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REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.4920 OF 2007

M/S GMR ENERGY LTD.           …APPELLANT              

 VERSUS

COMMISSIONER OF CUSTOMS,  BANGALORE     

        ...RESPONDENT

WITH

CIVIL APPEAL NO.3594 OF 2008

J U D G M E N T  

R.F. Nariman, J. 1. Two appeals have been filed against the impugned judgment

dated  3.8.2007  passed  by  CESTAT.  The  appeal  filed  by  the

assessee M/s GMR Energy Ltd.  concerns itself  with the proper

valuation of the import of parts of the Gas Turbine Hot Section of a

naphtha based power plant which have to be replaced after 12,500

fired  hours  of  use  under  a  Long  Term  Assured  Parts  Supply

Agreement  (hereinafter  referred  to  as  “LTAPSA”)  dated  20 th

December,  2000  entered  into  with  GE,  USA.   The  appeal  of

revenue concerns itself with whether the assessee is entitled to

avail  itself  of  the benefit  of  the exemption notification No.21 of

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2002 dated 1.3.2002 in respect of the goods imported under two

bills of entry dated 25.6.2003.  

Assessee’s Appeal

2. The appellant  had imported a naphtha based power plant

with five gas turbines which was mounted on a barge which floated

in a river at a Tanir Bavi Village near Mangalore for purposes of

power generation.  The capacity of the said power plant is 220 MW

and the entire power generated is uploaded into the grid of the

Karnataka Power Transmission Corporation Limited.  The power

plant had to be kept in good running condition as the contract with

KPTCL is to supply power to them continuously.  For this purpose,

the appellant entered into an agreement for service and supply of

parts  with  GE,  USA being  a  Long  Term  Assured  Parts  Supply

Agreement  dated  12.12.2000,  (hereinafter  referred  to  as

“LTAPSA”).  In terms of the said agreement, the appellant was to

make  payments  based  on  either  fired  hour  charges  or

maintenance  charges.  Various  parts  of  the  Gas  Turbine  Hot

Section  of  the  said  plant,  which  had  to  be  imported  under  the

LTAPSA were imported under two bills of entry dated 25.6.2003

after 12,500 fired hours had come to an end.  The parts that were

identified as having to be replaced were re-exported back to GE,

USA under  cover  of  shipping  bills  of  the  month  of  May, 2003

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before the two bills of entry dated 25.6.2003 were presented for

import  of  the  replaced  parts  to  the  customs  authorities.   The

appellant paid customs duty based on the value declared in the

said bills of entry but did not make any payment to GE based on

these invoices since their payments had already been made based

on fired hour  charges.  The assessment  of  the said  import  was

completed by the customs department after due verification of the

documents produced at the time of import.    3. Subsequently, by a show cause notice dated 12.8.2004, the

customs department sought the aid of Rule 4(2)(g) and Rule 9(1)

(d) and 9(1)(e) as they stood at the relevant time in order that 1/3 rd

of the value of the imported items be added to the invoice value as

that  was  said  to  represent  the  amount  of  the  parts  that  were

replaced and re-exported  back  to  GE,  USA.   The  show cause

notice essentially  based itself  on statements made by one Shri

Naresh Manchanda, Finance Manager of the appellant and Shri

Siddharth  Deb,  Associate  General  Manager  of  the  Company. It

stated:

“29. From  the  investigation  conducted  the  following facts appear to emerge: (i) M/s GEL, Bangalore entered in to three agreements with  M/s  GE,  USA  which  included  a  Long  Term Assured  Parts  Supply  Agreement(LTAPSA),  for  the maintenance and upkeep of the Gas Turbines of the barge mounted power plant.

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(ii) This  agreement  envisaged  a  rotable  exchange programme for the hot path parts, which are parts of an  essential  nature,  requiring  replacement  after  a scheduled period of 12,500 hours of use or earlier in case they are found not usable.

(iii) These  hot  path  parts,  after  their  use,  are removed  from  the  gas  turbines.   Under  the  rotable exchange  programme  of  the  agreement,  once removed, the hot  path parts  become the property of M/s GE, USA and the Indian firm M/s GEL are required to export them to M/s GE. On receipt of these parts, M/s  GE verifies  their  condition  and  accordingly  they are  refurbished.   Such  refurbished  parts  bear  no difference  to  the  new  parts  and  are  identical  in  all respects.  M/s GE, USA supplies these parts  to  their customers.   Customers  like  M/s  GEL  do  not  know whether  the  parts  supplied  to  them  are  new  or refurbished.

