REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 835-836 OF 2002

M/s Varsha Plastics Pvt. Ltd.  & Anr.     …  Appellants

Versus

Union of India & Ors.           … Respondents

J U D G E M E N T

R.M. Lodha, J.

These two appeals by special  leave are directed against  the

judgment and order of the High Court of Gujarat disposing of Special

Civil Application and Miscellaneous Application for review.

2. The first appellant M/s Varsha Plastics Pvt. Ltd., is engaged in

the business of importing various goods like plastic materials.  They

imported  a  consignment  of  18.45  metres  of  LDPE/HDPE  mix

granules/powder  (floor  sweeping)  from USA in  the  month  of  July,

2000.  These goods are claimed to have been purchased from M/s

Pexim International of USA under Invoice No. 2827 at the total price

of  US  $  4151.25.   The  importer  declared  these  goods  as  freely

importable item under para 5.1. of  the EXIM Policy  1997-2000.  The

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goods were subjected  to examination.  Some of these goods were

found to be mis-declared goods in terms of value and some were

found mis-declared in terms of description, value and quality.  In view

of  mis-declaration of goods  in terms of description and value, the

Customs  Authority  was  of  the  view  that  these  were  liable  to  be

confiscated and importer was liable for penal action.  A show cause

notice was sought to be given but the importer waived issuance of

show  cause  notice  and  personal  hearing.  The  Additional

Commissioner  of  Customs,  Kandla  vide order  in  original  dated

29.11.2000 rejected the invoice price as was found to be very low as

compared to prevalent international market price and in view of  mis-

declaration of goods in terms of value and description, enhanced the

value of  the goods for  the assessment  purpose as  set  out  in  the

order.   The  Additional  Commissioner  of  Customs  ordered

confiscation of under-invoiced goods as well as goods mis-declared

in description but gave an option to the importer to redeem the same

by payment of  fine.  In his order,  the Additional Commissioner of

Customs, Kandla also imposed a personal penalty of Rs. 2,50,000/-

on the importing firm and its directors.   

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3. The present appellants, instead of assailing the order in original

in a statutory appeal approached the High Court of Gujarat by filing a

Special  Civil  Application  inter  alia challenging  the  constitutional

validity of the provision of Section 151A of The Customs Act, 1962

(for short ‘the Act’ ) and also put in issue the legality and validity of

the Standing Order No. 7493/99 issued by the Chief Commissioner

of Customs, Mumbai with regard to valuation of plastic items.

4. It  appears  that  few  other  Special  Civil  Applications  raising

identical  issues  were  pending  before  the  High  Court  of  Gujarat.

These Special Civil Applications were heard together by the Division

Bench and disposed of  vide Order dated 04.04.2001.  The Division

Bench did not find any merit in so far as the constitutional validity of

Section 151A of the Act was concerned.  As regards the power of the

Chief  Commissioner  of  Customs  to  issue  the  impugned  Standing

Order  to the subordinate Assessing Authorities  on the question of

assessment of value of the concerned goods for imposing customs

duty, the Division Bench held that the impugned Standing Order was

not  rigid  direction or  mandate but  was only instructions containing

flexible guidelines.  The High Court held that the impugned Standing

Order is to be taken only as assistance in exercise of quasi-judicial

power of determining the value for the purpose of levy of customs

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duty by the concerned authorities.  Having read down the Standing

Order,  the High Court held that the impugned Standing Order was

not liable to be struck down.

5. An application seeking review of  the order dated 04.04.2001

was made by the present appellants which came to be disposed of

on 25.04.2001.  It is from these orders that these two appeals arise.   

6. In  view  of  the  limited  leave  granted  by  this  Court,  the

controversy in these appeals is confined to the legality and validity of

the Standing Order No. 7493/99.   

7. Ms.  Meenakshi  Arora,  learned  counsel,  appearing  for  the

appellants, relying upon a decision of this Court in the case of Eicher

Tractors  Ltd.,  Haryana   vs.   Commissioner  of  Customs,  Mumbai

(2001) 1 SCC 315, strenuously urged that the transaction value i.e.,

price actually paid for imported materials alone can be considered to

be  the  assessable  value  and,  therefore,  the  impugned  Standing

Order  which  directed  the  assessing  authorities  to  discard  such

transaction  value  and  take  the  price  published  in  magazine  like

PLATT’s Weekly Report, as the assessable value was unsustainable

in law.  The learned counsel referred to two more decisions of this

Court  viz.,  (1)  Rabindra  Chandra  Paul  vs.   Commissioner  of

Customs (Preventive) Shillong (2007) 3 SCC 93; (2)  Commissioner

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of Customs, Calcutta   vs.  South India Television (P) Ltd.  (2007) 6

