REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL  APPEAL NO. 1608 of 2005

COMMISSIONER  OF  CUSTOMS  (GEN), MUMBAI

— APPELLANT  

VERSUS

ABDULLA KOYLOTH — RESPONDENT

J U D G M E N T

D.K. JAIN, J.:

1. Challenge in this appeal, by the revenue, under Section 130E(b) of the  

Customs Act,  1962 (for  short  “the Act”)  is  to the  order  dated 10th  

December  2004  passed  by  the  Customs,  Excise  and  Service  Tax  

Appellate  Tribunal,  (for  short  “the  Tribunal”)  whereby  the  appeal  

preferred  by  the  respondent  has  been  allowed  holding  that  the  

assessable value declared by the respondent in the bill of entry should  

be accepted for the purpose of valuation in terms of Section 14 of the  

Act.  

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2. M/s.  IPCO  Enterprise,  Thane,  a  proprietorship  concern  of  the  

respondent  imported  a  consignment  of  assorted  consumer  goods  

ranging from glass ware, hair dryers etc. to gas filled cylinders and  

refrigerant-22 gas (R-22).  The bill  of entry for the said goods was  

filed on 3rd May 2002, by M/s Vegha Shipping & Transport Pvt. Ltd.  

on behalf of M/s. IPCO Enterprise, whereby the total assessable value  

of the goods was declared at  ` 6,75, 796.90/- with duty liability of  `  

3,86,352/-.  

3. On an examination of the bill of entry, invoice dated 17th April 2002,  

and packing list  issued  by one M/s.  Plizer  Trading,  Dubai,  certain  

discrepancies  were  noticed  by  the  Central  Intelligence  Unit,  and  

therefore, first check appraisement was ordered. Subsequently, 100%  

examination of the goods was carried out on 13th-14th May 2002, and  

it was found that there was mis-declaration with respect to country of  

origin, quantity and value of the imported items.  

4. On 31st May  2002,  the  respondent  was  summoned  by  the  Central  

Intelligence Unit, and his statement under Section 108 of the Act was  

recorded. Subsequently, another statement was recorded on 6th June  

2002, wherein the respondent stated that he was not  aware that  he  

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required  license  for  import  of  certain  goods,  and  that  he  did  not  

remember the country of origin of some of the goods.  

5. Due to large number of discrepancies found in the bill of entry, and  

the fact that the import of R-22 gas filled cylinders required actual  

user license, the goods were seized on 4th July 2002.

6. On 26th August  2002,  the  respondent  wrote  a  letter  to  the  Central  

Intelligence  Unit  whereby  he  stated  that  he  had  accepted  the  

wholesale prices found out by the department by market survey, and  

that the case be finalized and settled at the earliest. Thereafter, duty  

liability was calculated in terms of Rule 6A and 7(1) of the Customs  

Valuation (Determination of Price of Imported Goods) Rules,  1988  

(for short “the 1988 Rules”) as it was observed that Rules 3(i) and 4  

were not applicable due to mis-declaration, and Rule 5 and 6 could  

not be invoked as there were no contemporaneous imports of similar  

or identical goods.  

7. On 13th September  2002,  another  statement  of  the  respondent  was  

recorded under Section 108 of the Act,  wherein he admitted,  inter   

alia, that  there  was difference in  the  items declared and the items  

actually found and seized under Panchnama, and that the prices  of the  

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items,  in  question,  found by the  market  survey were  acceptable  to  

him.

