1991 (8) TMI 82 - SC - Customs

Appeal dismissed for lack of pre-clearance damage proof; Warranty breach /= duty refund. Upheld duty assessment.

The court dismissed the appeal, ruling that the appellant did not demonstrate pre-clearance damage as required by Section 22. The compensation received ... Whether the appellant is entitled to the refund of customs duty on account of the compensation given by the seller to the appellant on supply of goods? Held that:- From the fact of payment of compensation or reimbursement by the sellers it cannot be taken that at the time and place of importation the goods imported was worth only the amount stated in the invoice less the compensation paid. In other words, there is no proof that the real value of the goods at the time and place of importation was less than what had been entered in the invoice and stated in the Bill of Entry. So long as examination of the goods had not been made or its value re-assessed to the satisfaction of the assessing authorities, it cannot be said that duty was charged not on the real value of the goods but on a higher amount. What had been estimated is only quantum of damages sustained by the buyers and to that extent they had been compensated. That arrangement between the buyer and the seller cannot be linked with the assessment of duty and no claim for abatement of duty under the provisions of Section 22 or a claim for refund under Section 27 could be legitimately entertained. Appeal dismissed. Issues Involved:1. Entitlement to refund of customs duty based on compensation for defective goods.2. Applicability of Section 22 of the Customs Act for refund claims.3. Assessment of real value of imported goods at the time of clearance.4. Relevance of post-clearance compensation agreements on customs duty assessment.Issue-wise Detailed Analysis:1. Entitlement to Refund of Customs Duty Based on Compensation for Defective Goods:The appellant, a federation of glass manufacturers, imported 5000 metric tonnes of soda ash dense from Kenya. Upon distribution, the goods were found to be sub-standard. The seller agreed to compensate the appellant with a credit note of US $ 2,40,000. The appellant sought a refund of customs duty amounting to Rs. 9,95,892.65, arguing that the compensation indicated a reduction in the value of the goods, thus warranting a refund of the customs duty paid on the higher, initial value.2. Applicability of Section 22 of the Customs Act for Refund Claims:The Assistant Collector rejected the refund application, stating that the extent of deterioration of the goods before clearance was not proven as required under Section 22 of the Customs Act. The Collector of Customs upheld this decision, emphasizing that the damage was discovered post-clearance and customs authorities were not involved in the inspection. The Tribunal also rejected the appeal, noting that the inferior nature of goods was discovered after clearance.3. Assessment of Real Value of Imported Goods at the Time of Clearance:The appellant argued that the real value of the goods, as per Section 14 of the Customs Act, should reflect the diminished price due to inherent defects. They contended that the customs duty paid on the initial invoice value was a mistake, as the true value was lower due to the defects. However, the court noted that the assessment and duty were based on the invoice value at the time of importation, and any post-clearance compensation could not alter this assessed value.4. Relevance of Post-Clearance Compensation Agreements on Customs Duty Assessment:The court held that the compensation received from the seller was for damages due to breach of warranty and did not reflect a reduction in the value of the goods at the time of importation. The customs duty was correctly assessed based on the invoice value, and the compensation was unrelated to the customs valuation process. The court emphasized that there was no provision for re-assessment of duty based on post-clearance agreements between the buyer and seller.Conclusion:The court dismissed the appeal, stating that the appellant failed to prove that the goods were damaged or deteriorated before clearance, as required under Section 22. The compensation received was for breach of warranty and did not affect the customs duty assessment based on the initial invoice value. Therefore, no refund of customs duty was warranted. The appeal was dismissed with no order as to costs.