TaxTMI 
TaxTMI 
2015 (4) TMI 643
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....e of Imported Goods) Rules, 1988 (hereinafter referred to as the "Valuation Rules"). This proviso has been inserted by Notification No.39/90 dated 05.07.1990 issued by the Ministry of Finance, Department of Revenue, Union of India. As per the appellant, this proviso is not only ultravires Section 14(1) and Section 14(1-A) of the Customs Act, 1962 (hereinafter referred to as the 'Act') but is also violative of Article 14 and Article 19(1)(g) of the Constitution of India. The challenge, however, stands repelled by the High Court in the impugned judgment leading to dismissal of writ petitions and writ appeals. This is how these appeals have come up in this Court, via special leave petition route, in which leave was granted. 3) In order to understand the controversy, purpose would be served in taking note of the facts from the Writ Appeal No.1079/2000 which was filed by the appellant in the High Court. The appellant is engaged in the manufacture and marketing of Mini and Micro Computer Systems and peripheral devices like printer, drivers etc. It, inter alia, imported various components including software from time to time. The appellant presented a Bill of Entry No.15020 dat....
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....ined, such a value is to be determined by resorting to Rules 5 to 8 thereof in a sequential order. Therefore, first attempt has to ascertain the transaction value. As per the formula contained in sub-rule (1) of Rule 4, the authorities are to find out the price actually paid or payable for the goods when sold for exports to India, to arrive at the value of the goods. Once this value is arrived at, it is to be adjusted in accordance with the provisions of Rule 9 of the said Rules. The final outcome, after such an adjustment made, is to be treated as transaction value to attract the import duty thereupon. As per sub-rule (2) of Rule 4, the transaction value of the imported goods under sub-rule (1) is to be accepted, except in certain circumstances mentioned in proviso to sub-rule (2). If any of those circumstances exists, then the value is to be determined as per sub-rule (3) of Rule 4. However, we are not concerned with such a situation in the present case. 6) Thus, normally, the value of imported goods has to be the transactional value which means the price "actually paid" or "payable" for the goods imported. Moreover, the value as specified in sub-rule (1) is to be generally ac....
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....e would like to reproduce this Rule, as it originally stood, in its entirety: "9. Cost of services - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - (a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely - (i) commissions and brokerage, except buying commissions; (ii) the cost of containers which are treated as being one for customs purposes with the goods in question; (iii) the cost of packing whether for labour or materials; (b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely:- (i) materials, components, parts and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the imported goods; (iii) materials consumed ....
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....e." 8) Rule 9 was amended in the year 1989 vide Notification dated 19.12.1989. With this amendment, the provisos appearing below sub-rule (2) of Rule 9 were substituted with the following proviso: "Provided that - (i) Where the cost mentioned in clause (a) are not ascertainable, such cost shall be twenty per cent of the free on board value of the goods; (ii) Where the charges mentioned at clause (b) are not ascertainable, such charges shall be one per cent of the free on board value of the goods; (iii) Where the cost mentioned at clause (c) are not ascertainable, such cost shall be 1.125% of free on board value of the goods. Provided further that in the case of goods imported by air, where the cost mentioned in clause (a) are ascertainable, such cost shall not exceed twenty per cent of free on board value of the goods." 9) In the year 1990 i.e. vide amendment Notification dated 05.07.1990, the said provisos underwent further modification with the substitution of following provisos: "Provided that - (i) Where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty per cent of the free on board value of the goods; ....
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....total handling charges, even when such actual handling charges could be ascertained. It was also the submission of the appellant that the said one per cent so fixed without reference to the nature of the goods, size of the cargo and value of the goods is irrational, in the sense, high value items like components of computer, involving little or no expenses by way of handling, whereas heavy weight items like machinery, hardware might involve substantial expenditure for loading, unloading and handling. It was submitted that the handling services are rendered by the sea port and airport authorities. The handling charges are levied on the basis of either the gross weight or chargeable weight, whichever is higher. Both these weights are incidentally available in the air bill accompanying the consignment. The international Airport Authorities and the port trust are having schedule of tariff and the appellant have from time to time been paying the handling charges to the authorities as per the tariff. On this basis, it was argued that such an addition was totally irrational and arbitrary, thus violative of Article 14 of the Constitution and was also ultravires Section 14(1) and Section 14....
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....r under the rules framed by the delegated authority. In the case on hand, instead of actuals, rules have prescribed a fixed percentage which in some cases may be too harsh where the value of the goods imported is much more and the weight of the commodity is less. There may be number of other items where the value of the imported goods are less and weight of the commodity is very much. The machinery provision so provided for collection of duty, taking into consideration the administrative convenience cannot be considered beyond the scope of the rule making power and it cannot be said to be levying duty on amount which is not within the purview of the Customs Act or Section 14(1) simply because the rule making authority have prescribed a fixed percentage based on experience instead of actual. Section 14 of the Customs Act itself made it clear the value of such imported goods shall be deemed to be the price at which such goods are ordinarily sold or offered for sale for delivery at the time and place of importation or exportation in the course of international trade and the price referred to shall be determined in accordance with the rule made in this behalf. For the purpose of det....
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....rts various components worth crores of rupees, which are of high value but of low weight and dimensions. Further, the actual cost incurred towards the handling charges in accordance with the prescribed charges by the international Airport Authority of India was not even a fraction of the "notional handling charges" arrived at by applying the formula contained in the amended Rule. In nutshell, it was pointed out that in the present case, where actual cost could be ascertained, the same had to be taken into consideration to determine the valuation of the goods for the purpose of custom duty and it is only in those cases where actual cost could not be arrived at the fictional formula should be made applicable. Making such a provision, it was argued, even where the actual cost was known was clearly ultravires Section 14(1) and Section 14(1A) of the Customs Act. It was also argued that there was no rationale in adding one per cent of the F.O.B. value in such cases and this smacked of arbitrariness making it violative of Article 14 of the Constitution as well. Mr. Dave also referred and relied upon the judgment of this Court in Indian Acrylics v. Union of India and Anr. (2000) 2 SCC 678 ....
