http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 19  

CASE NO.: Appeal (civil)  3972 of 2001

PETITIONER: M/s. Ispat Industries Ltd.                           

RESPONDENT: Commissioner of Customs,Mumbai                                              

DATE OF JUDGMENT: 29/09/2006

BENCH: ASHOK BHAN & MARKANDEY KATJU

JUDGMENT: J U D G M E N T (With Civil Appeal Nos.5921-5924/2004,6160-6161/2004,  6366/2004  & 1603/2005)

MARKANDEY KATJU, J.

       Since common questions of law are involved in all these  appeals we are deciding them in a common judgment and for our  reference we are citing the facts of the case of Ispat Industries  Ltd. (Civil Appeal No. 3972 of 2001).  

CIVIL APPEAL NO. 3972 of 2001          This appeal has been filed against the judgment and order  dated 7th March 2001 passed by the Customs, Excise and Gold  (Control) Appellate Tribunal (hereinafter referred to as CEGAT),  West Regional Bench, Mumbai.  

       Heard learned counsel for the parties and perused the record.  

       The facts of the case are that the appellant is a regular  importer of iron ore pellets falling under Chapter Sub-heading No.  2601.12 of the Customs Tariff Act, 1975.  The present appeal  relates to 14 consignments of iron ore pellets imported between  14.2.1996 to 21.2.1998.  In all these cases, the mother vessel  coming from abroad and carrying the cargo anchored at Bombay  Floating Light (in short ’BFL’).  The cargo on board the mother  vessel was then examined by the custom authorities and  provisionally assessed to duty. After payment of this duty, the out  of charge order was passed on the Bills of Entry permitting  clearing of such goods for home consumption.  After obtaining the  out of charge order, the cargo was discharged at BFL from the  mother vessel to the barges which then ferried the cargo to the  Dharamtar Jetty.   

       It may be mentioned that the cargo could not be discharged  directly from the mother vessel to the Dharamtar Jetty due to lack  of draft.  Hence it was discharged from the mother ship on to the  barges at BFL, which carried the goods to the Dharamtar Jetty.  It  may further be mentioned that while Dharamtar has been approved  as a place for unloading under Section 8(a) of the Customs Act,  BFL has not been so approved but is only a placing for anchoring  the ship.

       In the Bills of Entry filed by the appellant in respect of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 19  

imported cargo, the assessable value of the iron ore pellets was  arrived at by including freight incurred on the imported cargo from  the place of export to the port of discharge viz.  Mumbai/JNPT/Dharamtar.  However, by letter dated 7.2.1997  (Annexure P-2 to the Appeal), the Assistant Commissioner of  Customs informed the appellant that as per Rule 9 of the Customs  Valuation Rule, 1988, the freight incurred on barges and other  associated charges in transportation of the goods from BFL to the  Dharamtar jetty has also to be added for determining the correct  assessable value for the purpose of calculating duty.

       The appellant sent its reply on 19.5.1997 (Annexure P-3 to  the Appeal) stating that the transportation charges of iron ore  pellets by barges from BFL to Dharamtar jetty is not inclusive in  the assessable value.  The appellant alleged that the expression  "place of importation" in Section 14 of the Customs Act read with  Rule 9 referred to the BFL and not Dharamtar jetty because the  goods in question passed out of customs control at BFL.  The  appellant further alleged that the risk and title to the goods changes  the moment the cargo is discharged from the mother vessel on to  the barges.  Hence, it was alleged that the Dharamtar jetty cannot  be considered as the ’place of importation’, and the assessable  value of the cargo should be determined without including the  transportation charges of the barges from BFL to Dharamtar jetty.

Thereafter, a show cause notice dated 22.4.1998 was issued  by the Assistant Commissioner of Customs (Preventive) Alibag  Division (Annexure P-4 to the Appeal).  In this show cause notice  it was stated that duties which were assessed provisionally under  Section 18 of the Customs Act, 1962 had been assessed finally and  the appellant was requested to pay the duties short paid within 10  days or to explain why an amount of Rs. 78,54,112/- (the barge  charges) should not be recovered from the appellant. Similar show  cause notice dated 17.7.1998  (Annexure P-5 to the Appeal) was  also issued.   

Thereafter the appellant gave its reply and was also heard  personally through its authorized representative, but by the order of  the Assistant Commissioner of Customs dated 5.10.1998  (Annexure P-6 to the Appeal) the demand was confirmed.  The  appellant appealed against the said order which was rejected by the  Commissioner of Customs (Appeals), Mumbai vide order dated  10.2.1999.  

Aggrieved, the appellant filed an appeal to the Customs,  Excise & Gold (Control) Tribunal which has been dismissed on  7.3.2001.  Hence this appeal.                           The short point before is as to whether the transportation  charges for the use of barges for carrying the cargo from the  mother vessel which anchored at BFL to the Dharmatar jetty where  the goods were unloaded are to be added to calculate the assessable  value for the purpose of duty under the Customs Act.

