REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2521 OF 2006

COMMISSIONER OF CUSTOMS,  VISHAKHAPATNAM

— APPELLANT

VERSUS

M/S AGGARWAL INDUSTRIES LTD. — RESPONDENT

WITH  CIVIL APPEAL NO. 1699 OF 2006 CIVIL APPEAL NO. 2129 OF 2006 CIVIL APPEAL NO. 2114 OF 2006 CIVIL APPEAL NO. 2518 OF 2006 CIVIL APPEAL NO. 2519 OF 2006 CIVIL APPEAL NO. 2520 OF 2006 CIVIL APPEAL NO. 2522 OF 2006 CIVIL APPEAL NO. 2523 OF 2006 CIVIL APPEAL NO. 2853 OF 2006 CIVIL APPEAL NO. 3197 OF 2006 CIVIL APPEAL NO. 3487 OF 2006 CIVIL APPEAL NO. 3564 OF 2006

AND CIVIL APPEAL NO. 5006 OF 2007

JUDGMENT

D.K. JAIN, J.:

1. This  batch  of  appeals  arises  out  of  final  orders  dated  4 th  

August,  2005  in  Appeal  No.  C/139-140/02;  C/209/02;  

C/288/03;  C/291-93/03;  C/299/03;  C/243/02;  C/264/02  &

C/313/03; 5th August, 2005 in Appeal No. C/265/03, 22nd June  

2005  in  Appeal  No.  C/213/02  and  29th December,  2006  in  

Appeal  No.  C/300/03  passed  by  the  Customs,  Excise  &  

Service Tax Appellant Tribunal South Zonal Bench, Bangalore  

(for  short  “the  Tribunal”).  By  the  impugned  orders,  the  

Tribunal  has  allowed  the  appeals  preferred  by  the  

respondents-importers.  

2. Since all the appeals involve a common question of law, these  

are being disposed of by this common judgment.  However,  

in  order to appreciate the controversy,  the facts  emerging  

from C.A. No. 2521 of  2006, which was treated as the lead  

case, are being adverted to.  These are as follows:

On 26th June 2001, the respondent entered into a contract  

with  foreign  suppliers  viz:  M/s  Wilmar  Trading  Pvt.  Ltd.,  

Singapore, for import of 500 Metric tons of crude sunflower seed  

oil at the rate of US $ 435 CIF/Metric ton.  Under the contract, the  

consignment was to be shipped in the month of July 2001 but as  

the mutually  agreed time for  shipment  was extended to  ‘Mid  

August  2001’  vide Addendum dated 31st July 2001,  the goods  

were actually shipped on 5th August 2001. On filing of the bill of  

entry,  the  goods  were  assessed  provisionally,  pending  

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verification of contemporary price, the original documents and  

the test report from the government chemical examiner.  

3. On  verification  of  the  documents  filed,  the  Adjudicating  

Authority  noticed  certain  discrepancies  in  the  shipment  

period.   Accordingly,  on  5th October  2001,  he  issued  a  

demand  letter  to  the  respondent  under  Rule  10A  of  the  

Customs  Valuation  (Determination  of  Price  of  Imported  

Goods) Rules, 1988 (for short “CVR 1988”) to show cause as  

to why the contract  price be not rejected and the Customs  

duty be not determined by adopting contemporary invoice  

price on which other importers had entered into contract for  

supply  of  the  same  item  either  with  the  same  supplier  or  

other suppliers in the same country.  Since the imputation in  

the  show  cause  notice  has  a  material  bearing  on  the  

determination of the issue involved, the relevant portion of  

the notice is extracted below:

“As per  the condition incorporated in the contract  dated 26.6.2001, the goods are to be shipped during  the  month of  July  2001.   Whereas  the  goods were  shipped after expiry of the Shipment period i.e. on  5.8.01.   By  the time of  actual  shipment  i.e.  during  August 2001, the international market prices of the  Crude  Sunflower  Seed  Oil  (Edible  Grade)  have  increased drastically.   Hence,  the contract  price is  not  acceptable in terms of  Section 14(1)  read with  

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Rule 4 of Customs Valuation (Determination of Price  of Imported Goods) Rules, 1988.”

4. In  short,  the  case  of  the  revenue  was  that  when  actual  

shipment took place, after the expiry of the original shipment  

period,  the  international  market  price  of  crude  sunflower  

seed  oil  had  increased  drastically,  and,  therefore,  the  

contract  price  could  not  be  accepted  as  the  ‘transaction  

value’ in terms of Rule 4 of CVR 1988.  

5. In response, the plea of the respondent was that the contract  

envisaged extension of  time for  shipment but  the exporter  

was bound to supply the oil at the agreed price despite delay  

of one month in shipment and further that in the absence of  

any evidence to show that they had paid or agreed to pay an  

extra  price  to  the  exporter  for  the  consignment,  the  

transaction value had to be the invoice price.  However, the  

said plea did not find favour with the Adjudicating Authority.  

