REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5840 0F 2008

PERNOD RICARD INDIA (P.) LTD.                

— APPELLANT

VERSUS

COMMISSIONER OF CUSTOMS,  ICD   TUGHLAKABAD              

— RESPONDENT

WITH  

[CIVIL APPEAL NO.1110 OF 2009]

J U D G M E N T

D.K. JAIN, J.:

1. These two appeals under Section 130E of the Customs Act,  

1962  (for  short  “the  Act”)  by  the  importer  (hereinafter  

referred to as “the appellant”) (C.A. No. 5840 of 2008) as  

well as by the revenue (C.A. No. 1110 of 2009) arise from  

the final order dated 25th June 2008, passed by the Customs,  

Excise and Service Tax Appellate Tribunal, Principal Bench,  

New  Delhi  (for  short  “the  Tribunal”),  in  Custom  Appeal  

No.559 of 2006.  By the impugned order, while upholding the  

decision of the Commissioner of Customs in determining the  

value of the “Concentrate of Alcoholic Beverages” (“CAB” for

short),  imported  by  the  appellant,  under  Rule  6  of  the  

Customs  Valuation  (Determination  of  Prices  of  Imported  

Goods)  Rules,  1988  (for  short  “the  1988  Rules”),  the  

Tribunal  has  directed  the  jurisdictional  Commissioner  to  

redetermine  the  customs  duty  liability  of  the  appellant  

after making certain adjustments in the manner indicated in  

the order.  

2. As both the appeals call in question the same order, these  

are being disposed of by this common order.

3. The  case  has  had  a  chequered  history  and,  therefore,  in  

order to appreciate the controversy, it would be necessary  

to narrate the facts in detail.   

The appellant (formerly named and styled as Seagrams India  

Pvt. Ltd.) is a wholly-owned subsidiary of the Seagram Company  

Ltd.,  Canada,  established  for  manufacturing/blending  of  non-

molasses  based  spirits.   The  appellant  imported  CAB  from  M/s  

Joseph  E  Seagram  and  Sons  Ltd.,  Scotland,  a  wholly-  owned  

subsidiary of Seagram Company Ltd., Canada.  The strength of CAB  

imported was about 60%.  It is not in dispute that the appellant  

is a “related person” to the supplier and this fact was disclosed  

to  the  Customs  Authorities.   The  import  of  CAB  was  of  four  

varieties, each one meant for manufacturing four brands of scotch  

whiskies, namely “100 Pipers”, “Passport”, “Something Special” and  

“International Malts” (Royal Stag; Oaken Glow; Blenders Pride and

Imperial Blue).  The import of CAB was in wooden barrels and their  

value  was  declared  separately  for  assessment.   The  appellant  

diluted the imported CAB by adding demineralised water and reduced  

the strength to 42.8% v/v; packed them in bottles under respective  

brands; paid State excise duty and sold these to the dealers for  

ultimate sales to the consumers.   

4. In the year 1999, the Directorate of Revenue Intelligence  

commenced  investigation  into  the  imports  of  CAB  by  the  

appellant, which resulted in the issuance of two show cause  

notices.  The first show cause notice dated 19th December  

2000 was issued proposing demand of differential duty of  

customs amounting to Rs.37,96,70,451/- in respect of imports  

relating to the period from January 1995 to June 2000 and  

the  second  show  cause  notice  dated  16th August  2001  was  

issued  demanding  differential  duty  of  customs  of  

Rs.12,08,42,462/- relating to imports during the period July  

2000 to May 2001.  Penal action was also proposed in both  

the show-cause notices.

5. Against  show-cause  notice  dated  19th December  2000,  the  

appellant filed a writ petition before the High Court of  

Delhi.  Vide its order dated 27th August 2001, the High Court  

directed that the notice issued under Section 28 of the Act  

be treated as notice for finalization of the provisional  

assessment in terms of Section 18(2) of the Act.  While  

disposing of the petition, the High Court observed that the

authorities were free to decide as to whether any notice in  

terms of Section 111/124 of the Act was warranted.  At the  

same time, the High Court granted liberty to the appellant  

to seek its remedy as per law in the event of issuance of  

such a show cause notice.

6. The Commissioner of Customs adjudicated upon both the show  

cause  notices  by  a  common  order  dated  31st May  2002,  

finalizing  the  assessments  and  confirming  the  demand  of  

Rs.40.37  crores  as  against  proposed  demand  of  Rs.50.04  

crores.  The Commissioner classified the imported CAB under  

the Chapter heading 2808.30 as whisky as against the claim  

of the appellant under the Chapter heading 2808.10.