Before dealing with the contention of the parties, we may  refer to the provisions of the Customs Act, 1962 which are relevant  in this case.

Section 2(23) defines import to mean ’bringing into India  from a place outside India’.  

       Section 2(25) defines ’imported goods’ as follows:

"imported goods" means any goods brought into  India from outside India but does not include

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 19  

goods which have been cleared for home  consumption"   

       Section 2(27) defines ’India’ as follows:

               "India includes the territorial water of India".

       Section 7(1)(a) of the Act states as follows:

"The Board may, by notification in the Official  Gazette, appoint \026

(a) the ports and airports which alone shall be  customs ports or customs airports for the  unloading of imported goods and the loading of  export goods or any class of such goods".

                Section 8 of the Act states as follows :          "Power to approve landing places and specify  limits of customs area  

               The Commissioner of Customs may -

(a)     approve proper places in any customs port  or customs airport  or coastal port for the  unloading and loading of goods or for any class of  goods;    

(b)     specify the limits of any customs area".                                                                                                   Section 14. Valuation of goods for purposes of assessment:

"(1) For the purposes of the Customs Tariff Act,  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 \026

(a) the seller and the buyer have no interest  in the business of each other; or  

(b) one of them has no interest in the  business of the 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;"  

Section 14(1A) of the Act states as under:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 19  

" 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."  

Section 30(1) states as under:

"(1)  The person-in-charge of -                 (i)     a vessel; or                    (ii)    an aircraft; or                 (iii)   a vehicle,

carrying imported goods or any other person as  may be specified by the Central Government, by  notification in the Official Gazette, in this behalf  shall, in the case of a vessel or an aircraft, deliver  to the proper officer an import manifest prior to  the arrival of the vessel or the aircraft, as the case  may be, and in the case of a vehicle, an import  report within twelve hours after its arrival in the  customs station, in the prescribed form and if the  import manifest or the import report or any part  thereof, is not delivered to the proper officer  within the time specified in this sub-section and if  the proper officer is satisfied that there was no  sufficient cause for such delay, the person-in- charge or any other person referred to in this sub- section, who causes such delay, shall be liable to a  penalty not exceeding fifty thousand rupees".

Section 31 (1) & (2) of the Act state as under:

" (1)   The master of a vessel shall not permit the  unloading of any imported goods until an order  has been given by the proper officer granting  entry inwards to such vessel.  

(2)     No order under sub-section (1) shall be  given until an import manifest has been delivered  or the proper officer is satisfied that there was  sufficient cause for not delivering it".

Section 32 states as under:

"No imported goods required to be mentioned  under the regulations in an import manifest or  import report shall, except with the permission of  the proper officer, be unloaded at any customs  station unless they are specified in such manifest  or report for being unloaded at that customs  station".  

Section 33 states as under :

"Except with the permission of the proper officer,  no imported goods shall be unloaded, and no  export goods shall be loaded, at any place other  than a place approved under clause (a) of Section  8 for the unloading or loading of such goods".  

Section 34 states as under :

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 19  

"Imported goods shall not be unloaded from, and  export goods shall not be loaded on, any  conveyance except under the supervision of the  proper officer".

PROVIDED that the Board may, by notification  in the Official Gazette, give general permission  and the proper officer may in any particular case  give special permission, for any goods or class of  goods to be unloaded or loaded without the  supervision of the proper officer".

Section 35 states as under :

"No imported goods shall be water-borne for  being landed from any vessel, and no export  goods which are not accompanied by a shipping  bill, shall be water-borne for being shipped, unless  the goods are accompanied by a boat-note in the  prescribed form:

PROVIDED that the Board may, by notification  in the Official Gazette, give general permission,  and the proper officer may in any particular case  give special permission, for any goods or any  class of goods to be water-borne without being  accompanied by a boat-note".            Section 46 (1) states as under :  

"The importer of any goods, other than goods  intended for transit or transshipment, shall make  entry thereof by presenting to the proper officer a  bill of entry for home consumption or  warehousing in the prescribed form".

Section 47(1) states as under :

"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 of the goods for home  consumption".

       Apart from the above-mentioned provisions in the Act, it is  necessary to mention certain provisions in the Customs Valuation  (Determination of Price of Imported Goods) Rules, 1988  (hereinafter referred to as ’The Rules’).

       Rule 4 (1) & (2) state as under:   

"(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 --

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 19  

(a)     the sale is in the ordinary course of trade  under fully competitive conditions;      

(b)     the sale does not involve any abnormal  discount or reduction from the ordinary  competitive price;

(c)     the sale does not involve special discounts  limited to exclusive agents;     

(d)     objective and quantifiable data exist with  regard to the adjustments required to be  made, under the provisions of rule 9, to the  transaction value;

(e)     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;

                (f)     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;                  (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; and  

(h)     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".                   

       Rule 5(1) states as under :

"(1)(a) \026 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 the same  time as the goods being valued.