(iv) When M/s GEL exports these used parts, for the exports  made,  no export  sale  proceeds are  realized and  M/s  GE,  USA makes  no  payment  to  M/s  GEL. However, when M/s GEL imports the hot  path parts, the  price  fixed  is  based  on  the  rotable  exchange programme.  The cost of the returned used hot path parts by M/s GEL is taken care, and an abatement is given and thereafter, the price is arrived at.

(v) Thus the invoice furnished by M/s GE, USA, to M/s GEL, Bangalore is a discounted price based on the rotable exchange programme. The prices under the rotable  exchange programme though are  discounted prices, the same are widely in use and are popularly called catalogue prices or published price lists.

(vi) The invoice produced to the Customs along with the Bill of Entry is only the rotable exchange price.  The abatement given towards the cost of the exported used hot path part is not reflected in the invoice.  Therefore, for the purpose of Customs assessment, the declared price requires an adjustment by way of addition equal to  the  cost  of  returned  hot  path  part,  which  was discounted.

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(vii) This abatement / discount is to the extent of 1/3rd of  the  catalogue  price  under  the  rotable  exchange programme.  M/s GE, USA wanted M/s GEL to declare this price at the time of export from India.

(viii) M/s  GEL  have  not  submitted  the  agreements entered into with M/s GE, USA to the Customs.  They suppressed  the  vital  information  as  regards  the payments  made  under  the  rotable  exchange programme and the agreements.  

(ix) The removed parts become the property of M/s GE, USA and M/s GEL has no option but to export / return to M/s GE. The import of Hot Path parts by M/s GE,  USA.  The  cost  of  returned  parts  is  adjusted against the imported parts.  Thus the very import is a conditional sale and the cost of returned parts accrues to the seller.  This situation is covered by Rule 9(1)(d) and (e) of the Customs Valuation Rules, 1988.

(x) In view of the evidences discussed in this notice, the  declared  values  require  to  be  rejected;  and  the same  cannot  be  accepted  as  representing  the  true transaction  values  under  Rule  4  of  the  Customs Valuation Rules, 1988.”

4. The  customs duty  was  said  to  be  evaded  to  the  tune  of

approximately  4.20  crores.  Goods  were  said  to  be  liable  to

confiscation and ultimately a demand was made as follows:- “30. Now,  therefore,  M/s.  GMR  Energy  Ltd., Bangalore are hereby called upon to show cause to the  Commissioner  of  Customs,  C.R.  Building,  P.B. NO.5400,  Queens  Road,  Bangalore-  560  001  as  to why:

(a) the value of the imported goods, covered by 5 Bills of Entry (as listed in Annexure-II) should not  be  re-determined  at  Rs.  45,24,23,850/- (Rupees Forty  Five Crores Twenty  Four  Lakhs Twenty Three Thousand Eight Hundred and Fifty only) under Rule 4 read with Rule 9(1)(d) & (e) of

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Customs  Valuation  (Determination  of  Price  of Imported  Goods)  Rules,  1988  and  in  terms  of Section 14 of Customs Act, 1962,

(b) the benefit  of exemption under notification No.  21/2002-Cus  dated  01.03.2002  should  not be denied in respect of Bills of Entry Nos. 9140 dated 25.06.2003 and 598675 dated 12.04.2004,

(c) A  total  duty  of  Rs.7,36,88,521/-  (Rupees Seven  Crores  Thirty  Six  Lakhs  Eighty  Eight Thousand Five Hundred Twenty One only) being the  import  duty  short  paid  should  not  be demanded under proviso to Section 28(1) of the Customs Act, 1962 as detailed in the Annexure to this notice,  

(d) interest at applicable rate(s) on the above mentioned duty amount should not be demanded under Section 28AB of the Customs Act, 1962,

(e) the goods indicated in (a) above should not be confiscated under Section 111(m) of Customs Act, 1962.

(f) the goods imported and cleared under Bills of Entry Nos.9140 dated 25.06.2003 and 598675 dated  12.04.2004,  valued  at  Rs.13,20,93,674/-, forming  part  of  goods  indicated  at  (a)  above should not be confiscated under Section 111(o) of the Customs Act, 1962, apart from their liability to  confiscation  under  Section  111(m)  of  the Customs act, 1962,  

(g) Penalty  under  Section  112(a)  and/94 Section 114A of  the Customs Act,  1962 should not be imposed.”

