http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

CASE NO.: Appeal (civil)  1137 of 2002

PETITIONER: Commissioner of Customs, Calcutta

RESPONDENT: South India Television (P) Ltd

DATE OF JUDGMENT: 09/07/2007

BENCH: S. H. Kapadia & B. Sudershan Reddy

JUDGMENT: J U D G M E N T

with  Civil Appeal Nos. 5517/2004 and 5518/2004

KAPADIA, J.

Civil Appeal No. 1137 of 2002

                The dispute involved in this civil appeal is as regards the  assessable value of the Ceramic Capacitors and Diodes  imported by the importer from M/s Pearl Industrial Company  of Hong Kong during the period February, 1996 to July, 1996.  The importer had declared the price of Ceramic Capacitors @  Hong Kong $ 6 per 1000 pcs. and the CIF price of the  consignment of diodes was declared as Hong Kong $ 29406.

2.      The facts giving rise to this civil appeal are as follows.  The respondent had imported six consignments of ceramic  capacitors and one consignment of diodes from Hong Kong  during the above period. The goods were shipped from Hong  Kong by M/s Compo Export of Hong Kong and M/s Pearl  Industrial Company of Hong Kong. The price of ceramic  capacitors was declared by the respondent in its Bill of Entry  @ HK$ 6.00 per 1000 pcs. whereas the price of diodes was  declared @ HK $ 29406 CIF as reflected in the invoices. On  27.4.1998 a show cause notice was issued by the Assistant  Commissioner of Customs, Calcutta alleging inter alia that as  per the overseas investigation report of the Hong Kong  Customs and Excise Department the declared price did not  represent the transaction value under Rule 4 of the Customs  Valuation (Determination of Price of Imported Goods) Rules,  1988 ("Customs Valuation Rules")  as the price actually paid  appeared to be different than the declared price and that the  importer had under-invoiced the value of the goods to evade  huge amount of the Government’s revenue. At this stage, it  may be pointed out that in the show cause notice the  Assistant Commissioner had specifically invoked Rule 8 of the  Customs Valuation Rules, 1988, which was subsequently  given up by the Department. Be that as it may, the importer  was asked to show cause as to why the value of the  consignments in question should not be enhanced based on  the export declaration under Rule 8 of the Customs Valuation  Rules made by the Foreign Supplier. Accordingly, vide the  aforestated show cause notice, the Assistant Commissioner  raised a demand for the differential duty of Rs. 28,04,831.40

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

and fine in lieu of confiscation. In reply, the importer denied  the above allegations. In reply, it was submitted that the show  cause notice was based solely upon the purported  investigation report of Hong Kong Customs and Excise duty;  that the said report was accompanied by xerox copies of the  export declarations; that the xerox copies did not bear the seal  or signature of the customs officials in Hong Kong; that the  authenticity of the declaration was doubtful; that the  declarations were not the correct reproduction of the original  and that there were endorsements to the effect that the  documents shall not be used against any third party or in any  legal proceedings. In other words, the importer contended that  the charge of under-valuation cannot be based on xerox copies  of the declarations which were not even certified by the  competent authority in Hong Kong. According to the importer,  such declarations had no bearing upon the actual sale price of  the goods in the hands of Hong Kong exporters. According to  the importer, there was no allegation in the show cause notice  that it had paid higher value to the supplier than that declared  by it in the Bill of Entry. Before the Assistant Commissioner,  the importer supported the declared price mentioned in the  Bill of Entry by relying upon various contemporaneous  imports made during the above period by other importers  whereas the price declared for identical goods was the same as  the price declared by the importer in the present case in its  Bill of Entry. It was further submitted by the importer that it  was not open for the Assistant Commissioner to adjudicate the  value under Rule 8 without going sequentially from Rule 5 to  Rule 6 and Rule 6 to Rule 7 onwards. The importer further  contended that, in the present case, the value of the goods  could have been determined in terms of Rule 5 and, therefore,  there was no question of invoking Rule 8. In this connection  reliance was placed on the judgment of this Court in the case  of Eicher Tractors Ltd.  v.  Commissioner of Customs,  Mumbai reported in 2000(122)E.L.T.321.

