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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2753 OF 2006  

M/S. MANGALORE REF. & …Appellant PETROCHEMICALS LTD.    

Versus

COMMISSIONER OF CUSTOMS, …Respondent MANGALORE   

WITH  CIVIL APPEAL NO. 1109 OF 2007  

CIVIL APPEAL NOS.                                    OF 2015 (ARISING OUT OF S.L.P. (C) NOS. 1906-1943 OF 2009)

CIVIL APPEAL NOS. 4738-4755 OF 2010  CIVIL APPEAL NOS. 4770-4806 OF 2010 CIVIL APPEAL NOS. 4808-4809 OF 2010 CIVIL APPEAL NOS. 5465-5562 OF 2010 CIVIL APPEAL NOS. 7774-7775 OF 2011

CIVIL APPEAL NO. 11357 OF 2011 CIVIL APPEAL NOS. 8666-8667 OF 2013

CIVIL APPEAL NO. 3628 OF 2015 CIVIL APPEAL NO. 5074 OF 2015  CIVIL APPEAL NO. 5052 OF 2015

CIVIL APPEAL NOS. 9279-9283 OF 2012 CIVIL APPEAL NOS. 4480-4486 OF 2014

J U D G M E N T  R.F. Nariman, J.

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1. Leave granted in Special Leave Petition (Civil) Nos. 1906-

1943 of 2009.

2. In this batch of appeals an interesting question arises on the  

import  of  crude  oil  by  the  appellants.  We  will  take  the  facts  

contained  in  Civil  Appeal  No.  2753 of  2006 for  the  purpose of  

deciding these matters.   

3. In  the  said  Civil  Appeal,  during  the  period  13.01.1996  to  

15.03.1998, crude oil was imported by the appellant by way 144  

voyages  of  vessels,  and  71  consignments  out  of  the  said  144  

voyages were said to have escaped payment of full customs duty.  

As a result the total duty thus short paid for the 71 consignments  

out of the 144 voyages worked out to Rs.6,59,49,685/- (Basic Duty  

Rs.6,16,88,210/-  and  Special  Customs Duty  Rs.42,61,475/-)  on  

the total differential assessable value of Rs.23,71,30,242/- for the  

period from 13.1.96 to 15.3.98. These figures were arrived at as  

revenue in its show cause notice dated 7 th January, 2000 stated  

that the quantity of crude oil mentioned in the various bills of lading  

should  be  the  basis  for  payment  of  duty,  and  not  the  quantity  

actually received into the shore tanks in India. This was stated on  

the basis that since duty was now levied on an ad valorem  basis  

and not on a specific rate, the duty should be paid on the bill of  

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lading quantity based on the ullage obtained when the goods were  

loaded on the vessel in the country of export.  On 14 th April, 2000,  

the appellant  submitted its  reply  to  the show cause notice  and  

stated  that  it  makes  no  difference  as  to  whether  the  basis  for  

customs duty is at a specific rate or is  ad valorem, inasmuch as  

under  the  various  judgments  of  the  Tribunal  upheld  by  the  

Supreme Court, the quantity of goods at the time of import alone is  

to be looked at.  This flows from a reading of the Customs Act,  

1962  and  the  Customs  Valuation  (Determination  of  Price  of  

Imported Goods) Rules, 1988 and therefore the show cause notice  

ought to be dropped.

4. On 24th July, 2002, the Commissioner of Customs passed a  

detailed order in which he held that since the basis of customs  

duty had changed into an ad valorem regime, “transaction value”  

would necessarily mean the value at which the goods were to be  

purchased from the  foreign  supplier.   According  to  the  learned  

Commissioner, full payment for the goods has to be made by the  

importer only on the basis of the quantity mentioned in the bill of  

lading.  This being the case, therefore the “transaction value” of  

the said goods would only be as per the payment made of the  

amounts stated in the bill of lading and not the quantity received  

ultimately in the shore tanks at ports in India.