7. Being aggrieved by the order of adjudication, the appellant  

filed an appeal before the Tribunal.  Vide order dated 25th  

March 2003, while accepting the claim of the appellant that  

CAB should be classified under heading 2808.10, the Tribunal  

rejected the plea of the appellant that in spite of the fact  

that the supplier was a “related person”, the value declared  

by them should be accepted in terms of Rule 4(3)(b) of the  

1988 Rules.  Nevertheless, the Tribunal remanded the matter  

to the adjudicating authority for a fresh consideration on  

the question of applicability of Rule 6 as it felt that the  

appellant had not been granted adequate opportunity to put  

forth their case against the proposal to apply Rule 6.  The  

Tribunal,  however,  permitted  the  Commissioner  to  proceed

under  Rule  7  or  8  in  the  event  of  his  accepting  the  

appellant’s plea that Rule 6 could not be applied. Relevant  

portion of the order is extracted below:-

“…We  are  also  of  the  view  that  while  working  out  the  provisions  of  Rule  the  Commissioner  has  not  taken  into  consideration all the relevant factors.  While fixing the  value  under  Rule  6,  the  authority  has  to  look  into  the  definition of the term ‘similar goods’ under Rule 2(e) and  that  the  conditions  contained  therein  are  satisfied.  Clauses (b) and (c) of sub-rule (1), sub-rule(2) and sub- rule(3) of Rule 5 are made applicable to Rule 6 also. We  find  that  there  is  no  proper  consideration  of  the  above  provisions by the Commissioner while arriving at the value  under Rule 6.  The appellant is justified in complaining  that comparison was not made with the transaction of similar  goods sold for export to India and imported at or about the  time as the goods being valued, especially in the case of  the goods covered by the second show cause notice dated 16th  

September, 2001.  Comparison is made with imports which had  taken place in January 1999, May 1999 and December 1998 for  valuing the goods imported during the period July 2000 to  May 2001.”  

8. The appellant challenged the said order before this Court by way  

of an appeal under Section 130E of the Act, which was dismissed  

on 21st November 2003.  The appellant pleaded that invocation of  

Rule 6 by the Commissioner in the final adjudication order was  

beyond the scope of the show cause notice, in as much as, in the  

show cause notice itself it was observed that Rule 6 could not  

be applied because of non-availability of requisite data for  

adjustments required to be made under the said Rule. It was  

asserted that the value of CAB imported had to be determined as  

per Rule 4(3)(b) of 1988 Rules.

9.  Pursuant to the order of the Tribunal, dated 25th March 2003,  

the Commissioner passed a fresh order dated 29th August 2003 and  

held that Rule 6 was applicable on the facts of the instant  

case.  He accordingly, confirmed the demand of duty of customs  

amounting  to  Rs.39.96  crores.   The  said  order  was  again  

challenged  by  the  appellant  in  the  Tribunal,  mainly  on  the  

ground that the value of imported CAB could not be determined  

under Rule 6.  In the alternative, it was pleaded that even the  

quantification of the value under Rule 6 was seriously flawed.

10.Accepting the alternative submission of the appellant relating  

to the errors committed by the Commissioner while determining  

the assessable value of CAB on the basis of the transaction  

value of “similar goods”, by its order dated 29th June 2005, the  

Tribunal  again  set  aside  the  order  of  adjudication  by  the  

Commissioner and remanded the matter back to him with certain  

directions.  Since the observations of the Tribunal contained in  

paragraphs 7 and 13 have some bearing on the merits of the rival  

stands on behalf of the parties, these are extracted hereunder:

“7. We are not going into the above mentioned issue about  the appropriateness of Rule 6 for two reasons.  Firstly, we  had left this Rule open to the adjudicator in our remand  order  and  no  appeal  had  been  filed  against  that  order.  Secondly,  the  present  appeal  can  be  disposed  of  after  considering the appellant’s contentions in terms of Rule 6.”

“13. As  already  noted  we  are  not  going  into  the  submissions made by the appellant against valuation under  (sic) Rule 6.  Instead, the appeal is being disposed of  after  considering  the  alternate  submissions  relating  to  errors  committed  while  determining  the  assessable  values  based on the transaction value of similar goods.”

The final direction by the Tribunal reads as follows:

“From the above, it is clear that the valuation of the items  in question should be re-done by using lowest transaction  value of Findlaters for determining the price of 100 Pipers.  Further,  due  adjustments  towards  quantity  difference  and  retail price difference should be made wherever warranted.  In order to facilitate such revaluation, we set aside the  impugned order and remit the case to the Commissioner for  fresh  adjudication.   Both  sides  would  be  at  liberty  to  present data relevant to the above issues.”  

11.This  decision  of  the  Tribunal  was  not  put  in  issue  by  the  

appellant before a higher forum.  Pursuant to and in furtherance  

of the directions issued by the Tribunal in the said order, the  

Commissioner passed a fresh adjudication order on 20th June 2006,  

confirming a total differential duty of Rs.40.37 crores, which  

happened to be more than the duty amount of Rs.39.96 crores as  

confirmed in the second adjudication order.   

