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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S). 9766-9775 OF 2003

WIPRO LTD. .....APPELLANT(S)

VERSUS

ASSISTANT COLLECTOR OF CUSTOMS  & ORS.

.....RESPONDENT(S)

W I T H

CIVIL APPEAL NO(S). 1950-1951 OF 2004

J U D G M E N T

A.K. SIKRI, J.

These appeals are preferred by the appellant challenging  

the validity of judgment dated 11.10.2002 passed by the Division  

Bench of the High Court of Judicature at Madras.  The High Court  

has, vide the said judgment, disposed of few writ petitions filed  

under Article 226 of the Constitution of India as well as certain writ  

appeals which were filed against the orders of the single Judge.  

All the aforesaid writ petitions and writ appeals were preferred by  

the appellants herein.   

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2) The subject  matter  of  those writ  petitions/writ  appeals  was the  

constitutional validity of proviso (II-i) of Rule 9(2) of the Customs  

Valuation (Determination of Price of Imported Goods) Rules, 1988  

(hereinafter  referred to as the “Valuation Rules”).   This proviso  

has  been  inserted  by  Notification  No.39/90  dated  05.07.1990  

issued by the Ministry of Finance, Department of Revenue, Union  

of India.  As per the appellant, this proviso is not only ultravires  

Section  14(1)  and  Section  14(1-A)  of  the  Customs  Act,  1962  

(hereinafter referred to as the 'Act') but is also violative of Article  

14 and Article 19(1)(g) of the Constitution of India.  The challenge,  

however,  stands  repelled  by  the  High  Court  in  the  impugned  

judgment leading to dismissal of writ petitions and writ appeals.  

This is how these appeals have come up in this Court, via special  

leave petition route, in which leave was granted.

3) In order to understand the controversy, purpose would be served  

in  taking note of  the facts  from the Writ  Appeal  No.1079/2000  

which was filed by the appellant in the High Court.  The appellant  

is engaged in the manufacture and marketing of Mini and Micro  

Computer Systems and peripheral devices like printer, drivers etc.  

It, inter alia, imported various components including software from  

time to time.  The appellant presented a Bill of Entry No.15020  

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dated 15.04.1993.   The chargeable weight  of  the consignment  

was  315  kgs  and  the  actual  loading,  unloading  and  handling  

charges  amounted  to  Rs.65.40  paisa  as  per  the  tariff  of  the  

International  Airport  Authority  of  India,  Madras  (now  Chennai).  

However, the Customs Authorities, on the basis of the impugned  

notification added a sum of Rs.15,214.69 paisa to the value of the  

goods as handling charges as the impugned provision entitles the  

authorities to add 1% of the F.O.B. value of goods on account of  

loading,  unloading  and  handling  charges.   The  actual  duty  

charged, as a consequence of addition of the notional handling  

charges,  amounted  to  Rs.16,209.20  paisa  instead  of  Rs.69.98  

paisa.

4) At  this  juncture,  instead  of  proceeding  further  with  the  factual  

narration,  we would  like  to  deviate  a  bit  and take note  of  the  

relevant valuation rules and the amendments made therein from  

time  to  time.   These  rules  are  made  in  exercise  of  powers  

conferred under Section 156 of the Customs Act, 1962, read with  

Section 22 of the General Clauses Act, 1897.  The purpose of  

these rules is to arrive at the valuation of the imported goods to  

enable  the  customs authorities  to  levy  duty  thereupon,  on  the  

basis of the value so arrived at.  Rule 2 is the “definition” clause  

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whereunder  certain  terms  are  defined.   Rule  2(f)  defines  

“transaction value” to mean the value determined in accordance  

with Rule 4 of these Rules.  This is to be read along with Rule 3.  

We, therefore, reproduce Rule 3 and relevant portion of Rule 4  

hereunder:

“3.  Determination of the method of valuation-  For the purpose of these rules, -  (i) the value of imported goods shall  be  the transaction value; (ii)   if  the  value  cannot  be  determined  under the provisions of Clause (i) above,  the  value  shall  be  determined  by  proceeding sequentially through Rules 5  to 8 of these rules.

4.   Transaction Value – (1)  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.

(2)   The transaction value of  imported goods  under sub-rule (1) above shall be accepted. Provided that …......”

5) A conjoint  reading of the aforesaid two provisions would make it  

clear  that  the  value  of  the  imported  goods  has  to  be  the  

transaction  value  and  in  those  cases  where  transaction  value  

cannot  be  determined,  such  a  value  is  to  be  determined  by  

resorting to Rules 5 to 8 thereof in a sequential order.  Therefore,  

first attempt has to ascertain the transaction value.  As per the  

formula contained in sub-rule (1) of Rule 4, the authorities are to  

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find out the price actually paid or payable for the goods when  

sold for exports to India, to arrive at the value of the goods.  Once  

this value is arrived at, it is to be adjusted in accordance with the  

provisions of Rule 9 of the said Rules.  The final outcome, after  

such an adjustment made, is to be treated as transaction value to  

attract the import duty thereupon.  As per sub-rule (2) of Rule 4,  

the transaction value of the imported goods under sub-rule (1) is  

to  be  accepted,  except  in  certain  circumstances  mentioned  in  

proviso to sub-rule (2).  If any of those circumstances exists, then  

the  value  is  to  be  determined  as  per  sub-rule  (3)  of  Rule  4.  

However,  we  are  not  concerned  with  such  a  situation  in  the  

present case.   

