REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3138 OF 2018

ANIL KUMAR ANAND ….APPELLANT

Versus

COMMISSIONER OF CUSTOMS (PREVENTIVE) ….RESPONDENT

                                                        With

CIVIL APPEAL NO. 3139 OF 2018 CIVIL APPEAL NO. 3140 OF 2018

J U D G M E N T

SANJAY KISHAN KAUL, J.

1. The appellant in CA No.3140/2018, M/s. Diyas Mantra Lighting

Private Limited, as well as its Directors, are aggrieved by the impugned

order  dated  30.3.2017  of  the  Principal  Commissioner  of  Customs

(Preventive), New Delhi, as well as the order of the Customs, Excise &

Service Tax Appellate Tribunal (for short ‘CESTAT’) dated 6.11.2017, 1

dismissing the appeal and sustaining the order of the Original Authority,

revaluing the import consignments of the appellant,  numbering twenty

one, for the period from December, 2012 to January, 2015.

2. The  appellant  is  stated  to  be  a  regular  importer  of  electric

decorative lightings, and in the process of such imports, filed a bill of

entry on 21.1.2015 at the ICD, Tughlakabad, New Delhi, for clearance of

electric decorative lightings.  These import consignments were of brand

names  ‘Diyas’ and  ‘mAntra’,  and  the  enquiry  proceeded  to  ascertain

whether the goods had been correctly valued for the purposes of customs

duty.   On  completion  of  the  enquiry,  proceedings  were  initiated  for

revaluing the current import consignment, as well as past consignments

within the aforesaid window, apart from the proposal for confiscation of

goods and imposition of penalties under the provisions of the Customs

Act, 1962 (hereinafter referred to as the ‘said Act’).  A show cause notice

was issued under Section 28 of the said Act, providing for recovery of

duties not levied or short-levied or erroneously refunded, for any reason

other than collusion or any wilful mis-statement or suppression of facts.

In substance, there were really two grounds for the show cause notice:

(a)  that  the  appellant,  knowingly,  did  not  declare  the  brand  of

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imported  goods,  and  undervalued  the  same  with  the  intent  of

evading customs duty;  

(b)  that  the  appellant  had imported  the  branded goods  from its

related party, and had undervalued the same to evade customs duty.

3. The aforesaid proceedings, as noticed, resulted in an adverse order

against  the  appellant  by the authorities,  resulting in  the imposition of

differential duty of about Rs.9.53 lakhs for the consignment in question,

and around Rs.1.23 crores for the past consignments.  The goods were

held liable for confiscation, and were ordered to be released on payment

of redemption fine, with the levy of Rs.13 lakhs penalty imposed on the

Directors  of  the  appellant  (appellants  in  CA  No.3138/2018  &  CA

No.3139/2018).  A perusal of the order shows that the valuation of the

goods had been made under Rule 7 and Rule 9 of the Customs Valuation

(Determination  of  Value  of  Imported  Goods)  Rules,  2007 (hereinafter

referred to as the ‘said Rules’).  It is this very method of valuation which

is sought to be assailed by the appellants on a reasoning that the scheme

of the Rules has not been correctly understood and implemented by the

competent  authority.  In  order  to  appreciate  the  contention  of  the

appellants in the context of the Rules, we proceed to discuss the scheme

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of the Rules.

4. It is appropriate to first refer to the definition clauses under Rule 2,

where, the expressions ‘identical goods’ and ‘similar goods’ are defined

as under:

“2. Definitions.-

(1) In these rules, unless the context otherwise requires, -  

xxxx xxxx xxxx xxxx

(d) "identical goods" means imported goods –

(i) which are same in all respects, including physical characteristics, quality and reputation as the goods being valued except for minor differences in appearance that do not affect the value of the goods;

(ii) produced in the country in which the goods being valued were produced; and

(iii) produced by the same person who produced the goods, or where no such goods are available, goods produced by a different person, but shall not include imported goods where engineering, development work, art work, design work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on these imported goods free of charge or at  a reduced cost for use in connection with the production and sale for export of these imported goods;”

…. …. …. ….

“2. Definitions.-

(1) In these rules, unless the context otherwise requires, -  

xxxx xxxx xxxx xxxx

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(f) "similar goods" means imported goods –

(i) which although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions  and  to  be  commercially  interchangeable  with  the  goods being  valued  having  regard  to  the  quality,  reputation  and  the existence of trade mark;

(ii) produced in the country in which the goods being valued were produced; and

(iii)  produced by the same person who produced the goods being valued, or where no such goods are available, goods produced by a different  person,  but  shall  not  include  imported  goods  where engineering,  development  work,  art  work,  design  work,  plan  or sketch undertaken in India were completed directly or indirectly by the buyer on these imported goods free of charge or at a reduced cost for use in connection with the production and sale for export of these imported goods;”

5. Rule  3  provides  for  the  value  of  imported  goods  to  be  the

transaction value adjusted in accordance with the provisions of Rule 10.