12.As  expected,  the  appellant  challenged  the  said  order  by  

preferring  yet  another  appeal  to  the  Tribunal.   Inter-alia,  

observing  that  in  the  first  remand  order  the  question  of  

applicability  of  Rule  6  was  left  to  be  decided  by  the  

adjudicator and in the second remand order, dated 29th June 2005,  

the Tribunal did not go into the applicability of the said rule  

and allowed the appeal on the basis of alternative pleas of the  

appellant,  the  Tribunal  decided  to  go  into  the  question  of  

applicability of Rule 6.  Upon re-consideration of the issue,  

the  Tribunal  upheld  the  decision  of  the  Commissioner  in  

determining the value of the imports under Rule 6.  However,

partly  accepting  the  appeal,  the  Tribunal  held  that  the  

appellant will be entitled to further adjustments in the value  

of CAB determined on the basis of the value of similar goods, on  

account of: (i) imports of substantially higher volumes of CAB;  

and  (ii)  where  the  retail  price  of  bottled  whisky  was  

substantially lower than those of the comparable brands.  It  

was,  however,  clarified  that  once  the  assessable  value  was  

determined  for  any  brand  by  following  the  above  method,  the  

assessable  value  shall  not  be  enhanced  till  a  higher  import  

price of the similar goods was noticed.  The Tribunal also laid  

down  the following  methodology for  making the  adjustments on  

account  of  difference  in  volume  of  imports  and  the  retail  

price:-

“The price difference between each variety of CAB of the  importer (say PI – Price of Import) and the corresponding  CAB of competitor (say PC – Price of Comparable goods) shall  be arrived at first as PC-PI; thereafter value of the import  of CAB of each brand shall be determined as PI+80% of (PC- PI).   In  other  words,  instead  of  adding  the  entire  difference it shall be restricted to 80% i.e. by reducing  the difference by 20%.

We direct that the adjustments on account of difference in  retail prices shall be made in the manner prescribed below.  The percentage of difference between the retail price of any  brand of the appellant with the corresponding brand being  compared shall be arrived at and to that extent the value of  CAB of the competitor’s import shall be reduced to arrive at  the assessable value for CAB imported by the appellant.

The  above  determination  is  subject  to  the  following  conditions:-

(a) The value of any brand to be adopted shall not be  higher than the value adopted by the Commissioner  in his second order dated 28.09.2003.   

(b) The value of any brand to be adopted shall not be  lower than the value declared by the importer.”

13. Being dissatisfied with the order/directions of the Tribunal, as  

stated above, both the parties are before us in this appeal.

14. We have heard Mr. V. Lakshmikumaran, learned counsel appearing  

for the appellant and Mr. B. Bhattacharya, learned Additional  

Solicitor General for the revenue.  

15.Learned counsel for the appellant strenuously urged that both the  

authorities  below  have  committed  a  serious  error  of  law  by  

holding that the value of the imported CAB is to be determined as  

per the procedure prescribed in Rule 6 of the 1988 Rules.  It was  

argued that having regard to the fact that scotch whisky is a  

specialty goods and is not commercially interchangeable, the CAB  

imported by the appellant and by others cannot be said to be  

‘similar goods’ as defined in Rule 2(1)(e) of the 1988 Rules.  It  

was submitted that determination of similarity in terms of Rule  

2(1)(e)  by  the  Commissioner  and  affirmed  by  the  Tribunal  is  

fallacious  for  the   reasons:  —  (i)  in  specialty  goods,  the  

comparison of goods on the basis that such goods broadly contain  

the same components is misleading in as much as while all scotch  

whiskies are made from malt, have an age of at least three years  

and sold at the same concentration at the retail level yet such  

comparisons obliterate the inherent differences on the basis of  

which consumer preferences are decided. Different scotch whiskies  

have different tastes depending on the casks in which the scotch

whisky is aged, the temperature during the ageing process, water  

used  for  making  the  scotch,  the  ingredients  used  etc.  

Additionally, blended scotch whiskies are blends of other scotch  

whiskies  and  blending  formulae  are  kept  secret,  making  each  

blended scotch whisky a unique product in the market; (ii) the  

CAB  imported  do  not  have  the  same  quality,  reputation  and  

trademark.   The  concentrate  imported  by  the  appellant  has  a  

particular  trademark  i.e.  100  Pipers,  Passport  and  Something  

Special 12 Years Old, which have certain quality and very little  

reputation in the Indian market whereas the concentrate imported  

by their competitors, having the trademark of Black Dog 12 Years  

Old,  Black  &  White  and  VAT  69  have  different  quality  and  

reputation as they are relatively very well known brands being  

sold in India for several decades and (iii) the variation in  

price is largely due to the branding and individual preferences  

and, therefore, some goods command a premium price as compared to  

others, which is the case with regard to scotch whisky market  

also.  The appellant and their competitors spend significantly on  

branding for differentiating their products and such branding,  

coupled with individual preferences, render such goods as not  

similar.  Similarity  cannot  be  determined  on  the  basis  of  

similarity in the prices at which the goods manufactured out of  

the imported goods are sold in the retail market in as much as  

retail price of the same brand can, in fact, be more or less in  

different States when compared with competitors’ brand.