Accordingly,  he  confirmed  the  demand  indicated  in  the  

demand  letter  and  ordered  the  respondent  to  pay  the  

differential amount of duty.  Respondent’s first appeal to the  

Commissioner (Appeals) was unsuccessful.

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6.  Being  dissatisfied  with  the  order  of  the  Commissioner  

(Appeals), the respondent took the matter in further appeal to  

the  Tribunal.   As  aforestated,  by  the  impugned  common  

order in the cases before us, the Tribunal has set aside the  

order of the Commissioner (Appeals) and held that there was  

no  basis  for  demand  of  differential  duty  by  ignoring  the  

invoice price.  Placing reliance on the decision of this Court  

in  Eicher  Tractors  Ltd.,  Haryana  Vs.  Commissioner  of   

Customs, Mumbai1, the Tribunal held as follows:

“In the above mentioned case,  the Supreme Court  has  held  that  in  the  absence  of  ‘special  circumstances,  price  of  imported  goods  is  to  be  determined  under  Section  14(1)(A)  in  accordance  with the Customs Valuation Rules, 1988.  The ‘special  circumstances’  have been statutorily  particularized  in Rule 4(2) and in the absence of these exceptions, it  is mandatory of Customs to accept the price actually  paid  or  payable  for  the  goods  in  the  particular  transaction.   In  all  the  cases,  we  find  that  the  transaction  value  has  been  arrived  at  purely  on  commercial considerations based on contracts.  The  supplier, in order to honour the contracts, supplied  the goods at the contracted price.  There is also no  allegation  that  the  appellants  paid  to  the  supplier  more  than  the  contracted  value.   Under  these  circumstances,  there  are  actually  no  grounds  to  reject the transaction value.”

7.  Hence these appeals by the revenue.

1 2000 (122) E.L.T. 321 (SC) : (2001) 1 SCC 315

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8. Mr.  R.P.  Bhatt,  learned  senior  counsel,  appearing  for  the  

revenue  submitted  that  in  the  light  of  the  invoices,  in  

possession  of  the  adjudicating  authority,  showing  

contemporaneous import of the crude sunflower seed oil at  

much higher price, the adjudicating authority was justified in  

invoking Rule 10A of CVR 1988 and in rejecting the invoice  

price declared by the respondent-importer.   It  was argued  

that the contemporary invoices clearly indicated that at the  

time of actual shipment of the goods, the international market  

price was much higher and therefore, the transaction value  

declared by the respondent could not be accepted in terms  

of Rule 4 of CVR 1988.  Placing reliance on the decision of this  

Court  in  Commissioner  of  Customs  (Gen),  Mumbai  Vs.  

Abdulla Koyloth2, learned senior counsel contended that in  

the light of cogent contemporaneous imports, showing much  

higher  market  price  of  identical  goods  as  on  the  date  of  

shipment  of  goods,  the  transaction  value  had been  rightly  

rejected in terms of Section 14(1) read with Rule 4(2) of CVR  

1988.

9. Per  contra,  Mr.  Shyam  Divan,  learned  senior  counsel,  

appearing for the respondent contended that in the absence  2 (2010) 13 SCC 473

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of any material even remotely showing that the market price  

of  crude sunflower seed oil  at  the time of  execution of the  

contract  by  the  respondent  was  higher  than  what  was  

recorded in  the  invoice,  the  adjudicating authority  had no  

reason  to  doubt  the  genuineness  or  the  accuracy  of  the  

declared value, so as to attract Rule 10A of CVR 1988.  It was  

pointed  out  that  under  clause  7  of  the  special  conditions  

under the contract, entered into between the respondent and  

the foreign supplier, the respondent was obliged to extend  

the period of shipment and therefore, addendum dated 31st  

July, 2001 was signed, whereunder, except for the change in  

the  period  of  shipment  all  other  conditions,  including  the  

price of crude sunflower seed oil  remained unchanged.  It  

was argued that in the absence of any material  brought on  

record  by  the  revenue  indicating  that  as  on  the  date  of  

contract,  i.e.  26th June 2001,  the market  price of  the crude  

sunflower seed oil was more than the contracted price, none  

of the special circumstances enumerated in Sub-rule 2 of the  

Rule 4 of CVR 1988 were attracted and thus, the revenue was  

bound to accept the invoice price as the transaction value.

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10. Before evaluating the rival submissions, it would be useful  

to have a bird’s eye view of the relevant provisions.  Section  

14 of the Customs Act, 1962 (for short “the Act”), in so far as it  

is relevant for the present appeals, reads as follows:

“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  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 the seller  and the buyer have no interest in the business  of  each  other  and  the  price  is  the  sole  consideration for the sale or offer for sale:

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  Central  Government  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  

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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.

