Octroi valuation cannot include customs duty where imported goods are fully exempt and no customs liability arises.

Customs duty could not be added to the value of imported goods for octroi where the goods were fully exempt under the relevant notification and no customs-duty liability actually arose. Rule 2(7)(a) of the Bombay Municipal Corporation (Levy of Octroi) Rules, 1965 allows inclusion of customs duty only when it is actually incurred or liable to be incurred by the importer. Payment of excise duty on manufactured articles cleared into the domestic area had no nexus with any customs-duty liability on the imported goods. The imported goods having remained exempt from customs duty, the assessee was entitled to relief.

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Issues: Whether customs duty could be added while determining the value of imported goods for levy of octroi under Rule 2(7)(a) of the Bombay Municipal Corporation (Levy of Octroi) Rules, 1965, when the goods had been exempted from customs duty under Notification No. 133 of 1994 and only manufactured articles were cleared into the domestic area on payment of excise duty.

Analysis: Rule 2(7)(a) permits inclusion of customs duty only where such duty is actually incurred or is liable to be incurred by the importer. The exemption notification granted customs-duty exemption on import of the goods, and the clearance of a part of the manufactured output into the domestic area was under the export-import policy on payment of excise duty on the manufactured articles. That excise duty was paid on the finished goods and not on the imported goods themselves, and therefore it had no nexus with any customs-duty liability on the imported goods. As the imported goods stood fully exempted from customs duty, no customs duty was incurred or became liable to be incurred for the purpose of Rule 2(7)(a).

Conclusion: Customs duty could not be added to the value of the imported goods for octroi purposes, and the assessee was entitled to relief.

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