Chandra Paul Vs. Commr. of Customs (Preventive) Shillong  Insc 222 (27
S. H. Kapadia & B. Sudershan Reddy
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 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 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 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
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.