Customs valuation rules require transaction value to be tested under Rule 4(1) and exceptions before resorting to the residual method.

Where the buyer and foreign supplier were found not to be related persons, Rule 4(3) of the Customs (Valuation) Rules, 1988 could not be invoked to reject the declared transaction value. Valuation had to be examined first under Rule 4(1) and the exceptions in Rule 4(2) before any resort to the residual method under Rule 5. The document notes that bypassing this statutory sequence was legally unsustainable, leading to remand for fresh determination of assessable value after applying the correct order of valuation rules and giving the importer an opportunity of hearing.

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Issues: Whether the declared transaction value could be rejected by invoking Rule 4(3) and Rule 5 of the Customs (Valuation) Rules, 1988 when the buyer and seller were found not to be related persons, and whether the valuation had to be examined first under Rule 4(1) and the exceptions in Rule 4(2).

Analysis: The authorities had concurrently found that the buyer and the foreign supplier were not related within the meaning of Rule 2(2) of the Customs (Valuation) Rules, 1988. Rule 4(3) applies only where the buyer and seller are related persons, and therefore it could not be used in a case where that foundational condition was absent. The authorities also bypassed the proper inquiry under Rule 4(1) and Rule 4(2) and moved directly to Rule 5, which was impermissible because the valuation scheme requires the transaction value to be tested under the earlier provisions before resorting to the residual method.

Conclusion: The invocation of Rule 4(3) and the straight recourse to Rule 5 were held to be legally unsustainable, and the matter was remanded for fresh determination of assessable value after examining Rule 4 apart from sub-rule (3), before considering Rule 5.

Final Conclusion: The valuation orders were set aside and the original authority was required to redo the assessment in accordance with the statutory sequence of valuation rules after giving the appellant an opportunity of hearing.

Ratio Decidendi: Where the buyer and seller are not related, Rule 4(3) of the Customs (Valuation) Rules, 1988 cannot be invoked, and the valuation must first be examined under Rule 4(1) and Rule 4(2) before resorting to the residual rule.

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