6) Thus,  normally,  the  value  of  imported  goods  has  to  be  the  

transactional  value  which  means  the  price  “actually  paid”  or  

“payable”  for  the  goods  imported.   Moreover,  the  value  as  

specified  in  sub-rule  (1)  is  to  be  generally  accepted  with  the  

exception of certain contingencies stipulated in proviso to sub-rule  

(2) of Rule 4.  Only when such a value cannot be determined, one  

has to resort to Rules 5 to 8, in a sequential manner which would  

mean that the authorities would first refer to Rule 5 and in case it  

is inapplicable, then Rule 6 and so on.  As per Rule 5, in those  

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cases where the transaction value is indeterminable, transaction  

value of “identical goods” is to be taken into consideration.  Rule 6  

mentions about transaction value of “similar goods”.  If this also  

inapplicable then “deductive value” is to be arrived at in terms of  

formula contained in Rule 7.  If that is also inapplicable, residual  

method is provided in Rule 8 which prescribes that the value shall  

be  determined  using  “reasonable  means”  consistent  with  the  

principles of general provisions of these Rules and sub-section (1)  

of  Section  14  of  the  Customs  Act  and  on  the  basis  of  data  

available  in  India.   At  the  same  time,  sub-rule  (2)  of  Rule  8  

excludes  certain  methods  which  are  not  to  be  applied  to  

determine the value under these Rules.  Precise language of sub-

rule (2) of Rule 8 is reproduce as under:  

“2.   No  value  shall  be  determined  under  the  provisions of these rules on the basis of -  (i)   the  selling  price  in  India  of  the  goods  produced in India; (ii)  a  system  which  provides  for  the  acceptance for customs purposes of the highest  of the two alternative values; (iii)   the  price  of  the  goods  on  the  domestic  market of the country of exportation; (iv)  the price of the goods for the export to a  country other than India; (v) minimum customs values; or (vi)  arbitrary or fictitious values.”

7) Once the transaction value is arrived at by applying the formula  

applicable  in  a  given  case  in  terms  of  aforesaid  provision,  

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exercise is still incomplete.  Adjustments to this value are still to  

be  made  in  accordance  with  the  provision  of  Rule  9.   Only  

thereafter,  exact  “transaction  value”  gets  determined  on  which  

customs duty is to be paid.  It is so stated in Rule 4 itself.  So, at   

this stage, Rule 9 comes into play, with which we are concerned  

in the present case.  It deals with “cost of services”.  It lays down  

that in determining the transactional value, cost of certain services  

is  to  be  added  to  the  price  actually  paid  or  payable  for  the  

imported goods, as mentioned in clauses (a) to (e) of sub-rule (1)  

of Rule 9.  We would like to reproduce this Rule, as it originally  

stood, in its entirety:  

“9.  Cost of  services  – (1)  In  determining the  transaction  value,  there  shall  be  added to  the  price actually paid or payable for the imported  goods, -  (a)   the following cost  and services,  to the  extent they are incurred by the buyer but are  not  included  in  the  price  actually  paid  or  payable for the imported goods, namely -  (i)  commissions  and brokerage,  except  buying  commissions; (ii)  the cost of containers which are treated as  being one for customs purposes with the goods  in question; (iii)   the cost  of  packing whether for  labour or  materials; (b)  the value, apportioned as appropriate, of the  following  goods  and  services  where  supplied  directly or indirectly by the buyer free of charge  or at reduced cost for use in connection with the  production  and  sale  for  export  of  imported  goods,  to  the  extent  that  such  value  has  not  been  included  in  the  price  actually  paid  or  payable, namely:-

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(i)  materials,  components,  parts  and  similar  items incorporated in the imported goods; (ii)  tools, dies, moulds and similar items used in  the production of the imported goods; (iii) materials consumed in the production of the  imported goods; (iv)  engineering, development, art work, design  work,  and  plans  and  sketches  undertaken  elsewhere than in India and necessary for  the  production of the imported goods; (c)   royalties  and  licence  fees  related  to  the  imported goods that the buyer is required to pay,  directly or indirectly, as a condition of the sale of  the goods being valued, to the extent that such  royalties and fees are not included in the price  actually paid or payable. (d)  the value of any part of the proceeds of any  subsequent  resale,  disposal,  or  use  of  the  imported  goods  that  accrues,  directly  or  indirectly, to the seller; (e)  all other payments actually made or to be  made as a condition of sale of the imported  goods,  by  the  buyer  to  the  seller,  or  by  the  buyer to a third party to satisfy an obligation of  the seller to the extent that such payments are  not  included  in  the  price  actually  paid  or  payable.

2.  For the purposes of sub-section (1) and sub- section (1A) of Section 14 of the Customs Act,  1962 (52 of 1962) and these rules, the value of  the imported goods shall  be the value of such  goods,  for  delivery  at  the  time  and  place  of  importation and shall include - (a)  the cost of transport of the imported goods  to the place of importation; (b)  loading, unloading and handling charges  associated with the delivery of the imported  goods at the place of importation; and  (c) the cost of insurance :

Provided  that  in  the  case  of  goods  imported by air, the cost and charges referred to  in clauses (a), (b) and (c) above,- (i)  where  such  cost  and  charges  are  ascertainable, shall not exceed twenty per cent  of the free on board value of such goods, (ii)   where  such  cost  and  charges  are  not  

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ascertainable  such  cost  and  charges  shall  be  twenty  per  cent  of  the free on board value of  such goods; Provided  further  that  in  the  case  of  goods  imported other than by air  and the actual  cost  and charges referred to in clauses (a), (b) and  (c)  above  are  not  ascertainable,  such  cost  and charges shall be twenty-five per cent of  the free on board value of such goods. (3)   Additions  to  the  price  actually  paid  or  payable  shall  be  made under  this  rule  on  the  basis of objective and quantifiable data. (4)   No  addition  shall  be  made  to  the  price  actually paid or payable in determining the value  of the imported goods except as provided for in  this rule.”

8) Rule  9  was amended in  the year  1989 vide Notification dated  

19.12.1989.  With this amendment, the provisos appearing below  

sub-rule (2) of Rule 9 were substituted with the following proviso:

“Provided that -  (i)  Where the cost mentioned in clause (a) are  not ascertainable, such cost shall be twenty per  cent of the free on board value of the goods; (ii)  Where the charges mentioned at clause (b)  are not ascertainable, such charges shall be one  per cent of the free on board value of the goods; (iii)  Where the cost mentioned at clause (c) are  not ascertainable, such cost shall be 1.125% of  free on board value of the goods. Provided  further  that  in  the  case  of  goods  imported  by  air,  where  the  cost  mentioned  in  clause (a) are ascertainable, such cost shall not  exceed twenty per cent of free on board value of  the goods.”