16. Learned counsel then submitted that even if the goods in question  

are treated as similar goods, Rule 6 cannot be applied because no  

suitable  adjustments  can  be  made  for  quantity  difference.  

According to the learned counsel, apart from the fact that any  

goods, such as scotch whiskies, which are specialty goods, the  

variations in consumer preferences and the value of trademark and  

reputation are difficult to ascertain and adjust, there cannot be  

“demonstrated  evidence”  for  quantifying  such  differences  and,  

therefore, Rule 6 cannot be applied.

17.Learned  counsel  for  the  appellant  also  urged  that  the  

formula devised by the Tribunal, directing loading of the  

price of imports with 80% of the price differential owing  

to the differential in quantity imported is arbitrary.  It  

was urged that since the quantity imported by the appellant  

is 500% to 1500% of the quantity imported by the identified  

brands, an adjustment of at least 40% from the price of  

such  identified  brands  should  have  been  allowed  by  the  

Tribunal.  In support of the proposition that deduction to  

the extent of 50% in cases of whole sales were allowed,  

reliance was placed on a decision of this Court in  Metal  

Box India Ltd. Vs. Collector of Central Excise, Madras1.  It  

was,  thus,  pleaded  that  the  order  of  the  Tribunal,  

approving  the  application  of  Rule  6  deserves  to  be  set  

aside.  In the alternative, it was urged that if this Court  

comes to the conclusion that Rule 6 is to be applied for  

1 (1995) 2 SCC 90

determining the value of CAB, comparison should be made for  

each year with the lowest price of other imports during the  

year with at least 40% reduction from the list price to  

take care of quantity differences.

18.Per contra, Mr. Bhattacharya, while supporting the decision  

of the Tribunal, in so far as the question of applicability  

of  Rule  6  was  concerned,  submitted  that  the  Tribunal  

committed a serious error of law in re-examining the said  

question.  It was contended that apart from the fact that  

second  remand  order  dated  29th June  2005,  whereby  the  

Tribunal had directed the Commissioner to apply Rule 6 and  

re-determine  the  value  of  CAB  after  making  adjustments  

wherever warranted, was not questioned by the appellant, in  

view of the dismissal of their appeal by this Court against  

Tribunal’s order dated 25th March 2003, the said issue had  

attained  finality  and  the  appellant  was  estopped  from  

raising it before any forum.

19. In support of revenue’s appeal, learned counsel submitted  

that the direction by the Tribunal to the Commissioner to  

give adjustment of 20% while determining the value of the  

imported CAB is vitiated because no evidence in this behalf  

was  produced  by  the  appellant  before  the  Commissioner.  

Referring to para 4 of the interpretative note to Rule 5 of  

the 1988 Rules, learned counsel asserted that no adjustment  

on account of difference in quantity can be granted unless

there  is  “demonstrated  evidence”  on  the  basis  whereof  

reasonableness  and  accuracy  of  the  adjustment  could  be  

established.

20. In  rejoinder,  Mr.  V.  Lakshmikumaran  argued  that  the  

appellant  was  fully  justified  in  agitating  before  the  

Tribunal the issue with regard to the applicability of Rule  

6.  It was submitted that since the applicability of Rule 6  

had been left to the adjudicator to decide in the first  

remand order, the question of applicability of Rule 6 arose  

before  the  Tribunal  only  in  the  second  round.  In  second  

round again, appellant’s appeal having been disposed of on  

their  alternative  submissions  regarding  Rule  6,  the  

appellant’s submission on applicability of Rule 6, in fact,  

came up for consideration before the Tribunal for the first  

time in the third round of appellant’s appeal before the  

Tribunal.  It was, thus, argued that filing or non filing of  

an appeal against the two earlier orders of the Tribunal is  

irrelevant.

21. The questions arising for determination are:-

(i) Whether the Tribunal was justified in re-examining the  question of applicability of Rule 6?  

(ii) If the answer to question (i) is in the affirmative, then  whether the value of the CAB for the purpose of levying duty  of  customs  is  to  be  determined  as  per  the  procedure  prescribed in Rule 6 or in terms of some other Rule?

(iii) Whether  the  direction  by  the  Tribunal  regarding  adjustment  to  the  tune  of  20%  in  the  price  difference

between CAB of the appellant and the corresponding CAB of  the  competitor,  on  account  of  volume  of  imports,  is  justified?

