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CASE NO.: Appeal (civil)  4498 of 2006

PETITIONER: Rabindra Chandra Paul

RESPONDENT: Commr. of Customs (Preventive) Shillong

DATE OF JUDGMENT: 27/02/2007

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

JUDGMENT: J U D G M E N T with Civil Appeal No. 4753 of 2006

KAPADIA, J.

Civil Appeal No. 4498/2006         This is an appeal under Section 130 E of the Customs Act, 1962  against judgment and order No. M-299/Kol /06 dated 6.7.2006 passed by the  Customs, Excise & Service Tax Appellant Tribunal, Kolkata                     ("the Tribunal"). It is an appeal filed by the assessee.

       A short question which arises for determination in this civil appeal is  whether the Department, in the facts and circumstances, was justified in  invoking Rule 7A of Customs Valuation (Determination of Price of  Imported Goods) Rules, 1988 framed under section 156 of the said 1962  Act.

       Appellant-assessee purchased two consignments of Refined Soyabean  Oil from M/s United Edible Oils Ltd., Bangladesh. The goods imported were  accompanied with Invoice dated 4.10.2003 and Invoice dated 30.10.2003.  The C & F value of the Soyabean Oil (final product) showed the price to be  Rs. 24.50 per kg. calculated at the prevailing rate of  US $. The Department  called upon the appellant to give the cost break-up of the imported goods.  The details were forwarded by the appellant to the Department vide letter  dated 19.10.2003 along with copy of the bills of entry. The appellant also  obtained a certificate from the Superintendent of Customs which stated that  the consignments imported stood assessed by the Assistant Commissioner of  Customs at Rs. 27.17 and Rs. 31.96 respectively. The Department, however,  refused to accept the rate of Rs. 27.17 and Rs. 31.96 respectively. On  5.12.2003 the Assistant Commissioner of Customs gave a hearing to the  appellant in the matter of finalization of the assessable value of the said two  consignments. The appellant contended that M/s United Edible Oils Ltd.,  Bangladesh was the manufacturer of Refined Soyabean Oil. The said goods  were manufactured from imported Crude Soyabean Oil (raw material). The  said raw material was imported by M/s United Edible Oils Ltd., Bangladesh  from a foreign country under a valid invoice and bills of entry, copies  whereof were also submitted by the appellant herein to the Assistant  Commissioner of Customs. M/s United Edible Oils Ltd., Bangladesh  processed the said raw material in their factory in Bangladesh into Refined  Soyabean Oil (final product) which was exported to the appellant. Before the  Assistant Commissioner, the appellant presented the actual price of the  above raw material plus processing charges plus transportation charges from  the factory gate to the point of exportation. The price declared, therefore,  was the price at the point of exportation. Before the Assistant Commissioner,  the appellant submitted the above documents. The appellant contended  before the Assistant Commissioner that the Assistant Commissioner was not  entitled to invoke Rule 7A on the basis of the cost break-up, particularly  when there was no allegation that the price declared was tainted. The

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appellant contended before the Assistant Commissioner that the Department  was not entitled to invoke Rule 7A and that the Department was not justified  in invoking Rule 7A when the declared price tallied with the price of the  Indian Refined Soyabean Oil (see page ’E’ of the synopsis). By Order dated  26.12.2003 the Assistant Commissioner of Customs confirmed the demand  raised by the Department fixing the assessable value at Rs. 31.66 per kg. The  Assistant Commissioner came to the conclusion that the Declared Price of  the final product was less than the Tariff Value indicated in the letter issued  by the Central Board of Excise and Customs dated 15.12.2004 under which  the Board had stated that the Tariff Value for Crude Soyabean Oil stood at  US $ 565 PMT vide Notification No. 105/2004-Customs (NT) dated  15.9.2004. In the said letter, the Board further stated that it was logical to  value the raw material at  prices higher than the Crude Soyabean Oil. On the  basis of said letter dated 15.12.2004 and Notification dated 15.9.2004 the  Assistant Commissioner of Customs fixed the assessable value of the  Refined Soyabean Oil at the above rate of Rs. 31.66 per kg.. Accordingly,  the Assistant Commissioner directed the Department to complete the  assessment and confiscate the goods under section 111(m) of Customs Act,  1962.