(b)     In applying this rule, the transaction value of  identical goods in a sale at the same commercial  level and in substantially the same quantity as the  goods being valued shall be used to determine the  value of imported goods.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 19  

(c)     Where no sale referred to in clause (b) of  sub-rule (1) of this rule, is found, the transaction  value of identical goods sold at a different  commercial level or in different quantities or both,  adjusted to take account of the difference  attributable to commercial level or to the quantity  or both, shall be used, provided that such  adjustments shall be made on the basis of  demonstrated evidence which clearly establishes  the reasonableness and accuracy of the  adjustments, whether such adjustment leads to an  increase or decrease in the value".

       Rule 6(1) states as under:

"(1) Subject to the provisions of Rule 3 of these  rules, the value of imported goods shall be the  transaction value of similar goods sold for export  to India and imported at or about the same time as  the goods being valued".

       Rule 9(2) states as under:

"(2)    For the purpose of sub-section (1) and sub- section (1A) of Section 14 pf 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 19  

exceed twenty per cent of free on board value of  the goods:

Provided also that where the free on board  value 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) 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 contained for clearance at an  Inland Container Depot or Contained Freight  Station, the cost of freight incurred in the  movement of contained from the port of entry to  the Inland Container Deport or Container freight  Station shall not be included in the cost of  transport referred to in clause (a).

               Rule 9 (4) states as under:

"No addition shall be made to the price  actually paid or payable in determining the value  of the imported goods except as provided for in  this rule".

       From a perusal of the above provisions (quoted above), it is  evident that the most important provision for the purpose of  valuation of the goods for the purpose of assessment is Section 14  of the Customs Act, 1962.  Section 14(1), has already been quoted  above, and a perusal of the same shows that the value to be  determined is a deemed value and not necessarily the actual value  of the goods. Thus, Section 14(1) creates a legal fiction.  Section  14(1) states that the value of the imported goods shall be the  deemed  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" in Section  14(1) is of great importance.  In Section 14(1) we are not to see the  actual value of the goods, but the value at which such goods or like  goods are ordinarily sold or offered for sale for delivery at the time  of import.  Similarly, the words "in the course of international  trade" are also of great importance.  We have to see the value of  the goods not for each specific transaction, but the ordinary value   which it would have in the course of international trade at the time  of its import.

The view we are taking in this case is in accordance with the  three-Judge Bench decision of this Court in M/s. Rajkumar  Knitting Mills (P) Ltd. vs. Collector of Customs, Bombay AIR  1998 SC, 2602.  In para 7 of the said decision, it was observed  thus:

"The words "ordinarily sold or offered for sale"  do not refer to the contract between the supplier  and the importer, but to the prevailing price in the  market on the date of importation or exportation"   

       The above decision thus clearly held that it is not the actual  price mentioned in the contract between the supplier and the  importer which has to be seen, but the prevailing price in the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 19  

market has to be seen.  This again lends support to the view we are  taking that Section 14 is a deeming provision and we have not to  take specific cases for determining the value of the imported goods  unless the same is in accordance with Section 14 of the Act.  

       Hence, while determining the value of Section 14, we must  never lose sight of the fact that Section 14(1) is a deeming  provision which creates a legal fiction.

       Legal fictions are well-known in law.  In the oft-quoted  passage of Lord Asquith in East End Dwelling Co. Ltd. vs.  Finsbury Borough Council (1951) 2 All ER 587, it was observed :    

"If you are bidden to treat an imaginary state of  affairs as real, you must surely, unless prohibited  from doing so, also imagine as real the  consequence and incidents which, if the putative  state of affairs had in fact existed, must inevitably  have flowed from or accompanied it -. The statute  says that you must imagine a certain state of  affairs; it does not say that having done so, you  must cause or permit your imagination to boggle  when it comes to the inevitable corollaries of that  state of affairs".

       The observation has been referred to in a large number of  Supreme Court decisions which have been mentioned in G.P.  Singh’s ‘Principles of Statutory Interpretation’, Ninth Edition  (2004) at pp. 327-338, which may be seen.

In Commissioner of Income Tax, Bombay vs. Bombay  Corporation, AIR 1930 PC 54, Lord  Dunedin observed thus:

"Now when a person is ’deemed to be’ something  the only meaning possible is that whereas he is  not in reality that something the Act of Parliament  requires him to be treated as if he were".          

       Learned counsel for the respondent, no doubt, emphasized on  Rule 9 of the Rules (quoted above), but it must be realized that  Rule 9 cannot be given an interpretation which is in violation of  Section 14 of the Act.  After all, the rules are subservient to the Act  and cannot deviate from the provisions of the parent Act.

Learned counsel for the Revenue emphasized on Rule 9(2)(a)  of the Rules in support of his contention that barging charges have  also to be included in the value of the imported goods as they are  also transportation charges.  

