The consignment. arrived in Bombay sometime in Decem-
ber, 1981. The appellants filed their bill of entry with the
customs and the goods were cleared on payment of customs
duty of Rs.32,15,904.21, on 28.12. 1981. the complaint about
damage and deterioration was made long after clearance. The
team of experts examined the goods and confirmed the de-
fects. The customs authorities were not associated with such
inspection.
It is maintained by the appellant that the credit
received was recorded in the letter dated 15.3. 1982 and the
letter indicated that the amount remitted on account of the
import made was only US $ 5,35,000. The reduction in the
amount remitted was to the extent of US $ 2,40,000. The
appellant claimed that on account of the reduction in the
value of the consignment, the appellant is entitled to
refund of customs duty proportionately.
The Collector of Customs pointed out that:
"The duty is leviable on the basis of the
value of the such or like goods at the time of
clearance. It has not been proved that the
alleged defect on account of which the price
has been reduced was present in the goods at
the time 01 clearance. At least some of the
defects of the type pointed out, viz., the
lumpy character, are such as could develop due
to exposure to moisture etc. during the period
the goods were out of customs. In any case,
the customs were not associated even with the
post-clearance examination. Any alleged reduc-
tion in value on the basis of a postclearance
agreement between the buyer and the supplier
or
518
some alleged grounds which the customs had no
chance to verify’ prior to clearance is
fraught with great risks to Revenue.
(emphasis supplied)
According to the appellant, this reasoning is wrong. The
appellant stated that most of the defects were due to non-
adherence to specification provided under the contract. The
defects being inherent in character, the appellant could not
have known about the same at the time of clearance of the
consignment from customs. The ground of deterioration of
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goods was not relevant as the claim for refund was based on
the ground of diminution in value of the goods as the same
were not as per the standard contracted for. The assessable
value of the goods under Section 14 of the Act is the price
at which such goods were actually sold in the course of
international trade. It is the real price of the goods
actually imported which is ordinarily the basis for assessa-
ble value. Where goods do not conform to the description or
stipulation as to quality or fitness, it is open to the
buyer to treat the defect as a breach of warranty. It is
also open to the buyer to set up against the seller the
breach of warranty in diminution of the price. It is the
diminished price which will be the real price of the goods
and not the price claimed by the buyer initially which is
reflected as c.i.f. value on the invoice. Customs duty paid
on the c.i.f. value is a duty paid under mistake of fact. At
the time of clearance of goods, the buyer did not have any
knowledge of the defects in the goods. Where defect which
constitutes a breach of warranty and which the buyer elects
to treat as a breach of warranty became apparent and ulti-
mately culminated in diminution of price, it would be open
to the buyer to claim refund of the customs duty paid under
mistake of fact. It is not relevant as to when the defect
became apparent to the buyer. The fact that the documents
proving the true and real value of the goods were not in
existence at the time when the goods were cleared from the
customes is wholly irrelevant- This in short, is the argu-
ment advanced on behalf of the appellant.
Duties of customs shall be levied under Section 12 at
such rate as may be specified under the Customs Tariff Act
or any other law for the time being in force on goods im-
ported into or exported from India. Section 14 of the Cus-
toms Act provides that 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 in the course of international trade. Such
price shall be calculated with reference to the rate of
exchange as in force on the date on which
519
a bill of entry is presented under Section 46. The duty is
ordinarily chargeable with reference to the tariff value in
the case of goods entered for home consumption on the date
on which the bill of entry in respect of such goods is
presented.
Section 22 provides for payment of duty on
damaged or deteriorated goods. It reads thus:
"22. Abatement of duty on damaged or deterio-
rated goods.
(1) Where it is shown to the satisfaction of
the Assistant Collector of Customs--
(a) that any imported goods had been damaged
or had deteriorated at any time before or
during the unloading of the goods in India; or
(b) that any imported goods, other than ware-
housed goods, had been damaged at any time
after the unloading thereof in India but
before their examination under Section 17, on
account of any accident not due to any wilful
act, negligence or default of the importer,
his employee or agent; or
(c) that any warehoused goods had been damaged
at any time before clearance for home consump-
tion on account of any accident not due to any
wilful act, negligence or default of the
owner, his employee or agent;
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such goods shall be chargeable to
duty in accordance with the provisions of
sub-section (2).
(2) The duty to be charged on the goods re-
ferred to in sub-section (1) shall bear the
same proportion to the duty chargeable on the
goods before the damage or deterioration which
the value of the damaged or deteriorated goods
bears to the value of the goods before the
damage or deterioration."
Where it is shown to the satisfaction of the Assistant
Collector that any imported goods have been lost or de-
stroyed at any time before clearance for home consumption.
the Assistant Collector of
520
Customs shall remit the duty on such goods. The period of
six months has been prescribed under Section 27 to claim
refund of duty paid with protest. Refund is allowed when the
Assistant Collector of Customs is satisfied that the whole
or any part of the duty paid should be refunded. No claim
for refund of any duty shall be entertained except in ac-
cordance with the provisions of Section 27.
Chapter VII of the Customs Act deals with the clearance
of imported goods. The imported goods unloaded in a customs
area remain in the custody of the approved person until they
are cleared for home consumption. Without permission in
writing of the appropriate officer, such goods are not
removed or otherwise dealt with. The importer shall give a
declaration as to the truth of the contents of the bill of
entry supported by the invoice. The order permitting clear-
ance of the goods for home consumption is made on payment of
the import duty, if any, assessed.