3.      The above arguments of the importer were rejected. The  show cause notice and the demand levied was confirmed.  Aggrieved by the aforesaid decision, the matter was carried in  appeal to the Customs, Excise and Gold (Control) Appellate  Tribunal (CEGAT). The Tribunal allowed the appeal by holding  that xerox copies of the export declarations, even though  procured from Hong Kong customs will not make such  declarations genuine declarations. According to the Tribunal,  the origin of the goods was from China/Tiwan, therefore, there  was a possibility of the export declaration price being on the  higher side (over invoiced). This was in view of the fact that in  some of the above countries, the goods are subsidized by the  concerned Governments. Huge subsidies are given based on  the export declaration price. Similarly, incentives are also  given in that regard. This possibility has not been rejected by  the adjudicating authority. Even according to the adjudicating  authority, the Hong Kong supplier might have inflated the  price in order to earn export incentives and if that be the case  then according to the Tribunal, the export declaration made by  the Hong Kong supplier cannot be made the basis for  increasing the value of the goods in India. Further, according  to the Tribunal, in the present case, the importer has relied  upon instances of import of identical goods at identical rates  by other importers from the same supplier (namely, M/s Pearl  Industrial Company, Hong Kong) during the aforesaid period.  The Department had accepted those rates. This evidence led  by the importer herein has not been rebutted. It had not been  discussed by the adjudicating authority. In the circumstances,  the Tribunal allowed the appeal filed by the importer. Hence,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

this civil appeal has been filed by the Department. 4.      At the outset, we quote hereinbelow Section 2(41),  Section 14(1) and Section 14(1A)  of the Customs Act, 1962, as  it stood at the relevant time:

"2(41) "value", in relation to any goods, means  the value thereof determined in accordance  with the provisions of sub-section (1) of section  14.

xx

14. Valuation of goods for purposes of   assessment. \026 (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."

5.      We also quote hereinbelow Rule 4 of the Customs  Valuation (Determination of Price of Imported Goods) Rules,  1988, as it stood at the relevant time:

"4. Transaction value. \027 (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 \027

(a)     there are no restrictions as to the  disposition or use of the goods by the  buyer other than restrictions which \027

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

         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.

(3)    (a) Where the buyer and seller are related,  the transaction value shall be  accepted provided that the  examination of the circumstances of  the sale of the imported goods  indicate that the relationship did not  influence the price.

(b)     In a sale between related persons, the  transaction value shall be accepted,  whenever the importer demonstrates  that the declared value of the goods  being valued, closely approximates to  one of the following values  ascertained at or about the same time  \027

(i)     the transaction value of identical  goods, or of similar goods, in  sales to unrelated buyers in  India;

(ii)    the deductive value for identical  goods or similar goods;

(iii)   the computed value for identical  goods or similar goods.

Provided that in applying the  values used for comparison, due  account shall be taken of  demonstrated difference in  commercial levels, quantity levels,  adjustments in accordance with the  provisions of Rule 9 of these rules

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

and cost incurred by the seller in  sales in which he and the buyer are  not related;

(c)     substitute values shall not be  established under the provisions of  clause (b) of this sub-rule."  

