Full Judgment Text
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PETITIONER:
M/S EICHER TRACTORS LTD., HARYANA
Vs.
RESPONDENT:
COMMISSIONER OF CUSTOMS, MUMBAI
DATE OF JUDGMENT: 14/11/2000
BENCH:
A.P.Misra, Ruma Pal
JUDGMENT:
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J U D G M E N T
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 utilizing 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
appellants continued custom. Not finding any customer for
the bearings, by letter dated 12th February 1993 the
vendors 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. 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 vendors 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. The appellant preferred an appeal
before the Commissioner of Customs (Appeals), Mumbai. The
Commissioner allowed the appeal. The respondent preferred
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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 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 vendors price list. The decision of the
Tribunal has been assailed before us by the Appellant.
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) ELT 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. 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 vendors price list. In support of this
argument, the respondent relied on Sharp Business Machines
Pvt. Ltd., Bangalore V. Collector of Customs, Bangalore
1991 (1) SCC 154. 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 S. 14(1A) in
accordance with the rules framed in this behalf. 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
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for the goods when sold for export to India, adjusted in
accordance with the provisions of Rule 9 of these rules.
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).
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. The respondents 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. 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 Sections 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 particularized in rule 4(2). Rule 4 (1)
speaks of the transaction value. Utilization 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
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payment of price may be deferred. 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. 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. 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 Collectors
reasoning under Rule 8 must, by virtue of language of Rule 3
(ii), be set aside. 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 particularized. 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) ELT 195
(SC), a special quotation for an old and valued customer
was upheld as not being a special circumstance. 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. 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) ELT 3. As
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the facts of this case are somewhat similar to the case
before us, it is dealt with in some detail. 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. 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). 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 respondents 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 vendors 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 upto 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). 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. 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.