9) In  the  year  1990  i.e.  vide  amendment  Notification  dated  

05.07.1990, the said provisos underwent further modification with  

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the substitution of following provisos:

“Provided that -  (i)  Where  the  cost  of  transport  referred  to  in  clause (a) is not ascertainable, such cost shall be  twenty per cent of the free on board value of the  goods; (ii)  the charges referred to in clause (b) shall  be one per cent of the free on board value of  the goods plus the cost of transport refered  to  in  clause  (a)  plus  the  cost  of  insurance  referred to in clause (c); (iii)  Where the cost referred to in clause (c) is not  ascertainable, such cost shall be 1.125% of free  on board value of the goods; Provided  further  that  in  the  case  of  goods  imported  by  air,  where  th  cost  referred  to  in  clause (a)  is  ascertainable,  such cost  shall  not  exceed twenty per cent of free on board value of  the goods; Provided also that where the free on board value  of  the  goods  is  not  ascertainable,  the  costs  referred to in clause (a) shall be twenty per cent  of the free on board value of the goods plus cost  of  insurance for  clause (I)  above and the  cost  referred to in clause (c) shall be 1.125% of the  free  on  board  value  of  the  goods  plus  cost  of  transport for clause (iii) above.”

10) Clause  (ii)  of  first  proviso,  as  is  clear  from  reading  thereof,  

mandated addition of one per cent of the free on board value of  

the goods plus the cost of transport referred to in clause (a) plus  

the cost of insurance referred to in clause (c).

11) Reverting to the facts of the present case, it is on the strength of  

this proviso, even when the actual handling charges were shown  

as Rs.69.98 paisa, that too as fixed by the International Airport  

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Authority,  the  customs  authorities  added  further  sum  of  

Rs.15,214.69 paisa to the value of  goods of  handling charges,  

being one per cent free on board value of the goods.  Obviously,  

the appellant was aggrieved by this addition and handling charges  

on notional basis pursuant to the aforesaid proviso whereby the  

charges for loading, unloading and handling associated with the  

delivery of imported goods at the place of importation had been  

fixed at one per cent free on board value of the goods plus the  

cost  of  the  transport  of  the  imported  goods  to  the  place  of  

importation plus cost of insurance.

12) This  became the  reason for  filing  the  writ  petition  in  the  High  

Court  to  question  the  validity  of  the  said  proviso  by  way  of  

impugned amendment.  In brief, the case set up by the appellant  

was that such a notional fixation of the handling charges with the  

addition of one per cent of free on board value of the value of  

goods, irrespective of the nature of goods, size of the cargo, was  

in total disregard to the total handling charges, even when such  

actual handling charges could be ascertained.  It  was also the  

submission of the appellant that the said one per cent so fixed  

without reference to the nature of the goods, size of the cargo and  

value of the goods is irrational, in the sense, high value items like  

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components of computer, involving little or no expenses by way of  

handling, whereas heavy weight items like machinery, hardware  

might involve substantial expenditure for loading, unloading and  

handling.   It  was  submitted  that  the  handling  services  are  

rendered by the sea port and airport authorities.  The handling  

charges  are  levied  on  the  basis  of  either  the  gross  weight  or  

chargeable weight, whichever is higher.  Both these weights are  

incidentally  available  in  the  air  bill  accompanying  the  

consignment.  The international  Airport  Authorities and the port  

trust  are having schedule of  tariff  and the appellant  have from  

time to time been paying the handling charges to the authorities  

as  per  the  tariff.   On  this  basis,  it  was  argued  that  such  an  

addition was totally irrational and arbitrary, thus violative of Article  

14 of the Constitution and was also ultravires Section 14(1) and  

Section 14(1)(A) of the Customs Act.

13) The respondents defended the aforesaid amendment by pointing  

out  that  over  last  number of  years,  it  was found impossible to  

ascertain the actual amounts incurred towards loading, unloading  

and  handling  charges  while  making  the  assessment  as  they  

varied  depending  upon  the  quantities  and  place  of  import.  

Finding this  difficulty in actual  practice and in order to achieve  

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certainty,  one  per  cent  of  the  F.O.B.  value  was  fixed  to  be  

included in the assessable value.  It was argued that once this  

uniformity  is  achieved  with  the  aforesaid  provisions,  merely  

because some would  be getting the benefit while others would  

suffer certain detriment, is no reason for invalidating the provision  

when many others would be getting the benefit thereof as well.  

The percentage had been fixed by the rule making authority after  

taken into consideration the overall picture.

14) The  High  Court,  in  the  impugned  judgment,  after  referring  to  

various  decisions  of  this  Court,  accepted  the  plea  of  the  

Government holding that rule making authority had the requisite  

power  to  make a  provision  of  this  nature  by  including  landing  

charges for the purpose of valuation as valuation on such a basis  

was held to be valid by this Court in  Garden Silk Mills Ltd.  v.  

Union  of  India1.   The  justification  for  adding  one  per  cent  of  

F.O.B. value in determination handling charges can be discerned  

from paras 17 and 18 of the impugned judgment which read as  

under:

“17.  We are not able to uphold the contents of  the  learned  counsel  for  the  petitioner  for  the  reason  that  prior  to  the  impugned  notification,  the same one percent of F.O.B. value was taken  by  the  authorities  as  loading,  unloading  and  

1 (1998) 8 SCC 744

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handling  charges  for  determination  of  the  assessable value of the goods, when the actuals  are not assessable.  Even prior to that, 3/4th of  the F.O.B. value has been added to the value of  the  goods  as  loading,  unloading  and  handling  charges for the purpose of assessment pursuant  to  the  GATT  agreement.   The  one  per  cent  F.O.B.  value  would  be  very  nominal  to  the  importers and that the percentage has been  fixed  on  the  basis  of  objective  and  quantifiable data taking onto consideration of  the experience gained by the authorities and  the difficulties in ascertaining the actuals. 18.  The method of collection or the manner of  collection may be prescribed either under the Act  or  under  the  rules  framed  by  the  delegated  authority.   In  the  case  on  hand,  instead  of  actuals,  rules  have  prescribed  a  fixed  percentage  which  in  some  cases  may  be  too  harsh where the value of the goods imported is  much more and the weight of the commodity is  less.   There  may  be  number  of  other  items  where the value of the imported goods are less  and weight of the commodity is very much.  The  machinery provision so provided for collection of  duty, taking into consideration the administrative  convenience cannot  be considered beyond the  scope of the rule making power and it cannot be  said to be levying duty on amount which is not  within the purview of the Customs Act or Section  14(1) simply because the rule making authority  have  prescribed  a  fixed  percentage  based  on  experience instead of actual.