       On first impression the submission of learned counsel for the  Revenue appears to be sound, because surely the transportation by  barge is also part of the transportation of the goods.  However, on a  deeper analysis, we are of the opinion that the submission of the  learned counsel of the Revenue is clearly untenable.  Admittedly,  all the contracts entered into with the foreign sellers are either CIF  contracts or FOB contracts with Bills of Lading nominating  Bombay/JNPT/Dharamtar as the ports of discharge.  As such the  cost of transport has already been included in the price paid to the  seller under the CIF contract or an ascertainable freight determined  and paid by the buyer from the foreign port to the Indian port.   Hence, a further addition to the transport charges under Rule  9(2)(a) of the Customs Valuation Rules, 1988 is in our opinion  clearly impermissible.   

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 19  

       If we read Rule 9(2) of the Rules independently without  considering it along with Section 14 of the Act, then of course the  submission of the learned counsel for the Revenue could be  sustained.  However, in our opinion, Rule 9(2) has to be read along  with Section 14 and it cannot be read independently.  As already  stated above, Section 14 creates a legal fiction and we have to see  the ordinary value of the imported goods in the course of  international trade at the place and time of import.  This means that  specific cases of import should be ignored.  In fact, it is for this  reason that Rules 4, 5 and 6 of the Rules have been promulgated.   The actual price paid for the goods can only be taken into  consideration provided the sale is in the ordinary course of trade  under fully competitive conditions and the other provisions of Rule  4 are satisfied.   

It is well-known that there are sales in which there is under- invoicing or over-invoicing or for some other reasons the sale is  not under full competitive conditions.  In such a case, Rules 5 & 6  have to be resorted to and the actual price has not to be seen.   Thus, the Rules have been created to serve the object of Section 14  which was to determine a deeming price and not the actual price of  the imported goods.

In our opinion if there are two possible interpretations of a  rule, one which subserves the object of a provision in the parent  statute and the other which does not, we have to adopt the former,  because adopting the latter will make the rule ultra vires the Act.

In this connection, it may be mentioned that according to the  theory of the eminent positivist jurist Kelsen (The Pure Theory of  Law)in every legal system there is a hierarchy of laws, and  whenever there is conflict between a norm in a higher layer in this  hierarchy and a norm in a lower layer the norm in the higher layer  will prevail (see Kelsen’s ‘The General Theory of Law and  State’).   

In our country this hierarchy is as follows : 1)      The Constitution of India; 2)      The Statutory Law, which may be either Parliamentary  Law or Law made by the State Legislature;

3)      Delegated or subordinate legislation, which may be in the  form of rules made under the Act, regulations made under  the Act, etc.;

4)      Administrative orders or executive instructions without  any statutory backing.       

The Customs Act falls in the second layer in this hierarchy  whereas the rules made under the Act fall in the third layer.   Hence, if there is any conflict between the provisions of the Act  and the provisions of the Rules, the former will prevail.  However,  every effort should be made to give an interpretation to the Rules  to uphold its validity.  This can only be possible if the rules can be  interpreted in a manner as to be in conformity with the provisions  in the Act, which can be done by giving it an interpretation which  may be different from the interpretation which the rule could have  if it was construed independently of the provisions in the Act.  In  other words, to uphold the validity of the rule sometimes a strained  meaning can be given to it, which may depart from the ordinary  meaning, if that is necessary to make the rule in conformity with  the provisions of the Act.  This is because it is a well settled  principle of interpretation that if there two interpretations possible  of a rule, one of which would uphold its validity while the other

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 19  

which would invalidate it, the former should be preferred.     

In this connection we may also refer to the Gunapradhan  Axiom of the Mimansa Principles of Interpretation, which is our  indigenous system of interpretation (see K.L. Sarkar’s ‘Mimansa  Rules of Interpretation, Second Edition p.71).   

It is deeply regrettable that in our Courts of Law, lawyers  quote Maxwell and Craies but nobody refers to the Mimansa  Principles of Interpretation.  Few people in our country are aware  about the great intellectual achievements of our ancestors and the  intellectual treasury they have bequeathed us.  The Mimansa  Principles of Interpretation is part of that intellectual treasury, but  it is distressing to note that apart from a reference to these  principles in the judgment of Sir John Edge, the then Chief Justice  of Allahabad High Court, in Beni Prasad v. Hardai Devi, (1892)  ILR 14 All 67 (FB), and in the judgments of one of us (Markandey  Katju, J.) while a Judge of Allahabad High Court (which have been  annexed to the Second Edition of K.L. Sankar’s book),  there has  been almost no utilization of these principles even in our own  country.        