5. The reply to the show cause notice sent by the assessee

disputed  all  the  allegations  made  and  stated  in  particular  as

follows:- “H. VALUE DECLARED FOR INSURANCE IS THE

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BEST  REFERENCE  TO  DETERMINE  THE INTRINSIC  VALUE  OF  THE  GOODS IMPORTED

H.1  it  is  well  known  that  the  imported  goods  are invariably covered by a marine insurance policy or air insurance policy, as the case may be.  Such insurance is necessary from the point of the view of the parties involved so that they may be able to recover the value of  the  goods  in  case  the  goods  are  lost/damaged during transportation from one country to another.   H.2    In this case, GE has a worldwide practice of insuring  the  goods  dispatched  by  them  under  the Rotable Exchange Programme to all  their  customers throughout  the  world  and  therefore,  GE  has  duly declared that the value indicated in their invoice raised on the Noticees is inclusive of insurance. H.3 As has already been submitted elsewhere in this reply, the Noticees submit that the values declared by GE in their invoices exactly correspond to the prices indicated in GE’s worldwide price-list  for  the Rotable Exchange Programme. H.4 Since the Noticees have not made any payment to  GE  for  each  invoice  raised  against  supply undertaken under the LTSA and the Rotable Exchange Programme,  the  Noticees  submit  that  the  value declared  by  GE  inclusive  of  freight  and  insurance, which in turn is as per their published price-list,  should be taken to represent the intrinsic value of the Hot Path Gas Parts imported by the Noticees. H.5 This  is  corroborated  by  the  fact  that  GE  has insured the imported Hot Path Gas Parts only to the extent  of  import  invoice  value.   A copy  of  the  letter dated 05.02.2005 of GE clarifying the position in this regard is enclosed as Annexure-9. H.6 It is now settled law that where invoice values are doubted,  the values declared for  insurance could be the basis for determining assessable values under the Customs Act, 1962. J.  ASSUMPTION  THAT  THE  PRICE  FIXED

UNDER  THE  ROTABLE  EXCHANGE PROGRAMME IS DEPRESSED IS BASELESS.

J.1     The  Noticees  submit  that  the  presumption  in sub-paras (iv)  to  (vii)  of  para 29 of  the show cause

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notice that the published price lists for supply of parts by GE under the Rotable Exchange Programme reflect the prices after deducting the price of the returned part is without any basis. There is no material  to support such an erroneous presumption also. J.2 This  presumption  is  apparently  based  on  the statement  of  Shri.  Naresh  Manchanda  recorded  on 03.09.2003 who has stated that the commercial invoice for the replacement Hot Path Gas Parts is raised on the Noticees taking into consideration that the existing part will be sent back. J.3 The Noticees submit that the above statement is not  in  any  way  implicatory  as  alleged  in  the  show cause  notice.  The  above  statement,  in  fact,  only reiterates the agreed position in terms of the Rotable Exchange Programme as per which the removed part has to be received by GE. J.4 The  Noticees  further  submit  that  the  Rotable Exchange Programme clearly stipulates return of the removed  part  within  30  days  of  receipt  of  the replacement  Hot  Path  Gas  Parts.   The  Programme also states that parts not returned within 30 days would be subject to a surcharge of 10% of the catalog price. J.5 The condition stipulated in the Programme that a surcharge  of  10%  of  the  catalog  price  would  be charged  for  receipts  after  30  days  can  only  be implemented after the expiry of the period of 30 days. Therefore, the statement of Shri Naresh Manchanda is only  a  reiteration  of  the  position  explained  in  the Programme.  J.6 The  Noticees,  therefore,  submit  that  no conclusion can be drawn from the statement of  Shri Naresh Manchanda to the effect that the prices under the  Rotable  Exchange  Programme  have  been deliberately  depressed  after  taking  into  account  the return of the removed part. J.7 On  the  contrary,  the  Noticees  submit  that  the return of the removed Hot Path Gas Parts under the Rotable  Exchange  Programme  is  as  per  the established  international  practice  of  GE  and  clearly brought out in the brochure itself. J.8 It  is  not  the  case  of  the  department  that  the Noticees have declared a price which represents the published price of  GE less the price of  the returned

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part.  The  Noticees,  therefore,  submit  that  when  the published  price  of  GE  has  been  declared  as  the assessable value for purposes of payment of duty, it cannot  be  said  that  the return  of  the  Hot  Path  Gas Parts has influenced the price of the imported Hot Path Gas Parts. J.9 In  any  case,  the  Noticees  desire  to cross-examine Shri Naresh Manchanda. The Noticees, therefore,  request  that  Shri  Naresh Manchanda may be  made  available  for  cross-examination  by  the Hon’ble Commissioner before adjudicating the matter.”