Section 14 of the Customs Act itself made  it clear the value of such imported goods shall be  deemed to be the price at which such goods are  ordinarily sold or offered for sale for delivery at  the time and place of importation or exportation  in the course of international trade and the price  referred  to  shall  be  determined  in  accordance  with  the  rule  made  in  this  behalf.   For  the  purpose of determination of the value, rules have  been  made  and  taking  into  consideration  the  difficulties experienced in the past in fixing the  handling charges on the actuals, it is fixed at one  percent of the CIF value of the goods.  When the  statute  confers  the  power  to  make  rules  for  

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determination of the value, such determination of  the  value  by  imposition  of  the  same  as  a  percentage cannot at any stretch of imagination  be considered as repugant to Section 14(1) or  discriminatory.”

15) The  High  Court  in  support  of  the  aforesaid  view,  referred  to  

certain judgments of this Court touching upon the principle that  

when a power is conferred on the Legislature to levy a tax, that  

power  itself  must  be  widely  construed.   Reliance  upon  the  

judgment in  Garden Silk Mills  is placed by the High Court in the  

following manner:

“19.   The Supreme Court  in  Garden Silk Mills  Ltd.  v.  Union  of  India  reported  in  AIR  2000  Supreme Court 33 has observed that Section 14  is a deeming provision.  The legislative intent is  clear that the actual price of imported goods viz.,  the landing costs cannot alone be regarded as  the value for the purpose of calculating the duty.  The language of Section 14 clearly indicates that  though  the  transaction  value  may  be  relevant  consideration,  the  value  for  the  purpose  of  custom duty will  have to be determined by the  customs authority, which value can be more and  at times even less than what is indicated in the  document of purchase or sale.”

16) Questioning the correctness of the aforesaid view taken by the  

High Court, Mr. Dushyant Dave, learned senior counsel appearing  

for the appellant in all these appeals, submitted that prior to the  

impugned notification dated 05.07.1990, the Rule in this regard  

was to the effect that the handling charges were reckoned on the  

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actuals and only where the actual cost could not be ascertained,  

one per  cent  of  the F.O.B.  of  the  goods  was to  be added as  

charges  on  this  account.   However,  with  the  impugned  

amendment  in  the  Rules,  the  actual  cost  incurred  and  or  

ascertainable is totally ignored in the matter of “handling charges”  

and is to be arrived at fictionally by adding one per cent of the  

F.O.B.  value  of  the  imported  goods  and  its  transportation  and  

insurance  charges.   It  was  pointed  out  that  the  appellant  is  

engaged in the manufacture and marketing of computer systems  

and peripherals, and in the course of its business, imports various  

components worth crores of rupees, which are of high value but of  

low  weight  and  dimensions.   Further,  the  actual  cost  incurred  

towards the handling charges in accordance with the prescribed  

charges  by  the  international  Airport  Authority  of  India  was  not  

even a fraction of the “notional handling charges” arrived at by  

applying the formula contained in the amended Rule.  In nutshell,  

it  was pointed out  that  in  the present  case,  where actual  cost  

could be ascertained, the same had to be taken into consideration  

to determine the valuation of the goods for the purpose of custom  

duty and it is only in those cases where actual cost could not be  

arrived  at  the  fictional  formula  should  be  made  applicable.  

Making such a provision, it was argued, even where the actual  

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cost was known was clearly ultravires Section 14(1) and Section  

14(1A) of the Customs Act.  It was also argued that there was no  

rationale in adding one per cent of the F.O.B. value in such cases  

and this smacked of arbitrariness making it violative of Article 14  

of  the Constitution as well.   Mr.  Dave also referred and relied  

upon the judgment of this Court in  Indian Acrylics  v.  Union of  

India and Anr.2 in support of his aforesaid submissions.  He also  

referred to the provisions of the General Agreement on Tariffs and  

Trade  (GATT)  which  inter  alia laid  down  the  

yardsticks/methodology for  arriving at  cost  of  transport  and the  

prescription therein is the actual cost of transport of the imported  

goods  to  the  port  or  place  of  importation  plus  the  handling  

charges and cost of insurance.

17) Mr.  Radhakrishnan,  learned  senior  counsel  appearing  for  the  

respondents,  on  the  other  hand,  defended  the  judgment  by  

adopting the reasoning given by the High Court  sustaining the  

validity of the impugned provision.

18) We have given our due consideration to the submissions of the  

learned counsel for the parties with reference to the material on  

record as well as various statutory and other provisions, placed at  

2 (2000) 2 SCC 678

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our disposal.

19) In order to arrive at the answer to the issue raised, we shall have  

to go through the scheme of customs duties as payable under the  

Act.  Chapter V is the relevant chapter which deals with “Levy of,  

and Exemption from, Customs Duties”.  It contains the provisions  

from Section  12  to  Section  28BA.   Section  12  which  talks  of  

“dutiable goods”, provides that duties of customs shall be levied at  

such  rates  as  may be  specified  under  the  Customs Tariff  Act,  

1975,  or  any  other  law for  the  time  being  in  force,  on  goods  

imported into, or exported from, India.  Thus, the rates at which  

the customs duties is to be imposed are specified in the Customs  

Tariff Act, 1975.  That rate is on the value of goods imported or  

exported,  as  the case may be.   Therefore,  there is  a  need to  

determine the value of the goods imported and exported.  The  

yardsticks for arriving at this value are contained in Section 14 of  

the Act.  This provision as originally stood and was prevalent at  

the relevant time with which we are concerned, reads as under:

“14.   Valuation  of  goods  for  purposes  of  assessment.-  (1)  For  the  purposes  of  the  Customs Tariff  Act,  1975 (51 of  1975),  or  any  other law for the time being in force whereunder  a duty of customs is chargeable on any goods  by  reference  to  their  value,  the  value  of  such  goods shall be deemed to be- the  price  at  which  such  or  like  goods  are  

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ordinarily sold, or offered for sale, for delivery at  the time and place of importation or exportation,  as  the  case  may  be,  in  the  course  of  international trade, where- (a)  the seller and the buyer have no interest in  

the business of each other; or  (b) one of them has no interest in the business  

of  the  other,  and  the  price  is  the  sole  consideration for the sale or ofer for sale: Provided  that  such  price  shall  be  

calculated with reference to the rate of exchange  as in force on the date on which a bill of entry is  presented under section 46, or a shipping bill or  bill of export, as the case may be, is presented  under section 50;

(1A)   Subject  to  the  provisions  of  sub- section  (1),  the  price  referred  to  in  that  sub- section  in  respect  of  imported  goods  shall  be  determined in accordance with the rules made in  this behalf.

