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PETITIONER: M/S EICHER TRACTORS LTD., HARYANA

       Vs.

RESPONDENT: COMMISSIONER OF CUSTOMS, MUMBAI

DATE OF JUDGMENT:       14/11/2000

BENCH: A.P.Misra, Ruma Pal

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J       J U D G M E N T

     RUMA PAL, J.

     M/s  Eicher  Tractors Ltd., the appellant  before  us, manufacturers  tractors and tractor engines in India.   From 1955  the appellant imported bearings of a specific size for their tractors and tractor engines from M/s NTN Corporation, Osaka, Japan.  This 33 year relationship was snapped in 1988 when  the appellant started utilizing bearings  manufactured for  them in India by M/s HMT Ltd.  The Japanese vendor  was left   with  a  stock  of   the  bearings  which  had   been manufactured  by  it  for  the  appellant  anticipating  the appellants  continued custom.  Not finding any customer for the  bearings,  by  letter  dated  12th  February  1993  the vendors  agent  in India offered to sell the 1989 stock  of 3579  bearings  to the appellant at a price of Japanese  Yen (JY)  826  per  piece.   The   appellant  found  the   offer competitive  and agreed to buy the bearings from the  vendor at  the price offered.  An order was placed by the appellant on the vendor on 17th April 1993.  The bearings were shipped from  Japan  and arrived in India.  The appellant filed  the Bill of Entry on 3rd December 1993 together with the invoice dated  6th  October, 1993 with the Custom authorities.   The Assistant Commissioner of Customs was not satisfied that the value  of the bearings as declared by the appellant was  the value  of  the bearings for the purposes of levying  customs duty.   He  issued  a notice on 14th December  1993  to  the appellant.   The appellant gave a detailed reply setting out the  facts noted earlier.  The Assistant Commissioner  noted that  the  declared price was only 23% of the vendors  list price  and  was  of the view that the 77 per  cent  discount allowed  to  the appellant by the vendor was not normal  and could  not  be accepted for the purpose of  determining  the price  of the bearings under Section 14 of the Customs  Act, 1962  and Rule 4 of the Customs Valuation (Determination  of Price of Imported Goods) Rules, 1988 (referred to briefly as the  Rules).   The Assistant Commissioner  determined  the price of the bearings at JY 2507 per piece under Rule 8.  In arriving at this figure, the Assistant Commissioner took the list price of the vendor and deducted 30 per cent on account of discount, which, according to the terms of agency between the vendor and its Indian agent, was the maximum permissible discount  allowable.   The  appellant  preferred  an  appeal before  the Commissioner of Customs (Appeals), Mumbai.   The Commissioner  allowed the appeal.  The respondent  preferred

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an  appeal  before  the Customs, Excise and  Gold  (Control) Appellate  Tribunal.  The Tribunal allowed the appeal by its order  dated 23rd September 1998.  The Tribunal accepted the reasoning  of the Assistant Commissioner and relied upon the decision  of  this Court in Padia Sales Corporation  V.   CC 1993 Supp(4) SCC 57 to hold that specially quoted price was not  acceptable  in preference to the ordinary price in  the course  of international trade.  According to the Tribunal, the  ordinary  price  of  the bearings in  question  was  as mentioned  in the vendors price list.  The decision of  the Tribunal  has  been  assailed before us  by  the  Appellant. According  to the appellant, Rule 8 of the Rules, could  not have  been  relied on by the Assistant Commissioner  without determining  the value of the bearings under Rule 4.  It was submitted that giving of discounts was a normal incidence of commerce  and given the circumstances of the case a discount of  77% was perfectly justified.  Reference was made to  the decision  in  Mirah  Export  Pvt.  Ltd.   V.   Collector  of Customs  1998 (98) ELT 3 where discounts ranging between 50% to  70%  were  found  to be acceptable.   According  to  the appellant,  the reason given by the Assistant Collector  for not  accepting the actual price paid for the bearings as the true  value  of the transaction was  erroneous  particularly when  there  was  no  allegation  of  under-valuation.   The respondent  contended  that the principle for  valuation  of imported  goods was to be found in Section 14(1) of the  Act which  provides  for the determination of the value  on  the basis  of  the international sale price.  It is argued  that the Rules would have to be read subject to Section 14(1) and that  the  use of the words price payable in Rule 4  meant the market value of the goods in international trade.  While conceding  that  the  onus was on the Customs  authority  to establish  the  market  value  of the  imported  goods,  the respondent  claimed  that  the onus had been  discharged  by proof  of  the  vendors  price list.  In  support  of  this argument,  the respondent relied on Sharp Business  Machines Pvt.   Ltd.,  Bangalore V.  Collector of Customs,  Bangalore 1991  (1) SCC 154.  Under the Act customs duty is chargeable on  goods.   According  to Section 14 (1) of  the  Act,  the assessment  of duty is to be made on the value of the goods. The  value  may  be fixed by the  Central  Government  under Section  14(2).  Where the value is not so fixed, the  value has  to  be  determined  under Section  14(1).   The  value, according  to Section 14(1), shall be deemed to be the price at  which such or like goods are ordinarily sold, or offered for  sale, for delivery at the time and place of importation    in  the  course  of   international  trade.   The   word ordinarily   necessarily   implies    the   exclusion   of extraordinary   or  special   circumstances.   This   is clarified  by the last phrase in Section 14 which  describes an  ordinary  sale as one  where the seller or the  buyer have no interest in the business of each other and the price is  the  sole consideration for the sale..   Subject  to these  three conditions laid down in Section 14(1) of  time, place  and  absence of special circumstances, the  price  of imported  goods  is  to be determined under  S.   14(1A)  in accordance  with the rules framed in this behalf.  The rules which   have   been  framed   are  the  Customs,   Valuation (Determination of Price of Imported Goods) Rules, 1988.  The rules came into force on 16th August, 1988.  Under Rule 3(i)   the  value  of imported goods shall  be  the  transaction value.   Transaction value has been defined in Rule  2(f) as  meaning the value determined in accordance with Rule  4. Rule  4  (1)  in  turn states:  The  transaction  value  of imported  goods shall be the price actually paid or  payable