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5. An appeal filed to CESTAT was dismissed on 6 th February,  

2006.  The Tribunal accepted the Commissioner’s reasoning.

6. Shri  Lakshmikumaran,  learned  counsel  appearing  for  the  

appellants in these appeals, urged before us that the Tribunal in  

the present case had lost sight of the fact that the taxable event is  

only when goods are imported, and that therefore valuation at the  

time of import alone has to be looked at. He further argued that the  

reasoning  of  the  Tribunal  was  entirely  fallacious,  and  that  it  

misconstrued  Section  14  of  the  Customs Act  and  did  not  give  

proper heed to Sections 12, 13 and 23 of the said Act.   In any  

event, he argued that “transaction value” which is laid down under  

the Customs Valuation Rules cannot be read in such a manner  

that it would go contrary to the provisions of the parent statute.   

7. Ms.  Pinky  Anand,  learned  Additional  Solicitor  General  

appearing on behalf of the revenue, supported the judgment of the  

Tribunal  and  argued  that  since  the  basis  of  customs  duty  has  

changed  and  since  a  circular  dated  12th January,  2006  by  the  

Government  of  India,  Finance  Department  made  it  clear  that  

import duty should be based only on the invoice price which is the  

price  paid  or  payable  for  imported  goods  irrespective  of  the  

quantity  ascertained through shore tank measurement,  it  is  this  

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price  alone  that  should  be  taken  into  account  for  valuation  

purposes.   Further,  according  to  her,  “transaction  value”  would  

necessarily mean the price that is payable for goods when sold for  

export  to  India  and  that  therefore  such  price  would  only  be  

referable to the quantity of goods mentioned in the bill of lading.

8. Having heard learned counsel for the parties it is important to  

first set out the relevant provisions contained in the Customs Act  

as under:-

“Section 2. Definitions

        (22) “goods” includes – (a) vessels, aircrafts and vehicles;

(b) stores;

(c) baggage;

(d) currency and negotiable instruments; and

(e) any other kind of movable property;

2(23) “import”,  with  its  grammatical  variations  and  cognate expressions, means bringing into India from a  place outside India; 2(25) “imported goods” means any goods brought into  India from a place outside India but does not include  goods  which  have  been  cleared  for  home  consumption; Section 12. Dutiable goods. - (1) Except as otherwise  provided in this Act, or any other law for the time being  in force, 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.  

(2)  The  provisions  of  sub-section  (1)  shall  apply  in  

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respect of all goods belonging to Government as they  apply  in  respect  of  goods  not  belonging  to  Government.

Section 13. Duty on pilferred goods. -  If any imported  goods  are  pilferred  after  the  unloading  thereof  and  before  the  proper  officer  has  made  an  order  for  clearance  for  home  consumption  or  deposit  in  a  warehouse, the importer shall not be liable to pay the  duty leviable on such goods except where such goods  are restored to the importer after pilferage.

Section 23.  Remission of  duty  on lost,  destroyed or  abandoned goods. –  

(1) Without prejudice to the provisions of section 13,  where it  is shown to the satisfaction of the Assistant  Commissioner of Customs or Deputy Commissioner of  Customs  that  any  imported  goods  have  been  lost  otherwise than as a result of pilferage or destroyed, at  any time before clearance for home consumption, the  Assistant  Commissioner  of  Custom  or  Deputy  Commissioner of Customs shall remit the duty on such  goods.  

(2) The owner of any imported goods may, at any time  before  an  order  for  clearance  of  goods  for  home  consumption  under  section  47  or  an  order  for  permitting the deposit of goods in a warehouse under  section 60 has been made, relinquish his title to the  goods and thereupon he shall not be liable to pay the  duty thereon.”

Section  47.  Clearance  of  goods  for  home  consumption.- (1) Where the proper officer is satisfied  that any goods entered for home consumption are not  prohibited goods and the importer has paid the import  duty,  if  any,  assessed  thereon  and  any  charges  payable  under  this  Act  in  respect  of  the  same,  the  proper officer may make an order permitting clearance  

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of the goods for home consumption.  