(2)  Notwithstanding anything contained in  sub-section (1)  or sub-section (1A) if the Board  is satisfied that it is necessary or expedient so to  do, it may, by notification in the Official Gazette,  fix tariff values for any class of imported goods  or export  goods, having regard to the trend of  value of such or like goods, and where any such  tariff  values  are  fixed,  the  duty  shall  be  chargeable with reference to such tariff value. (3)  For the purposes of this section- (a)   “rate  of  exchange”  means  the  rate  of  

exchange- (i) determined by the Board, or  (ii) ascertained  in  such  manner  as  the  

Board may direct, for the conversion of  Indian  currency  into  foreign  currency  or  foreign  currency  into  Indian  currency;

(b)   “foreign  currency”  and  “Indian  currency”  have the meanings respectively assigned to  them in clause (m) and clause (q) of section  2 of the Foreign Exchange Management Act,  1999 (42 of 1999).”

20) This provision was amended in the year 2007.  Though, we are  

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not concerned with this amended provision, we are taking note of  

the  same  in  order  to  examine  as  to  whether  any  change,  in  

principle, is brought about or not.  The amended provision reads  

as follows:

“14.  Valuation of goods.- (1) For the purposes of  the the Customs Tariff Act, 1975 (51 of 1975), or  any  other  law for  the  time  being  in  force,  the  value of  the imported goods and export goods  shall  be  the  transaction  value  of  such  goods,  that is to say, the price actually paid or payable  for the goods when sold for export to India for  delivery at the time and place of importation, or  as  the case may be,  for  export  from India  for  delivery  at  the  time  and  place  of  exportation,  where the buyer and seller of the goods are not  related and price is the sole consideration for the  sale subject to such other conditions as may be  specified in the rules made in this behalf:

Provided that such transaction value in the  case of imported goods shall include, in addition  to  the  price as aforesaid,  any  amount  paid  or  payable  for  costs  and  services,  including  commissions  and  brokerage,  engineering,  design work, royalties and licence fees, costs of  transportation  to  the  place  of  importation,  insurance,  loading,  unloading  and  handling  charges  to  the  extent  and  in  the  manner  specified in the rules made in this behalf:

Provided further that the rules made in this  behalf may provide for,-

(i)  the circumstances in which the buyer and  the seller shall be deemed to be related;

(ii) the  manner  of  determination  of  value  in  respect of goods when there is no sale, or  the  buyer  and  the  seller  are  related,  or  price is not the sole consideration for the  sale or in any other case;

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(iii) the manner of  acceptance or  rejection of  value declared by the importer or exporter,  as  the  case  may  be,  where  the  proper  officer  has  reason  to  doubt  the  truth  or  accuracy of such value, and determination  of value for the purposes of this section:

Provided  also  that  such  price  shall  be  calculated with reference to the rate of exchange  as in force on the date on which a bill of entry is  presented under section 46, or a shipping bill of  export, as the case may be, is presented under  section 50.

(2)  Notwithstanding anything contained in sub- section  (1),  if  the  Board  is  satisfied  that  it  is  necessary  or  expedient  so  to  do,  it  may,  by  notification in the Official Gazette, fix tariff values  for any class of imported goods or export goods,  having regard to the trend of value of such or  like goods, and where any such tariff values are  fixed,  the  duty  shall  be  chargeable  with  reference to such tariff value.”

21) A  reading  of  the  unamended  provision  would  show  that  the  

earlier/old  principle  was  to  find  the  valuation  of  goods  “by  

reference  to  their  value”.   It  introduced  a  deeming/fictional  

provision by stipulating that the value of the goods would be the  

price at which such or like goods are “ordinarily sold, or offered for  

sale”.  Under the new provision, however, the valuation is based  

on  the  transaction  price  namely,  the  price  “actually  paid  or  

payable for the goods”.  Even when the old provision provided the  

formula  of  the  price  at  which  the  goods  are  ordinarily  sold  or  

offered for sale, at that time also if  the goods in question were  

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sold for a particular price, that could be taken into consideration  

for  arriving  at  the  valuation  of  goods.   The  very  expression  

“ordinarily sold, or offered for sale” would indicate that the price at  

which these goods are actually sold would be the price at which  

they are ordinarily sold or offered for sale.  Of course, under the  

old provision, under certain circumstances, the authorities could  

discard the price mentioned in the invoice.  However, that is only  

when it is found that the price mentioned in the invoice is not the  

reflection of the price at which these are ordinarily sold or offered  

for sale.  To put it otherwise, the reason for discarding the price  

mentioned  in  the  invoice  could  be  only  when  the  said  price  

appeared to be suppressed one.  In such a case, the authorities  

could say that generally such goods are ordinarily sold or offered  

for sale at a different price and take that price into consideration  

for the purpose of levying the duty.  It could, however, be done  

only  if  there  was evidence to  show that  ordinarily  the price  at  

which these goods are ordinarily sold or offered for sale is higher  

than the price mentioned in the invoice.  In fact, this fundamental  

concept  is  retained even now while  introducing the concept  of  

“transaction  value”  under  the  amended  provision.   More  

importantly, the rules viz. Valuation Rules, 1988 had incorporated  

this  very  principle  of  “transaction  value”  even  under  the  old  

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provision.  No doubt, as per this provision existing today generally  

the  price  mentioned is  to  be  accepted  as  it  is  the  transaction  

value.  However, this very provision stipulates the circumstances  

under which that  price can be discarded.  In any case, having  

regard to the question with which we are concerned in the present  

appeals,  such  a  change  in  the  provision  may  not  have  much  

effect.   

22) The underlying principle contained in amended sub-section (1) of  

Section 14 is to consider transaction value of the goods imported  

or exported  for the purpose of customs duty.  Transaction value is  

stated to be a price actually paid or payable for the goods when  

sold  for  export  to  India  for  delivery  at  the  time  and  place  of  

importation.  Therefore, it  is  the price which is actually paid or  

payable for delivery at the time and place of importation, which is  

to be treated as transaction value.  However, this sub-section (1)  

further makes it clear that the price actually paid or payable for  

the goods will not be treated as transaction value where the buyer  

and the seller are related with each other.  In such cases, there  

can  be  a  presumption  that  the  actual  price  which  is  paid  or  

payable for such goods is not the true reflection of the value of the  

goods.  This Section also provides that normal price would be the  

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sole consideration for the sale.  However, this may be subject to  

such other conditions which can be specified in the form of Rules  

made in this behalf.