22.Having  carefully  perused  the  orders  of  remand  passed  by  the  

Tribunal on 25th March 2003 and 29th June 2005, we are of the  

opinion that the issue with regard to the applicability of Rule  

6 of the 1988 Rules for valuation of CAB had attained finality  

on the summary dismissal of the appellant’s appeal by this Court  

vide order dated 21st November 2003.  It is clear from a bare  

reading of the observations of the Tribunal in its order dated  

25th March 2003, extracted in para 11 supra that remand to the  

Commissioner  for  fresh  adjudication  was  confined  only  to  the  

errors committed while determining  the assessable values  based  

on  the  transaction  value   of  “similar  goods”.  Thus,  in  

principle,  the  Tribunal  proceeded  on  the  premise  that  the  

valuation had to be done as per the procedure laid down in Rule  

6.  This is also evident from appellant’s pleadings when they  

challenged the order of remand  inter-alia, contending in their  

appeal  under  Section  130E  of  the  Act  that  Rule  6  had  no  

application on the facts of their case and the value of imported  

CAB by them had to be determined as per Rule 4(3)(b)of the 1988  

Rules.  The appeal was, however, dismissed  in limine. In our  

opinion, once a statutory  right of appeal is invoked, dismissal  

of appeal by the Supreme Court, whether by a speaking order or  

non speaking order, the doctrine of merger does apply, unlike in

the case of dismissal of special leave to appeal under Article  

136 of the Constitution by a non-speaking order.  

23.The nature, concept and logic of doctrine of merger was  

explained elaborately in Kunhayammed & Ors. Vs. State of  

Kerala & Anr.2.  Speaking for a bench of three learned  

Judges,  R.C.  Lahoti,  J.  (as  His  Lordship  then  was)  

observed: (SCC p. 370, para 12)

“12. The logic underlying the doctrine of merger is that  there cannot be more than one decree or operative orders  governing the same subject-matter at a given point of time.  When a decree or order passed by an inferior court, tribunal  or authority was subjected to a remedy available under the  law before a superior forum then, though the decree or order  under  challenge  continues  to  be  effective  and  binding,  nevertheless  its  finality  is  put  in  jeopardy.   Once  the  superior court has disposed of the lis before it either way  — whether the decree or order under appeal is set aside or  modified or simply confirmed, it is the decree or order of  the  superior  court,  tribunal  or  authority  which  is  the  final, binding and operative decree or order wherein merges  the decree or order passed by the court, tribunal or the  authority below.  However, the doctrine is not of universal  or  unlimited  application.   The  nature  of  jurisdiction  exercised by the superior forum and the content or subject- matter of challenge laid or which could have been laid shall  have to be kept in view.”

The Court further observed:

“41. Once a special leave petition has been granted, the  doors for the exercise of appellate jurisdiction of this  Court have been let open.  The order impugned before the  Supreme Court becomes an order appealed against.  Any order  passed  thereafter  would  be  an  appellate  order  and  would  attract the applicability of doctrine of merger.  It would  not make a difference whether the order is one of reversal  or  of  modification  or  of  dismissal  affirming  the  order  appealed against.  It would also not make any difference if  the order is a speaking or non-speaking one.  Whenever this  

2 (2000) 6 SCC 359

Court has felt inclined to apply its mind to the merits of  the order put in issue before it though it may be inclined  to affirm the same, it is customary with this Court to grant  leave to appeal and thereafter dismiss the appeal itself  (and not merely the petition for special leave) though at  times the orders granting leave to appeal and dismissing the  appeal are contained in the same order and at times the  orders are quite brief.  Nevertheless, the order shows the  exercise of appellate jurisdiction and therein the merits of  the  order  impugned  having  been  subjected  to  judicial  scrutiny of this Court.”

24.In the present case, the appellant preferred statutory appeal  

under Section 130E of the Act against order of the Tribunal  

dated 25th March 2003 and, therefore, the dismissal of appeal by  

this Court though by a non-speaking order, was in exercise of  

appellate jurisdiction, wherein the merits of the order impugned  

were subjected to judiciary scrutiny.  In our opinion, in the  

instant case, the doctrine of merger would be attracted and the  

appellant is estopped from raising the issue of applicability of  

Rule 6 in their case.  

