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SC ruling on value of imported goods

R.N. Sahai

WHEN a discount is permissible commercially, and there is nothing to show that the same would not have been offered to any one else wishing to buy the old stock of bearings, there is no reason why the declared value of import in question was not accepted under Rule 4(1) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (`the Rules').

In the circumstances, production of the price list did not discharge the onus cast on the Customs authorities to prove that the value of the 1989 bearings in 1993 as declared by the appellant was not the ``ordinary'' sale price of the bearings imported.

The decision of the Tribunal accepting the determination of value by the Assistant Collector cannot, therefore, be sustained.

So held the Supreme Court while allowing the appeal of the company against the Collector of Customs in Eicher Tractors Ltd Haryana vs. Commissioner of Customs, Mumbai (Civil Appeal No. 6492 of 1998 decided on November 14, 2000) by a Division Bench compri sing Mr Justice A.P. Misra and Mrs Justice Ruma Pal.

The relevant facts are that Eicher Tractors Ltd (`the company') have been importing bearings of a specific size for their tractors and tractor engines from NTN Corporation, Osaka, Japan since 1955. After 33 years, in 1988, the company started utilising b earings manufactured for them in India by HMT Ltd.

The Japanese seller was left with a stock which had been manufactured by it for the company anticipating the company's continued customs. Not finding any customer, the vendor's agent in India offered to sell the 1989 stock of 3,579 bearings to the compan y at a price of Japanese Yen (JY) 826 per piece.

The company found the offer competitive, and agreed to buy the bearings. An order was placed on April 17, 1993. The bearings were shipped from Japan and arrived in India. The company filed the bill of entry on December 3, 1993 together with the invoice d ated October 6, 1993 with the Customs authorities.

The Assistant Commissioner of Customs was not satisfied that the value declared was the value of the bearings for the purposes of levying customs duty. He issued a notice to the company. The company gave a detailed reply setting out the facts.

The Assistant Commissioner noted that the declared price was only 23 per cent of the vendor's list price, and was of the view that the 77 per cent discount allowed to the company by the vendor was not normal, and could not be accepted for the purpose of determining the price under Section 14 of the Customs Act, 1962, and Rule 4 of the Rules.

The Assistant Commissioner determined the price at JY 2,507 per piece under Rule 8. In arriving at this figure, he took the list price of the vendor and deducted 30 per cent on account of discount, which, according to the terms of agency was the maximum permissible discount allowable.

The company preferred an appeal before the Commissioner (Appeals) who allowed the appeal. Then, the Department preferred an appeal before the Customs, Excise and Gold (Control) Appellate Tribunal. The Tribunal allowed the appeal of the Department accepti ng the reasoning of the Assistant Commissioner, and relying on the decision of the Supreme Court in Padia Sales Corporation vs. Collector of Customs 1993 Supp (4) SCC 57.

The Tribunal held that ``specially quoted price was not acceptable in preference to the ordinary price in the course of international trade''. Hence, the company appealed to the Supreme Court.

Before the Supreme Court, the appellate pleaded that Rule 8 of the Rules, could have been relied on by the Assistant Commissioner without determining the value of the bearings under Rule 4. It was submitted that giving of discount was a normal incidence of commerce and given the circumstances of the case, a discount of 77 per cent was perfectly justified.

In this connection, the appellant cited the decision in Mirah Export Pvt Ltd vs. Collector of Customs 1998 (98) ELT 3 where discounts ranging between 50 per cent and 70 per cent were found to be acceptable.

The Department contended that the principle for valuation of imported goods was to be found in Section 14(1) of the Act, which provides for the determination of the value on the basis of international sale price.

So, the Rules would have to be read subject to Section 14(1). Further, the use of the words `price payable' in Rule 4 meant the market value of the goods in international trade. The Department conceded that the onus was on the Customs authority to establ ish the market value of the imported goods, but claimed that the onus had been discharged by proof of the vendor's price list.

While allowing the appeal, the Judges pointed out that both the decisions, Padia Sales Corporation (supra) and Sharp Business Machines Pvt Ltd (supra) were distinguished subsequently in Mirah Exports Pvt Ltd vs. Collector of Customs 1998 (98) ELT 3, the facts whereof are somewhat similar to the present case.

In that case, Mirah Exports Pvt Ltd, along with other importers, had imported bearings at high rates of discount. The declared value was rejected by the Customs authorities on the basis of the price list of the vendors.

The Supreme Court set aside the decision of the respondent authorities accepting the argument that a discount is a recognised feature of international trade practice, and that as long as those discounts are uniformly available to all, and based on logica l commercial bases, they cannot be denied under Section 14.

The judges further pointed out that in the present case, it is not alleged that the appellant has mis-declared the price actually paid. Nor was there a misdescription of the goods imported as was the case in Padia Sales Corporation (supra).

It is also not the respondent's case that the particular import fell within any of the situations enumerated in rule 4(2), which not details `special considerations' statutorily.

The judges also remarked that no reason has been given by the Assistant Collector for rejecting the transaction value under Rule 4(1) except the price list of vendor. In doing so, the Assistant Collector not only ignored Rule 4(2) but also acted on the b asis of the vendor's price list as if a price list is invariably proof of the transaction value.

This was erroneous, and could not be a reason by itself to reject the transaction value. Finally, the judges explained that a discount is a commercially acceptable measure which may be resorted to by a vendor for a variety of reasons, including stock cle arance.

A price list is really no more than a general quotation. It does not preclude discounts on the listed price. In fact, a discount up to 30 per cent was allowable in ordinary circumstances by the Indian agent itself. But there was the additional factor, th at the stock in question was old, and it was a one-time sale of 5-year-old stock.

(By arrangement with Corporate Law Adviser, New Delhi.)