23) As  per  the  first  proviso  of  the  amended  Section  14(1),  in  the  

transaction value of the imported goods, certain charges are to be  

added which are in the form of amount paid or payable for costs  

and services including commissions and brokerage, engineering,  

design work, royalties and licence fees, costs of transportation to  

the  place  of  importation,  insurance,  loading,  unloading  and  

handling charges to the extent and in the manner which can be  

prescribed  in  the  rules.   Sub-section  (2)  of  Section  14,  which  

remains the same, is an over-riding provision which empowers  

the Board to fix tariff values for any class of imported goods or  

export goods under certain circumstances.  We are not concerned  

with this aspect in the instant case.

24) In contrast, in the unamended Section 14, we had provision like  

sub-section (1A) which stipulated that the price referred to in sub-

section (1) in respect of imported goods shall be determined in  

accordance with rules made in this behalf.  Therefore, rules can  

be made in determining the price.  However, these rules have to  

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be  subject  to  the  provisions  of  sub-section  (1),  the  underline  

principle whereof, as stated above, is to taken into consideration  

actual price of the goods unless it  is impermissible because of  

certain  circumstances stipulated therein.   Keeping in  mind this  

fundamental  aspect,  we  have  to  examine  the  scheme  of  the  

Valuation Rules, 1988.

25) It can very well be seen from the Valuation Rules, 1988 that these  

Rules are made to facilitate arriving at the valuation of goods in all  

the contingencies provided in sub-section (1) of Section 14.  We  

have  already  reproduced the  relevant  Rules  and  indicated  the  

scheme  thereof.   To  recapitulate  in  brief,  Rule  3  echoes  the  

principle enshrined in sub-section (1) of Section 14 by mentioning  

that value of the imported goods would be the transaction value3.  

Likewise,  Rule  4  again  reproduces  the  concept  behind  sub-

section (1) of Section 14 by stipulating in no uncertain terms, that  

the transaction value shall be the price actually paid or payable  

for the goods when sold for exports to India.  The adjustments  

which are made in accordance with the provisions of Rule 9 are  

nothing but the costs and services, as specified in first proviso to  

3 It is   interesting to note, which is somewhat strange, that though concept of transaction value  was introduced in sub-section (1) of Section 14 by amendment in the year 2007, which before  that in the Valuation Rules, 1988, the expression “transaction value” is incorporated.  This also  lends credence to our observations that the concept of unamended provision was also to arrive  at to take into consideration the actual value wherever it was available and was not excluded by   any of the circumstances mentioned therein.

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Section 14(1) of the Act.  It is only in those cases where value of  

the imported goods i.e. transaction value cannot be determined,  

that we have to resort to Rules 5 to 8 of the said Rules.  The  

purpose of these Rules is to fix the transaction value of the goods  

notionally.  However, even when the fiction is applied, the scheme  

and spirit behind Rules 5 to 8 would amply demonstrate that the  

endeavour is to have closest proximity with the actual price.  That  

is why Rules 5 to 8 are to be applied in a sequential  manner,  

meaning thereby we have to first resort to Rule 5 and if that is not  

applicable only then we have to go to Rule 6 and in the case of  

inapplicability of Rule 6, we have to resort to Rule 7 and even if  

that is not applicable, then Rule 8 comes into play.  In order to find  

out as to what would be the closest real value of the goods, Rule  

5  mentions that  transaction value of  “identical  goods”  is  to  be  

taken into consideration.  Thus, wherever the value of identical  

goods is available, one can safely rely upon the said value in the  

event  transaction  value  of  the  goods  in  question  is  

indeterminable.  Value of the identical goods is most proximate.  If  

that is also not available, next proximate value is provided in Rule  

6 which talks of value of “similar goods”.  In the absence thereof,  

we  come  to  the  formula  of  applying  the  “deductive  value”  as  

contained in Rule 7.  In those cases, where even deductive value  

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cannot  be  arrived  at,  one  has  to  resort  to  residual  method  

provided  in  Rule  8  which  prescribes  that  the  value  shall  be  

determined  using  “reasonable  means”.   This  would  indicate  

adopting “Best Judgment Assessment” principle.  However, even  

while  having  best  judgment  assessments,  Rule  8  reminds  the  

authorities  that  such  reasonable  means  or  best  judgment  

assessments  has  to  be  in  consonance  with  the  principles  of  

general provisions contained in the Rules as well as sub-section  

(1) of Section 14 of the Act and also on the basis of data available  

in India.

26) On the aforesaid examination of the scheme contained in the Act  

as well as in the Rules to arrive at the valuation of the goods, it  

becomes  clear  that  wherever  actual  cost  of  the  goods  or  the  

services is available, that would be the determinative factor.  Only  

in the absence of actual cost, fictionalised cost is to be adopted.  

Here again, the scheme gives an ample message that an attempt  

is to arrive at value of goods or services as well  as costs and  

services which bear almost near resemblance to the actual price  

of the goods or actual price of costs and services.  That is why the  

sequence goes from the price of identical goods to similar goods  

and then to deductive value and the best judgment assessment,  

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as a last resort.

27) In the present case, we are concerned with the amount payable  

for  costs  and  services.   Rule  9  which  is  incorporated  in  the  

Valuation Rules and pertains to costs and services also contains  

the  underlying  principle  which  runs  though  in  the  length  and  

breadth of the scheme so eloquently.  It  categorically mentions  

the exact nature of those costs and services which have to be  

included like commission and brokerage, costs of containers, cost  

of packing for labour or material etc.  Significantly, Clause (a) of  

sub-rule (1) of Rule 9 which specifies the aforesaid heads, cost  

whereof is to be added to the price, again mandates that it is to be  

“to the extent they are incurred by the buyer”.  That would clearly  

mean the actual cost incurred.  Likewise, Clause (e) of sub-rule  

(1)  of  Rule 9 which deals with other payments again uses the  

expression “all other payments actually made or to be made as  

the condition of the sale of imported goods”.