25.In the view we have taken, we are fortified by a decision of  

this Court in V.M. Salgaocar & Bros. Pvt. Ltd. Vs. Commissioner  

of Income Tax3, wherein the Court was called upon to consider  

the effect of dismissal of an appeal under Section 261 of the  

Income Tax Act, 1961 by a non speaking order.  Speaking for the  

Bench,  D.P.  Wadhwa,  J.  while  drawing  distinction  between  an  

order  dismissing  in  limine a  special  leave  petition  under  

Article 136 of the Constitution and an appeal under Article 133,  

and drawing support from the decision of this Court in Supreme  

3 (2000) 5 SCC 373

Court Employees’ Welfare Association Vs. Union of India & Anr.4,  

held that former case does not but the latter does attract the  

doctrine of merger.   The Court observed thus:-

“Different  considerations  apply  when  a  special  leave  petition  under Article  136 of the Constitution is simply dismissed by  saying 'dismissed' and an appeal provided under Article  133 is  dismissed also with the words 'the appeal is dismissed'. In the  former case it has been laid by this Court that when a special  leave petition is dismissed this Court does not comment on the  correctness or otherwise of the order from which leave to appeal  is sought. But what the court means is that it does not consider  it  to  be  a  fit  case  for  exercise  of  its  jurisdiction  under  Article 136 of the Constitution. That certainly could not be so  when appeal is dismissed though by a non-speaking order. Here the  doctrine  of  merger  applies.  In  that  case,  the  Supreme  Court  upholds the decision of the High Court or of the Tribunal from  which the appeal is provided under clause (3) of Article  133.  This doctrine of merger does not apply in the case of dismissal  of special leave petition under Article  136. When an appeal is  dismissed the order of the High Court is merged with that of the  Supreme Court.”

26.Moreover, in the instant case the issue with regard to the  

applicability  of  Rule  6  had  attained  finality  for  yet  

another reason.  It is manifest from the Tribunal’s order  

dated 29th June 2005, that the scope and purpose of remand to  

the Commissioner was limited.  As it is evident from the  

afore-extracted  paragraphs  of  the  said  order  of  the  

Tribunal,  that  the  Tribunal  categorically  declined  to  go  

into the issue about the appropriateness of Rule 6, with the  

result that the finding of the Commissioner in his order  

passed pursuant to Tribunal’s earlier order dated 29th August  

2003, regarding applicability of Rule 6 remained undisturbed  

4 (1989) 4 SCC 187

and in fact attained finality, in as much as, the appellant  

did not question the correctness of the remand order passed  

by the Tribunal on 29th June 2005.  Keeping in mind the  

factual scenario, we are of the opinion that the Tribunal  

erred in re-opening and examining afresh the question as to  

whether  or  not  the  value  of  CAB  could  be  determined  by  

applying Rule 6 and, therefore, the objection of the revenue  

in  that  regard  deserves  to  be  accepted.   We  order  

accordingly.  

27. In the light of our opinion on the first question, we deem  

it unnecessary to assess the merits of the submissions made  

by  learned  counsel  for  the  parties  on  the  question  of  

applicability of Rule 6 of the 1988 Rules.

28. This takes us to the last question, viz. whether or not the  

direction  of  the  Tribunal  to  the  Commissioner  to  grant  

adjustment  @  20%  in  the  price  difference  between  each  

variety of CAB of the appellant and the corresponding CAB of  

the competitor on account of higher volume of imports by the  

appellant,  for  determining  the  value  of  the  CAB  is  

justified?

29. The appellant as well as the revenue are both dissatisfied  

with the said direction.  The former claims that they should  

get discount of at least 40%.  The stand of the latter, to  

the contrary, is that no demonstrated evidence, establishing

the reasonableness and accuracy of the adjustment, having  

been  adduced,  the  appellant  is  not  entitled  to  any  

adjustment.  

Rules 3, 5 and 6 of the 1988 Rules are relevant for our purpose  

and they read as follows:-

“3. Determination  of  the  method  of  valuation.—For  the  purpose 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.”

“5. Transaction value of identical goods.- (1)(a) 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.

(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.

(2) Where the costs and charges referred to in sub-rule  (2) of Rule 9 of these rules are included in the transaction  value of identical goods, an adjustment shall be made, if  there are significant differences in such costs and charges  between the goods being valued and the identical goods  in  question arising from differences in distances and means of  transport.

(3) In applying this rule, if more than one transaction  value of identical goods is found; the lowest such value  shall be used to determine the value of imported goods.”

“6. Transaction value of similar goods.- (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.

(2) The provisions of clauses (b) and (c) of sub-rule (1),  sub-rule (2) and sub-rule (3), of Rule 5 of these rules  shall,  mutatis mutandis, also apply in respect of similar  goods.”

30. Rule 12 of the 1988 Rules provides that the interpretative notes  

specified in the Schedule to these rules shall apply for the  

interpretation of the rules.  Notes to Rule 5 read as under:-

“Notes to Rule 5

1. In applying rule 5, the proper officer of customs  shall, wherever possible, use a sale of identical goods at  the  same  commercial  level  and  in  substantially  the  same  quantities as the goods being valued.  Where no such sale is  found, a sale of identical goods that takes place under any  one of the following three conditions may be used :

(a) a sale at the same commercial level but in different  quantities;

(b)  a  sale  at  a  different  commercial  level  but  in  substantially the same quantities; or  

(c) a sale at a different commercial level and in different  quantities.