       Being aggrieved by Order dated 26.12.2003 passed by the Assistant  Commissioner of Customs, the appellant preferred an appeal under Section  128A (3) of Customs Act, 1962. This appeal was filed before the  Commissioner (A). By Order dated 30.6.2004 the Commissioner came to the  conclusion that there was no reason for the Assistant Commissioner of  Customs to invoke Rule 7A, particularly when the Department had not  alleged that the sale was not in the ordinary course of trade. It was further  held that there was no reason to invoke Rule 7A since the import did not  attract any of the circumstances enumerated in Rule 4(2) (c) to (h).  According to the Commissioner (A), the only ground on which the Assistant  Commissioner had invoked Rule 7A was that the appellant was given  abnormal discounts. According to the Commissioner (A), in the present case  there was nothing to show that the discounts obtained were abnormal. In the  circumstances, the Commissioner held that the Department was not correct  in rejecting the transaction value in terms of Rule 4(1).

       Aggrieved by the decision of the Commissioner (A), the matter was  carried in appeal to the Tribunal (CESTAT). The matter was carried in  appeal by the Department. By a cryptic order, the Tribunal stated that on the  facts and circumstances of the case, the Department was right in invoking  Rule 7A. Hence this civil appeal.

       In the case of Eicher Tractors Ltd.  v.  Commissioner of Customs,  Mumbai reported in 2000 (122) E.L.T. 321 this Court held that the principle  for valuation of imported goods is found in Section 14(1) of  Customs Act,  1962 which provides for the determination of the assessable value on the  basis of the international sale price. Under the said Act, customs duty is  chargeable on goods. According to section 14(1), 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 it has to be  decided 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 and importation in the  course of international trade. The word "ordinarily" implies the exclusion of  special circumstances. This position is clarified by the last sentence in  section 14(1) 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 or offer for sale. Therefore, when the above  conditions regarding time, place and absence of special circumstances stand  fulfilled, the price of imported goods shall be decided under section 14(1A)  read with the rules framed thereunder. The said Rules are the Customs  Valuation Rules, 1988. It was further held that in cases where the  circumstances mentioned in Rule 4(2) (c) to (h) are not applicable, the  Department is bound to assess the duty under Transaction value. Therefore,  unless the price actually paid for the particular transaction falls within the

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exceptions mentioned in Rule 4(2) (c) to (h), the Department is bound to  assess the duty on the Transaction value. It was further held that Rule 4 is  directly relatable to section 14(1) of Customs Act, 1962. Section 14(1) read  with Rule 4 provides that the price paid by the importer in the ordinary  course of commerce shall be taken to be the value in the absence of any  special circumstances indicated in section 14(1). Therefore, what should be  accepted as the value for the purpose of assessment is the price actually paid  for the particular transaction, unless the price is unacceptable for the reasons  set out in Rule 4(2). It was further held that the word "payable" in Rule 4(1)  must be read as referring to the "particular transaction" and payability in  respect of the transaction contemplates as situation where payment of price  stands deferred. Therefore Rule 4 is limited to the transaction in question. It  was further held that Rule 5 allows the transaction value to be determined on  the basis of identical goods imported into India about the same time; Rule 6  allows fixation of transaction value on the basis of the value of similar goods  imported into India about the same time. Where there are no  contemporaneous imports into India, the value is to be decided under Rule 7  by a process of deduction in the manner provided therein. If this is not  possible, then the value shall be computed under Rule 7A. It was further  held that it is only when the transaction value under Rule 4 is rejected, only  then under Rule 3(ii) the value shall be  determined by proceeding  sequentially through Rules 5 to 8. Conversely, if the transaction value can be  decided under Rule 4(1) and does not fall under any of the circumstances  given in Rule 4(2), there is no question of determining the value under the  subsequent rules. It was further held that discount is a recognized feature of  international trade and as long as those discounts are uniformly available and  as long as they are based on commercial considerations, they cannot be  denied under section 14.