28) Keeping in mind this perspective, we need to look into clause (b)  

of sub-rule (2) of Rule 9 which deals with loading, unloading and  

handling charges associated with the delivery of imported goods  

at the place of importation, which are to be included to arrive at  

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the value of such imported goods.  It is these charges with which  

we are directly concerned with in the instant case.

29) The provision of sub-rule (2) of Rule 9, as originally stood, made it  

clear that wherever loading, unloading and handling charges are  

ascertainable i.e. actually paid or payable, it is those charges that  

would be added.  Proviso to the said Rule contained the provision  

that only in the event the same are not ascertainable, it shall be  

25% of the free on board value of such goods.  In fact, sub-rule  

(3)  of  Rule 9 leave no manner of  doubt when it  mentions that  

additions  are  to  be  made  on  the  basis  of  objective  and  

quantifiable data.

30) It  would be pertinent to mention here that  sub-rule (2)  talks of  

three  kinds  of  charges.   Apart  from  loading,  unloading  and  

handling charges which are mentioned in Clause (b), Clause (a)  

deal  with  cost  of  transport  of  imported  goods  to  the  place  of  

importation and Clause (c) dealt with cost of insurance.  All these  

costs were to be included on actual basis.  Only when such costs  

were not ascertainable, proviso got attracted which stipulated that  

such costs and charges shall be 25% of the free on board value  

of such goods.  Even when the aforesaid proviso was amended  

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vide  notification  dated  19.12.1989,  the  spirit  behind  the  

unamended  proviso  was  maintained  and  kept  intact.   Only  

difference was that instead of addition of 25% of free on board  

value of goods in respect of all the three kinds of charges, under  

the  amended  proviso,  this  percentage  fixed  was  different  in  

respect  of  each  of  the  aforesaid  charges.   As  far  as  cost  of  

transport  is  concerned,  it  was changed at  20% of  the free on  

board value of goods.  Insofar as loading, unloading and handling  

charges are concerned, it was reduced to 1% of the free on board  

value of goods and in case of insurance charges, the amended  

provision provided for such cost at 1.125% free on board value of  

goods.   However,  as  mentioned  above,  the  spirit  behind  this  

proviso continued to be the same viz. the proviso was to made  

applicable only when the actual cost was indeterminable.

31) In contrast, however, the impugned amendment dated 05.07.1990  

has changed the entire basis of inclusion of loading, unloading  

and handling charges associated with the delivery of the imported  

goods at the place of importation.  Whereas fundamental principle  

or basis remains unaltered insofar as other two costs, viz., the  

cost  of  transportation  and  the  cost  of  insurance  stipulated  in  

clauses (a) and (c) of sub-rule (2) are concerned.  In respect of  

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these  two  costs,  provision  is  retained  by  specifying  that  they  

would be applicable only if the actual cost is not ascertainable.  In  

contrast, there is a complete deviation and departure insofar as  

loading,  unloading  and  handling  charges  are  concerned.   The  

proviso now stipulates 1% of the free on board value of the goods  

irrespective of the fact whether actual cost is ascertainable or not.  

Having referred to the scheme of Section 14 of the Rules in detail  

above,  this  cannot  be countenanced.   This  proviso,  introduces  

fiction as far as addition of cost of loading, unloading and handling  

charges is concerned even in those cases where actual cost paid  

on such an account is available and ascertainable.  Obviously, it  

is contrary to the provisions of Section 14 and would clearly be  

ultravires this provision.  We are also of the opinion that when the  

actual charges paid are available and ascertainable, introducing a  

fiction for arriving at the purported cost of loading, unloading and  

handling  charges  is  clearly  arbitrary  with  no  nexus  with  the  

objectives sought to be achieved.  On the contrary, it goes against  

the objective behind Section 14 namely to accept the actual cost  

paid or payable and even in the absence thereof to arrive at the  

cost which is most proximate to the actual cost.  Addition of 1% of  

free on board value is thus, in the circumstance, clearly arbitrary  

and  irrational  and  would  be  violative  of  Article  14  of  the  

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Constitution.

32) We find that the High Court, instead of examining the matter from  

the aforesaid angle, has simply gone by the powers of the rule  

making authority to make Rules.  No doubt, rule making authority  

has the power to make Rules but such power has to be exercised  

by making the rules which are consistent with the scheme of the  

Act and not repugnant to the main provisions of the statute itself.  

Such  a  provision  would  be  valid  and  1%  F.O.B.  value  in  

determining handling charges etc. could be justified only in those  

cases where actual  cost  is  not  ascertainable.   The High Court  

missed the point that Garden Silk Mills Ltd. case was decided by  

this  Court  in  the  scenario  where  actual  cost  was  not  

ascertainable.  That is why we remark that first amendment to the  

proviso  to  sub-rule  (2)  of  Rule  9  which was incorporated vide  

notification dated 19.12.1989 would meet be justified.  However,  

the impugned provision clearly fails the test.

33) We would like to refer  to the judgment of  this Court  in  Indian  

Acrylics (supra) at this juncture.  Though, the issue in that case  

related to the rate of  exchange touching upon the provision in  

respect  whereof  contained  in  sub-section  (3)  of  Section  14  

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(unamended provision), the question of law decided therein would  

support the view we are taking in the instant case.  A reading of  

sub-section (3) of Section 14 would make it clear that such rate of  

exchange can be determined by the Board or can be ascertained  

in such manner as the Board may direct,  for the conversion of  

Indian currency  into  Foreign  currency or  Foreign currency  into  

Indian currency.  Thus, Board had been given power to determine  

the rate of exchange or stipulate the manner in which such rate of  

exchange  is  to  be  determined.   Armed  with  this  power,  the  

customs authorities notified the rate of exchange for the purposes  

of Section 14 at one US dollar equal to Rs.31.44.  Notification in  

this  behalf  was  issued  by  the  Board  on  27.03.1992.   On  

29.04.1992, the Reserve Bank of India had notified the exchange  

rate of one US dollar  equal to Rs.25.95.  On the basis of this  

fixation  by  the  Reserve  Bank  of  India,  the  notification  dated  

27.03.1992 stipulating exchange rate of one US dollar equal to  

Rs.31.44  was challenged as  arbitrary  fixation  of  the  exchange  

rate.  This Court sustained the challenge in the following words:

“5.  The counter filed by the respondent before  the High Court, as also before this Court, does  not indicate why the rate was fixed at Rs.31.44.  The affidavits do not indicate that the prevalent  Reserve Bank of India rate had been taken into  consideration.   Strangely,  the  High  Court,  adverting to this  contention,  stated that  “...  In  the absence of  any other material  brought on  

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record,  it  cannot  be  held  that  the  rate  of  exchange by  the   Central  Government  under  Section 14(3)(i) is arbitrary” and it said this after  noting the contention on behalf of the appellant  that the Central Government rate was arbitrary  being different from that fixed by  Reserve Bank  of India.