       It may be mentioned that the Mimansa Rules of Interpretation  were our traditional principles of interpretation laid down by  Jaimini in the 5th Century B.C. whose Sutras were explained by   Shabar, Kumarila Bhatta, Prabhakar, etc.  The Mimansa Rules  of Interpretation were used in our country for at least 2500 years,  whereas Maxwell’s First Edition was published only in 1875.   These Mimansa Principles are very rational and logical and they  were regularly used by our great jurists like Vijnaneshwara  (author of Mitakshara), Jimutvahana  (author of Dayabhaga),  Nanda Pandit, etc. whenever they found any conflict between the  various Smritis or any ambiguity or incongruity therein.  There is  no reason why we cannot use these principles on appropriate  occasions even today.  However, it is a matter of deep regret that  these principles have rarely been used in our law Courts.  It is  nowhere mentioned in our Constitution or any other law that only  Maxwell’s Principles of Interpretation can be used by the Court.   We can use any system of interpretation which helps us solve a  difficulty.  In certain situations Maxwell’s principles would be  more appropriate, while in other situations the Mimansa principles  may be more suitable.  One of the Mimansa principles is the  Gunapradhan Axiom, and since we are utilizing it in this judgment  we may describe it in some detail.  ’Guna’ means subordinate or  accessory, while ’Pradhan’ means principal.  The Gunapradhan  Axiom states :   

"If a word or sentence purporting to express a  subordinate idea clashes with the principal idea,  the former must be adjusted to the latter or must  be disregarded altogether".  

This principle is also expressed by the popular maxim known as  ’matsya nyaya’, i.e. ’the bigger fish eats the smaller fish’.   According to Jaimini, acts are of two kinds, principal and  subordinate.  In Sutra 3 : 3 : 9 Jaimini states :        

               "Guna mukhya vyatikramey tadarthatvan mukhyen                   vedasanyogah"          Kumarila Bhatta, in his Tantravartika (See Ganganath Jha’s English  Translation Vol. 3, p. 1141) explains this Sutra as follows:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 19  

"When the Primary and the Accessory belong to  two different Vedas, the Vedic characteristic of  the Accessory is determined by the Primary, as  the Accessory is subservient to the purpose of the  primary."

It is necessary to explain this Sutra in some detail.  The  peculiar quality of the Rigveda and Samaveda is that the mantras  belonging to them are read aloud, whereas the mantras in the  Yajurveda are read in a low voice.  Now the difficulty arose about  certain ceremonies, e.g. Agnyadhana, which belong to the  Yajurveda but in which verses of the Samaveda are to be recited.   Are these Samaveda verses to be recited in a low voice or loud  voice ?  The answer, as given in the above Sutra, is that they are to  be recited in low voice, for although they are Samaveda verses, yet  since they are being recited in a Yajurveda ceremony their attribute  must be altered to make it in accordance with the Yajurveda.  

In the Shabar Bhashya translated into English by Dr. Ganga  Nath Jha, published in the Gaekwad Oriental Series, the Sutra is  read as follows :

"Where there is a conflict between the use and the  substance greater regard should be paid to the  use"

Commenting on Jaimini 3 : 3 : 9 Kumarila Bhatta says :

"The Siddhanta laid down by this Sutra is that in a  case where there is one qualification pertaining to  the Accessory by itself and another pertaining to it  through the Primary, the former qualification is  always to be taken as set aside by the latter.  This  is because the proper fulfillment of the Primary is  the business of the Accessory also as the latter  operates solely for the sake of the former.   Consequently if, in consideration of its own  qualification it were to deprive the Primary of its  natural accomplishment then there would be a  disruption of that action (the Primary) for the sake  of which it was meant to operate.  Though in such  a case the proper fulfillment of the Primary with  all its accompaniments would mean the deprival  of the Accessory of its own natural  accompaniment, yet, as the fact of the Accessory  being equipped with all its accompaniments is not  so very necessary (as that of the primary), there  would be nothing incongruous in the said  deprival".(See Ganganath Jha’s English translation of the  Tantravartika, vol. 3 p. 1141).

       The Gunapradhan Axiom can also be deducted from Jaimini  6 : 3 : 9 which states :

"When there is a conflict between the purpose and  the material, the purpose is to prevail, because in  the absence of the prescribed material a substitute  can be used, for the material is subordinate to the  purpose".

To give an example, the prescribed Yupa

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 19  

(sacrificial post for tying the sacrificial animal)  must be made of Khadir wood.  However, Khadir  wood is weak while the animal tied may be  restive.  Hence, the Yupa can be made of Kadar  wood which is strong.  Now this substitution is  being made despite the fact that the prescribed  wood is Khadir, but this prescription is only  subordinate or Accessory to the performance of  the ceremony, which is the main object.  Hence if  it comes in the way of the ceremony being  performed, it can be modified or substituted".

       In our opinion, the Gunapradhan principle is fully applicable  to the interpretation of Rule 9(2).  Rule 9(2) is subservient to  Section 14.  We must, therefore, interpret it in such a way as to  make it in accordance with the main object that is contained in  Section 14 of the Customs Act.  It may be that in isolation Rule  9(2) conveys some other meaning, but when it is read along with  Section 14 of the Act, it must be given a meaning which is in  accordance with the object of Section 14.  The object of Section 14  is ’primary’ whereas the conditions in Rule 9(2) are the  ’accessories’.  The ’accessory’ must, therefore, serve the ’primary’.