Thus, under the scheme of the Act, the importer is
entitled to clear the goods on payment of duty assessed and
such assessment is to be made with reference to the tariff
value of the goods where tariff values are fixed. In other
cases, the price at which the goods are ordinarily sold for
delivery at the time and place of importation represents the
tariff value for the purpose of the assessment. When the
value is assessed on the basis of the invoice and the goods
are cleared, the implication is that no remission is allowed
and no abatement has been occasioned. There is no express
provision which enables the proper officer to make a re-
assessment for the purpose of remission on the ground that
the goods at the time of their importation or at the time of
the clearance was sub-standard or damaged and the invoice
price does not represent the real value. Even if it is
assumed that in view of the provisions contained in Section
28(a) enabling the proper office to determine the amount of
duty due in cases where duty has not been levied or has been
short levied or erroneously refunded after issuing show
cause notice, there is a corresponding right on the importer
to claim refund of the excess duty levied, it is necessary
for the importer to prove to the satisfaction of the proper
officer that the goods at the time of the clearance was
chargeable to a lesser or lower duty for anyone of the
reasons contained in Section 22 which alone provides for
abatement of duty. Any error in the assessment of the value
by itself does not enable the importer to claim re-assess-
ment or refund. It has necessarily to be shown that on
account of the damaged or deteriorated condition of the
imported goods before or during the unloading the goods in
India, the duty to be charged on the goods was propor-
521
tionate to the value of the damaged or deteriorated goods.
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The question of redetermining the value of the imported
goods can arise only in a case where such damage or deterio-
ration before the clearance is proved to the Satisfaction of
the proper officer. When there had been no indication of any
such condition and the duty has been assessed on the basis
of the invoice value and duty is paid, the assessment would
be binding. The importer on finding the goods cleared and
distributed not to his entire satisfaction may have a claim
in contract against the seller for providing sub-standard,
damaged or deteriorated goods for the value in the invoice,
and it may be open to the buyer to realize from the seller
such damages as he would in law be entitled to. That claim
for damages cannot have any bearing to the assessment at the
time of the clearance. The price at which the goods had been
sold is represented by the invoice price and whatever amount
is realized on subsequent agreement is only by way of com-
pensation as damages. It cannot be said that the damages
thus received represents the difference in price that had
been paid and that ought to have been paid. When the seller
had agreed to compensate the buyer for the quality of the
goods imported, the buyer does not get the right to claim
abatement of duty on the assumption that the real price was
some thing less than what has been indicated in the invoice.
Learned counsel for the appellant referred para 574 at
page 12 1, Vol. 12. Halsbury’s Laws of England:
"574. Goods not in accordance with contract.
Where it is shown to the satisfaction of the
Commissioners of Customs and Excise that goods
were imported in pursuance of a contract of
sale and that their description, quality,
state or condition was not in accordance with
the contract, or that they were damaged in
transit, and also that the importer, with the
consent of the seller, either returned the
goods to him or destroyed them unused, the
importer is entitled to obtain from the Com-
missioners repayment of any customs duty paid
on their importation. The foregoing, however,
does not apply to the goods imported on ap-
proval, or on sale or return, or on other
similar terms."
It deals with the returning of goods or destroying the goods
unused without acceptance and not where the goods have been
accepted and used and the importer had been compensated for
the reduction in
522
standard. The learned counsel also referred to the decision
in Biggin & Co. Ltd. v. Premanite, LD., Berry Wiggins & Co.
LD. [1951] KB 422; Cehave NV v. Bremer, [1975] 3 A.E.R. 739;
Ford Motor Company of India v. Secretary of State for India,
[1937]-381 L.R. 65 I.A. 32 and vacuum Oil Co. v. Secretary
of State for India, [1932] L.R. 59 I.A.258.
On the basis of these decisions, the learned counsel for
the appellant contended that when the seller has allowed the
reduction, the real price of the goods is that which has
been accepted by the seller and that the assessment made on
a higher value on the basis of the invoice price is in
excess and such excess is refundable to the appellant.
It is not necessary to elaborate on the principle stated
in the decisions on the facts of the present case.
It is admitted case of the appellants that the alleged
inferior nature of goods was discovered by the appellant
after clearance. Until the refund application was made, no
requisition appears to have been made to the customs author-
ities to have the value of the goods determined for the
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purpose of Section 22. The correspondence between the appel-
lants and the sellers ,red their agents could only reveal
that the appellant put forward a claim for compensation on
the ground that the goods imported had become lumpy and was
also of inferior standard. Ultimately the sellers agreed to
reimburse the appellants and pay compensation to the tune of
US $ 2,40,000. What appellants have received from the sell-
ers is compensation for the damage for breach of warranty.
It does not appear that the value was reduced or amount
remitted by the appellant was the reduced value of tire
goods. The amount was the total compensation extended by the
sellers to the appellants. From that fact of payment of
compensation or reimbursement by the sellers it cannot be
taken that at the time and place of importation the goods
imported was worth only the amount stated in the invoice
less the compensation paid. In other words, there is no
proof that the real value of the goods at the time and place
of importation was less than that what had been entered in
the invoice and stated in the Bill of Entry. So long as
examination of the goods had not been made or its value re-
assessed to the satisfaction of the assessing authorities,
it cannot be said that duty was charged not on the real
value of the goods but on a higher amount. The contention
that the inherent defect in the supply of goods resulted in
the diminution of the value of the goods cannot be counte-
nanced when it is conceded that what had been paid by the
seller is only compensation for the breach of war-
523
ranty. Furthermore, there is no material on record to show
that even by the team of experts there had been a re-assess-
ment of the value of the goods. What had been estimated is
only quantum of damages sustained by the buyers and to that
extent they had been compensated. That arrangement between
the buyer and the seller cannot be linked with the assess-
ment of duty and no claim for abatement of duty under the
provisions of Section 22 or a claim for refund under Section
27 could be legitimately entertained.
For the reasons given above, the appeal must fail. The
appeal is dismissed with no order as to costs.
V.P.R. Appeal dismissed.
524