6. By an order dated 2.5.2006 passed by the Commissioner of

Customs, the learned Commissioner specifically found that as per

the LTAPSA since the assessee has declared only the differential

value of  the returned parts  and the parts  imported,  1/3 rd of  the

invoice value of the imported parts needs to be added to arrive at

the  correct  assessable  value.   Thus,  it  confirmed  the  demand

made in the show cause notice.  

7. The  appeal  filed  to  the  Tribunal  was  also  dismissed,  the

Tribunal  arriving  at  the  same  conclusion  as  the  learned

Commissioner.  The  Tribunal  in  addition  found that  there is  no

transaction  value  at  all  and,  therefore,  Rule  8  will  have  to  be

referred to and relied upon and a best judgment assessment was

to be made. The Tribunal then went on to hold, quoting a clause in

the LTAPSA, as follows:

“2.8 SUPPLY OF CERTAIN REFURBISHED PARTS In  the  performance  of  its  scope  of  work  under  this Agreement, Seller may supply Parts which have been previously installed at a power generation facility other

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than the Power Barge and subsequently refurbished by the Seller.  Such refurbished Parts shall be warranted by Seller in accordance with the provisions of Article 8. Seller  will  provide  reasonable  documentation  for purposes  of  Buyer’s  tax  calculations  as  to  those components that are new, and those that are repaired, but  Buyer  remains obligated to pay all  taxes,  import duties,  value  added  and  all  other  taxes,  however characterized,  arising  from  the  supply,  repair, refurbishment, import, delivery to the Power Plant, and use  of  such  Parts.  With  Respect  to  refurbished Parts,  seller  shall  furnish Buyer  with  information regarding  the  incremental  value  of  each refurbished Part over the value of the comparable used Part that was exported in order to limit the assessment of customs duties to the incremental value of each such refurbished Part.” 9.8    It is clear from the Agreements that the appellant is  required  to  export  the  replaced  old  part  while receiving the refurbished part from the foreign supplier. The above mentioned para 2.8 makes it very clear that the value furnished in the Commercial Invoice is only an incremental value and also the same was provided to limit the assessment of customs duties.  This is very clear evidence indicating that the value declared at the time of import is not the true value of the goods. The Revenue was right in rejecting the said value.

9.10. It has been urged that the value indicated in the Insurance  Policy  for  the  imported  goods  should  be accepted. That value happens to be the value under the  Rotable  Exchange  program.   The  Adjudicating Authority has stated that in that case, the value should cover  even  the  value  of  the  returned  part  on  the ground  that  the  insurance  amount  is  split  between imported parts and old parts exported back to M/s. GE as both have a value of their own.  Therefore, taking the insurance amount applicable only to the imported parts and arriving at the conclusion as contended by the appellant is not correct.”

8. Shri  Sridharan, learned counsel appearing on behalf of the

assessee, argued before us that the values stated in the invoices

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were values after the goods were insured and there is usually a

mark-up  of  10-15%  of  the  actual  value  of  the  said  goods.

Therefore, even if these values are to be taken into account, they

would be more than what the imported parts were actually worth in

the market. According to him, the said invoices were made from a

list of these parts published by GE, USA for sale worldwide under

a rotable exchange programme, which programme made it clear

that  these  are  list  unit  prices  or  catalogue  prices  and  would,

therefore, by their very nature not include any adjustment made on

account of the parts that were re-exported to GE, USA.  He further

argued that Rules 4 and 9 had no application in the present case

as there was, in fact, no “sale” so as to attract the provisions of

Rule 4 and consequently Rule 9. He added that the basic infirmity

in  the  judgments  below  was  reliance  upon  clause  2.8  of  the

LTAPSA. That clause if properly read only refers to “information”

regarding the incremental value of each refurbished part over the

value of the comparable used part that was exported. In fact, as

has been pointed out in the reply, the invoices represented the full

value of the imported parts, and not any adjusted value as was

clear from the fact that prices were fixed worldwide and had no

reference to any re-exported items of used parts.  This being the

case, according to him, the two judgments of the Commissioner

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and CESTAT are wholly wrong in basing themselves on this clause

of  the  agreement.   Further,  they  were  also  wrong  in  basing

themselves on the statements of Shri Manchanda and Shri Deb,

as  those  statements  did  not  in  any  manner  incriminate  the

assessee,  and  even  if  they  did,  the  assessee  asked  for

cross-examination which was denied to it. Thus, these statements

could not be relied upon at all and if these statements go, nothing

really remains by way of evidence in the hands of the department.