6.      We do not find any merit in this civil appeal for the  following reasons. Value is derived from the price. Value is the  function of the price. This is the conceptual meaning of value.  Under Section 2(41), "value" is defined to mean value  determined in accordance with Section 14(1) of the Act.  Section 14 of the Customs Act, 1962 is the sole repository of  law governing valuation of goods. The Customs Valuation  Rules, 1988 have been framed only in respect of imported  goods. There are no rules governing the valuation of export  goods. That must be done based on Section 14 itself. In the  present case, the Department has charged the respondent- importer alleging mis-declaration regarding the price. There is  no allegation of mis-declaration in the context of the  description of the goods. In the present case, the allegation is  of under-invoicing. The charge of under-invoicing has to be  supported by evidence of prices of contemporaneous imports  of like goods. It is for the Department to prove that the  apparent is not the real. Under Section 2(41) of the Customs  Act, the word "value" is defined in relation to any goods to  mean the value determined in accordance with the provisions  of Section 14(1). The value to be declared in the Bill of Entry is  the value referred to above and not merely the invoice price.  On a plain reading of Section 14(1) and Section 14(1A), it  envisages that the value of any goods chargeable to ad valorem  duty has to be deemed price as referred to in Section 14(1).  Therefore, determination of such price has to be in accordance  with the relevant rules and subject to the provisions of Section  14(1). It is made clear that Section 14(1) and Section 14(1A)  are not mutually exclusive. Therefore, the transaction value  under Rule 4 must be the price paid or payable on such goods  at the time and place of importation in the course of  international trade. Section 14 is the deeming provision. It  talks of deemed value. The value is deemed to be the price at  which such goods are ordinarily sold or offered for sale, for  delivery at the time and place of importation 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 for offer for sale. Therefore, what  has to be seen by the Department is the value or cost of the  imported goods at the time of importation, i.e., at the time  when the goods reaches the customs barrier. Therefore, the  invoice price is not sacrosanct. However, before rejecting the  invoice price the Department has to give cogent reasons for  such rejection. This is because the invoice price forms the  basis of the transaction value. Therefore, before rejecting the  transaction value as incorrect or unacceptable, the  Department has to find out whether there are any imports of  identical goods or similar goods at a higher price at around the  same time. Unless the evidence is gathered in that regard, the  question of importing Section 14(1A) does not arise. In the  absence of such evidence, invoice price has to be accepted as  the transaction value. Invoice is the evidence of value. Casting  suspicion on invoice produced by the importer is not sufficient  to reject it as evidence of value of imported goods. Under- valuation has to be proved. If the charge of under-valuation  cannot be supported either by evidence or information about  comparable imports, the benefit of doubt must go to the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

importer. If the Department wants to allege under-valuation, it  must make detailed inquiries, collect material and also  adequate evidence. When under-valuation is alleged, the  Department has to prove it by evidence or information about  comparable imports. For proving under-valuation, if the  Department relies on declaration made in the exporting  country, it has to show how such declaration was procured.  We may clarify that strict rules of evidence do not apply to  adjudication proceedings. They apply strictly to the courts’  proceedings. However, even in adjudication proceedings, the  AO has to examine the probative value of the documents on  which reliance is placed by the Department in support of its  allegation of under-valuation. Once the Department discharges  the burden of proof to the above extent by producing evidence  of contemporaneous imports at higher price, the onus shifts to  the importer to establish that the invoice relied on by him is  valid. Therefore, the charge of under-invoicing has to be  supported by evidence of prices of contemporaneous imports  of like goods. Section 14(1) speaks of "deemed value".  Therefore, invoice price can be disputed. However, it is for the  Department to prove that the invoice price is incorrect. When  there is no evidence of contemporaneous imports at a higher  price, the invoice price is liable to be accepted. The value in  the export declaration may be relied upon for ascertainment of  the assessable value under the Customs Valuation Rules and  not for determining the price at which goods are ordinarily  sold at the time and place of importation. This is where the  conceptual difference between value and price comes into  discussion.  