2. Having found a sale under any one of these three  conditions adjustments will then be made, as the case may  be, for :

(a)  quantity  factors only;

(b)  commercial level factors only; or

(c)  both commercial level and quantity factors.

3.  For the purposes of rule 5, the transaction value of  identical imported goods means a value, adjusted as provided  for in rule5(1) (b) and (c) and rule 5(2), which has already  been accepted under rule 4.  

4.  A  condition  for  adjustment  because  of  different  commercial  levels  or  different  quantities  is  that  such  adjustment, whether it leads to an increase or a decrease in  the  value,  be  made  only  on  the  basis  of  demonstrated  evidence  that  clearly  establishes  the  reasonableness  and  accuracy  of  the  adjustment,  e.g.  valid  price  lists  containing prices referring to different levels or different  quantities.  As an example of this, if the imported goods  being valued consist of a shipment of 10 units and the only  identical  imported  goods  for  which  a  transaction  value  exists involved a sale of 500 units, and it is recognised  that  the  seller  grants  quantity  discounts,  the  required  adjustment may be accomplished by resorting to the seller’s  price list and using that price applicable to a sale of 10  units.  This does not require that a sale had to have been  made in quantities of 10 as long as the price list has been  established  as  being  bona  fide  through  sales  at  other  quantities.  In the absence of such an objective measure,  however, the determination of a value under the provisions  of rule 5 is not appropriate.”

Notes to Rule 6 are also relevant for our purpose and read as  

follows:   

“Note to Rule 6

1. In applying rule 6, the proper officer of customs shall,  wherever possible, use a sale of similar goods at the same  commercial level and in substantially the same quantities  as the goods being valued.  For the purpose of rule 6, the  transaction  value  of  similar  imported  goods  means  the  value of imported goods, adjusted as provided for in rule  6(2) which has already been accepted under rule 4.

2. All other provisions contained in note to rule 5 shall  mutatis mutandis also apply in respect of similar goods.”  

31.Rule 6 (2) provides that the  provisions  of clauses (b) and (c)  

of sub-rules (1) to (3) of Rule 5 of these rules  shall mutatis

mutandis  also apply in respect of similar goods.  A similar  

stipulation  appears  in  note  (2)  to  Rule  6.   Rule  5(1)(c)  

provides that 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  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.  

Interpretative Note 4 to Rule 5 reiterates that such adjustment,  

whether it leads to an increase or a decrease in the value, be  

made only on the basis of ‘demonstrated evidence’ that clearly  

establishes the reasonableness and accuracy of the adjustment.  

One of such evidences could be a valid price list containing  

prices referring to different levels or different quantities.

32.The  case  of  the  revenue  is  that  the  term  ‘demonstrated  

evidence’ means some evidence to establish that the seller  

had agreed to give some discount to the importer on the  

listed price of the product on account of high volume of  

purchase,  which  in  common  parlance  is  termed  as  bulk  

discount  and  the  production  of  such  evidence  is  a  pre-

requisite for any adjustment under the Rule.   The stand of  

the appellant, on the contrary, is that Rule 5(1)(c) and the  

interpretative note (4) to Rule 5 only seek to clarify that  

where identical goods are sold to two or more buyers at a

time but are not at the same commercial level or quantity,  

an   “adjustment”  shall  be  made  to  take  account  of  the  

difference attributable to commercial level or to quantity  

or  both.    Their  plea  is  that   since  the  rule  itself  

recognizes  that  prices  differ  when  quantity  differs,  

reference to ‘discount’ in the interpretative note needs to  

be  viewed  in  a  wider  context  because  according  to  the  

appellant,  the  expression  “demonstrated  evidence”   is  

broader in scope than the term ‘discount’, which is  used  

only as an example of such evidence for adjustment. It is  

also  pleaded  that  tying  the  concept  of  “adjustment”  to  

‘discount’ would severely restrict the application of  Rule  

5 or 6 as  a  clear evidence of ‘discount’  may not be  

available in all cases though on the facts of a particular  

case  adjustment  may  be  needed.   In  support  of  the  

proposition that there is a difference between the concept  

of “adjustment” and ‘discount’, reliance was placed on the  

decision of this Court in  Commissioner of Central Excise,  

Jaipur Vs. Rajasthan SPG. & WVG. Mills Ltd. & Anr.5, wherein  

it  was  observed  that  the  concept  of  ‘discount’  and  

‘abatement’ are different.  It was also argued  on behalf of  

the appellant that it is a well accepted norm that higher  

quantity of goods attract lower prices, which fact  has  

received  judicial  recognition  by  this  Court  in  Mirah  

Exports Pvt. Ltd. Vs. Collector of Customs6, Metal Box India  

5 (2007) 13 SCC 129 6 (1998) 3 SCC 292

Ltd.  (supra) and  Basant  Industries  Nunhai,  Agra  Vs.  