He further argued that most of the demand made would be time

barred,  as  the show cause notice  was beyond the six  months’

period, and findings of suppression on the assessee’s part by the

authorities  and  the  Tribunal  was  said  by  him  to  be  perverse

inasmuch as the assessee did not have to disclose any agreement

at the time of import and the assessee was never called upon by

the customs department  to  furnish any agreement  so that  they

could justifiably state that there was willful suppression on its part.

He  referred  to  Section  17(3)  and  Section  46(1)  and  (4)  of  the

Customs  Act  to  buttress  this  submission.  He  cited  several

judgments in support of the plea that there could not, in law, be

suppression  on  his  part  on  account  of  failure  to  produce  the

LTAPSA. He  further  submitted  that  identical  goods  had  been

imported by BSES, and the Assistant Commissioner of Customs,

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by  order  dated  17.4.2002,  had  taken  the  invoice  value  of  the

imported items without any add-ons. Since this would be the value

of identical goods imported at or about the same time as the goods

being valued, Rule 5 of the Customs Valuation Rules would apply

and, therefore, any reference to Rule 8 would be incorrect.  Under

Rule 5 of the said rules, as in the case of BSES, only the invoice

value of the imported items could be taken into account without

1/3rd more being added.  9. Shri  Radhakrishnan,  learned  senior  counsel  appearing  on

behalf of the revenue refuted each of these allegations and argued

before us that the case was squarely covered by Rule 4(2)(g) read

with Rules 9(1)(d) and 9(1)(e).  In any case, according to learned

counsel, even if one had to go by best judgment assessment, it is

clear  that  1/3rd value  of  the  imported  goods  would  have  to  be

added inasmuch as clause 2.8 of the agreement clearly stated that

it  was only the differential  value that  would be the value of the

import of the new parts. He also stated that it was incumbent upon

the assessee to disclose the LTAPSA to the customs authorities as

two very important things would emerge from a reading of such

agreement.  One, that used parts would have to be re-exported

and that such parts would have a value, and second, that as per

clause  2.8  of  the  agreement,  only  the  difference  between  the

actual value of the imported parts and the value of the used parts,

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which according to the assessee itself is 1/3rd of the value of the

imported parts, would be the invoice value of the imported items.

He added that Mr. Manchanda’s statement was clear and would

have  to  be  given  effect  to  and  that  the  authorities  and  the

Commissioner  of  Customs  had  clearly  stated  that  as  Shri

Manchanda was abroad, he could not be cross-examined, and that

this would be enough reason under Section 138 B of the Customs

Act  to  accept  his  statement.  It  was  also  argued  by  Shri

Radhakrishnan  that  as  the  importer  in  the  present  case  was

required to furnish a declaration disclosing full and accurate details

relating to the value of imported goods, he should in the first place

have  disclosed  the  entire  LTAPSA  agreement  to  the  customs

authorities which was not done.

10. Since reliance has been placed on a number of Rules, we

deem it appropriate to set out the Customs Valuation Rules, 1988

which would apply to the imports in question.  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, 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:

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(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;”

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 same time as the goods being valued.”

8. Residual method. – (1)Subject  to  the  provisions of rule 3 of these rules, 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 sub-section (1) of section 14 of the customs Act, 1962 (52 of 1962) and on the basis of data available in India.  

9. Cost  and  services  –  (1)  In  determining  the transaction  value,  there  shall  be  added  to  the  price actually paid or payable for the imported goods, - (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. 10. Declaration by the importer. -  (1)   The importer or his agent shall furnish –  

(a) a  declaration  disclosing  full  and  accurate details relating to the value of  imported goods; and (b) any  other  statement,  information  or document  including  an  invoice  of  the manufacturer or producer of the imported goods where the goods are imported from or through a person other than the manufacturer or producer as considered necessary by the proper officer for

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determination  of  the  value  of  imported  goods under these rules.”

