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Reportable IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 433-434 OF 2006

M/s. Gira Enterprises & Anr. …Appellants

Versus

Commissioner of Customs, Ahmedabad …Respondent

O R D E R

These are statutory appeals filed under Section 130(E) of the  

Customs Act, 1962 from the judgment and order dated 23.8.2005,  

passed by the Customs, Excise and Service Tax Appellate Tribunal,  

West Zonal Bench at Mumbai in Appeal No. C/791 & 792/03/Mum.

2. The appellants imported two consignments of “2-4-6 Tricloro 1-

3-5 Triazine” aggregating 74.10 MT from China under two Bills of  

Entry, the cost of which is declared by the appellants to be SG $  

750/-  PMT  equivalent  to  US  $  500/-  PMT.   The  goods  were  

provisionally assessed and allowed clearance on 17.9.1994.

3. Subsequently, a show cause notice dated 25.9.2000 came to  

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be  issued  to  the  appellants  by  the  Commissioner  of  Customs,  

Gujarat at Ahmedabad calling upon the appellants to show cause  

why certain action indicated therein cannot be taken against the  

appellants.   The relevant portion of  the show cause notice is  as  

follows:-

“Therefore, M/s. Gira Enterprises, Ahmedabad are hereby called  upon to show cause to the Commissioner of Customs, Ahmedabad  as to why:

(I) the provisionally assessed Bills of Entry (as per Annexure 'A')  should not be finalised after taking in value of US $ 1860.00 PMT  CIF.

(ii)  The  differential  duty  of  Rs.31,53,833/-(as  per  Annexure  'A')  should  not  be  recovered  under  Section  18(2)  read  with  Section  28(2) of the Customs Act, 1962.

(iii)The  goods  which  are  liable  for  confiscation  under  Section  111(m) of the Customs Act,  1962 should not be confiscated and  why fine in lieu of confiscation should not be imposed as goods has  already been cleared provisionally against Bond for test and value  verification.

(iv)  Penalty  should  not  be  imposed  on  M/s.  Gira  Enterprises,  Ahmedabad under Section 114A/112(a) of the Customs Act, 1962.

(v) Interest under Section 28AB of the Customs Act, 1962 should  not be recovered.”

4. It  is  also  stated  in  the  show  cause  notice  that  the  goods  

imported by the appellants were subjected to a test in the Central  

Excise & Customs Laboratory, Baroda.  According to the show cause  

notice,  the chemical  name of  the goods was verified and it  was  

found  to  be  “Cyanuric  Chloride”  as  known  in  the  International  

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market.  It is further stated in the show cause notice that on the  

basis of certain information obtained through a computer print out  

from the Customs House, Mumbai, the Commissioner of Customs,  

Gujarat  noticed  that  a  large  number  of  Cyanuric  Chloride(100)  

import transactions (between the months of June 1994 to November  

1994) took place and the cost of the unit price in each one of those  

imports was US $ 1950/- PMT(CIF) as against the value declared by  

the appellants of US $ 500/- PMT.

5. The appellants filed a detailed reply dated 11.12.2000 wherein  

they  disputed  their  liability  to  make  any  further  payment  as  

indicated in  the  show cause notice.   The appellants  also  took a  

specific stand that a copy of the computer print out which formed  

the  basis  of  show  cause  notice  had  not  been  supplied  to  the  

appellants.

6. Eventually,  the  concerned  Assistant  Commissioner  finalised  

the assessment by valuing the imported goods at US $ 1860/- PMT  

by an order dated 31.3.2001.

7. Aggrieved  by  the  same,  the  appellants  herein  carried  the  

matter in an appeal to the Commissioner of Customs(Appeals). By  

an order dated 8.8.2001, the said appeal was allowed wherein the  

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appellate authority recorded “the method of determination of the  

assessable value as per Rule 5 lacks specific evidence, therefore,  

the same is not legal and proper”.