       In our opinion, it is really not necessary to decide whether the  place of importation is the jetty or the BFL.  Whether the place of  import is deemed to be the BFL or Dharamtar jetty it would make  no difference to the conclusion we have arrived at because the cost  of transportation of the imported goods has already been included  for delivery at the Dharamtar jetty and has already been paid to the  seller in the CIF or FOB contract.  Hence, a further addition to the  transport charges in the form of barge charges for the  transportation by barges cannot be said to be contemplated by  Section 14 of the Act.  

       Learned counsel for the Revenue has relied upon a decision  of this Court in Garden Silk Mills  Ltd. vs. Union of India 1999  9113) ELT 358(SC), in which it was observed thus:            "It was further submitted that in the case of  Apar’s Private Limited 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 water,  the import is complete.  We do not agree with the  submission.  This Court in its opinion in Re. The  Bill to Amend Section 20 of the Sea Customs Act,  1878 and Section 3 of the Central Excises and Salt  Act, 1944, 1964(3) SCR 787 at page 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 19  

home consumption is filed".          

       On the strength of the above observation in the Garden Silk  case (supra), learned counsel has submitted that the place of  importation is not where the ship is anchored (BFL), but the jetty  which has been approved for unloading of the goods under Section  8 of the Act.  Hence, he submitted that the transportation charges  for carrying goods from the mother ship by barges to the jetty has  also to be included in the valuation of the goods for imposing duty.   In our opinion, the decision of this Court in Garden Silk (supra) is  clearly distinguishable.

       It may be noted that Garden Silk (supra) was a case where  the question was whether landing charges could be included in the  value of the imported goods for the purpose of valuation of the  goods for imposing custom duty.  That was not a case relating to  transportation charges nor was it a case relating to charges for  transportation of goods from the mother ship on a barge to the  place (jetty) approved under Section 8(a) of the Act.  For the same  reason the decision of this Court in Coromandal Fertilizer Ltd. vs.  Collector of Customs 2000(1) SCC 448, also is not relevant  because that decision also is a case relating to landing charges and  has nothing to do with the question as to whether transportation  charges for transporting the goods from the mother ship by barge  to the place approved under Section 8(a) has to be added for the  purpose of valuation of the goods for imposing custom duty.       

       Similarly, the decision in Union of India vs. Apar Industries  Limited 1999 (5) JT 160 is also not relevant.  In that case the facts  were that the day when the goods entered the territorial waters, the  rate of duty was nil but when they were removed from the  warehouse, the duty had become leviable.  In this context, this  Court held that what is material is not the date when the goods  entered the territorial waters of India but the date mentioned in  Section 15 of the Act. Thus, Apar Industries case (supra) has also  nothing to do with the question which we were dealing with in the  present case.

       In Dhiraj Lal H. Vohra & others vs. Union of India &  others 1993 (Supp.3) SCC 453, the facts were that the appellants’  ship arrived on February 20, 1989 at Madras port and was ready to  discharge the cargo.  It delivered the import manifest under No.  116 on the said date but due to continued strike the cargo could not  be handled.  On February 27, 1989 the petitioner presented the bill  of entry "for clearance of goods for home consumption" and it was  entered at No. 012036 which was received in the appraising  section of the group on February 28, 1989.   The ship arrived into  the port and was berthed on March 2, 1989.  The entry inward was  granted on March 2, 1989.  From March 1, 1989 the rate of excise  duty was altered.  It was increased to 150 per cent ad valorem plus  Rs. 300 per piece for certain sizes and for other sizes duty was  raised to 150 per cent ad valorem plus weight-based duty.  The  result was that pre-tariff duty was Rs. 15,73,611.05 while as per  the new tariff levy effective from March 1, 1989 the difference  came to Rs. 1,80, 46,092.64.      

       On these facts, the Supreme Court observed thus:

"The contention, therefore, that the ship entered  Indian territorial waters on February 20, 1989 and  was ready to discharge the cargo is not relevant  for the purpose of Section 15(1) read with  Sections 46 and 31 of the Act.   The prior entries  regarding presentation of the bill of entry for

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 19  

clearance of the goods on February 27, 1989 and  their receipt in the appraising section on February  28, 1989 also are irrelevant.  The relevant date to  fix the rate of customs duty, therefore, is March 2,  1989.  The rate which prevailed as on that date  would be the duty to which the goods imported  are liable to the impost and the goods would be  cleared on its payment in accordance with the rate  of levy of customs prevailing as on March 2,  1989".    

       A careful perusal of the decision in Dhiraj Lal’s case (supra)  again shows that this decision is not relevant for deciding the  present case as it was not a case where the goods were discharged  from the mother ship on to barges from where they were taken to  the places approved under Section 8(a) of the Act.

In Kiran Spinning Mills  vs. Collector of Customs AIR  2000 SC 3448, this Court observed :

"That apart, this Court has held in Sea Customs  Act, (1964) 3 SCR 787 at page 803: (AIR 1963  SC 1760) that in the case of duty of customs the  taxable event is the import of goods within the  customs barriers.  In other words, the taxable  event occurs when the customs barrier is crossed.   In the case of goods which are in the warehouse  the customs barriers would be crossed when they  are sought to be taken out of the customs and  brought to the mass of goods in the country".

