M/S
Eicher Tractors Ltd., Haryana Vs Commissioner o Customs, Mumbai [2000] INSC 564
(14 November
2000)
A.P.Misra,
Ruma Pal
L.I.T.J
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 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 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
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 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.
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