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NON-REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3748-3751 OF 2007

COMMISSIONER OF CUSTOMS (SEA), CHENNAI ...APPELLANT VERSUS

M/S. NATIONAL LAMINATION INDUSTRIES &  ANR.

...RESPONDENTS

J U D G M E N T

A.K. SIKRI, J.

The  respondent/assessee  herein  imported  sixteen  consignments of secondary/defective CRGO Electrical Steel in  the form of Sheets, Coils, Strips and Cuttings, for which it  filed different Bills of Entry.  The unit price of the goods  was  declared  as  US$  250  Per  Metric  Ton  (PMT)  for  CRGO  Electrical Steel Strips and US$ 300 PMT in respect of other  variety of goods.  The Directorate of Revenue Intelligence,  Chennai Zonal Unit, received some information to the effect  that the assessee was undervaluing the goods and violating the  EXIM  Policy  as  well  as  conditions  of  Customs  Exemption  Notifications.   The  goods  were,  thus,  examined  and  seized  under reasonable belief that they were undervalued.  Four show  cause notices were issued.  In the show cause notice dated  26.11.2001,  it  was  alleged  that  the  country  of  origin  in  respect of the said goods imported were USA, Japan, U.K.,

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Russia, Europe etc.  and the value of these goods assessed  ranging between US$ 475 (C&F) to US$ 750 PMT (C&F).  On that  basis, the show cause notice proceeded as under:

“15.   In  terms  of  Rule  3  of  the  Customs  Valuation  Rules,  1988,  the  value  for  the  purpose of assessment shall be the transaction  value of the goods under Rule 4 of the said  Rules,  ibid,  the  transaction  value  of  the  imported goods shall be the price actually paid  or payable for the goods when sold for export  to  Indian  adjusted  in  accordance  with  the  provisions of Rule 9 of these Rules.  Section  14 of the Customs Act, 1962 inter alia, states  that “... 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 ordinarily sold,  or offered for sale...”.  In the instant case,  from  the  facts  stated  above  and  the  tables  showing  the  comparative  declared/assessed  values of other importers as well as M/s. Alfa  &  National  for  import  of  Secondary/Defective  CRGO through the Port of Mumbai / Nhava Sheva  as against the values declared by M/s. Alfa for  their imports (currently under investigation)  through Port of Chennai, have not declared are  price/ value at which such or like goods are  ordinarily  sold  or  offered  for  sale  as  contemplated under Section 14 of the Customs  Act,  1962  read  with  Rule  4  of  the  Customs  Valuation Rules, 1988 in as much as they have  declared much lower values for their imports  through the Port of Chennai as compared to the  values declared by them and other importers for  imports  through  Mumbai/Nhava  Sheva  for  their  goods.  The values declared by M/s. Alfa for  their imports through Ports other than Chennai  is very much in line with the values declared  by the other Importers  through the above said  Ports,  and  thus  it  appears  that  the  prices  declared  by  M/s.  Alfa,  their  sister  concern  M/s. National as well as the other Importers at  the  above  said  Ports  are  to  be  the  values/prices  at  which  such  goods  are  ordinarily sold or offered for sale.”  

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2) It is clear from the above that the main ground on the basis  of which undervaluation of the goods was alleged was that the  assessee had imported the same material declaring higher price  which  was  cleared  at  Mumbai  port.   Order-in-Original  was  passed affirming the said show cause notice and the demand of  differential duty, including interest contained therein.  The  assessee had taken up the defence that the goods imported at  Mumbai port at a higher value were of better quality and that  they  had  the  warranty  of  the  suppliers.   In  support,  the  assessee had filed photographs of coils, strips and cuttings  and also full description and the sizes/specifications of the  goods imported through Chennai port to substantiate the claim  that these goods were of inferior quality compared to those  imported  through  Mumbai  port.   However,  this  defence  was  brushed aside by the Adjudicating Authority on the ground that  the plea was not supported by any documentary evidence.   

3) The  assessee  filed  appeal  against  this  order  before  the  Customs  Excise  &  Service  Tax  Appellate  Tribunal  (in  short  'CESTAT').   The  CESTAT,  vide  impugned  decision  dated  18.07.2006, set aside the order of the Adjudicating Authority,  by accepting the plea of the assessee and holding that the  declared values representing the true and correct transaction  value  under  Rule  4  of  the  Customs  Valuation  Rules  and,  therefore, was required to be accepted.  

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4) According to the Tribunal, the Commissioner had treated the  goods of higher value on the basis of statements of the two  partners of the assessee in respect of goods imported by them  in Mumbai wherein the goods were assessed at values ranging  from US$ 485 to US$ 600 PMT.  However, on going through the  statement  of  these  two  partners,  the  Tribunal  purportedly  found that there was no such admission of undervaluation made  by them on their part, which was made the basis of the Order- in-Original passed by the Commissioner.  The Tribunal, finding  fault with the Order-in-Original, gave following reasons:

“11.  We also find substance in the contention  that there is a variation between the prices of  goods imported through Mumbai Port and through  Chennai Port for the reason that, while the  goods imported at Mumbai were under contract  containing a guarantee clause, contracts under  which the Chennai imports took place had no  such clause.