8. Revenue  carried  the  matter  in  further  appeal  before  the  

Customs, Excise and Gold (Control) Appellate Tribunal.  By an order  

dated 15.2.2002, the said Tribunal remitted the matter back to the  

Commissioner (Appeals).   On such remittance,  the Commissioner  

(Appeals)  upheld  the  order  of  the  Assistant  Commissioner  

confirming the enhancement of the value at US $ 1860 PMT CIF.  

Again, the matter was carried by the appellants to the Customs,  

Excise and Service Tax Tribunal unsuccessfully.  By an order dated  

23.8.2005, which was impugned in the instant appeal, the appeal of  

the appellants herein was dismissed by the Tribunal.

9. It is argued on behalf of the appellant that the assessment and  

demand of the customs duty on the basis of the valuation of the  

goods  at  a  price  much  higher  than  what  was  declared  by  the  

appellant to be the price paid by the appellant is without any basis  

in law, without any legally admissible evidence and opposed to the  

principles of natural justice as the only material relied upon by the  

Revenue i.e. copy of the alleged printout was not supplied to the  

appellant.  Therefore, the appellant had no means of knowing as to  

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whether  any  imports  of  comparable  nature  were  made  at  the  

relevant point of time.

10. On  the  other  hand  it  is  argued  by  the  Revenue  that  the  

impugned order calls for no interference.  

11. Section 12 of the Customs Act, 1962 mandates that duties of  

customs shall be levied at such rates as may be specified under the  

Customs Tariff Act, 1975(51 of 1975), or any other law for the time  

being  in  force,  on  goods  imported  into,  or  exported  from,  India.  

Undisputedly,  the  goods  imported  by  the  appellants  are  goods  

which are assessable to Customs Duty under Entry 2942 of the First  

Schedule of the Customs Tariff Act, 1975.  It is also not in dispute  

that the duty is an ad valorem duty.  Section 14 of the Customs Act  

stipulates the method and manner of the valuation of the goods  

which  are  exigible  to  duties  under  the  Customs  Tariff  Act  and  

assessable to ad-valorem duty.   

12. Section 14 reads as follows:- “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 of exportation, as the  case maybe, in the course of international trade, where the seller  and the buyer have no interest in the business of each other and the  

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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;]

1 * [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...

3...”

13. It can be seen from Section 14 that the value of the imported  

goods is “deemed to be the price at which such goods are ordinarily  

sold, or offered for sale ……”.  The Section further stipulates that  

such price of the imported goods is to be determined in accordance  

with the rules made in that behalf.

14. The  Government  of  India  made  rules  known  as  Customs  

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

1988.  Rule 3(i)1 stipulates that for the purpose of the rules, the  

value of the imported goods shall be the transaction value.  Rule  

3(ii)2 provides that where the value of the imported goods cannot  

be determined under Rule 3(i) then the same is to be determined in  

accordance with the various methods of determination (of the value  1    3.  Determination of the method of valuation – For the purpose of these rules-

(i) the value of imported goods shall be the transaction value. 2

(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.

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of the goods) provided under Rules 5 to 8 sequentially.

15. The expression “transaction value” is defined under the Rule  

2(f)  of  the Customs Valuation(Determination of  Price of  Imported  

Goods) Rules, 1988 as follows:-

2(f) “transaction value” means the value determined in accordance  with Rule 4 of these rules.”

16. Rule 4(1) stipulates as follows:-

“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.”

17. Sub-rule  (2)3 stipulates  that  the  transaction  value  of  the  

imported goods shall be accepted subject to the various exceptions  

specified  in  the  said  Section,  the  details  of  which  many  not  be  

necessary for the present purpose.

3    (2)  The transaction value of imported goods under sub-rule(1) above shall be accepted:

Provided that- (a)  there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which --

(i)  are imposed or required by law or by the public authorities in India; Or

(ii)  limit the geographical area in which the goods may be resold; or (iii) do not substantially affect the value of the goods;

(b)  the sale or price is not subject to same condition or consideration for which a value cannot be determined in  respect of the goods being valued.