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for  the  goods when sold for export to India,  adjusted  in accordance with the provisions of Rule 9 of these rules.

     Reading  Rule  3( i ) and Rule 4 (1) together,  it  is clear  that  a mandate has been cast on the  authorities  to accept  the price actually paid or payable for the goods  in respect  of  the goods under assessment as  the  transaction value.   But the mandate is not invariable and is subject to certain exceptions specified in Rule 4(2) namely:  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).

     These  exceptions are in expansion and explicatory  of the  special circumstances in Section 14 (1) quoted earlier. It  follows  that  unless the price actually  paid  for  the particular  transaction  falls  within the  exceptions,  the customs  authorities  are  bound to assess the duty  on  the transaction  value.  The respondents submission is that the phrase  the transaction value read in conjunction with the word  payable  in  Rule 4(1) allows determination  of  the ordinary  international value of the goods to be ascertained on  the basis of data other than the price actually paid for the  goods.  This, according to the respondent, would be  in keeping  with  the overriding effect of Section  14(1).   We cannot  agree.   It is true that the Rules are framed  under Section  14(1A) and are subject to the conditions in Section 14(1).   Rule  4  is in fact directly relatable  to  Section 14(1).   Both  Sections  14(1) and Rule 4 provide  that  the price  paid  by  an importer to the vendor in  the  ordinary course  of  commerce shall be taken to be the value  in  the absence  of  any of the special circumstances  indicated  in Section  14(1) and particularized in rule 4(2).  Rule 4  (1) speaks  of  the  transaction   value.   Utilization  of  the definite  article indicates that what should be accepted  as the  value for the purpose of assessment to customs duty  is the  price  actually  paid for the  particular  transaction, unless  of course the price is unacceptable for the  reasons set  out  in Rule 4 ( 2 ).  Payable in the context of  the language  of  Rule  4  ( 1 ) must,  therefore,  be  read  as referring  to the particular transaction and payability in respect  of  the  transaction envisages  a  situation  where