       The primary base for Customs Valuation is the Transaction Value,  i.e., the price actually paid or payable for the goods when sold for export to  the country of importation, subject to adjustment. The said price should not  be subject to any condition or consideration that could prevent the value  from being determined under Rule 4(1). Where the Department has reason to  doubt the truth or accuracy of a declared value, it may ask the importer to  provide further explanation to the effect that the declared value represents  the total amount actually paid or payable for the imported goods. If the  declared value is lower than the declared value of similar goods imported by  other buyers at or about the same time, it can constitute "reason to doubt"  the truth or accuracy of the declared value indicated in the commercial  invoice (see Rule 10A). Under Rule 8(2)(i) no value shall be determined  based on the selling price of the goods produced in India. In cases where the  Department fails to establish circumstances mentioned in Rule 4(2), the  transaction value declared by the assessee cannot be rejected and the price  mentioned in the Invoice should be held to represent the transaction value.

       Applying the above principles to the facts of the present case, we find  that the Department had erred in invoking Rule 7A. Firstly, there was no  allegation made by the Department stating that the transaction was tainted.  The appellant has proved that the transaction was at arm’s length. There was  no evidence before the Department to show that the price was pegged at a  lower level on account of the circumstances mentioned in Rule 4(2).  Secondly, the Department has not even alleged that on account of discounts  the price stood pegged at a lower level. Thirdly, we may point out that in a  given case, the Department would be entitled to invoke Rule 7A. For  example, in matters of agro-processing, processing of seeds, refined oil from  crude oil etc., the cost of the raw material has a crucial role to play in the  method of  costing. In such cases, crude oil which is the raw material is the  major component of the refined oil (final product). In such cases, if the cost  of the raw material exceeds the price of the final product then in that event  the Department can invoke Rule 7A. However, in the present case, even  assuming for the sake of argument that Rule 7A applies, the Assistant  Commissioner of Customs while applying Rule 7A has followed a peculiar  method. She has examined the cost break-up. She rejects the cost of the raw  material but, at the same time, she accepts the processing charges (figures

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supplied by the appellant). Rule 7A refers to Computed Value in  contradistinction to Rule 7 which refers to Deductive Value. Computed  value under Rule 7A is the value of the imported goods consisting of the  cost or value of materials plus amount for profit and cost or value of all other  expenses under Rule 9(2). Further,     Rule 7A is subject to the provisions of  Rule 3. Rule 3 applies in cases where the buyer and seller are related. In the  present case, there is no finding given that the buyer and seller are related. In  the interpretative note to Rule 7A, value of imported goods is to be  determined by examining the costs of production of the goods and the said  interpretative note clarifies that Rule 7A should be applied to those cases  where the buyer and seller are related. Further, if the officer wants to  proceed under Rule 7A, the cost or value has got to be decided on the basis  of the commercial accounts of the producer, provided that such accounts are  consistent with the accounting standards applicable in the country where the  goods are produced. In the present case, the producer is from Bangladesh.  There is no finding that M/s United Edible Oils Ltd. has not followed the  accounting system of that country (Bangladesh). In such cases, normally the  Department should call upon the assessee to furnish the value/ cost of raw  materials plus all costs (direct, indirect, fixed and variable) plus profit at an  average rate. In such cases, the Department should call upon the assessee to  produce a certificate from the Chartered Accountant of the foreign seller  indicating the turnover, profit and other details on the basis of which  computation of the Deductive Value under Rule 7 could be determined. This  exercise had not been done in the present case. As stated above, in the  present case, the Assistant Commissioner has rejected the cost of raw  materials and, at the same time, she has accepted the value of the processing  charges. Therefore, even if  Rule 7A was to be applied, which, in our  opinion, is not attracted,  still the computation made under Rule 7A by the  Assistant Commissioner was erroneous. None of these aspects have been  considered by the Tribunal in the impugned judgment.

       Accordingly, the civil appeal stands allowed, the impugned judgment  of the Tribunal (CESTAT) in Appeal No. M-299/Kol/06 dated 6.7.2006 is  set aside and the Order of the Commissioner (A) stands confirmed with no  order as to costs. Civil Appeal No. 4753 of 2006         In view of our judgment in Civil Appeal No. 4498/06 (supra), the  impugned judgment of the Tribunal (CESTAT) in Appeal No.                     A-76/Kol/2005 dated 17.1.2005 is also set aside. This civil appeal is allowed  with no order as to costs.