8. Vide his order dated 21st April 2003, the Commissioner of Customs  

rejected the assessable value declared in the bill of entry. Dealing with  

explanation furnished on behalf of the respondent regarding some of  

the crockery items, the Commissioner observed thus :   

“As regards the contention that inadvertently in the packing list  and the invoice, the word “Set” was omitted and officers took it  as single piece in place of set,  I  find that whoever there are  dinner  sets  mentioned  in  the  invoice  and  packing  list,  the  quantities  in sets  have been specifically  mentioned while  for  other  items  the  declaration  have  been  in  pieces.   If  the  contention of the learned advocates that value declared is for a  set  is  accepted then the value of these crockery items would  become so low that such a proposition itself appears ridiculous.  For example, the wholesale price of a single Arc brand, 25 CI,  glass mug of France origin in the local markets is Rs.40/- and of  a set of 6 mugs is Rs.240/-, the declared CIF price of a single  same mug, if it is  accepted that this price is for a set of 6 mugs  as agitated by the learned advocates, would thus be Rs.0.41 or  Rs.2.46/- per set of 6 pieces.  It is beyond any comprehension  how the wholesale price of a single or set of this mug in the  local markets can be Rs. 40/- and Rs.240/-respectively if they  are so cheap as (sic) declared by the importers.  Similar is the  situation in  case of  all  other  crockery items.   The advocates  have not given me any explanation for such a vast difference in  market  values  of  the  goods  and  the  declared  prices.  On  the  other hand Shri Abdulla Koyloth, the proprietor of the import  firm has, in his letters dated 26,08,02,09.02 and statement dated  13.09.02,  accepted the  determination of  assessable  value and  the duty liability thereon in the basis of market surveys  which  were conducted in his presence.  Under the circumstances, I am  not inclined to accept the contention of the advocates that the  

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value declared is of a complete set.  In any case, these goods are  mis-declared in respect of both quantities as well as value.  This  was done with a clear intention of evade duty.”

Thus,  having rejected the  value declared by the respondent for  the  

purpose of Section 14 of the Act, the Commissioner held that the assessable  

value of the goods had to be determined under Rules 6A and 7 of the 1988  

Rules.   Accordingly,  he  confirmed  the  assessable  value  of  the  goods  at  

`23,69,838/- and the duty demand of `13,17,091/- as customs duty on them.  

Additionally, the Commissioner ordered the confiscation of the said goods  

under Sections 111(d) and (m) of the Act, with the option of redemption on  

payment of fine of  `30,11,525/-. However, R-22 gas filled cylinders were  

confiscated absolutely under Section 111(d) of the Act. The Commissioner  

also imposed a penalty of `10 lakhs on the respondent under Section 112(a)  

of the Act.  

9. Being  aggrieved  by  the  said  order  of  the  Commissioner,  the  

respondent carried the matter in appeal before the Tribunal. As afore-

mentioned, the Tribunal allowed the appeal of the importer in relation  

to the assessable value and confiscation of the imported glassware,  

inter alia, observing thus:

“4. After going through the impugned order, we find that the  Commissioner has rejected the invoice value on the sole ground  

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that  majority  of  the  goods  were  declared  with  their  generic  description only without disclosing any brand name or make,  etc. He has also gone on the reason that the glass items were  found to be in excess quantity than the declared one. However,  we find that the invoice as also the packing list was annexed  with the bill of entry and the consignments in any case were of  assorted items from different countries. As such, it cannot be  said that there is mis-declaration as regards description of the  goods.  As  regard,  variation  in  quantity  of  glass  items,  the  appellant have submitted that they had declared the number of  sets instead of number of pieces. ……………………………… …………………………………. The explanations tendered by the importer are plausible, and no  case be made for rejecting the invoice value in the absence of  any importation or evidence to reflect upon the flow back of  money by the importer to the supplier…..……………………… …………

6. We are of the view that in the absence of any evidence to  show that the invoice value was not correct and further in the  absence  of  contemporaneous  imports  of  identical  goods,  the  value  declared  by  the  appellant  should  be  accepted  as  transaction value and not to be rejected.”

In relation to the confiscation of the R-22 gas filled cylinders, the Tribunal  

held that the confiscation of the said goods was justified on the ground that  

the said goods had to be imported against an actual user license, which the  

respondent did not possess.  The Tribunal also deleted the penalty levied on  

the respondent on the ground that since the value enhancement had not been  

upheld by it, there was no cause for imposition of penalty.