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payment of price may be deferred.  That Rule 4 is limited to the  transaction  in  question  is  also  supported  by  the provisions  of  the  other Rules each of which  provide  for alternate  modes of valuation and allow evidence of value of goods  other than those under assessment to be the basis  of the  assessable  value.   Thus,  Rule   5  allows  for   the transaction value to be determined on the basis of identical goods  imported into India at the same time;  Rule 6  allows for  the transaction value to be determined on the value  of similar  goods  imported into India at the same time as  the subject  goods.  Where there are no contemporaneous  imports into  India, the value is to be determined under Rule 7 by a process  of  deduction in the manner provided  therein.   If this  is not possible the value is to be computed under Rule 7A.   When value of the imported goods cannot be  determined under  any of these provisions, the value is required to  be determined  under Rule 8 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 and on the basis of data available in India. If the phrase the transaction  value  used in Rule 4 were not limited to  the particular  transaction then the other Rules which refer  to other  transactions and data would become redundant.  It  is only  when  the transaction value under Rule 4 is  rejected, then  under  Rule  3(ii) the value shall  be  determined  by proceeding  sequentially through Rules 5 to 8 of the  Rules. Conversely  if the transaction value can be determined under Rule  4(1) and does not fall under any of the exceptions  in Rule  4(2),  there is no question of determining  the  value under the subsequent Rules.  The Assistant Collector in this case  determined the value of the imported goods under  Rule 8.   The  question is whether he should have determined  the transaction value under Rule 4 at the price actually paid by the  appellant for the 1989 bearings.  Naturally, if Rule  4 applies to the facts of this case, the Assistant Collectors reasoning under Rule 8 must, by virtue of language of Rule 3 (ii), be set aside.  The Assistant Collector appears to have proceeded  on the law as it was prior to the 1988 Rules when special considerations on the basis of which a transaction was  held  not  to  be an ordinary sale  in  the  course  of international trade within the meaning of Section 14(1), had not  been  statutorily  particularized.  As  to  what  would constitute  such special consideration has been considered in  several decisions of this Court.  For example, a special quotation  for  the  importer singling him  out  from  other importers in India was held to be a special consideration in Padia  Sales  Corporation  V.  Collector of  Customs  Bombay (supra)  justifying  the  rejection  of price  paid  as  the transaction  value.  On the other hand in Basant  Industries V.   Addl.   Collector of Customs, Bombay 1996 (81) ELT  195 (SC),  a special quotation for an old and valued  customer was  upheld  as  not  being  a  special  circumstance.   The decision  in Sharp Business Machines Pvt.  Ltd., relied upon by  the  respondent  is another case where  the  transaction value  was rejected.  In that case, the importer had wrongly mis-described  the imported goods and sought to defraud  the Revenue  by  attempting  to   surreptitiously  import  items prohibited under the import policy.  It was found that there was  justification, in the circumstances, for rejecting  the price  shown  in the invoice.  The transaction value  having been  rejected, assessment of value was made on the basis of the  price list of the foreign vendor.  Both the  decisions, Padia  Sales  Corporation and Sharp Business  Machines  Pvt. Ltd.     were distinguished subsequently in  Mirah  Exports Pvt.   Ltd.   V.  Collector of Customs 1998 (98) ELT 3.   As

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the  facts  of  this case are somewhat similar to  the  case before  us, it is dealt with in some detail.  Mirah  Exports Pvt.  Ltd.  along with other importers had imported bearings at  high rates of discount.  The declared value was rejected by the Customs authorities on the basis of the price list of the  vendors.   This  Court set aside the  decision  of  the respondent  authorities  accepting  the   argument  that   a discount  is  a  recognised feature of  international  trade practice  and that as long as those discounts are  uniformly available to all and based on logical commercial bases, they cannot  be  denied  under Section 14.  It appears  from  the judgment  that a distinction was drawn between a  discounted price  special  to  a   particular  customer  and  discounts available  to  all  customers.  As already noted  all  these cases dealt with imports made prior to the coming into force of  the Rules in 1988.  Now the special considerations are detailed  statutorily in Rule 4(2).  In the case before  us, it  is  not alleged that the appellant has mis-declared  the price  actually  paid.  Nor was there a mis- description  of the   goods  imported  as  was   the  case  in  Padia  Sales Corporation.   It is also not the respondents case that the particular   import  fell  within   any  of  the  situations enumerated  in  Rule 4(2).  No reason has been given by  the Assistant  Collector  for  rejecting the  transaction  value under  Rule 4(1) except the price list of vendor.  In  doing so,  the Assistant Collector not only ignored Rule 4(2)  but also  acted on the basis of the vendors price list as if  a price  list  is invariably proof of the  transaction  value. This  was  erroneous and could not be a reason by itself  to reject  the transaction value.  A discount is a commercially acceptable  measure which may be resorted to by a vendor for a  variety  of reasons including stock clearance.   A  price list  is  really no more than a general quotation.  It  does not  preclude  discounts  on the listed price.  In  fact,  a discount  is  calculated with reference to the  price  list. Admittedly  in this case discount upto 30% was allowable  in ordinary  circumstances  by the Indian agent itself.   There was the additional factor that the stock in question was old and  it  was  a one time sale of 5 year old stock.   When  a discount  is permissible commercially, and there is  nothing to show that the same would not have been offered to any one else  wishing  to buy the old stock, there is no reason  why the  declared value in question was not accepted under  Rule 4(1).   In  the circumstances, production of the price  list did  not discharge the onus cast on the Customs  authorities to  prove  that  the value of the 1989 bearings in  1993  as declared  by the appellant was not the ordinary sale price of  the  bearings  imported.  The decision of  the  Tribunal accepting  the  determination  of  value  by  the  Assistant Collector  cannot, therefore, be sustained.  We  accordingly allow  the appeal by setting aside the judgment under appeal but without any order as to costs.