7.      Applying the above tests to the facts of the present case,  we find that there is no evidence from the side of the  Department showing contemporaneous imports at higher  price. On the contrary, the respondent importer has relied  upon contemporaneous imports from the same supplier,  namely, M/s Pearl Industrial Company, Hong Kong, which  indicates comparable prices of like goods during the same  period of importation. This evidence has not been rebutted by  the Department. Further, in the present case, the Department  has relied upon export declaration made by the foreign  supplier in Hong Kong. In this connection, we find that letters  were addressed by the Department to the Indian Commission  which, in turn, requested detailed investigations to be carried  out by Hong Kong Customs Department. The Indian  Commission has forwarded the export declarations in original  to the Customs Department in India. One such letter is dated  19.9.1996. In the present case, the importer has alleged that  the original declarations were with the Department. That  certain portions of the originals were not shown to the  importer despite the importer calling upon the adjudicating  authority to do so. Further, by way of Interlocutory Application  No. 4 in the present civil appeal, an application was moved by  the importer calling upon the Department to produce the  original declaration in the Court. No reply has been filed to the  said I.A. till date. In the circumstances, we are of the view that  the Department had erred in rejecting the invoice submitted  by the importer herein as incorrect. Further, the Department  received from the Hong Kong supplier a Fax message dated  22.7.1996. That was produced before the Commissioner. In  that message, he had explained that the manufacturer of the  impugned goods was getting export rebates and, therefore, it is  possible that the manufacturer had over-invoiced the price in  order to claim more rebate. The goods were of Chinese origin.  In the Fax message it is further stated by the foreign supplier  that he was required to show the export value on the higher

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

side in order to claim the incentives given by his Government.  This explanation of the foreign supplier, in the present case,  had been accepted by the Commissioner. In his order, the  Commissioner has not ruled out over-invoicing of the export  value by the foreign supplier in order to obtain incentives from  his Government. For the aforestated reasons, we find no  infirmity in the impugned judgment of the Tribunal.

8.      Before concluding, we may point out that in the present  case at the stage of show cause notice, the Department  invoked Rule 8 on the ground that the invoice submitted by  the importer was incorrect. In Eicher Tractors (supra) this  Court observed that Rule 4(1) of the Customs Valuation Rules  refers to the transaction value. Utilization of the word ’the’ as  definite article indicated that what should be accepted as the  transaction value for the purpose of assessment under the  Customs Act is the price actually paid by the importer for the  particular transaction, unless it is unacceptable for the  reasons set out in Rule 4(2). In the said judgment, it has been  further held that, the word ’payable’ in Rule 4(1) also refers to  the "transaction value" and payability in respect of the  transaction envisaged a situation where payment of price  stood deferred. Therefore, this decision of the Supreme Court  directs the Revenue to decide the validity of the particular  value instead of rejecting the transaction value. We wish,  however, to clarify that it is still open to the Department based  on evidence, to show that the declared price is not the price at  which like goods are sold or offered for sale ordinarily, which  words occur in Section 14(1). Lastly, it is important to note  that in the above decision of this Court in Eicher Tractors  (supra) this Court has held that the Department has to  proceed sequentially under Rules 5, 6 onwards and it is not  open to the Department to invoke Rule 8 without sequentially  complying with Rules 5, 6 and 7 even in cases where the  transaction value is to be rejected under Rule 4. In the present  case, the show cause notice indicates that the Department had  invoked Rule 8 without complying with the earlier rules.

9.      For the aforestated reasons, we find no infirmity in the  impugned judgment of the Tribunal and accordingly Civil  Appeal No. 1137/2002 is dismissed with no order as to costs.

Civil Appeal Nos. 5517/2004 and 5518/2004

10.     These two civil appeals are a sequel to our judgment  delivered today in the case of Commissioner of Customs  v.   M/s South India Television (P) Ltd. vide Civil Appeal No.  1137/2002. We need not refer the present set of the facts in  detail once again. However, the Tribunal has held on facts that  the import invoices issued by Hong Kong traders and the  export declarations filed by the same traders before Hong Kong  Customs bear different values. No explanation whatsoever has  been given for quoting two different values. Further, the  importers in the present cases have failed to file the  manufacturer’s invoices in support of the value shown in the  import invoices. On the other hand, in the earlier matter (in  the case of M/s South India Television (P) Ltd.) a detailed  explanation was offered regarding the Government giving  incentives to exporters in China, which explanation is not  there in the present cases. For the aforestated reasons, we find  no infirmity in the judgment of the Tribunal which has decided  the matter in favour of the Department.

11.     Accordingly, both these Civil Appeal Nos. 5517 and 5518

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

of 2004 filed by the importers are dismissed with no order as  to costs.