10. Hence, the present appeal.

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11. Mr.  K.  Swami,  learned  counsel  appearing  for  the  revenue,  while  

assailing the order of the Tribunal,  strenuously urged that since the  

respondent had made mis-declarations in the bill of entry in relation to  

quantity,  country  of  origin  and value  of  the  goods,  the  transaction  

value had to be rejected in terms of Section 14(1) of the Act and Rule  

4(2) of the 1988 Rules. Learned counsel further contended that in the  

absence of  contemporaneous imports  of  identical  or  similar  goods,  

Rule 7 of 1988 Rules would apply. Commending us to the decision of  

the  Tribunal  in  Prasant  Glass  Works  P.  Ltd  Vs.  Collector  of   

Customs1,  Calcutta which attained  finality  because  of  dismissal  of  

assessee’s appeal  by this Court in  Prasant Glass Works P. Ltd  Vs.   

Collector of Customs.2, wherein it was held that in a case where the  

invoice  value   shown is  inadequate,  incomplete  or  erroneous,  then  

such invoice and the price declared therein will carry little weight, and  

the  department  is  not  required  to  show  that  the  invoice  price  is  

defective and cannot be accepted.

12. Per  contra,  Mr.  Tarun  Gulati,  learned  counsel  appearing  for  the  

respondent contended that in light of the decisions of this Court in  

Eicher  Tractors  Ltd.,  Haryana  Vs.  Commissioner  of  Customs,   

1 1996 (87) E.L.T. 518 (Tri.-Del) 2 1997 (89) E.L.T. A 179

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Mumbai3 and Varsha Plastics Private Limited & Anr. Vs. Union of   

India  &  Ors.4,  the  onus  lies  on  the  revenue  to  establish  that  the  

transaction  value disclosed by  the  importer  is  not  correct.  Learned  

counsel contended that in the instant case, the revenue having failed to  

bring on record any material indicating undervaluation in the invoice,  

the value declared by the importer had to be accepted. While candidly  

conceding that though there could be some discrepancy in the mode of  

declaration  of  the quantity  of  certain  glassware,  in  as  much as the  

respondent  had  declared  the  quantity  in  sets,  whereas  the  

Commissioner  had  gone  by  the  actual  numbers,  learned  counsel  

asserted that as such there was no mis-declaration in relation to the  

assessable value, more so, when the bill of entry was supported by the  

invoice and the packing list.  It was thus, pleaded that there is no merit  

in this appeal.   

13. Thus,  the  short  issue  that  arises  for  determination  relates  to  the  

manner of computing the assessable value of the imported goods. For  

the  sake of  ready reference,  it  would be useful  to extract  Sections  

2(41), 14 (1) (as it stood at the relevant time) and 14(1-A) of the Act,  

which read as follows:

3 (2001)  1 SCC 315 4 (2009) 3 SCC 365

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“2(41) ‘value’, in relation to any goods, means the value thereof  determined in accordance with the provisions of sub-section (1)  of Section 14;

14. 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—

(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 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;

(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.”

14. It  would be also useful  to extract  Rules 2(f),  3 and 4 of  the 1988  

Rules, which provide that:

“2(f) “transaction  value”  means  the  value  determined  in  accordance with Rule 4 of these rules.

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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 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 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  

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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.”