Additional Collector of Customs, Bombay7.  Responding to the  

stand of the revenue that on the facts of the case, no  

adjustment was warranted, the appellant asserts that the  

issue of adjustment has reached finality as the correctness  

of  the  second  remand  order,  whereby  the  Tribunal  had  

remanded  the  matter  to  the  Commissioner  in  view  of  the  

mistake  in  the  application  of  Rule  6,  had  not  been  

questioned by the revenue.  In the said order, the Tribunal  

had held that due adjustments towards quantity differences  

and  retail  prices  difference  should  be  made  wherever  

warranted.   Thus, recognizing that in the present case some  

“adjustments” were called for.  

33. We are of the considered opinion, that  bearing in mind  

the object behind the provision for “adjustment” in terms  

of  Rule 5(1)(c), the fine distinction between the words  

“adjustment” and ‘discount’  sought to be brought out by  

the appellant  is of no relevance to the controversy at  

hand.  The  provision  is  clear  and  unambiguous  meant  to  

provide some adjustment in the price of identical goods,  

imported  by  two  or  more  persons  but  in  different  

quantities.  It  is  plain  that  such  “adjustment”  may  not  

necessarily lead to a decrease in the value.  It may result  

in an increase as well.  Reference to the word ‘discount’  

in the interpretative note is by way of an illustration to  

7 1995 Supp (3) 320

indicate that a seller’s price list is one of the relevant  

pieces’ of evidence to establish the factum  of quantity  

discount by the seller.  It is manifest that “adjustment”  

in terms of Rule 5(1)(c) of 1988 Rules, for the purpose of  

determination of value of an import, can be granted only on  

production of evidence which establishes the reasonableness  

and accuracy of adjustment and higher volumes of imports  

per  se,  would  not  be   sufficient   to  justify   an  

adjustment,  though  it  may  be  one  of  the  relevant  

considerations.  

34.Therefore, in so far as the question of “adjustment” in  

terms of Rule 5(1)(c) is concerned, we are in agreement  

with  the  Tribunal  that  the  revenue  having  accepted  the  

order of remand dated 29th June 2005, cannot now turn around  

and  contend  that  no  adjustment  whatsoever  is  warranted.  

Similarly,  there  may  also  be  some  substance  in  the  

observation  of  the  Tribunal  that  generally  when  the  

transactions are in large volumes over a long period, grant  

of discount is a normal commercial practice but again a  

commercial  practice,  per  se,  cannot  be  treated  as  

conclusive  evidence  for  determining  real  price  of  a  

consignment. In our opinion, therefore, in the absence of  

some  documentary  evidence  indicating  that  any  

rebate/discount was given to the appellant by the supplier,  

adjustments under Rule 5(1)(c) cannot be justified.

35. In the present case, it is evident from the impugned order  

that though the Tribunal had felt that requisite evidence  

to establish the range of adjustment was lacking and for  

that purpose, according to it, the matter was required to  

be remanded to the Commissioner but being influenced by the  

fact that there had already been three rounds of appeals to  

the  Tribunal,  it  undertook  the  exercise  itself.  We  are  

convinced that this approach of the Tribunal was not in  

order  and therefore,  in the  absence of  any demonstrated  

evidence, its direction for ad-hoc adjustment @ 20%, cannot  

be sustained.

36. In  the  result,  the  appeal  preferred  by  the  importer-

appellant is dismissed and the revenue’s appeal is allowed.  

The order of the Tribunal under appeal, in so far as it  

pertains to the applicability of Rule 6 of 1988 Rules, is  

affirmed,  however,  the  direction  with  regard  to  the  

adjustment on account of volume of imports of CAB by the  

appellant  @  20%  in  the  price  difference  between  each  

variety  of  CAB  imported  by  the  appellant  and  the  

corresponding CAB of the competitor, is set aside.  

37. In the circumstances, there will be no order as to costs.

……………………………………J.

             (D.K. JAIN)

                             ...………………………………….J.              (T.S. THAKUR)

NEW DELHI; JULY 26, 2010.

                     REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5840 0F 2008

PERNOD RICARD INDIA (P.) LTD.                

— APPELLANT

VERSUS

COMMISSIONER OF CUSTOMS,  ICD   TUGHLAKABAD              

— RESPONDENT

WITH  

[CIVIL APPEAL NO.1110 OF 2009]

O R D E R

   In the judgment pronounced on 26th July, 2010, in  

paragraph  No.  24,  the  words,  “judiciary scrutiny  shall  be  

read as “judicial scrutiny.”

                                           .................J.                [ D.K. Jain ]

       .................J.                [ T.S. THAKUR ]

New Delhi,  August 26, 2010