……………………………………………………………… ……………………………………………………………...”

According to Rule 2(1)(f) of CVR 1988 “transaction value”  

means the value determined in accordance with Rule 4 of CVR  

1988.  The relevant portion of Rule 4 reads as follows:-

“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 —

a. the sale is in the ordinary course of trade under  fully competitive conditions;

b. the sale does not involve any abnormal discount  or  reduction  from  the  ordinary  competitive  price;

c. the  sale  does  not  involve  special  discounts  limited to exclusive agents;

d. objective and quantifiable data exist with regard  to the adjustments required to be made, under  the provisions of rule 9, to the transaction value;

e. there are no restrictions as to the disposition or  use  of  the  goods  by  the  buyer  other  than  restrictions which —

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i.  are imposed or required by law or by the public  authorities in India;

or

ii.  limit the geographical  area in which the goods  may be resold; or

iii. do not substantially affect the value of the goods; f. the sale or price is not subject to same condition  

or  consideration  for  which  a  value  cannot  be  determined  in  respect  of  the  goods  being  valued;

g. no  part  of  the  proceeds  of  any  subsequent  resale, disposal or use of the goods by the buyer  will  accrue  directly  or  indirectly  to  the  seller,  unless an appropriate adjustment can be made  in accordance with  the provisions of  Rule 9  of  these rules; and

h. the buyer and seller are not related,  or where  the buyer and seller are related, that transaction  value is acceptable for customs purposes under  the provisions of sub-rule (3).

……………………………………………………………  …………………………………………………………..”

11. On a plain reading of Sections 14(1) and 14(1A), it  is clear  

that the value of any goods chargeable to ad valorem duty is  

deemed to be the price as referred to in Section 14(1) of the  

Act.   Section  14(1)  is  a  deeming  provision  as  it  talks  of  

deemed  value  of  such  goods.   The  determination  of  such  

price has  to  be  in  accordance with  the  relevant  rules  and  

subject  to  the  provisions  of  Section  14(1)  of  the  Act.  

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Conjointly read, both Section 14(1) of the Act and Rule 4 of  

CVR 1988 provide that in the absence of any of the special  

circumstances  indicated  in  Section  14  (1)  of  the  Act  and  

particularized  in  Rule  4(2)  of  CVR 1988,  the  price  paid  or  

payable by the importer to the vendor, in the ordinary course  

of international trade and commerce, shall be taken to be the  

transaction value.  In other words, save and except for the  

circumstances mentioned in proviso to Sub-rule (2) of Rule 4,  

the invoice price is to form the basis for determination of the  

transaction  value.   Nevertheless,  if  on  the  basis  of  some  

contemporaneous  evidence,  the  revenue  is  able  to  

demonstrate  that  the  invoice  does  not  reflect  the  correct  

price, it would be justified in rejecting the invoice price and  

determine  the  transaction  value  in  accordance  with  the  

procedure laid down in CVR 1988.  It needs little emphasis  

that  before rejecting the transaction value declared by the  

importer  as  incorrect  or  unacceptable,  the  revenue  has  to  

bring  on  record  cogent  material  to  show  that  

contemporaneous  imports,  which  obviously  would  include  

the date of contract, the time and place of importation, etc.,  

were at a higher price.  In such a situation, Rule 10A of CVR  

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1988 contemplates that where the department has a ‘reason  

to doubt’ the truth or accuracy of the declared value, it may  

ask the importer to provide further  explanation  to the effect  

that the declared value represents the total amount actually  

paid or payable for the imported goods.  Needless to add that  

‘reason to doubt’ does not mean ‘reason to suspect’.  A mere  

suspicion upon the correctness of the invoice produced by an  

importer is not sufficient to reject it as evidence of the value  

of imported goods. The doubt held by the officer concerned  

has to be based on some material evidence and is not to be  

formed on a mere suspicion or speculation.  We may hasten  

to add that although strict rules of evidence do not apply to  

adjudication proceedings under the Act, yet the Adjudicating  

Authority  has  to  examine  the  probative  value  of  the  

documents on which reliance is sought to be placed by the  

revenue.   It  is  well  settled  that  the  onus  to  prove  under-

valuation is on the revenue but once the revenue discharges  

the  burden  of  proof  by  producing  evidence  of  

contemporaneous imports at a higher price, the onus shifts to  

the  importer  to  establish  that  the  price  indicated  in  the  

invoice relied upon by him is correct.