15. Both Sections 14(1) of the Act (as it existed at the relevant time) and  

Rule 4 of the 1988 Rules provide that the price paid by an importer to  

the vendor in the ordinary course of commerce shall be taken to be the  

transaction value in the absence of any of the special circumstances  

indicated in Section 14(1) of the Act and particularized in Rule 4(2) of  

the 1988 Rules. Therefore, the Customs authorities are bound by the  

declaration  of  the  importer  unless  on  the  basis  of  some  

contemporaneous evidence the Revenue is  able to demonstrate that  

the invoice does not reflect the correct value. (See: Commissioner of   

Customs, Mumbai  Vs.  J.D. Orgochem Limited5 and  Commissioner  

5 (2008) 16 SCC 576

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of Customs, Calcutta Vs. South India Television (P) Ltd.6) It is only  

when the transaction value under Rule 4 is rejected, that by virtue of  

Rule 3(ii), the value shall be determined by proceeding sequentially  

through  Rule  5  to  8  of  the  1988  Rules.  (See:  Commissioner  of   

Customs, Mumbai Vs. Bureau Veritas & Ors.7 and Eicher Tractors   

Ltd. (supra)). Rule 5 allows for the transaction value to be computed  

on the basis of identical goods imported into at the same time whereas  

Rule 6 provides for the computation of transaction value on the basis  

of the value of similar goods imported into India at the same time as  

the subject  goods.  In the absence of contemporaneous imports into  

India, the value is to be determined under Rule 7 on the basis of a  

process of deduction contemplated therein. If this is not possible, then  

recourse must be had to Rule 7-A, and if none of these methods can  

be employed to compute the transaction value, Rule 8 provides that  

the transaction value can be determined by using reasonable means  

consistent with the principles and general provisions of these Rules  

and sub-section (1) of Section 14 of the Act and on the basis of data  

available in India.

6 (2007) 6 SCC 373 7 (2005) 3 SCC 265

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16. In  Varsha Plastics Private Limited  (supra), this Court while dealing  

with a similar situation where the importer had misdeclared in terms  

of value, description and quality of the imported goods, had held that:

“It has to be kept in mind that once the nature of goods has  been  misdeclared,  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  misdeclaration of  goods or  valuation or  that  the  declared  price  did  not  reflect  the  true  transaction  value.”

17. Similarly, in Collector of Customs, Calcutta Vs. Sanjay Chandiram8,   

a three judge bench of this Court observed that:

“These rules are based on the assumption that the price actually  paid or payable for the goods has been genuinely disclosed by  the importer. But, if the certificates of origin of the goods have  been found to be false, the value declared in the invoices cannot  be accepted as genuine.”

18. It is evident from a bare reading of the impugned order that having  

regard to the factual scenario emerging from the record, the Tribunal  

has failed to apply the procedure envisaged in  Section 14(1)  of the  

Act read with 1988 Rules for determining the value of the imported  

goods. Having carefully perused the Tribunal’s order, in particular the  

above-extracted paragraph, we are convinced that the finding of the  

Tribunal in para 6 (supra) of the impugned order is clearly perverse  8 (1995) 4 SCC 222

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and  cannot  be  sustained,  particularly  in  light  of  the  fact  that  the  

information  collected   by  the  revenue  from  the  market,  veracity  

whereof  was  not  questioned  by  the  respondent,  has  also  not  been  

examined  by  the  Tribunal.  Importantly,  the  Tribunal  has  also  

overlooked the statement made by the respondent on 13th September  

2002 under Section 108 of the Act, whereby he admitted that there  

was  difference  between  the  items  declared,  and  the  items  actually  

seized by the Customs authorities, and that the value arrived at after  

market enquiries was acceptable to him.  The said statement was not  

contested by the respondent  either  before the Commissioner  or  the  

Tribunal.  

19. In light of the foregoing discussion, we are of the opinion that the  

Tribunal needs to re-examine the entire matter afresh, particularly in  

relation  to  the  manner  of  valuation,  redemption  fine  and  penalty.  

Consequently, the appeal is allowed, and the matter is remitted back  

to the Tribunal for fresh consideration in accordance with law after  

affording proper opportunity of hearing to both the parties.  

20. There will be no order as to costs.

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.……………………………………J.            (D.K. JAIN)  

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

NEW DELHI; OCTOBER 29, 2010.

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