11. It will be noticed that Rules 4 and 9 would only apply in case

imported  goods  are  “sold”  for  export  to  India.   The  expression

“shall be the price actually paid or payable for the goods when sold

for  export  to  India”  would  necessarily  postulate  that  transaction

value would be based upon goods that are sold in the course of

export from a foreign country to India. It is clear on the facts that

there is no  sale in the present case, a fact that has been accepted

by the revenue as well.  All that happens under the LTAPSA is that

parts  are  replaced  without  any  further  charge  after  a  certain

number of hours of the running of the power plant. This being the

case, counsel for the assessee is correct in his submission that

neither  Rules  4  nor  Rule  9  would  apply,  as  Rule  4  itself,  if

applicable, makes Rule 9 also apply.  Further, it is clear that Rule

4(2)(g)  and  Rule  9(1)(d)  refer  only  to  the  very  goods  that  are

imported and not to goods which may have been imported much

earlier to the imported goods. Therefore, what is necessary is that

there should be proceeds which arise from re-sale,  disposal,  or

use of the very imported goods by the buyer.  The case of the

department  is  that  these  sub-rules  are  attracted  only  because

there was an earlier sale at the time when the entire plant was

imported  and  that  subsequently  there  would  be  a  disposal  of

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goods imported much after the plant was set up by the buyer.  As it

is clear that there is no subsequent re-sale, disposal or use of the

very imported goods – that is the parts imported under the two bills

of entry dated 25.6.2003, the assessee is right in his contention

that in any case neither of these sub-rules would apply to the facts

of the present case.  Equally,  Rule  9(1)(e)  would  have  no  application  for  the

reason that there is no other payment actually made or to be made

as a condition of sale of the imported goods by the buyer to the

seller. This being the case, we have now to see whether Rule 5 of

the Rules would apply as contended by learned counsel for the

assessee.  

12. We have gone through the order dated 17.4.2002, passed by

the Assistant Commissioner of Customs, Cochin,  in the case of

another assessee, namely, BSES.  The entire discussion in that

order proceeds only on whether various other charges should be

added on to the invoice price and it was held that all such charges

should be so added on.   We do not  find any reference to any

argument  or  finding  to  the  effect  that  a  certain  portion  of  the

invoice price should be added on because of re-export  of  used

parts.  This case would therefore be distinguishable, as has rightly

been held by the Tribunal.  Further, we find that the bill of entry in

the  present  case  is  dated  25.6.2003,  long  after  the  imports

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effected in the BSES case.  The imports made in that case were of

the year 1998, which was four years before the present import,

and would not, therefore,  be identical goods imported at or about

the same time as the goods being valued. It is, therefore, correct

to say that Rule 5 would have no application in the facts of the

present case.  

13. We will, therefore, have to proceed on the footing that Rule 8

alone applies, and that the best judgment assessment made by

the Commissioner would have to be reasonable and not arbitrary.  

14. We find that the basis of the Commissioner’s order as well as

the  Tribunal’s  order  is  clause  2.8  of  the  LTAPSA.   We  are  in

agreement with the learned counsel for the assessee when he has

argued that the seller is only to furnish the buyer with “information”

regarding the incremental value of each refurbished part so that

customs duty may be limited to the incremental value of each such

refurbished part.  On the facts we have found that the assessee

has, in its reply to the show cause notice, made it more than clear

that  the  price  of  the  imported  goods  was  a  rotable  exchange

programme price  which  was a  common uniform price  at  which

such parts were supplied worldwide by GE, USA.  This is clear

from a document that was relied upon by the show cause notice

itself,  which dealt  with GE’s rotable exchange programme.  The

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said document states:-

“Effectivity These prices supersede all previously published prices for the same service.  The prices of additional or newly established  service  will  be  available  on  a  quotation basis  and may be subject to revision until such time as they are incorporated into the next issue of this price sheet. The prices indicated are list unit prices and are subject to change without notice. Return of Removed Assembly Unless an alternate schedule is agreed to in advance, the  customer  must  return  removed  assembly  to  GE within  30  days  of  receipt  of  the  rotable  asset. Assemblies not returned within 30 days are subject to a  surcharge  of  10%  of  the  catalog  price.  Removed assemblies  become  the  property  of  GE.   Removed assemblies are to be in a repairable condition.”

15. From this document what becomes clear is that the prices

stated  in  the  invoices  accompanying  the  bills  of  entry  in  the

present case are list unit prices or catalogue prices.  By no stretch

of imagination can they said to be prices after re-exported items’

value has been taken into account.  This being the case, on facts

in  the  present  case,  both  the  Commissioner  and  the  learned

Tribunal were wrong in arriving at  a conclusion that  the invoice

price in the present case is only an incremental value price and not

the price of the articles supplied by GE, USA.  This being the case

on facts, we are afraid that both the Commissioner’s order and the

Tribunal’s order would have to be set aside on this ground alone.  