12.  There is yet another reason for rejecting  loading and that is while applying Rule 8 of  the  Customs  Valuation  Rules,  for  determining  the value of the goods the Commissioner has  adopted Rule 8 read with Rules 5 and 6, which  deal with the valuation of similar/ identical  goods, in the face of categories averment in  the show cause notice, and his finding in the  impugned order, that there were no imports of  similar or identical goods, elsewhere, so as to  resort  to  valuation  under  Rule  5  or  6,  specially  when  the  material  was  secondary/defective in nature.  In other words,  while ruling out Rules 5 and 6, what he has  done in fact, is to adopt the value of Mumbai  imports  of  the  appellants,  which  cannot  be  sustained  for  the  reason  that  admittedly  no  similar or identical goods are found to have  been  contemporaneously  imported  elsewhere  in  India.   Valuation  under  Rule  8  is  also  not  sustainable  for  the  reason  that  the  rule

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provides that reasonable means for determining  the value read with Customs Valuation Rules and  Section 14(1) of the Customs Act have to be  adopted  and  as  per  Section  14(1),  time  and  place  of  delivery  is  very  relevant  and,  therefore,  the  Commissioner  has  erred  in  enhancing the values on the basis of imports at  a place other than the price of delivery of  goods in question, by adopting Mumbai values  for Chennai imports.”

5) Contesting the aforesaid reasons and rationale given by the  Tribunal,  learned  counsel  for  the  appellant/Department  referred to the averments and allegations made in the show  cause  notice  which,  according  to  him,  were  based  on  the  investigations carried out in the matter, and clearly depicted  that the assessee had shown the value of the same goods in  question at a lesser price in the Bills of Entries filed by  the assessee.  He pointed out that on the basis of a specific  information that the assessee and their sister concern M/s.  Alfa  Laminations,  Plot  No.  B-8-9,  IODC  Industrial  Area,  Ringanwada,  Daman.  396210  are  importing  consignments  of  Secondary  Defective  ARGO  Electrical  Steel  in  the  form  of  Sheets  in  Coils/Steel  Sheets/  Sheets  in  interleaved  coils/Steel Strips in cuttings/used an old Strips/Sheets in  Coils through the port of Chennai by grossly undervaluing,  violating  the  EXIM  Policy  and  the  conditions  of  Customs  Exemption  Notification,  investigation  was  initiated  by  the  officers of the Directorate of Revenue Intelligence, Chennai  Zonal Unit.  Investigation conducted revealed that the above  said goods, when imported through Mumbai, Nhava Sheva port and

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ICD  Muland,  were  being  cleared  at  declared/assessed  values  ranging  from  US$  485  per  MT  (CIF)  to  US$  750  PMT  (CIF),  depending upon the nature of the product, whereas the goods  were being cleared at declared/assessed values ranging from  US$ 210 to US$ 300 PMT CIF for import through Chennai port.  The  learned  senior  counsel  also  argued  that  the  Tribunal  wrongly recorded that there was no admission in the statements  of the partners.  He pointed out that Mr. Mahendra Parekh, one  of  the  Partners  of  M/s.  National  Lamination  specifically  admitted that they were importing through the port of Chennai  since the values assessed in Mumbai were very much higher and  agreed  to  pay  the  duty  differentials.   Pursuant  to  the  initiation  of  the  investigations  by  the  DRI,  the  importer  reduced the imports of the impugned items through the port of  Chennai and whatever clearances were effected the value was  declared  at  US$  485  PMT  (CIF)  for  purposes  of  assessment.  Based  on  the  above  investigation,  show  cause  notices  were  issued to the importers/assessee asking them to show cause as  to why the values declared by them in their Bills of Entry  should not be rejected and the same be refixed under the 'Best  Judgment' method in terms of Rule 8 of the Valuation Rules,  1988 and the differential duty demanded apart from proposing  confiscation of the goods and imposition of penalty.   

6) Learned  counsel  also  drew  our  attention  to  the  Order-in- Original wherein the evidence collected against the assessee

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was discussed by the Adjudicating Authority in the following  manner:

“I have perused the documents and the list of  Bills  of  Entry  of  other  importers  through  Chennai  port  evidencing  import  of  CRGO  electrical  steel  at  about  US$  250-350  same  range as that of the importers.  I find that  there are 125 Bills of Entry in all filed by  M/s.  National  Lamination  Industries  and  M/s.  Alfa Laminations covered under four show cause  notices.   Their  main  suppliers  of  CRGO  electrical steel at Chennai as well as Mumbai  and  Nhava  Sheva  ports  were  M/s.  J.  Pearson  International Inc, USA, M/s. Electrical Steel  International,  M/s.  Trans  Metal  Gmbh,  M/s.  Orbit Metals Gmbh, M/s. Gold Arrow Metals, USA,  ARB Metals, USA, Norek Trading etc.  This list  submitted  by  the  importers  in  respect  of  imports  by  others  indicate  supplies  made  by  M/s. J. Peason International in one case, M/s.  Oribti Metals in 3 cases and M/s. Transmetal in  6 instances wherein the values were shown in  the range of US$ 280 to US$ 350 PMT.  On the  other hand, the investigation brought out much  clear and many more evidences of imports by  others both through Chennai and Mumbai ports  indicating much higher prices.  I find that the  investigation  clearly  brought  out  that  other  importers through Mumbai/Nhava Sheva Ports also  imported secondary/defective steel cuttings and  strips  at  US$  485  PMT  or  more.   Thus,  the  evidences were overwhelming in support of the  argument  that  the  goods  imported  through  Chennai port where undervalued.  Hence, I am  unable  to  accept  the  contention  that  the  imports made by others through Chennai port at  the  same  price  as  the  importers  should  be  accepted  for  assessment.   Such  imports  were  stray cases of lower values being adopted and  in any case cannot form the basis of comparison  when clear evidences are available to arrive  the conclusion that the correct value of the  goods was more than US$ 485 PMT when imported  in any form.”   