(2)  Where  the  importer  fails  to  pay  the  import  duty  under  sub-section  (1)  within  two  days,  excluding  holidays  from the  date  on  which  the  bill  of  entry  is  returned  to  him  for  payment  of  duty,  he  shall  pay  interest at such rate, not below ten per cent and not  exceeding thirty-six per cent per annum, as is for the  time  being  fixed  by  the  Central  Government,  by  notification in the Official Gazette on such duty till the  date of payment of said duty:

Provided  that  the  Central  Government  may,  by  notification in the Official Gazette, specify the class or  classes  of  importers  who  shall  pay  such  duty  electronically:

Provided further that where the bill of entry is returned  for payment of duty before the commencement of the  Customs (Amendment) Act, 1991 and the importer has  not  paid such duty before such commencement,  the  date  of  return  of  such  bill  of  entry  to  him  shall  be  deemed to be the date of such commencement for the  purpose of this section:

Provided also  that  if  the  Board is  satisfied  that  it  is  necessary in the public  interest  so to do,  it  may,  by  order for reasons to be recorded, waive the whole or  part of any interest payable under this section.”  

9. Rules  2(1)(f)  and  4(1)  of  the  Customs  Valuation  

(Determination of Price of Imported Goods) Rules, 1988 read as  

follows:-

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“2. Definitions - (1) In these rules, unless the context  otherwise requires: (f) “transaction value” means the value determined  in accordance with Rule 4 of these rules”

Rule 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.”

10. On a reading of the aforesaid provisions, it is clear that the  

levy of customs duty under Section 12 is only on goods imported  

into India.  Goods are said to be imported into India when they are  

brought into India from a place outside India.  Unless such goods  

are brought into India, the act of importation which triggers the levy  

does  not  take  place.   If  the  goods  are  pilferred  after  they  are  

unloaded or  lost  or  destroyed at  any time before  clearance for  

home consumption or deposit in a warehouse, the importer is not  

liable  to  pay  the  duty  leviable  on  such  goods.   This  is  for  the  

reason that  the import  of  goods does not  take place until  they  

become  part  of  the  land  mass  of  India  and  until  the  act  of  

importation is complete which under Sections 13 and 23 happens  

only after an order for clearance for home consumption  is made  

and/or an order permitting the deposit of goods in a warehouse is  

made.  Under Section 23(2) the owner of the imported goods may  

also at any time before such orders have been made relinquish his  

title to the goods and shall not be liable to pay any duty thereon.  

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In short,  he may abandon the said goods even after they have  

physically  landed  at  any  port  in  India  but  before  any  of  the  

aforesaid  orders  have  been  made.  This  again  is  for  the  good  

reason that the act of importation is only complete when goods are  

in the hands of the importer after they have been cleared either for  

home consumption or for deposit in a warehouse. Further, as per  

Section 47 of the Customs Act, the importer has to pay import duty  

only on goods that are entered for home consumption.  Obviously,  

the quantity of goods imported will be the quantity of goods at the  

time they are entered for home consumption.   

11. Even under Section 14 of the Customs Act, when goods are  

to be valued for the purpose of assessment, such valuation is only  

when the goods are ordinarily sold or offered for sale for delivery  

at the time and place of importation in the course of international  

trade. It is thus seen that under the Customs Act, the levy of import  

duty cannot take place until goods are imported, that is, brought  

into India.  Obviously, therefore, it is the quantity of goods brought  

into India alone that attracts the levy of import duty.

12. The  Customs  Valuation  Rules  which  defines  “transaction  

value” also speaks of the price that is actually paid or payable only  

for “imported goods”. Unless goods are imported, that is, “brought  

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into India”  no such price is actually paid or payable. Further, under  

Rule 4 of  the Customs Valuation Rules,  such transaction value  

must  be adjusted  in  accordance with  the provisions  of  Rule  9.  

