2006 (9) TMI 181 - SC - Customs

Transportation charges for barges from anchored vessels to jetty cannot be added to customs duty assessable value

ISPAT INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI

SC held that transportation charges for barges carrying cargo from mother vessel anchored at BFL to Dharamtar jetty cannot be added to assessable value ... Importer of iron ore pellets - Mimansa Principles of Interpretation - Whether the transportation charges for the use of barges for carrying the cargo from the mother vessel which anchored at BFL to the Dharmatar jetty where the goods were unloaded are to be added to calculate the assessable value for the purpose of duty under the Customs Act? HELD THAT:- In the present case, the vessel had been anchored and permission by the proper officer under Section 47 after examination of the cargo had been granted after due payment, and goods were allowed to be water-borne through a Boat Note under Section 35. It is not disputed that the freight upto the Dharamtar jetty had been paid by the buyer. Hence we cannot agree that additional transportation charges being the charges for carrying the goods by barges from the mother ship to the Dharamtar Jetty have to be added to the valuation. The fact that the mother ship could not come upto the Dharamtar Jetty is an extraordinary situation (due to lack of draft) and hence any extra transportation charge to meet this situation cannot, in our opinion, be added to the value of the goods. The bills of lading show that the port of discharge was Mumbai Port/JNPT/Dharamtar. In the bill of entry, the FOB price, freight and insurance were shown separately in U.S. dollars. Since Dharamtar was also shown as the port of discharge, the freight charges paid by the buyer to the shippers included the charges for freight not only upto BFL but also to Dharamtar. Appeal is allowed and the impugned' order of the Tribunal as well as of the Customs authorities are set aside, and it is held that the charges for transportation of the goods by barges from the mother ship at BFL to the Dharamtar Jetty cannot be added to the valuation of the imported goods for the purpose of levying customs duty. Any amount collected by the revenue as duty on barge charges shall be refunded forthwith to the assessee with statutonr interest from the date of payment to the date of refund, which must be within three months from today. The core legal questions considered in this judgment are:1. Whether the transportation charges incurred for carrying imported goods by barges from the mother vessel anchored at Bombay Floating Light (BFL) to the Dharamtar Jetty are to be included in the assessable value of the goods for the purpose of customs duty under the Customs Act, 1962.2. The determination of the 'place of importation' for valuation purposes-whether it is the BFL, where the goods were initially discharged from the mother vessel, or the Dharamtar Jetty, the approved place for unloading under Section 8(a) of the Customs Act.3. The correct interpretation and application of Section 14 of the Customs Act, 1962, and Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, especially concerning inclusion of freight and transportation costs in the assessable value.4. The validity and relevance of various precedents cited by the parties concerning valuation, place of importation, and inclusion of ancillary charges in customs valuation.Issue-Wise Detailed Analysis1. Inclusion of Barge Transportation Charges in Assessable ValueLegal Framework and Precedents: The valuation of imported goods for customs duty is governed primarily by Section 14 of the Customs Act, 1962, which deems the value of goods to be the price at which such or like goods are ordinarily sold for delivery at the time and place of importation in international trade. Rule 9(2) of the Customs Valuation Rules, 1988, provides that the value shall include transportation costs to the place of importation, loading/unloading/handling charges, and insurance.Court's Interpretation and Reasoning: The Court emphasized that Section 14(1) is a deeming provision creating a legal fiction. The value to be determined is not the actual transaction price but the ordinary price prevailing in international trade at the time and place of import. The Court relied on a three-Judge Bench precedent which held that the phrase 'ordinarily sold or offered for sale' refers to the prevailing market price rather than the contract price.Rule 9(2)(a) was scrutinized carefully. Although it appears to include all transportation charges to the place of importation, the Court held that Rule 9 must be read in conjunction with Section 14 and cannot override it. Since the contracts with foreign sellers were either CIF or FOB contracts with the port of discharge specified as Mumbai/JNPT/Dharamtar, the freight cost up to Dharamtar was already included in the price paid or payable to the seller. Therefore, adding the barge charges as an additional transportation cost would amount to double counting, which is impermissible.Key Evidence and Findings: The bills of lading showed the port of discharge as Mumbai Port/JNPT/Dharamtar, and the freight and insurance charges were separately stated in the bills of entry. The appellant had already paid freight charges inclusive of transportation up to Dharamtar Jetty.Application of Law to Facts: The Court applied the principle that the valuation must reflect the ordinary value in international trade and that the freight cost included in the CIF/FOB contracts covers transportation to the port of discharge. The barge transportation from BFL to Dharamtar was an extraordinary arrangement due to lack of draft and not contemplated as part of the ordinary transaction.Treatment of Competing Arguments: The Revenue argued that barge charges are part of transportation and hence must be included. The Court rejected this, holding that such an interpretation would violate the primacy of Section 14 and the legal fiction it creates. The Court also rejected reliance on precedents that dealt with landing charges or different factual situations.Conclusion: The barge transportation charges from BFL to Dharamtar Jetty cannot be added to the assessable value of the imported goods for customs duty purposes.2. Determination of Place of ImportationLegal Framework: Section 14(1) requires valuation at the place of importation. Sections 7, 8, 33, 34, and 35 of the Customs Act regulate the designation of customs ports, approved landing places, and conditions for unloading goods.Court's Interpretation and Reasoning: The Court noted that while Dharamtar Jetty is an approved place for unloading under Section 8(a), BFL is only an anchoring place and not approved for unloading. However, unloading at BFL was permitted by the proper officer under Sections 33 and 34, with supervision and accompanied by a Boat Note under Section 35. Hence, the unloading at BFL was lawful.The Court observed that whether the place of importation is deemed to be BFL or Dharamtar Jetty does not