SCC 373 wherein Eicher Tractors has been followed.  In challenging

the Standing Order as invalid and  ultra vires,  the learned counsel

submitted that no instructions could be issued as to how assessable

value  of  imported  goods  should  be  determined  and  as  to  how a

consignment of waste like floor sweepings should be classified.  She

placed reliance on  Orient Paper Mills Ltd.  vs.  Union of India, AIR

1970 SC 1498.

8. Before we advert to the impugned Standing Order, it would be

appropriate  to  refer  to  few  provisions  of  law,  relevant  for  the

purposes of the controversy raised in these appeals.

9. Section  14  of  the  Act  provides  for  valuation  of  goods  for

purposes of assessment which reads thus:-

Valuation of goods for purposes of assessment – (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

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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.]

(2)  Notwithstanding anything contained in sub-section (1)  [or  sub-section  (1A)]  if  the  Central  Government  is satisfied that it is necessary or expedient  so to do it may, by notification in the Official Gazette, fix tariff  values for any  class  of  imported  goods  or  export  goods,  having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value.

(3)   For the purposes of this section – (a)   “rate of exchange” means the rate of  exchange –

(i)   determined by the Central Government, or (ii)  ascertained  in  such  manner  as  the  Central Government may direct,

for the conversion of Indian currency into foreign currency or foreign currency into Indian currency;

    (b) “foreign currency” and “Indian currency” have the meanings  respectively  assigned  to  them in  clause  (m) and  clause  (q)  of  section  2  of  the  Foreign  Exchange Regulation Act, 1973 (46 of 1973)

10. Section  151A  empowers  the  Board  to  issue   orders,

instructions and directions to officers of Customs for the purpose of

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uniformity in the classification of goods or with respect to levy of duty

thereon.  The said provision is as follows:-

[151A.   Instructions  to  officers  of  customs –  The Board may, if it considers it necessary or expedient so to do for  the  purpose of  uniformity in  the classification  of goods or with respect to the levy of duty thereon, issue such  orders,  instructions  and  directions  to  officers  of customs as it may deem fit and such officers of customs and all  the other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board :

Provided  that  no  such  orders,  instructions  or directions shall be issued –  

(a) so as to require any such officer of customs to make a particular assessment or to dispose of a particular case in a particular manner;  or

(b) so as to interfere with the discretion of the Commissioner of  Customs  (Appeals)  in  the  exercise  of  his  appellate functions.]

11. Section 156 of the Act empowers the Central Government to

make rules consistent with the Act for carrying out its purposes.  In

exercise of  the power conferred by Section 156 of the Act read with

Section  22  of  the  General  Clauses  Act,  1896,  the  Central

Government  has  made  the  rules  called  the  Customs  Valuation

(Determination  of  Price  of  Imported  Goods)  Rules  1988 (for  short

‘Customs Valuation Rules’).  Rule 2(f) defines  inter-alia transaction

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value, the value determined in accordance with Rule 4 of the Rules.

Rule 3 and 4 of the Customs Valuation Rules read thus :-

3. Determination of the method of valuation-  For the purposes of these rules, -

(i) the value of imported goods shall be the transaction value ;

(ii) if the value cannot be determined under the provisions of clause  (i)  above,  the  value  shall  be  determined  by proceeding sequentially through Rules  5 to 8 of  these rules.

4. Transaction value – (1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these rules.

(2) The transaction value of imported goods under sub- rule (1) above shall be accepted :

Provided that – (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

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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 -

(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 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.

12. Section 14(1) of the Act prescribes a method for determination

of the value of the goods.  It is a deeming provision.  By legal fiction

incorporated in this Section, the value of the imported goods is the

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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  a  word  of  significance.   The ordinary  meaning  of  the  word

‘ordinarily’ in Section 14(1) is ‘non-exceptional’ or ‘usual’.  It does not

mean ‘universally’.  In the context of Section 14(1) for the purpose of

‘valuation’  of  goods,  however,  by  use  of  the  word  ‘ordinarily’,  the

indication is that  the ordinary value of the goods, is what it  would

have  in  the  course  of  international  trade  at  the  time  of  import.

Section 14(1), thus, provides that the value has to be assessed on

the basis of price attached to such or like goods ordinarily sold or

offered for sale, in the ordinary course of events in international trade

at the time and place of transportation.   