6.  The exchange rate fixed by Reserve Bank of  India is the accepted and determinative rate of  exchange for foreign exchange transactions.  If  it is to be deviated from to the extent that the  notification dated 27.03.1992 does, it  must be  shown that the Central Government had good  reasons for doing so.  Reserve Bank of India's  rate, as we have pointed out, was Rs.25.95, the  rate fixed by the notification dated 27.03.1992  was Rs.31.44, so that there was a difference of  as much as Rs.5.51.   In the absence of  any  material  placed on record by the respondents  and in  the absence of  so much as a reason  stated on affidavit in this behalf, the rate fixed  by  the  notification  dated  27.03.1992 must  be  held to be arbitrary.”

34) In the present case before us, the only justification for stipulating  

1% of  the  F.O.B.  value  as  the  cost  of  loading,  unloading  and  

handling charges is that it would help customs authorities to apply  

the aforesaid rate uniformly.  This can be a justification only if the  

loading,  unloading and handling charges are not  ascertainable.  

Where such charges are known and determinable,  there is  no  

reason  to  have  such  a  yardstick.   We,  therefore,  are  not  

impressed with the reason given by the authorities to have such a  

provision and are of the opinion that the authorities have not been  

able to satisfy as to how such a provision helps in achieving the  

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object of Section 14 of the Act.   It  cannot be ignored that  this  

provision as well as Valuation Rules are enacted on the lines of  

GATT guidelines and the golden thread which runs through is the  

actual cost principle.  Further, the loading, unloading and handling  

charges are fixed by International Airport Authority.   

35) In  Kunj  Behari  Lal  Butail  v.  State  of  H.P.4 this  Court  made  

following pertinent observation which are apt and contextual and,  

therefore, we are reproducing the same:

“13.  It  is  very  common  for  the  legislature  to  provide for a general rule-making power to carry  out the purpose of the Act.  When such a power  is  given,  it  may be permissible  to  find out  the  object of the enactment and then see if the rules  framed satisfy the test of having been so framed  as to fall within the scope of such general power  confirmed.   If  the  rule-making  power  is  not  expressed in such a usual general form then it  shall  have  to  be  seen  if  the  rules  made  are  protected by the limits prescribed by the parent  act. (See: Sant Saran Lal v. Parsuram Sahu, AIR  1966 SC 1852). From the provisions of the Act  we  cannot  spell  out  any  legislative  intent  delegating  expressly,  or  by  necessary  implication, the power to enact any prohibition on  transfer of land.  We are also in agreement with  the submission of Shri Anil Divan that by placing  complete  prohibition  on  transfer  of  land  subservient to tea estates no purpose sought to  be achieved by the Act is advanced and so also  such  prohibition  cannot  be  sustained.  Land  forming  part  of  a  tea  estate  including  land  subservient to a tea plantation have been placed  beyond the ken of the Act.  Such land is not to  be taken in account either for calculating area of  surplus land or for calculating the area of land  

4 (2000) 3 SCC 40

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which a person may retain as falling within the  ceiling  limit.  We  fail  to  understand  how  a  restriction on transfer  of  such land is  going to  carry out any purpose of the Act.  We are fortified  in  taking  such view by  the  Constitution Bench  decision of this Court in Bhim Singhji v. Union of  India,  (1981)  1  SCC 166 whereby  sub-section  (1) of Section 27 of the Urban Land (Ceiling and  Regulation) Act, 1976 was struck down as invalid  insofar as it imposed a restriction on transfer of  any urban of urbanisable land with a building or  a portion only of such building which was within  the ceiling area. The provision impugned therein  imposed a restriction on transactions by way of  sale,  mortgage,  gift  or  lease of  vacant  land or  buildings  for  a  period  exceeding  ten  years,  or  otherwise for a period of ten years from the date  of  the commencement  of  the Act  even though  such  vacant  land,  with  or  without  a  building  thereon,  fell  within  the  ceiling  limits.  The  Constitution Bench held (by majority) that such  property  will  be  transferable  without  the  constraints  mentioned  in  sub-section  (1)  of  Section  27  of  the  said  Act.  Their  Lordships  opined  that  the  light  to  carry  on  a  business  guaranteed  under  Article  19(1)(g)  of  the  Constitution carried with it the right not to carry  on  business.   It  logically  followed,  as  a  necessary  corollary,  that  the  right  to  acquire,  hold  and  dispose  of  property  guaranteed  to  citizen under  Article  19(1)(f)  carried  with  it  the  right  not  to hold  any property.   It  is  difficult  to  appreciate how a citizen could be compelled to  own property against his will though he wanted  to alienate it and the land being within the ceiling  limits was outside the purview of Section 3 of the  Act and that being so the person owning the land  was not governed by any of the provisions of the  Act.   Reverting back to  the case at  hand,  the  learned  counsel  for  the  State  of  Himachal  Pradesh has not been able to satisfy us as to  how  such  a  prohibition  as  is  imposed  by  the  impugned  amendment  in  the  Rules  helps  in  achieving the object of the Act.

14.  We are also of the opinion that a delegated  

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power to legislate by making rules “for carrying  out  the  purposes  of  the  Act”  is  a  general  delegation without laying down any guidelines; it  cannot be so exercised as to bring into existence  substantive  rights  or  obligations  or  disabilities  not  contemplated  by  the  provisions  of  the  Act  itself.”

36) We  are,  therefore,  of  the  opinion  that  impugned  amendment,  

namely,  proviso  (ii)  to  sub-rule  (2)  of  Rule  9  introduced  vide  

Notification dated 05.07.1990 is unsustainable and bad in law as  

it exists in the present form and it has to be read down to mean  

that this clause would apply only when actual charges referred to  

in Clause (b) are not ascertainable.   

37) As  a  result,  judgment  of  the  High  Court  is  set  aside  and  the  

appeals are allowed in the aforesaid terms with no order as to  

cost.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; APRIL 16, 2015.

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