In cases where buyers and sellers are related, as alleged in the present

case,  the transaction value can be accepted if  the relationship did not

influence the price.  We reproduce the relevant extracts as under:

“3. Determination of the method of valuation.-

xxxx xxxx xxxx xxxx

(3) (a) Where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not

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influence the price,

(b) In a sale between related persons, the transaction value shall be accepted, whenever the importer demonstrates that the declared value of  the  goods  being  valued,  closely  approximates  to  one  of  the following values ascertained at or about the same time.

(i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;

(ii) the deductive value for identical goods or similar goods;

(iii) the computed value for identical goods or similar goods:

Provided  that  in  applying  the  values  used  for  comparison,  due account  shall  be  taken  of  demonstrated  difference  in  commercial levels, quantity levels, adjustments in accordance with the provisions of rule 10 and cost incurred by the seller in sales in which he and the buyer are not related;

(c) substitute values shall not be established under the provisions of clause (b) of this sub-rule.

(4) if the value cannot be determined under the provisions of sub-rule (1), the value shall be determined by proceeding sequentially through rule 4 to 9”

  (emphasis supplied)

6. It is, thus, important to note that Rule 3(4) clearly provides that the

scheme of Rules 4 to 9 is to operate “sequentially”.

7. Rule 4 deals with the transactional value of identical goods, which

reads as under:

“4. Transaction value of identical goods. –

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(1)(a)Subject  to  the provisions  of  rule  3,  the  value of  imported goods shall  be the transaction value of  identical  goods sold for export to India and imported at or about the same time as the goods being valued;

Provided that such transaction value shall not be the value of the goods provisionally assessed under section 18 of the Customs Act, 1962.

(b) In applying this rule, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the value of imported goods.

(c) Where no sale referred to in clause (b) of sub-rule (1), is found, the  transaction  value  of  identical  goods  sold  at  a  different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity  or  both,  shall  be  used,  provided that  such  adjustments shall be made on the basis of demonstrated evidence which clearly establishes  the  reasonableness  and  accuracy  of  the  adjustments, whether such adjustment leads to an increase or decrease in the value.

(2) Where the costs and charges referred to in sub-rule (2) of rule 10 of these rules are included in the transaction value of identical goods,  an  adjustment  shall  be  made,  if  there  are  significant differences  in  such  costs  and  charges  between  the  goods  being valued and the identical goods in question arising from differences in distances and means of transport.

(3)  In applying this  rule,  if  more than one transaction value of identical goods is found, the lowest such value shall  be used to determine the value of imported goods.”

8. The aforesaid Rule envisages that the transaction value of identical

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goods imported at the same time as the goods valued, can be applied.  It

is,  of  course,  clarified  that  they  should  be  substantially  of  the  same

quantity, as there can be variation in pricing, depending on the size of the

consignment.  In case identical goods sold are not found in respect of the

same quantity, different quantities of identical goods can be taken into

account, with adjustments made on the basis of demonstrated evidence

which  clearly  establishes  the  reasonableness  and  accuracies  of

adjustment.   The  difference  in  distance,  having  implication  on  the

transport cost, is another factor mentioned under the Rules.  It is lastly

clarified that the lowest of such value is to be used to determine the value

of the goods.

9. On identical goods not being available, we have to turn to Rule 5,

which is transaction value of similar goods.  Rule 5 reads as under:

“5. Transaction value of similar goods.- (1)Subject to the provisions of rule 3, the value of imported goods shall be the transaction value of similar goods sold for export to India and imported at or about the same time as the goods being valued:

Provided that  such transaction value shall  not  be the value of  the goods provisionally assessed under section 18 of the Customs Act, 1962.

(2) The provisions of clauses (b) and (c) of sub-rule (1), sub-rule (2) and  sub-rule  (3),  of  rule  4  shall,  mutatis  mutandis,  also  apply  in respect of similar goods.”