13. Customs  Valuation  Rules  have  been  framed  by  the  Central

Government in exercise of the powers conferred by Section 156 of

the Act to maintain uniformity and certainty in the matter of valuation

of   goods  which  are  matters  of  procedure,  substantive  provision

being  contained  in  Section  14(1).   Rule  3  and 4  of  the  Customs

Valuation Rules  provide for transaction value method. Rejection of

transaction value of goods by the Customs Authority being totally  an

un-realistic value has been found to be proper by this Court in the

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case of  Collector of Customs, Bombay   vs.  Shibani  Engineering

Systems, Bombay  (1996) 10 SCC 42.

14. In  Eicher  Tractors  (supra)  this  Court  held  that  the  value,

according to Section 14, 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.  It was further held that by Rule 4(1) 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 this mandate is subject to certain exceptions specified  in

Rule 4(2).  It was also held by this Court in Eicher Tractors (supra)

that both Section 14(1) of the Act and Rule 4 provide that the price

paid  by  the   importer  to  the  vendor  in  the  ordinary  course  of

commerce shall be deemed to be the value in the absence of any of

the  special  circumstances  indicated  in  Section  14(1)  and

particularized  in  Rule  4(2).   However,  when the  transaction  value

under Rule 4  is rejected, the value shall be determined proceeding

sequentially  through  Rule  5-8  of  the  Rules.   In  Eicher  Tractors  it

cannot be said to have been  laid down that even in a case of invoice

manipulation  or  under-invoicing  or  ridiculously  low  price  or  mis-

declaration  in  respect  of  valuation of goods or  description  or non-

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commercial  considerations  or  in  such  like  circumstances,  the

transaction value cannot be rejected by the assessing authority. The

observations in Eicher  Tractors,  “…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 goods imported as was the case

in Padia Sales Corporation”, leave no manner of doubt in what we

have noticed above.   As a matter of fact in Eicher Tractors,  Padia

Sales Corporation  vs.  Collector of Customs (1993) Supp. 4 SCC 57,

Basant  Industries  Nunhai,  Agra   vs.   Additional  Collector  of

Customs,  Bombay (1995)  Supp  3  SCC 320  and  Sharp  Business

Machines   vs.   Collector  of Customs (1991) 1 SCC 154; were found

distinguishable as in these cases the rejection of transaction value

was found justified being covered by  special circumstances and/or

mis-description of the imported goods to defraud revenue.

15.  Rabindra Chandra Paul (supra) and South India Television (P)

Ltd.,(supra) also recognize the legal position that transaction value

can be rejected if invoice price is not found to be correct but it is for

the Department to prove that the invoice price is incorrect.

16. Rule 11 of Customs Valuation Rules also provide that in case

of dispute between importer and the officer of the Customs valuing

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the  goods  it  shall  be  resolved  consistent  with  the  provisions

contained in sub-section 1 of Section 14 of the Act.

17. It has to be kept in mind that once nature of goods has been

mis-declared,  the  value declared on the  imported  goods becomes

unacceptable.  It does not in any way affect the legal position that the

burden is on the Customs Authorities to establish the case of mis-

declaration of goods or valuation or that the declared price did not

reflect the true transaction value.

18. Section 151A of the Act confers upon the Board the power to

issue orders, instructions and directions to the authorities for proper

administration of the provisions of the Act.  It also provides that all

such authorities and all other persons employed in the execution of

the  provisions  of  the  Act  shall  observe  and  follow  such  orders,

instructions and directions of the Board.  Proviso appended thereto

states that no such orders, instructions or directions shall be issued –

(a)  so as to require all such officers of Customs to make a particular

assessment or to dispose of a particular case in a particular manner

or;    (b)   so as to  interfere  with the discretion  of  the Collector  of

Customs  (Appeals)  in  exercise  of  his  appellate  functions.   The

proviso to Section 151A  makes it abundantly clear that the Customs

Officer  who has to make a particular  assessment is not bound by

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such orders or instructions or directions of the Board.  An Assessing

Authority  under  the  Act  being a quasi-judicial  authority  has to  act

independently in exercise of his quasi-judicial powers and functions.

Section  151A  does  not  in  any  manner  control  or  affect  the

independent  exercise  of  quasi-judicial  functions  by  the  Assessing

Authority.