A perusal of the facts of the above case reveals that it was not  a case in which the question whether the transportation charges for  carrying the goods from the mother ship by barges to the place  approved under Section 8(a) was to be added was involved.  Hence  this decision is also distinguishable.

       Learned counsel for the Revenue relied upon a Constitution  Bench judgment in M/s. Bharat Surfactants (Pvt) Ltd. and  another vs. Union of India and another AIR 1989 SC 2054,  in  para 14 of which it was observed :

"We do not find it possible to accept this  submission.  The provisions of S.15 are clear in  themselves.  The date on which a Bill of Entry is  presented under S. 46 is, in the case of goods  entered for home consumption, the date relevant  for determining the rate of duty and tariff  valuation.  Where the Bill of Entry is presented  before the date of Entry Inwards of the vessel, the  Bill of Entry is deemed to have been presented on  the date of such Entry Inwards".

       In our opinion, this case has no relevance in the present case.   The facts there were that although the ship in question entered  Bombay port and registered itself there but was unable to secure a  berth in the port of Bombay at that time.  Hence the vessel under  pressing circumstances left for Karachi port for unloading other  cargo intended for that port.  On return to Bombay port, it was  asked to pay a higher rate of duty which had been increased in the  meantime.  It was in that connection that the aforesaid observation  was made by the Constitution Bench.  Clearly, this decision has

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 19  

nothing to do with the present case, because it was not concerned  with transportation charges by a barge.

Thus, it appears that most of the decisions cited by learned  counsel for both the parties in this case are not very relevant for  deciding the controversy in issue here.

It must be remembered in this context that a case is only an  authority for what it actually decides.  As observed by the Supreme  Court in State of Orissa vs. Sudhansu Sekhar Misra AIR 1968  SC 647 (vide para 13) :

"A decision is only an authority for what it  actually decides. What is of the essence in a  decision is its ratio and not every observation  found therein nor what logically follows from the  various observations made in it.  On this topic this  is what Earl of Halsbury, LC said in Quinn vs.  Leathem 1901 AC 495:              

"Now before discussing the case of Allen vs.  Flood (1898) AC 1 and what was decided therein,  there are two observations of a general character  which I wish to make, and one is to repeat what I  have very often said before, that every judgment  must be read as applicable to the particular facts  proved, or assumed to be proved, since the  generality of the expressions which may be found  there are not intended to be expositions of the  whole law, but governed and qualified by the  particular facts of the case in which such  expressions are to be found.  The other is that a  case is only an authority for what it actually  decides.  I entirely deny that it can be quoted for a  proposition that may seem to follow logically  from it.  Such a mode of reasoning assumes that  the law is necessarily a logical Code, whereas  every lawyer must acknowledge that the law is  not always logical at all".

In Ambica Quarry Works vs. State of Gujarat & others  1987 (1) SCC 213, this Court observed :

"The ratio of any decision must be understood in  the background of the facts of that case.  It has  been said long time ago that a case is only an  authority for what it actually decides, and not  what logically follows from it".         

       In Bhavnagar University vs. Palitana Sugar Mills Pvt. Ltd  2003(2) SCC 111, this Court observed :   

"It is well settled that a little difference in facts or  additional facts may make a lot of difference in  the precedential value of a decision".

       In Bharat Petroleum Corporation Ltd. & another vs. N.R.  Vairamani & another AIR 2004 SC 4778, it was held that a  decision cannot be relied on without disclosing the factual  situation.      In the same judgment this Court held as under:

"Courts should not place reliance on decisions

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 19  

without discussing as to how the factual situation  fits in with the fact situation of the decision on  which reliance is placed.  Observations of courts  are neither to be read as Euclid’s theorems nor as  provisions of the statute and that too taken out of  their context.  These observations must be read in  the context in which they appear to have been  stated.  Judgment of Courts are not to be  construed as statutes.  To interpret words, phrases  and provisions of a statute, it may become  necessary for judges to embark into lengthy  discussions but the discussion is meant to explain  and not to define.  Judges interpret statutes, they  do not interpret judgment.  They interpret words  of statutes; their words are not to be interpreted as  statutes".

       In London Graving Dock Co. Ltd. vs. Horton 1951 AC 737  at p. 761, Lord Mac Dermot observed:

"The matter cannot, of course, be settled merely  by treating the ipsissima verba of Willes, J as  though they were part of an Act of Parliament and  applying the rules of interpretation appropriate  thereto.  This is not to detract from the great  weight to be given to the language actually used  by that most distinguished Judge".

       In Home Office vs. Dorset Yacht Co. 1970(2) All ER 294  Lord Reid said, "Lord Atkin’s speech is not to be treated as if it  was a statute definition.  It will require qualification in new  circumstances."   Megarry, J in (1971) 1WLR 1062 observed:  "One must not, of course, construe even a reserved judgment of  Russell L. J as if it were an Act of Parliament".  And in  Herrington vs. British Railways Boards (1972) 2 WLR 537, Lord  Morris said:

"There is always peril in treating the words of a  speech or judgment as though they are words in a  legislative enactment, and it is to be remembered  that judicial utterances made in setting of the facts  of a particular case".

