Full Judgment Text
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CASE NO.:
Appeal (civil) 4498 of 2006
PETITIONER:
Rabindra Chandra Paul
RESPONDENT:
Commr. of Customs (Preventive) Shillong
DATE OF JUDGMENT: 27/02/2007
BENCH:
S. H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
with
Civil Appeal No. 4753 of 2006
KAPADIA, J.
Civil Appeal No. 4498/2006
This is an appeal under Section 130 E of the Customs Act, 1962
against judgment and order No. M-299/Kol /06 dated 6.7.2006 passed by the
Customs, Excise & Service Tax Appellant Tribunal, Kolkata
("the Tribunal"). It is an appeal filed by the assessee.
A short question which arises for determination in this civil appeal is
whether the Department, in the facts and circumstances, was justified in
invoking Rule 7A of Customs Valuation (Determination of Price of
Imported Goods) Rules, 1988 framed under section 156 of the said 1962
Act.
Appellant-assessee purchased two consignments of Refined Soyabean
Oil from M/s United Edible Oils Ltd., Bangladesh. The goods imported were
accompanied with Invoice dated 4.10.2003 and Invoice dated 30.10.2003.
The C & F value of the Soyabean Oil (final product) showed the price to be
Rs. 24.50 per kg. calculated at the prevailing rate of US $. The Department
called upon the appellant to give the cost break-up of the imported goods.
The details were forwarded by the appellant to the Department vide letter
dated 19.10.2003 along with copy of the bills of entry. The appellant also
obtained a certificate from the Superintendent of Customs which stated that
the consignments imported stood assessed by the Assistant Commissioner of
Customs at Rs. 27.17 and Rs. 31.96 respectively. The Department, however,
refused to accept the rate of Rs. 27.17 and Rs. 31.96 respectively. On
5.12.2003 the Assistant Commissioner of Customs gave a hearing to the
appellant in the matter of finalization of the assessable value of the said two
consignments. The appellant contended that M/s United Edible Oils Ltd.,
Bangladesh was the manufacturer of Refined Soyabean Oil. The said goods
were manufactured from imported Crude Soyabean Oil (raw material). The
said raw material was imported by M/s United Edible Oils Ltd., Bangladesh
from a foreign country under a valid invoice and bills of entry, copies
whereof were also submitted by the appellant herein to the Assistant
Commissioner of Customs. M/s United Edible Oils Ltd., Bangladesh
processed the said raw material in their factory in Bangladesh into Refined
Soyabean Oil (final product) which was exported to the appellant. Before the
Assistant Commissioner, the appellant presented the actual price of the
above raw material plus processing charges plus transportation charges from
the factory gate to the point of exportation. The price declared, therefore,
was the price at the point of exportation. Before the Assistant Commissioner,
the appellant submitted the above documents. The appellant contended
before the Assistant Commissioner that the Assistant Commissioner was not
entitled to invoke Rule 7A on the basis of the cost break-up, particularly
when there was no allegation that the price declared was tainted. The
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appellant contended before the Assistant Commissioner that the Department
was not entitled to invoke Rule 7A and that the Department was not justified
in invoking Rule 7A when the declared price tallied with the price of the
Indian Refined Soyabean Oil (see page ’E’ of the synopsis). By Order dated
26.12.2003 the Assistant Commissioner of Customs confirmed the demand
raised by the Department fixing the assessable value at Rs. 31.66 per kg. The
Assistant Commissioner came to the conclusion that the Declared Price of
the final product was less than the Tariff Value indicated in the letter issued
by the Central Board of Excise and Customs dated 15.12.2004 under which
the Board had stated that the Tariff Value for Crude Soyabean Oil stood at
US $ 565 PMT vide Notification No. 105/2004-Customs (NT) dated
15.9.2004. In the said letter, the Board further stated that it was logical to
value the raw material at prices higher than the Crude Soyabean Oil. On the
basis of said letter dated 15.12.2004 and Notification dated 15.9.2004 the
Assistant Commissioner of Customs fixed the assessable value of the
Refined Soyabean Oil at the above rate of Rs. 31.66 per kg.. Accordingly,
the Assistant Commissioner directed the Department to complete the
assessment and confiscate the goods under section 111(m) of Customs Act,
1962.
Being aggrieved by Order dated 26.12.2003 passed by the Assistant
Commissioner of Customs, the appellant preferred an appeal under Section
128A (3) of Customs Act, 1962. This appeal was filed before the
Commissioner (A). By Order dated 30.6.2004 the Commissioner came to the
conclusion that there was no reason for the Assistant Commissioner of
Customs to invoke Rule 7A, particularly when the Department had not
alleged that the sale was not in the ordinary course of trade. It was further
held that there was no reason to invoke Rule 7A since the import did not
attract any of the circumstances enumerated in Rule 4(2) (c) to (h).
According to the Commissioner (A), the only ground on which the Assistant
Commissioner had invoked Rule 7A was that the appellant was given
abnormal discounts. According to the Commissioner (A), in the present case
there was nothing to show that the discounts obtained were abnormal. In the
circumstances, the Commissioner held that the Department was not correct
in rejecting the transaction value in terms of Rule 4(1).
Aggrieved by the decision of the Commissioner (A), the matter was
carried in appeal to the Tribunal (CESTAT). The matter was carried in
appeal by the Department. By a cryptic order, the Tribunal stated that on the
facts and circumstances of the case, the Department was right in invoking
Rule 7A. Hence this civil appeal.