Rule 9(2), the import of which has been missed by the Tribunal in  

the impugned judgment, states as follows:-   

“Rule 9(2) For  the  purposes  of  sub-section  (1)  and  sub-section  (1A)  of  Section  14  of  the  Customs Act,  1962 (52 of  1962) and these rules,  the value of  the  imported goods shall be the value of such goods, for  delivery at the time and place of importation and shall  include –  (a) The cost of transport of the imported goods to the  place of importation;  

(b) loading,  unloading  and  handling  charges  associated with the delivery of the imported goods at  the place of importation; and  

(c) the cost of insurance:

Provided that –  (i) where the cost of transport referred to in clause  (a) is not ascertainable, such cost shall be twenty per  cent of the free on board value of the goods;

(ii) the charges referred to in clause (b) shall be one  per cent of the free on board value of the goods plus  the cost of transport referred to in clause (a) plus the  cost of insurance referred to in clause (c);  

(iii) where  the  cost  referred  to  in  clause  (c)  is  not  ascertainable,  such cost  shall  be 1.125% of  free on  board value of the goods;

Provided further that in the case of goods imported by  air,  where  the  cost  referred  to  in  clause  (a)  is  ascertainable, such cost shall  not exceed twenty per  cent of free on board value of the goods: Provided also that where the free on board value of the  goods  is  not  ascertainable,  the  costs  referred  to  in  clause (a) shall be twenty per cent of the free on board  value of the goods plus cost of insurance for clause (i)  

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above and the cost referred to in clause (c) shall be  1.125% of the free on board value of the goods plus  cost of transport for clause (iii) above.  Provided also that in case of goods imported by sea  stuffed  in  a  container  for  clearance  at  an  Inland  Container Depot or Container Freight Station, the cost  of freight incurred in the movement of container from  the  port  of  entry  to  the  Inland  Container  Depot  or  Container freight  Station shall  not  be included in the  cost of transport referred to in clause (a).”  

13. This Rule merely restates what is already stated in Section  

14, namely, that the value of imported goods has to be the value of  

such goods for delivery only at the time and place of importation.  

Therefore,  it  is  clear  that  even a  reading of  “transaction value”  

under  the  Rules  would  necessarily  arrive  at  the  same  result,  

namely,  that  the  quantity  of  goods  to  be  seen for  purposes  of  

valuation can only be after they are imported, that is, brought into  

India and have to be so at the time and place of importation.

14. The  Tribunal’s  judgment  dated  6th February,  2006  gives  

several reasons for arriving at the conclusion that the bill of lading  

quantity alone is to be looked at for the purpose of determining the  

value of goods imported. The first reason that it gives is that duty  

has to be on the total payment made by the assessee irrespective  

of the quantity received.  The second reason given is that an ad  

valorem  duty would necessarily lead to this result but duty levied  

at the specific rate would not, the quantity of goods in the latter  

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case being only on the basis of the quantity of crude oil received in  

the shore tank.  The third reason that it gives is that Section 14  

kicks in when the duty is on an ad valorem  basis and Sections 13  

and 23 do not stand in the way because it is not the question of  

demanding duty on goods not received, but it  is the demand of  

duty on the transaction value.  In spite of the “ocean loss”,  the  

appellant has to make payment on the basis of the Bill of Lading  

quantity.

15. We are afraid that  each one of  the reasons given by the  

Tribunal  is  incorrect  in  law.  The  Tribunal  has  lost  sight  of  the  

following first principles when it arrived at the aforesaid conclusion.  