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12. In Eicher Tractors Ltd. (supra), relied upon by the Tribunal,  

this  Court  had  held  that  the  principle  for  valuation  of  

imported goods is  found in Section 14(1)  of  the Act  which  

provides for the determination of the assessable value on the  

basis  of  the  international  sale  price.   Under  the  said  Act,  

customs duty is chargeable on goods.  According to Section  

14(1), the assessment of duty is to be made on the value of  

the  goods.   The  value  may  be  fixed  by  the  Central  

Government under Section 14(2).  Where the value is not so  

fixed it has to be decided under Section 14(1).  The value,  

according to Section 14(1), shall be deemed to be the price at  

which such or like goods are ordinarily sold or offered for  

sale, for delivery at the time and place and importation in the  

course of international trade.  The word “ordinarily” implies  

the  exclusion  of  special  circumstances.   This  position  is  

clarified by the last sentence in Section 14(1) which describes  

an “ordinary” sale as one where the seller or the buyer have  

no interest in the business of each other and price is the sole  

consideration for the sale or offer for sale.  Therefore, when  

the above conditions regarding time, place and absence of  

special  circumstances stand fulfilled,  the price of  imported  

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goods shall be decided under Section 14(1A) read with the  

Rules framed thereunder.  The said Rules are CVR 1988.  It  

was  further  held  that  in  cases  where  the  circumstances  

mentioned  in  Rules  4(2)(c)  to  (h)  are  not  applicable,  the  

Department  is  bound  to  assess  the  duty  under  transaction  

value.   Therefore,  unless  the  price  actually  paid  for  a  

particular transaction falls within the exceptions mentioned in  

Rules 4(2)(c) to (h),  the Department  is bound to assess the  

duty on the transaction value.  It was further held that Rule 4 is  

directly relatable to Section 14(1) of the Act.  Section 14(1)  

read with Rule 4 provides that the price paid by the importer  

in the ordinary course of commerce shall be taken to be the  

value in the absence of any special circumstances indicated  

in Section 14(1).  Therefore, what should be accepted as the  

value for the purpose of assessment is the price actually paid  

for  the  particular  transaction,  unless  the  price  is  

unacceptable for the reasons set out in Rule 4(2).  (Also See:  

Rabindra  Chandra  Paul  Vs. Commissioner  of  Customs  

(Preventive), Shillong3.)

13. Applying the above principles to the facts in hand, we are of  

the opinion that  the revenue erred in rejecting the invoice  3 (2007) 3 SCC 93

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price.   As  stated  above,  in  the  present  case  the  whole  

controversy  arose  on  account  of  difference  in  price  of  the  

same commodity, contracted to be supplied under different  

contracts  entered  into  at  different  points  in  time.   As  

aforesaid,  in  the  instant  case,  admittedly  the  contract  for  

supply of crude sunflower seed oil @ US $ 435 CIF/PMT was  

entered into on 26th June 2001.  It could not be performed on  

time because of  which extension of  time for  shipment  was  

agreed to between the contracting parties.  It is true that the  

commodity involved had volatile fluctuations in its  price in  

the  international  market  but  having delayed the  shipment,  

the supplier did not increase the price of the commodity even  

after the increase in its price in the international market. This  

fact is also proved by the actual amount paid to the supplier.  

There is no allegation of the supplier and importer being in  

collusion.  It  is  also  not  the  case  of  the  revenue  that  the  

transaction entered into by the respondent was not genuine  

or  under-valued.    Nor  was  there  a  misdescription  of  the  

goods imported.  It is also not the case of the revenue that the  

subject imports fell within any of the situations enumerated in  

Rule 4(2) of  CVR 1988.  It  is manifest  from the show cause  

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notice, extracted in para 3 supra, that the contract value was  

not  acceptable  to  the  Adjudicating  Authority  in  terms  of  

Section 14(1) of the Act read with Rule 4 of CVR 1988 merely  

because by the time actual  shipment  took place in August  

2001, international price of the oil had increased drastically.  

No other reason has been ascribed to reject the transaction  

value under Rule 4(1) except the drastic increase in price of  

the commodity in the international market and the difference  

in  price  in  the  invoices  in  relation  to  the  goods  imported  

under contracts entered by the respondents in the month of  

August 2001.  In our opinion, the import instances relied upon  

by the revenue could not be treated as instances indicating  

contemporaneous value of the goods because contracts for  

supply of the goods in those cases were entered into almost  

after a month from the date of contract in the present cases,  

more so, when admittedly there were drastic fluctuations in  

the international price of the commodity involved.  We are,  

therefore, of the opinion that the revenue was not justified in  

rejecting the transaction value declared by the respondents  

in the invoices submitted by them.

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14. For  the  foregoing  reasons,  we do not  find  any  merit  in  

these appeals.   All  the appeals are dismissed accordingly,  

with no order as to costs.

...................……………………………….J.                                             (D.K. JAIN)

                                                    ......................……………………………….J.

                      (SUDHANSU JYOTI MUKHOPADHAYA)

NEW DELHI; OCTOBER 17, 2011.

ARS

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