In the case of Eicher Tractors Ltd. v. Commissioner of Customs,
Mumbai reported in 2000 (122) E.L.T. 321 this Court held that the principle
for valuation of imported goods is found in Section 14(1) of Customs Act,
1962 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 the 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 goods shall be decided under section 14(1A)
read with the rules framed thereunder. The said Rules are the Customs
Valuation Rules, 1988. It was further held that in cases where the
circumstances mentioned in Rule 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 the particular transaction falls within the
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exceptions mentioned in Rule 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 Customs Act, 1962. 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). It was further held that the word "payable" in Rule 4(1)
must be read as referring to the "particular transaction" and payability in
respect of the transaction contemplates as situation where payment of price
stands deferred. Therefore Rule 4 is limited to the transaction in question. It
was further held that Rule 5 allows the transaction value to be determined on
the basis of identical goods imported into India about the same time; Rule 6
allows fixation of transaction value on the basis of the value of similar goods
imported into India about the same time. Where there are no
contemporaneous imports into India, the value is to be decided under Rule 7
by a process of deduction in the manner provided therein. If this is not
possible, then the value shall be computed under Rule 7A. It was further
held that it is only when the transaction value under Rule 4 is rejected, only
then under Rule 3(ii) the value shall be determined by proceeding
sequentially through Rules 5 to 8. Conversely, if the transaction value can be
decided under Rule 4(1) and does not fall under any of the circumstances
given in Rule 4(2), there is no question of determining the value under the
subsequent rules. It was further held that discount is a recognized feature of
international trade and as long as those discounts are uniformly available and
as long as they are based on commercial considerations, they cannot be
denied under section 14.
The primary base for Customs Valuation is the Transaction Value,
i.e., the price actually paid or payable for the goods when sold for export to
the country of importation, subject to adjustment. The said price should not
be subject to any condition or consideration that could prevent the value
from being determined under Rule 4(1). Where the Department has reason to
doubt the truth or accuracy of a 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. If the
declared value is lower than the declared value of similar goods imported by
other buyers at or about the same time, it can constitute "reason to doubt"
the truth or accuracy of the declared value indicated in the commercial
invoice (see Rule 10A). Under Rule 8(2)(i) no value shall be determined
based on the selling price of the goods produced in India. In cases where the
Department fails to establish circumstances mentioned in Rule 4(2), the
transaction value declared by the assessee cannot be rejected and the price
mentioned in the Invoice should be held to represent the transaction value.
Applying the above principles to the facts of the present case, we find
that the Department had erred in invoking Rule 7A. Firstly, there was no
allegation made by the Department stating that the transaction was tainted.
The appellant has proved that the transaction was at arm’s length. There was
no evidence before the Department to show that the price was pegged at a
lower level on account of the circumstances mentioned in Rule 4(2).
Secondly, the Department has not even alleged that on account of discounts
the price stood pegged at a lower level. Thirdly, we may point out that in a
given case, the Department would be entitled to invoke Rule 7A. For
example, in matters of agro-processing, processing of seeds, refined oil from
crude oil etc., the cost of the raw material has a crucial role to play in the
method of costing. In such cases, crude oil which is the raw material is the
major component of the refined oil (final product). In such cases, if the cost
of the raw material exceeds the price of the final product then in that event
the Department can invoke Rule 7A. However, in the present case, even
assuming for the sake of argument that Rule 7A applies, the Assistant
Commissioner of Customs while applying Rule 7A has followed a peculiar
method. She has examined the cost break-up. She rejects the cost of the raw
material but, at the same time, she accepts the processing charges (figures
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supplied by the appellant). Rule 7A refers to Computed Value in
contradistinction to Rule 7 which refers to Deductive Value. Computed
value under Rule 7A is the value of the imported goods consisting of the
cost or value of materials plus amount for profit and cost or value of all other
expenses under Rule 9(2). Further, Rule 7A is subject to the provisions of
Rule 3. Rule 3 applies in cases where the buyer and seller are related. In the
present case, there is no finding given that the buyer and seller are related. In
the interpretative note to Rule 7A, value of imported goods is to be
determined by examining the costs of production of the goods and the said
interpretative note clarifies that Rule 7A should be applied to those cases
where the buyer and seller are related. Further, if the officer wants to
proceed under Rule 7A, the cost or value has got to be decided on the basis
of the commercial accounts of the producer, provided that such accounts are
consistent with the accounting standards applicable in the country where the
goods are produced. In the present case, the producer is from Bangladesh.
There is no finding that M/s United Edible Oils Ltd. has not followed the
accounting system of that country (Bangladesh). In such cases, normally the
Department should call upon the assessee to furnish the value/ cost of raw
materials plus all costs (direct, indirect, fixed and variable) plus profit at an
average rate. In such cases, the Department should call upon the assessee to
produce a certificate from the Chartered Accountant of the foreign seller
indicating the turnover, profit and other details on the basis of which
computation of the Deductive Value under Rule 7 could be determined. This
exercise had not been done in the present case. As stated above, in the
present case, the Assistant Commissioner has rejected the cost of raw
materials and, at the same time, she has accepted the value of the processing
charges. Therefore, even if Rule 7A was to be applied, which, in our
opinion, is not attracted, still the computation made under Rule 7A by the
Assistant Commissioner was erroneous. None of these aspects have been
considered by the Tribunal in the impugned judgment.
Accordingly, the civil appeal stands allowed, the impugned judgment
of the Tribunal (CESTAT) in Appeal No. M-299/Kol/06 dated 6.7.2006 is
set aside and the Order of the Commissioner (A) stands confirmed with no
order as to costs.
Civil Appeal No. 4753 of 2006
In view of our judgment in Civil Appeal No. 4498/06 (supra), the
impugned judgment of the Tribunal (CESTAT) in Appeal No.
A-76/Kol/2005 dated 17.1.2005 is also set aside. This civil appeal is allowed
with no order as to costs.