Circumstantial flexibility, one additional or  different fact may make a world of difference  between conclusions in two cases.  Disposal of  cases by blindly reliance on a decision is not  proper.  

       The following words of Lord Denning in the matter of  applying precedents have become locus classicus:

"Each case depends on its own facts and a close  similarity between one case and another is not  enough because even a single significant detail  may alter the entire aspect.  In deciding such  cases, one should avoid the temptation to decide  cases (as said by Cordozo) by matching the colour  of one case against the colour of another.  To  decide therefore, on which side of the line a case  falls, the broad resemblance to another case is not  at all decisive.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 19  

               \005\005\005\005\005     "Precedent should be followed only so far as it  marks the path of justice, but you must cut the  dead wood and trim off the side branches else you  will find yourself lost in tickets and branches.  My  plea is to keep the path of justice clear of  obstructions which could impede it".                      Hence, the decisions of the Court cited by the appellant’s  counsel are confined to their own facts and can have no application  to the present case.

       In the present case, the vessel had been anchored and  permission by the proper officer under Section 47 after  examination of the cargo had been granted after due payment, and  goods were allowed to be water-borne through a Boat Note under  Section 35.   

       The goods were unloaded from the mother ship on to the  barge at BFL which, do doubt, had not been approved as the  landing place under Section 8 of the Act.  However, Section 33  permits unloading at a place other than that approved under  Section 8 with the permission of the proper officer, and there is no  doubt that permission had been obtained under Section 33 under  the supervision of the proper officer under Section 34, and the  goods were accompanied by a Boat Note under Section 35 of the  Customs Act.  Hence, unloading of the goods from the mother ship  at the BFL was valid, since it was done in accordance with  Sections 33 and 34 of the Customs Act.  No doubt, the BFL had  not been approved as proper place under Section 8(a), but it was a  place where the mother ship could anchor. Hence, in our opinion,  there is no illegality.

       In the impugned order dated 7.3.2001 the Tribunal has based  its decision on its conclusion that the place of import was the  Dharamtar Jetty and not the BFL (vide paragraphs 9 to 18 of The  Tribunal’s order).  Without commenting on the correctness or  otherwise of this view, we are of the opinion that whether we treat  the place of import as BFL or the Dharamtar jetty it will make no  difference to the conclusion we have reached viz. that charges for  transport of the goods by barges from BFL to Dharamtar jetty  cannot be included in the valuation of the goods.

       It is not disputed that the freight upto the Dharamtar jetty had  been paid by the buyer.  Hence we cannot agree that additional  transportation charges being the charges for carrying the goods by  barges from the mother ship to the Dharamtar Jetty have to be  added to the valuation.  The fact that the mother ship could not  come upto the Dharamtar Jetty is an extraordinary situation (due to  lack of draft) and hence any extra transportation charge to meet  this situation cannot, in our opinion, be added to the value of the  goods.

       The bills of lading show that the port of discharge was  Mumbai Port/JNPT/Dharamtar.  In the bill of entry, the FOB price,  freight and insurance were shown separately in U.S. dollars.  Since  Dharamtar  was also shown as the port of discharge, the freight  charges paid by the buyer to the shippers included the charges for  freight not only upto BFL but also to Dharamtar.

       The view we are taking is in accordance with the view  expressed in Halsbury’s Laws of England, Fourth Edition  Vol.43(2) : Shipping and Navigation para 1707 where it is stated : "1707. Proceeding ‘so near to port of  discharge as ship can safely get’.  In

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 19  

practice, the contract usually provides that  the ship is to proceed to the port of  discharge or so near to it as she can safely  get.  This provision is intended to benefit the  ship owner, and its effect is to substitute  another destination to which the ship may  proceed.  By proceeding to this other  destination and delivering the cargo there,  the ship owner equally completes the voyage  in accordance with the terms of the contract,  and is thus entitled to be paid the full  freight."             For the reasons given above, this appeal is allowed and the  impugned order of the Tribunal as well as of the Customs  authorities are set aside, and it is held that the charges for  transportation of the goods by barges from the mother ship at BFL  to the Dharamtar Jetty cannot be added to the valuation of the  imported goods for the purpose of levying customs duty.

       Any amount collected by the revenue as duty on barge  charges shall be refunded forthwith to the assessee with  statutory interest from the date of payment to the date of refund,  which must be within three months from today.  No costs.

Civil Appeal Nos. 6366/2004, 1603/2005, 6160-6161/2004  & 5921-5924/2004

       In view of the decision in Civil Appeal No. 3972 of 2001,  Civil Appeal Nos. 6366/2004 and 1603/2005 are allowed and Civil  Appeal Nos. 6160-6161/2004 and 5921-5924/2004 filed by the  Revenue are dismissed.  No costs.