16. Relying upon Shri  Manchanda’s statement  and Shri  Deb’s

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statement would, therefore, not carry the matter much further as it

is found that on facts, the commercial invoices do not take into

consideration the fact that existing used parts are to be sent back

to GE, USA, which parts would have a value – that is 1/3 rd of the

invoice price of the imported items.  

17. Shri Radhakrishnan has argued that it was incumbent upon

the assessee to submit a declaration disclosing full and accurate

details relating to the value of imported goods under Rule 10 of the

Customs Valuation Rules, 1988.  He has also argued that under

sub-clause (b) of Rule 10(1), it was incumbent upon the assessee

to have handed over the entire LTAPSA to the Customs authorities

and as the assessee has breached the aforesaid rule, there has

been a mis-declaration by the assessee of the value of the goods

consequent to which the assessee is liable to additional duty and

penalty.   18. Rule 10(1) which has been set out earlier in this judgment

consists  of  two  sub-clauses.   Under  sub-clause  (a),  the

assessee/importer has to submit a declaration disclosing full and

accurate details relating to the value of the imported goods.  This

sub-clause  obviously  has  reference  to  Section 46(4)  of  the Act

which states as follows: “(4) The importer while presenting a bill of entry shall make and subscribe to a declaration as to the truth of the contents of such bill of entry and shall, in support of such  declaration,  produce  to  the  proper  officer  the

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invoice, if any, relating to the imported goods.”  

19. A conjoint reading of Section 46(4) and  Rule 10(1)(a), thus

makes it incumbent  on the importer while presenting a bill of entry

to subscribe to a declaration as to the truth of its contents and in

addition to produce to the proper officer the invoice relating to the

imported goods.  There is no doubt that the assessee has fulfilled

this condition.  What is sought to be argued by Shri Radhakrishnan

is  that  the  assessee  should  also  have  disclosed  the  LTAPSA

entered into with M/s. GE, USA which would have disclosed the

true value of the imported goods and other details to the proper

officer who could then have made an informed assessment.  

20. The LTAPSA would be a document which would fall  within

Rule 10(1)(b) read with Section 17(3) of the Act as it then stood.

Section 17(3) reads as follows:

“17(3)  For  the  purpose  of  assessing  duty  under sub-section  (2),  the  proper  officer  may  require  the importer, exporter or any other person to produce any contract, broker’s note, policy of insurance, catalogue or other document whereby the duty leviable on the imported goods or export goods, as the case may be, can  be  ascertained,  and  to  furnish  any  information required for such ascertainment which is in his power to  produce  or  furnish,  and  thereupon  the  importer, exporter  or  such  other  person  shall  produce  such document and furnish such information.”

21. A conjoint reading of Section 17(3) and Rule 10(1)(b) would

make it clear that the proper officer may require the importer to

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produce  any  contract  with  reference  to  the  imported  goods

consequent upon which the importer shall produce such contract.

On the facts of the present case, the proper officer has not called

upon  the  assessee  to  produce  any  contract  in  relation  to  the

imported goods.  This being the case, it is clear that there is no

infraction of Rule 10 as contended by Shri Radhakrishnan.   

22. As the assessee succeeds on merits, it is unnecessary to go

into the point of limitation.  The assessee’s appeal is, therefore,

allowed and the judgment of the Tribunal is set aside.   Revenue’s appeal 23. The impugned judgment has held that exemption notification

No.21/2002 dated 1.3.2002 would apply to the assessee’s case.

The relevant portion of the said notification is reproduced below:-

S. No. Chapter Heading  No. or sub-heading No.

Description  of goods  

Standard Rate

Additional Duty rate

Condition No.

236. 84  or  any Chapter

All  goods  for renovation  or modernization of  a  power generation plant  (other than  captive power generation plant)

5% 16% 45

45. If,-  

(i)  in the case of a power (except a nuclear power plant),- (a)     in  the  case  of  Central  Power  Sector Undertakings,  the  Chairman  of  the  concerned Undertaking or  an officer  authorized by him certifies that the scheme for renovation or modernization as the case may be, of such power plant, has been approved