First, it has lost sight of the fact that a levy in the context of import  

duty can only be on imported goods, that is, on goods brought into  

India from a place outside of India.  Till that is done, there is no  

charge to tax.   This Court in Garden Silk Mills Ltd. v. Union of  

India, 1999 (8) SCC 744, stated that this takes place, as follows:-

“It was further submitted that in the case of Apar (P)  Ltd. [(1999)  6  SCC 117  :  JT (1999)  5  SC 161]  this  Court was concerned with Sections 14 and 15 but here  we have to construe the word “imported” occurring in  Section 12 and this can only mean that the moment  goods have entered the territorial waters the import is  complete. We do not agree with the submission. This  Court in its opinion in Bill to Amend Section 20 of the   Sea Customs Act, 1878 and Section 3 of the Central   Excises and Salt Act, 1944, Re [AIR 1963 SC 1760 :  (1964) 3 SCR 787 sub nom Sea Customs Act (1878),   

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S. 20(2), Re] SCR at p. 823 observed as follows: “Truly  speaking,  the  imposition  of  an  import  duty, by and large, results in a condition which  must  be  fulfilled  before  the  goods  can  be  brought  inside  the  customs  barriers,  i.e.,  before they form part  of  the mass of  goods  within the country.”

It would appear to us that the import of goods into India  would  commence  when  the  same  cross  into  the  territorial waters but continues and is completed when  the goods become part of the mass of goods within the  country; the taxable event being reached at the time  when the goods reach the customs barriers and the bill  of entry for home consumption is filed.”  [at paras 17  and 18]

16. Secondly, the taxable event in the case of imported goods,  

as has been stated earlier, is “import”. The taxable event in the  

case of a purchase tax is the purchase of goods. The quantity of  

goods stated in a bill of lading would perhaps reflect the quantity of  

goods in the purchase transaction between the parties, but would  

not  reflect  the  quantity  of  goods  at  the  time  and  place  of  

importation.  A bill of lading quantity therefore could only be validly  

looked at in the case of a purchase tax but not in the case of an  

import duty.  Thirdly, Sections 13 and 23 of the Customs Act have  

been wholly lost sight of.  Where goods which are imported are  

lost, pilfered or destroyed, no import duty is leviable thereon until  

they are out of customs and come into the hands of the importer.  

It is clear therefore that it is only at this stage that the quantity of   

the goods imported is to be looked at for the purposes of valuation.  

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Fourthly, the basis of the judgment of the Tribunal is on a complete  

misreading of Section 14 of the Customs Act.  First and foremost,  

the said Section is a section which affords the measure for the levy  

of customs duty which is to be found in Section 12 of the said Act.  

Even when the measure talks of value of imported goods, it does  

so at the time and place of importation, which again is lost sight of  

by  the  Tribunal.  And  last  but  not  the  least,  “transaction  value”  

which occurs in the Customs Valuation Rules has to be read under  

Rules  4  and  9  as  reflecting  the  aforesaid  statutory  position,  

namely, that valuation of imported goods is only at the time and  

place of importation.

17. The Tribunal’s reasoning that somehow when customs duty  

is  ad  valorem the  basis  for  arriving  at  the  quantity  of  goods  

imported changes, is wholly unsustainable.  Whether customs duty  

is at a specific rate or is ad valorem  makes not the least difference  

to the above statutory scheme. Customs duty whether at a specific  

rate or ad valorem  is not leviable on goods that are pilferred, lost  

or destroyed until a bill of entry for home consumption is made or  

an order to warehouse the goods is  made.  This,  as has been  

stated above, is for the reason that the import is not complete until  

what has been stated above has happened.   The circular dated  

12th January,  2006  on  which  strong  reliance  is  placed  by  the  

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revenue is  contrary to law.  When the Tribunal has held that  a  

demand or duty on transaction value would be leviable in spite of  

“ocean loss”, it flies in the face of Section 23 of the Customs Act in  

particular, the general statutory scheme and Rules 4 and 9 of the  

Customs Valuation Rules.   

18. We therefore set aside the Tribunal’s judgment and declare  

that the quantity of crude oil actually received into a shore tank in a  

port  in  India should be the basis for  payment  of  customs duty.  

Consequential action, in accordance with this declaration of law,  

be carried out by the customs authorities in accordance with law.  

All the aforesaid appeals are disposed of in accordance with this  

judgment.  

               ………..…..………...J.                 (A.K. Sikri)

               ….…..…..…………...J.                 (R.F. Nariman)

New Delhi, September 2, 2015.  

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