19. By  the  impugned  Standing  Order  No.7493/99  dated

03.12.1999, the Chief Commissioner of Customs has given detailed

guidelines and directions for the determination of valuation of plastic

items  in  the  light  of  international  prices  contained  in  the  foreign

finance journals.  The directions issued to the assessing authorities

is to apply what is described as PLATT rate, which is explained as

rates  and  prices  maintained  in  the  internationally  reputed  finance

journal PLATT’s WEEKLY REPORT.  It has also given direction as to

how classification  of  mixed material  like  floor  sweeping should  be

made.

20. The question now is whether the impugned Standing Order in

any manner interferes with the independent quasi-judicial function to

be discharged in the assessment of duty by the Assessing Officer.

Whatever be the language employed in the Standing Order which

may suggest that the said instructions are in the nature of a mandate

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or  command,  High  Court  has  read  down  the  impugned  Standing

Order  purely  as  instructions  or  guidelines  and  not  mandate  or

command for being obeyed in each individual case of assessment

before them.  The High Court further held that  Standing Order is to

be taken only as an assistance in exercise of the quasi-judicial power

of determining value for the purpose of levying of customs duty.  We

agree with the view of the High Court.  As a matter of fact, it is the

case of the Department as well that the impugned Standing Order is

not  binding;  it  is  just  in  the nature  of  guidelines  to  streamline the

functioning  of  Customs  Officers  at  various  field  formations.

According  to  the  Department,  the  impugned  Standing  Order  was

issued  for  the smooth functioning  of  assessment  and examination

work and to bring about uniformity in the work and it prescribes only

pattern of assessment and in no way, interferes with the discretion of

the Assessment Authority.   In view of  the categorical  stand of the

Department that the impugned Standing Order is just in the nature of

guidelines and it does not in any way interfere with the discretion of

officers,  the  impugned  Standing  Order  has  to  be  read  and

understood  accordingly.

21. In  so far  as the reference to  PLATT’s  Price Report  or  other

reputed financial journals which are indicators of international prices

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for the value of imported goods for the purpose of Section 14(1) is

concerned,  suffice  it  to  observe  that  once  transaction  value  is

rejected on valid grounds, the Customs Authority has to proceed to

determine the value of goods by following Customs Valuation Rules

and  on  the  basis  of  contemporaneous  import.   However,  in  the

absence  of  any evidence with  regard to  contemporaneous  import,

reference  to  foreign  journals  that  may  indicate  the  correct

international  price  for  the  purposes  of  Section  14  may  not  be

irrelevant  and  relying  upon  such  journal  cannot  be  said  to  be

altogether unreasonable.  As to whether in a given case such foreign

journal  or  for  that  matter  PLATT’s  Price  Report  indicate  correct

international price of the concerned goods for the purpose of Section

14(1) would depend on facts of each case and that would be for the

department to establish.  The valuation of the imported goods where

the transaction value in the opinion of Assessing Authority is liable to

be rejected because of  invoice manipulation or under-invoicing or

un-realistic price or mis-declaration in respect of valuation of goods

or description or where transaction value of the goods declared is

ridiculously  low,  which  of  course  the  Assessing  Authority  has  to

justify, he must proceed to determine valuation of goods by following

Customs  Valuation  Rules.  The  availability  of  evidence  of

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contemporaneous import of the same goods obviously provides the

best guide for determination of value of the import of goods but  in

the absence of evidence of contemporaneous import,  reference to

foreign journal for finding out correct international price of imported

goods  may  not  be  irrelevant  because  ultimately  the  Assessing

Authority  has to  determine value of  the  imported  goods,  at  which

such goods are sold or offered for sale in the course of international

trade at the time of importation.

22. Paragraph 7 of the impugned Standing Order which provide as

to  how  classification  of  mixed  waste  material  like  floor  sweeping

should  be  made  also  has  to  be  read  only  as  guidelines  to  the

Assessing Authority.   The Assessing Authority in his  quasi-judicial

function has to take independent view in this regard as well.

23. We  do  not  intend  to  go  into  the  facts  as  to  whether  the

Assessing  Authority  was  justified  in  his  findings  in  respect  of

imported  goods  having  been  mis-declared  in  terms  of  value  and

some of  the  imported goods mis-declared in  terms of  description,

value  and  quality  as  these  are  the  aspects  which  have  to  be

challenged by filing a statutory appeal.  The High Court has already

kept these aspects open to be agitated by the appellants before the

competent authority under the Act.   

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24. In the result, we find no merit in these appeals and same are

dismissed with no order as to costs.

…………………………..J. (MARKANDEY KATJU)

...…………………………J. (R.M. LODHA)

New Delhi February 5, 2009

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