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and an officer not below the rank of Deputy Secretary to the Government  of  India in  the Ministry  of  Power recommends, in each case, the grant of the aforesaid exemption to the goods for such scheme; (b) in other cases, an officer not below the rank of the Chief Engineer of the concerned State Electricity Board or State Power Utility certifies that the scheme for renovation or modernization, as the case may be, of such power plant, has been approved and an officer not  below  the  rank  of  a  power  or  electricity recommends, in each case, the grant of the aforesaid exemption of the goods for such scheme; (ii) in the case of nuclear power plant, an officer not below  the  rank  of  a  Deputy  Secretary  to  the Government  of  India  in  the  Department  of  Atomic Energy  certifies  the  scheme  for  renovation  or modernization  as  the  case  may  be,  of  such  power plant, has been approved and recommends the grant of  the  aforesaid  exemption  to  the  goods  for  such scheme; and (iii) in  all  cases,  the  importer  furnishes  an undertaking to the Deputy Commissioner of Customs or  the  Assistant  Commissioner  of  Customs,  as  the case may be, to the effect that the said goods shall be used for the purpose specified above and in the event of  his  failure to use the goods for  the renovation or modernization of the said power generation plant, he shall pay an amount equal to the difference between the duty leviable on the said imported goods but for the exemption under this notification and that already paid at the time of importation.”

24. On  this  aspect  of  the  matter,  the  Tribunal  has  held  as

follows:- “10.3. The case of the Revenue is that at the time of importation the required Certificate was not produced. It is also the case of the Revenue that the appellants misrepresented the facts to the concerned authorities for  obtaining  the  Certificate.   The  objection  of  the Revenue that at the time of import, the Certificate was not produced is not a very strong ground for denying the  benefit  of  Notification.   There  is  a  plethora  of decisions in which various Courts and Tribunals have

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accepted the production of  Certificate even after  the importation for granting benefits.  The appellant, after representing to the concerned authorities, obtained a Certificate  dated  23.01.2004  to  the  effect  that  the scheme of renovation has been examined thoroughly and  approval  accorded  for  the  same.  The  Principal Secretary,  Government  of  Karnataka  has  also recommended  the  exemption  under  the  said Notification.   The  list  of  spares  recommended  have also  been  mentioned.  The  General  Manager  of  the Karnataka  Power  Transmission  Corporation  Ltd.  has certified  that  the  spares  listed  in  the  letter  of  the appellant dated 29.09.2003 are essential for the proper upkeep  of  the  generating  units.   The  Revenue contends  that  the  impugned  goods  are  not  for renovation  but  only  for  upkeep.   In  our  view,  one cannot take such a narrow view. What is the meaning of renovation?  To renovate means to make new.  We talk  of  renovating  a  house  or  building  etc.   In  the present case it is the renovation of the Power Plant.  In their letter addressed to the Government of Karnataka, the  appellants  have  stated  that  they  have  been undertaking the renovation of the Gas Turbines at their plant.  On going through that letter, we do not find that there is any misrepresentation. They have emphasized the point  that  after  12,500 fixed hours,  renovation is necessary.  We also find that the old parts are exported and  the  re-furbished  parts  are  imported  for replacement.  In a way, this can be understood to be a sort of renovation.  In any case, the State Government has accepted the proposal of the appellants and the Certificate has been issued by the Principal Secretary, Government of Karnataka, Energy Department.  Once the competent authority is satisfied that the impugned goods  are  required  for  renovation,  the  Customs Department need not  go deep into hair  splitting and semantic  niceties  to  deny the  benefit  of  Notification. The  DRI  had  taken  up  the  matter  with  the  State Government who have confirmed the approval of the Scheme.  Once the scheme is approved by the State Government  for  the  Power  Project,  in  our  view, the benefit  of  exemption  Notification  cannot  be  denied. Therefore,  we  set  aside  the  Commissioner’s  order denying the benefit of the Notification.  In our view, the

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appellants  have  fulfilled  the  conditions  of  the  said Notification and are rightly entitled for its benefit.”

25. We  find  that  both  the  requisite  certificate  as  well  as  the

recommendation  of  the  Principal  Secretary,  Government  of

Karnataka, have been dealt  with in the proper perspective. The

Tribunal is quite correct in stating that once these authorities are

satisfied that the impugned goods are required for renovation, the

customs department does not need to go deep into the matter and

by  hairsplitting  and  semantic  niceties  deny  the  benefit  of  the

exemption notification.  The finding of the Commissioner has been

correctly  set  aside  by  the  Tribunal  and  hence  we  dismiss

revenue’s appeal. In sum therefore, paragraph 11 of the CESTAT’s

order is set aside save and except sub-clauses (ii) and (vi) thereof.

……………………J. (A.K. Sikri)

……………………J. (R.F. Nariman)

New Delhi; October 27, 2015.