7) Another  significant  material  which  was  referred  to  by  the

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learned  counsel  is  the  statement  of  the  partners  of  the  assessee  wherein  it  was  admitted  that  the  prices/values  declared by the assessee for import through Chennai port for  similar items was much less compared to the value declared at  Mumbai port.  It was also argued that keeping in view the  clearances at Mumbai port by the assessee themselves, minimum  value of the various clearances was taken, which could not be  faulted with.   

8) After giving our due consideration to the submissions with  reference to the records, we are of the firm opinion that the  impugned judgment of the Tribunal is unsustainable.  In fact,  the Tribunal has not only misinterpreted the statements of two  partners of the assessee, it has also sidetracked and ignored  other relevant material.  We have gone through the statements  of the two partners of the assessee and find that there is a  categorical  admission  on  their  part  that  the  prices/values  declared by them for imports through Chennai port for similar  items was much less compared to the values declared at Mumbai  port.  At this juncture itself, it would also be pertinent to  point out that while recording the statement of Mr. Nilesh  Parekh,  partner  of  the  assessee  where  he  admitted  the  aforesaid  facts,  he  also  stated  that  the  exact  reason  for  declaring different values, even when the goods were similar,  would be explained by his elder brother Mr. Mahendra Parekh,  who looked after these imports.  The justification which was

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ultimately sought to be given was that the goods imported at  Chennai port were defective in nature which was the reason and  for this reason, these goods were brought at lesser price.  It  was also explained that though there was guarantee clause in  the  contracts  in  respect  of  goods  imported  at  Mumbai,  no  similar  provision  was  there  for  the  products  imported  and  cleared at Chennai port.  However, we find that assessee has  not substantiated the aforesaid plea by producing the contract  in respect of Mumbai port and Chennai port.  In the absence  thereof, it was not permissible for the Tribunal to accept  this plea of the assessee.   

9) There  is  yet  another  material  circumstance  which  is  specifically taken note of by the Adjudicating Authority but  glossed over by the Tribunal.  The factory of the assessee is  at Daman and, thus, Mumbai port was much closer.  On this  basis,  specific  query  was  put  to  the  assessee  as  to  why  certain  imports  were  made  through  Chennai  port  instead  of  Mumbai port.  However, no satisfactory reply was given to this  question except making a bald averment that landing charges  etc. were much less compared to rates at Mumbai which does not  inspire  any  confidence,  that  too  in  the  absence  of  any  material  given  by  the  assessee  in  support  of  this  plea.  Insofar as the plea that goods which were cleared at Chennai  port were defective in nature and, therefore, were not similar  or  identical  goods,  the  Tribunal  has  only  gone  by  the

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photographs  that  were  produced.   Here  also,  we  find  that  approach  of  the  Tribunal  is  faulty  and  the  Commissioner  rightly observed that these photographs did not conclusively  establish that goods in such form were not imported through  Mumbai  port.   It  was  also  not  clear  when  and  how  the  photographs depicting goods cleared through Mumbai port were  taken  in  order  to  compare  with  the  goods  cleared  through  Chennai port.  Above all, as already pointed out above, no  documentary evidence was produced by the assessee to support  the  plea  that  the  goods  at  Chennai  port  were  inferior  in  quality than the goods imported and cleared at Mumbai port and  there was no warranty clause of the goods imported at Chennai.

10) The  Tribunal  also  erred  in  holding  that  the  Commissioner  wrongly applied Rule 8 of the Custom Valuation Rules. Order- in-Original shows that it had taken into evidence 55 Bills of  Entry pertaining to goods imported and cleared at Mumbai port  which showed price ranging from US$ 485 PMT to US$ 600 PMT.  The  goods  imported  by  the  assessee  which  were  cleared  at  Mumbai port were found to be similar in nature.  These imports  were  by  the  assessee  itself.   Therefore,  price  declared  therein could be made the basis of valuation.  Minimum price  was  taken  as  the  transaction  value.   It  was  clearly  permissible  under  Rule  8  read  with  Rules  5  and  6  of  the  Valuation Rules.   

11) We, thus, allow the appeals, thereby setting aside the order

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of the Tribunal and restoring the Order-in-Original passed by  the Commissioner.

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

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

NEW DELHI; OCTOBER 07, 2015.