affect the conclusion regarding the inclusion of barge charges in valuation because the freight cost to Dharamtar was already included in the contract price.Key Evidence and Findings: The goods were discharged from the mother vessel onto barges at BFL due to draft limitations and then ferried to Dharamtar Jetty. The proper permissions and supervision under the Customs Act were obtained for this process.Application of Law to Facts: The Court applied the statutory provisions permitting unloading at places other than approved ones with proper permission and supervision. The Court treated BFL as a valid place for unloading for this purpose.Treatment of Competing Arguments: The Revenue argued that the place of importation is the approved jetty and hence barge charges must be included. The Court held that the place of importation issue was immaterial to the valuation conclusion and that the unloading at BFL was valid under the Act.Conclusion: The place of importation can be treated as either BFL or Dharamtar Jetty without affecting the valuation outcome; unloading at BFL was lawful under the Customs Act.3. Interpretation of Section 14 of the Customs Act and Rule 9 of the Customs Valuation RulesLegal Framework: Section 14 provides for valuation of imported goods on a deemed price basis, reflecting the ordinary price in international trade at the time and place of importation. Rule 9 specifies adjustments to the transaction value, including transportation and handling charges.Court's Interpretation and Reasoning: The Court emphasized the primacy of Section 14 over subordinate rules. Rule 9 must be interpreted in a manner consistent with the statutory object of Section 14, which is to determine a deemed ordinary value, not the actual price paid in every transaction.The Court invoked the Gunapradhan Axiom from the Mimansa Principles of Interpretation, an indigenous interpretative principle stating that where a subordinate provision conflicts with a principal provision, the subordinate must be adjusted or disregarded to conform with the principal. Applying this, Rule 9 (subordinate) must be interpreted to serve Section 14 (principal).Key Evidence and Findings: The Court found that the freight cost to the port of discharge was already included in the contract price (CIF/FOB). Therefore, adding barge charges as an additional freight cost under Rule 9(2)(a) would conflict with the legal fiction created by Section 14.Application of Law to Facts: The Court applied the principle that rules subordinate to statutes cannot override or contradict the statute's object. It rejected a literal and isolated reading of Rule 9(2)(a) that would require adding barge charges.Treatment of Competing Arguments: The Revenue's argument for inclusion of barge charges based on Rule 9(2)(a) was rejected as it conflicted with Section 14. The Court also rejected the Revenue's reliance on precedents that did not involve similar facts or issues.Conclusion: Rule 9 must be read harmoniously with Section 14, and barge transportation charges already covered by the contract price cannot be added again for customs valuation.4. Relevance and Applicability of PrecedentsLegal Framework: The Court reviewed various precedents cited by both parties, including decisions on the place of importation, valuation, and inclusion of ancillary charges.Court's Interpretation and Reasoning: The Court stressed that precedents are binding only for the facts they decide and their ratio. It emphasized that variations in facts can significantly affect precedential value. The Court distinguished the present case from precedents involving landing charges, dates for duty determination, or different factual scenarios.Key Evidence and Findings: The Court noted that decisions such as Garden Silk Mills, Coromandal Fertilizer, Apar Industries, Dhiraj Lai Vohra, and Kiran Spinning Mills involved different issues like landing charges or timing of duty assessment, not barge transportation charges.Application of Law to Facts: The Court applied the principle that judicial observations must be read in context and not treated as statute-like provisions. It rejected the Revenue's reliance on these precedents as inapplicable to the present factual matrix.Treatment of Competing Arguments: The Court acknowledged the Revenue's reliance on these cases but found them distinguishable and not controlling.Conclusion: The precedents cited by the Revenue do not support inclusion of barge charges in customs valuation in the present case.5. Lawful Unloading at Non-Approved PlacesLegal Framework: Sections 33, 34, and 35 of the Customs Act permit unloading at places other than those approved under Section 8(a) with proper permission and supervision.Court's Interpretation and Reasoning: The Court found that unloading at BFL, though not an approved place, was done with the permission of the proper officer and under supervision, accompanied by a Boat Note, thus complying with statutory requirements.Key Evidence and Findings: The goods were unloaded from the mother vessel onto barges at BFL with proper permissions and supervision.Application of Law to Facts: The Court applied the statutory provisions to validate the unloading process at BFL.Treatment of Competing Arguments: No significant competing argument was presented on this point.Conclusion: The unloading at BFL was lawful and valid under the Customs Act.Significant Holdings'Section 14(1) creates a legal fiction and the value of the imported goods shall be the deemed price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation in the course of international trade.''Rule 9 of the Customs Valuation Rules must be read in conjunction with Section 14 of the Customs Act and cannot be interpreted in a manner that violates the provisions of the parent statute.''The Gunapradhan Axiom of the Mimansa Principles of Interpretation applies: if a subordinate provision conflicts with the principal provision, the subordinate must be adjusted or disregarded to conform with the principal.''Since the freight charges up to the Dharamtar Jetty were already included in the CIF or FOB contract price, the additional barge transportation charges from the mother vessel at BFL to Dharamtar Jetty cannot be added to the assessable value of the imported goods for customs duty.''Unloading of goods at BFL, though not an approved place under Section 8(a), was valid as it was done with the permission and supervision of the proper officer under Sections 33, 34, and 35 of the Customs Act.''The place of importation, whether BFL or Dharamtar Jetty, does not affect the valuation conclusion in this case.''Precedents are binding only for their ratio and facts; reliance on decisions without considering factual differences is improper.'The Court allowed the appeals and set aside the orders of the Customs authorities and the Tribunal, holding that barge transportation charges cannot be included in customs valuation. It ordered refund of any amounts collected on account of barge charges with statutory interest within three months.