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

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

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18.  In substance, Rule 5 stipulates the next alternative procedure  

for  determining the value of the imported goods and it  reads as  

follows:-

5.  Transaction value of identical goods –  

(1)(a) Subject  to  the  provisions  of  Rule  3  of  these  rules,  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.

(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) of this  rule,  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 changes referred to in sub-rule(2) of  Rule  9  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.”

19. In substance,  Rule 5 enables the Revenue to determine the  

value of the imported goods on the basis of the identical imported  

goods of comparable import transaction. Such a procedure/course  

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of action is authorized notwithstanding the mandate of Rule 4(2)  

that  the transaction value shall  be accepted.  Obviously,  such an  

alternative mode of valuation is authorized as Rule 4 declares that  

the  transaction  value  of  the  imported  goods  shall  be  the  “price  

actually paid or payable”.  Necessarily the rule implies the need of  

determination of the price actually paid or payable.

20. It is not necessary that in every case of import the  importer  

declares  the  price  actually  paid  by  him  or  payable  by  him.  

Therefore, if  in a given case the Revenue notices identical goods  

have been imported by other importers in comparable transactions  

at a different rate (normally higher rate) then Revenue is enabled  

by  Rules  5  to  reject  the  valuation  made  by  the  importer  and  

determine the “price actually paid or payable” by the importer.

21. In the case at hand, no doubt the revenue claims to have some  

information based on certain alleged imports made at the Bombay  

port at the relevant point of time that the import in question took  

place.  According to the revenue, those imports at Bombay were  

declared and valued at a much higher rate than the value declared  

by  the  appellants  herein.  Therefore,  the  valuation  of  the  goods  

imported  by the  appellant  was found unacceptable.   Hence,  the  

procedure under Rule 5 was resorted to.

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22. However,  the  respondent(revenue)  did  not  supply  the  

information (alleged computer print out) which formed the basis of  

the conclusion that the appellants herein under-valued the goods  

imported.  In such a situation, the appellants obviously cannot and  

did not have any opportunity of establishing that the claim of the  

revenue is unsustainable in law.  If the information which formed  

the  basis  for  the  Revenue  to  reject  the  appellant’s  valuation  is  

supplied  to  the  appellants,  the  appellants  perhaps  will  have  an  

opportunity to dispute the comparability of the import transactions  

allegedly contained in the computer printout on various counts may  

not be possible to catalogue.   

23. The appellants, of course, admit that the goods imported by  

them are known commercially as ‘Cyanuric Chloride’ as specified in  

the show cause.  Whether Cyanuric Chloride was imported at the  

relevant point of time by others in comparable transactions, i.e., is  

“a sale at the same commercial level and in substantially the same  

quantity” etc. is a matter to be considered on the examination of  

the material relied upon by the Revenue.  A reasonable opportunity  

must be given to the appellant to demonstrate (if at all) that the  

transactions  relied  upon  by  the  Revenue  are  not  comparable  

transactions.

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24. In the absence of any material  produced by the Revenue in  

proof  of  the  alleged  comparable  imports  at  a  higher  value,  the  

impugned order  which eventually  confirmed the original  order  of  

assessment  by  the  Assistant  Commissioner  of  Customs  dated  

31.3.2001  cannot  be  sustained  for  two  reasons  –  (1)  the  mere  

existence  of  an  alleged  computer  printout  is  not  proof  of  the  

existence  of  comparable  imports;  (2)  assuming  such  a  printout  

exists and the contents thereof are true, the question still remains  

whether the transaction evidenced by the said computer printout  

are comparable to the transaction of the appellant.  The appellant  

will have to be given reasonable opportunity to establish (if he can)  

that the transactions are not comparable.

25. The  impugned  order  and  the  original  assessment  order  are  

therefore,  set  aside.   However,  it  will  be  open  to  the  

respondent(revenue)  to  proceed  against  the  appellants  herein  

pursuant to the show cause notice dated 25.9.2000 in accordance  

with law.

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26. The appeals are allowed accordingly.

………………………….J.                                                            (J. Chelameswar)

……………………..….J.                                (A.K. Sikri) New Delhi; August 21, 2014

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