1999 (9) TMI 88 - SC - Customs

Landing charges payable before customs clearance must be included in assessable value of imported goods under customs valuation rules

SC held that landing (port) charges payable before clearance must be included in the assessable value of imported goods for customs duty purposes, even ... Inclusion of landing charges in assessable value under Section 14(1)(a) - Meaning of 'delivery at the time and place of importation' for valuation - Import completed at customs barrier; taxable event on filing bill of entry - Deeming nature of Section 14 valuation (transaction value not conclusive) - Onus on importer to prove landing charges are included in CIF priceInclusion of landing charges in assessable value under Section 14(1)(a) - Deeming nature of Section 14 valuation (transaction value not conclusive) - Landing charges payable to Port Trust Authorities prior to clearance are to be included in the assessable value of imported goods for the purpose of Section 14(1)(a) of the Customs Act, 1962. - HELD THAT: - Section 14(1)(a) is a deeming provision which requires the customs value to be determined with reference to the price at which such goods are ordinarily sold for delivery at the time and place of importation; the provision does not accept the transaction (CIF) price as conclusive. Under the statutory scheme goods, after discharge, remain under customs/Port Trust custody until clearance for home consumption is granted on filing of the bill of entry and payment of duty. Landing charges are levied at or after discharge but before clearance; they are costs which the importer must bear before physical delivery can be taken. In determining the deemed price at the time and place of importation (i.e. when physical delivery can occur at the customs barrier), such landing charges therefore form part of the value to be taken into account. The Court endorsed prior High Court decisions to the same effect and rejected the appellants' contention that landing charges could not be added to CIF value as inconsistent with the language and purpose of Section 14(1)(a). [Paras 13, 14, 20, 21, 22]Landing charges were rightly included in determining assessable value under Section 14(1)(a); appeals on this point dismissed.Meaning of 'delivery at the time and place of importation' for valuation - Import completed at customs barrier; taxable event on filing bill of entry - The words 'delivery at the time and place of importation' refer to the point when physical delivery to the importer can take place at the customs barrier (upon clearance), not merely the shipper's discharge into territorial waters. - HELD THAT: - Statutory scheme (Chapters VI-VII) requires arrival formalities (import manifest, permission to enter inward, supervised unloading at approved place) and that goods remain under customs control until cleared by filing a bill of entry and payment of duty. Importation commences on entry into territorial waters but continues and is completed when goods form part of the mass of goods within the country and can be delivered to the importer at the customs barrier. Thus valuation must be with reference to the time/place when physical delivery is possible (i.e. clearance point), not merely at the moment of entry into territorial waters or discharge from the ship. [Paras 11, 12, 13, 15, 16]Value for customs assessment is to be determined with reference to the time/place when goods can be physically delivered at the customs barrier (on clearance), not merely on entry into territorial waters.Onus on importer to prove landing charges are included in CIF price - Deeming nature of Section 14 valuation (transaction value not conclusive) - Where customs add landing charges to CIF value, the importer bears the onus of showing that landing charges were in fact included in the CIF contract and paid by the seller/shipper; absent such proof, addition is permissible. - HELD THAT: - Once it is held that landing charges are a relevant element of value, the importer-who is in best position to show the terms and payments under the CIF contract-must prove that the obligation to pay landing charges lay on the seller/shipper and that such charges were actually discharged by them (e.g. payment to Port Trust). The Department is not required to prove the negative that CIF does not include landing charges. The factual question whether landing charges were paid by the shipper was not established in the appeals before the Court. [Paras 17, 18, 20]Onus rests on importer to establish that landing charges were included in the CIF price and paid by the seller/shipper; absence of such proof justifies addition of landing charges.Deeming nature of Section 14 valuation (transaction value not conclusive) - Section 14 does not make the transaction (invoice/CIF) value conclusive; customs may determine a deemed value which may be higher or lower than the invoice price. - HELD THAT: - The statutory language contemplates a deemed price 'at which such or like goods are ordinarily sold...for delivery at the time and place of importation.' Had Parliament intended the transaction value to be final it could have so stated. The Court emphasised that Section 14 requires determination of value by the