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10. In  case  determination  is  not  possible  under  Rules  3  to  5,  the

determination would have to be made under the provisions of Rule 7 or

Rule 8, as per Rule 6, provided that, at the request of the importer, the

order of application of Rules 7 and 8 could be reversed.  Rule 7 refers to

Deductive Value, while Rule 8 refers to Computed Value.  The relevant

portions of Rule 7 & Rule 8 read as under:

“7. Deductive value.- (1) Subject to the provisions of rule 3, if the goods being valued or identical  or  similar  imported  goods  are  sold  in  India,  in  the condition as imported at or about the time at which the declaration for  determination  of  value  is  presented,  the  value  of  imported goods shall be based on the unit price at which the imported goods or  identical  or  similar  imported  goods  are  sold  in  the  greatest aggregate quantity to persons who are not related to the sellers in India, subject to the following deductions : -

xxxx xxxx xxxx xxxx

(2) If neither the imported goods nor identical nor similar imported goods are sold at  or  about the same time of  importation of  the goods  being valued,  the  value  of  imported  goods  shall,  subject otherwise to the provisions of sub-rule (1), be based on the unit price at which the imported goods or identical or similar imported goods are sold in India, at the earliest date after importation but before the expiry of ninety days after such importation.   (3)  (a)  If  neither  the  imported  goods  nor  identical  nor  similar imported goods are sold in India in the condition as imported, then, the value shall be based on the unit price at which the imported goods, after further processing, are sold in the greatest aggregate quantity to persons who are not related to the seller in India.

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(b)  In such determination,  due allowance shall  be made for  the value  added  by  processing  and  the  deductions  provided  for  in items (i) to (iii) of sub-rule (1).”

“8. Computed value.- Subject to the provisions of rule 3, the value of imported goods shall be based on a computed value, which shall consist of the sum of:-

(a)  the  cost  or  value  of  materials  and  fabrication  or  other processing employed in producing the imported goods;

(b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being  valued  which  are  made  by  producers  in  the  country  of exportation for export to India;

(c) the cost or value of all other expenses under sub-rule (2) of rule 10.”

11.  In  order  to  complete  the  reference  to  the Rules,  for  their

understanding, we refer also to Rule 9, which reads as under:

“9. Residual method.-

(1) Subject to the provisions of rule 3, where the value of imported goods  cannot  be  determined  under  the  provisions  of  any  of  the preceding  rules,  the  value  shall  be  determined  using  reasonable means consistent with the principles and general provisions of these rules and on the basis of data available in India;

Provided that the value so determined shall not exceed 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,  when the seller or buyer has no interest  in the business of other and price is the sole consideration for the sale or

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offer for sale.

(2) No value shall be determined under the provisions of this rule 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 cost of production other than computed values which have been determined for identical or similar goods in accordance with the provisions of rule 8;

(v) the price of the goods for the export to a country other than India;

(vi) minimum customs values; or

(vii) arbitrary or fictitious values.”

12. In  the  context  of  the  aforesaid,  it  is  the  submission  of  learned

counsel for the appellant that the factual matrix of the present case shows

that the twenty one consignments (including the one directly in question)

were not imported from one source, but three different sources.  Out of

the  three  different  sources,  the  competent  authority  came  to  the

conclusion that  the  import  from United  Kingdom,  from M/s.  Inspired

Lighting Limited, is liable to be construed as import from a related party.

Though this is sought to be disputed by the appellants, but even assuming

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that to be correct, it was contended that there were imports available from

two other sources, from China and Spain.  These suppliers are not found

to be related parties.   Thus,  the pricing from these two sources,  with

requisite  adjustments  for  the  distance  or  any  other  parameter,  could

always be taken as the transactional value for all the goods forming part

of the twenty one consignments.

13. A further explanation offered on behalf of the appellants, in respect

of  the  second  aspect,  i.e.,  non-declaration  of  the  brand  ‘Diyas’ and

‘mAntra’, pertaining to the consignments in question, was that the brands

were not so well-known as to make a difference to the value.  In fact, for

the import from China, the brand ‘Diyas’ had been clearly mentioned.

The consignments had been cleared after physical verification.  In effect,

the plea was that the two brands really do not attract any intrinsic market

value.

14. It  is  a submission that the sequential application of Rules,  thus,

required the valuation to be done in accordance with Rules 3 to 5, before

proceeding to the subsequent Rules, and it is not a case where valuation

was not possible under Rules 3 to 5.

15. As an alternative submission, it was also pleaded that even where

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identical or similar goods are not available, data is available, of the value

of  the  goods  in  the  National  Import  Database  (‘NIDB’)  or  the

Department of Valuation database (‘DOV’).

16. In  a  nutshell,  the  submission  really  is  that  the  valuation  was

possible on the basis of import from the other two countries if the brand

was to be given some significance, and in the alternative, if the plea was

accepted  that  the  brand  was  not  of  any  significance,  then  the  other

imports from the U.K. of the same kind of lights could be taken into

consideration.  It was clarified that the endeavour was not to compare

oranges and apples, but to compare apples of a particular variety with the

apples of the same variety, i.e.,  if  it  was one lamp light,  it  was to be

compared with one lamp light.  In this behalf data was available.

17. We may notice there were certain other pleas advanced, including

the  plea  of  limitation,  but  that  is  not  of  much  significance  for  re-

determination, on account of the conclusion we are reaching hereinafter.