customs authorities and that elements such as port/landing charges must be considered in fixing the assessable value irrespective of the CIF invoice unless the importer proves those elements were already included and discharged by the seller. [Paras 8, 14, 20]Transaction value under a CIF contract is a relevant consideration but not conclusive; customs may determine a different (deemed) value.Validity of charging duties on aggregate under Customs Tariff provisions - Exclusion of packing material value from invoice not permitted by Notification No. 184/76-Cus - Contentions challenging the validity of Section 3(a) of the Customs Tariff Act were rejected (following Jain Brothers). Claim to deduct packing material value from assessable value under Notification No. 184/76-Cus was rejected (following Hind Plastics). - HELD THAT: - The Court, applying earlier precedents, held that Section 3(a) is constitutionally valid and that the Notification relied upon does not permit deduction of the value of packages from the invoice value; instead the notification exempts separate levy on packages but does not require excluding package value from the assessable value of contents when invoice includes package value. These points were decided against the appellants in the appeals where they were raised. [Paras 33, 34, 35, 36, 37]Challenges to Section 3(a) and the claim to exclude package value from assessable value are rejected; appeals dismissed on these grounds.Final Conclusion: The Supreme Court dismissed the appeals and petitions (one appeal withdrawn) holding that landing charges payable to Port Trust Authorities prior to clearance are includible in the assessable value under Section 14(1)(a); valuation is to be with reference to the time/place when physical delivery at the customs barrier can occur; the importer must prove if landing charges were already included in the CIF price; and related challenges on Section 3(a) and packing-material deduction were rejected in accordance with precedent. Issues Involved:1. Inclusion of landing charges in the assessable value of imported goods for customs duty.2. Validity of Section 3(a) of the Customs Tariff Act.3. Exemption from customs duty on packaging materials under Notification No. 184/76-Cus.Issue-wise Detailed Analysis:1. Inclusion of Landing Charges in Assessable Value:The primary issue was whether customs authorities could add landing charges to the CIF (Cost, Insurance, and Freight) price to determine the value of imported goods for customs duty. The appellants argued that the CIF price already included all costs up to the port of discharge, and therefore, landing charges should not be added. However, the court held that under Section 14 of the Customs Act, the value of imported goods must include all costs incurred up to the point of physical delivery to the importer, which includes landing charges. The court emphasized that 'delivery' and 'discharge' are not synonymous, and the value must be determined at the point when the goods can be physically delivered to the importer, which is after the landing charges are paid. The court also noted that if the importer can prove that the landing charges were paid by the seller or their agent, then these charges should not be added again. However, in the cases presented, no such proof was provided, and therefore, the addition of landing charges was deemed appropriate.2. Validity of Section 3(a) of the Customs Tariff Act:The appellants challenged the constitutionality of Section 3(a) of the Customs Tariff Act, arguing that it was ultra vires of Article 14 of the Constitution of India. This section allowed for the charging of additional duty on the sum total of assessable value, basic customs duty, and auxiliary duty. The court referred to its previous decision in Jain Brothers v. Union of India, where it upheld the validity of this provision. Consequently, the court rejected the appellants' contention, affirming that the provision was constitutionally valid.3. Exemption from Customs Duty on Packaging Materials:The appellants sought exemption from customs duty on packaging materials under Notification No. 184/76-Cus, arguing that the cost of packaging materials should be excluded from the assessable value. The court referred to its decision in Hind Plastics v. Collector of Customs, which clarified that the notification did not contemplate the deduction of the value of packages from the invoice value but rather exempted the levy of duty on the packages separately. Therefore, the court held that the appellants were not entitled to the claimed exemption, as the cost of packaging materials was included in the total invoice price.Separate Judgments:The court delivered separate judgments for various appeals and petitions, all of which were dismissed except for Civil Appeal No. 5974 of 1994, which was dismissed as withdrawn due to pending litigation in the Bombay High Court.Conclusion:The Supreme Court upheld the inclusion of landing charges in the assessable value of imported goods for customs duty, validated Section 3(a) of the Customs Tariff Act, and denied the exemption from customs duty on packaging materials. All appeals and petitions were dismissed, except for one which was withdrawn.