18. We  must  first  take  note  of  the  fact  that  electrical  decorative

lightings, normally, are not highly branded products, exceptions apart.  It

does appear that even though the imports were under the brand names

‘Diyas’ and ‘mAntra’, they were not trademarks of such nature as would

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make them an exclusive product.  It also appears that there has been some

mix up in the understanding of a trademark protection, as the same has

been  compared  with  ‘patented  goods’.   Thus,  data  was  certainly

available, which could have been utilised to obtain the pricing for imports

from the U.K., of identical goods or similar goods.

19. The irony is that if the competent authority thought that these were

goods where trademark was of significance, it could not simultaneously

have  ignored  the  imports  under  the  same  trademark,  from  different

countries, where there were no related parties.   Naturally, there would

have to be made adjustments for the distance from which the import was

made, or the size of the consignment, if applicable, as set out in Rules 3

to 5.  There was really no occasion to straightaway proceed to determine

the transactional value by relying on Rules 7 to 9.  We have no doubt this

principle  of  sequential  application  would  apply,  especially  in  view of

sub-Rule (4) of Rule 3, which provides that there has to be a sequential

implementation of the Rules, i.e.,  that Rules 3 to 5 would have to be

exhausted first, and only in the eventuality of an inability to apply the

Rules would the assessing authority proceed to impose Rules 7 to 9.

20. Learned counsel for the respondent did endeavour to persuade us

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that  since  there  were  concurrent  findings,  this  Court  ought  not  to

interfere,  given  the  scope  of  appeal  before  this  Court  under  Section

130E(b) of the said Act,  and referred to the judgment in  Collector of

Customs, Bombay v. Swastic Woollens (P) Ltd. & Others  1,  where it was

observed as under: “9. ...... The decision of such a question of fact must be arrived at without ignoring the material and relevant facts and bearing in mind the correct legal principles. Judged by these yardsticks the finding of the Tribunal in this case is unassailable. We are, however, of the view that if a fact finding authority comes to a conclusion within the above parameters honestly and bona fide, the fact that another authority be it  the  Supreme  Court  or  the  High  Court  may  have  a  different perspective of that question, in our opinion, is no ground to interfere with that finding in an appeal from such a finding. In the new scheme of things, the Tribunals have been entrusted with the authority and the jurisdiction to decide the questions involving determination of the rate  of  duty  of  excise  or  to  the  value  of  goods  for  purposes  of assessment. An appeal has been provided to this Court to oversee that the subordinate tribunals act within the law. Merely because another view might be possible by a competent court of law is no ground for interference under Section 130-E of the Act though in relation to the rate  of  duty of  customs or  to  the  value  of  goods  for  purposes  of assessment,  the amplitude of  appeal  is  unlimited.  But  because the jurisdiction is unlimited, there is inherent limitation imposed in such appeals.  The  Tribunal  has  not  deviated  from  the  path  of  correct principle and has considered all the relevant factors. If the Tribunal has acted bona fide with the natural justice by a speaking order, in our opinion, even if superior court feels that another view is possible, that is no ground for substitution of that view in exercise of power under clause (b) of Section 130-E of the Act.”

21. We are,  however,  not persuaded by this argument because there

appears  to  be  a  fundamental  mistake  committed  in  the  manner  of

1 1988 Suppl. SCC 796

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implementation of the statutory Rules.  Once the statutory Rules exist and

provide  for  sequential  implementation,  the  assessing  authority  has  no

option but to proceed in accordance with those Rules, in that manner.  We

did put this squarely to learned senior counsel for the respondent, who

really could not persuade us, or give a satisfactory answer as to why the

concerned authority chose to ignore, in the given facts of the case, Rules

3 to 5, and did not proceed “sequentially”.

22. The result of the aforesaid discussion is that both, the order of the

Principal Commissioner of Customs (Preventive), Customs, New Delhi,

dated 30.3.2017, as well as the order of the CESTAT, dated 6.11.2017, are

liable  to  be  set  aside,  and  the  matter  remitted  back  to  the  Principal

Commissioner of Customs (Preventive), Customs, New Delhi, to proceed

afresh with the matter in accordance with our observations aforesaid, and

thus,  it  is Rules 3 to 5 which would have to be applied first,  as it  is

provided for the Rules to apply “sequentially”.

23. We make it  clear  that  since  we have  not  gone into other  pleas

sought  to  be  raised  by  the  appellant,  all  pleas  can  be  raised  by  the

appellant, as are available to the appellant in law, and the same will be

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dealt with on merits.

24. The appeals are accordingly allowed, leaving the parties to bear

their own costs.

...……………………………J. [Sanjay Kishan Kaul]

...……………………………J. [Hemant Gupta]

New Delhi. April 22, 2019.

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