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.... no interest in the business of each other; or (b) one of them has no interest in the business of the other, and the price is the sole consideration for the sale or ofer for sale: Provided that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill or bill of export, as the case may be, is presented under section 50; (1A) Subject to the provisions of subsection (1), the price referred to in that subsection in respect of imported goods shall be determined in accordance with the rules made in this behalf. (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A) if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. (3) For the purposes of this section- (a) "rate of exchange" means the rate of exchange- (i) determined by the Board, or (i....
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.... calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill of export, as the case may be, is presented under section 50. (2) Notwithstanding anything contained in subsection (1), if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value." 21) A reading of the unamended provision would show that the earlier/old principle was to find the valuation of goods "by reference to their value". It introduced a deeming/fictional provision by stipulating that the value of the goods would be the price at which such or like goods are "ordinarily sold, or offered for sale". Under the new provision, however, the valuation is based on the transaction price namely, the price "actually paid or payable for the goods". Even when the old provision provided the formula of the price at which the goods are ordinarily sol....
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....ver, this sub-section (1) further makes it clear that the price actually paid or payable for the goods will not be treated as transaction value where the buyer and the seller are related with each other. In such cases, there can be a presumption that the actual price which is paid or payable for such goods is not the true reflection of the value of the goods. This Section also provides that normal price would be the sole consideration for the sale. However, this may be subject to such other conditions which can be specified in the form of Rules made in this behalf. 23) As per the first proviso of the amended Section 14(1), in the transaction value of the imported goods, certain charges are to be added which are in the form of amount paid or payable for costs and services including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner which can be prescribed in the rules. Sub-section (2) of Section 14, which remains the same, is an over-riding provision which empowers the Board to fix tariff values for any class of impo....
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....he goods notionally. However, even when the fiction is applied, the scheme and spirit behind Rules 5 to 8 would amply demonstrate that the endeavour is to have closest proximity with the actual price. That is why Rules 5 to 8 are to be applied in a sequential manner, meaning thereby we have to first resort to Rule 5 and if that is not applicable only then we have to go to Rule 6 and in the case of inapplicability of Rule 6, we have to resort to Rule 7 and even if that is not applicable, then Rule 8 comes into play. In order to find out as to what would be the closest real value of the goods, Rule 5 mentions that transaction value of "identical goods" is to be taken into consideration. Thus, wherever the value of identical goods is available, one can safely rely upon the said value in the event transaction value of the goods in question is indeterminable. Value of the identical goods is most proximate. If that is also not available, next proximate value is provided in Rule 6 which talks of value of "similar goods". In the absence thereof, we come to the formula of applying the "deductive value" as contained in Rule 7. In those cases, where even deductive value cannot be arrived at, ....
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....ery of imported goods at the place of importation, which are to be included to arrive at the value of such imported goods. It is these charges with which we are directly concerned with in the instant case. 29) The provision of sub-rule (2) of Rule 9, as originally stood, made it clear that wherever loading, unloading and handling charges are ascertainable i.e. actually paid or payable, it is those charges that would be added. Proviso to the said Rule contained the provision that only in the event the same are not ascertainable, it shall be 25% of the free on board value of such goods. In fact, sub-rule (3) of Rule 9 leave no manner of doubt when it mentions that additions are to be made on the basis of objective and quantifiable data. 30) It would be pertinent to mention here that sub-rule (2) talks of three kinds of charges. Apart from loading, unloading and handling charges which are mentioned in Clause (b), Clause (a) deal with cost of transport of imported goods to the place of importation and Clause (c) dealt with cost of insurance. All these costs were to be included on actual basis. Only when such costs were not ascertainable, proviso got attracted which stipulated tha....
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....st of loading, unloading and handling charges is clearly arbitrary with no nexus with the objectives sought to be achieved. On the contrary, it goes against the objective behind Section 14 namely to accept the actual cost paid or payable and even in the absence thereof to arrive at the cost which is most proximate to the actual cost. Addition of 1% of free on board value is thus, in the circumstance, clearly arbitrary and irrational and would be violative of Article 14 of the Constitution. 32) We find that the High Court, instead of examining the matter from the aforesaid angle, has simply gone by the powers of the rule making authority to make Rules. No doubt, rule making authority has the power to make Rules but such power has to be exercised by making the rules which are consistent with the scheme of the Act and not repugnant to the main provisions of the statute itself. Such a provision would be valid and 1% F.O.B. value in determining handling charges etc. could be justified only in those cases where actual cost is not ascertainable. The High Court missed the point that Garden Silk Mills Ltd. case was decided by this Court in the scenario where actual cost was not ascertain....
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.... of exchange for foreign exchange transactions. If it is to be deviated from to the extent that the notification dated 27.03.1992 does, it must be shown that the Central Government had good reasons for doing so. Reserve Bank of India's rate, as we have pointed out, was Rs. 25.95, the rate fixed by the notification dated 27.03.1992 was Rs. 31.44, so that there was a difference of as much as Rs. 5.51. In the absence of any material placed on record by the respondents and in the absence of so much as a reason stated on affidavit in this behalf, the rate fixed by the notification dated 27.03.1992 must be held to be arbitrary." 34) In the present case before us, the only justification for stipulating 1% of the F.O.B. value as the cost of loading, unloading and handling charges is that it would help customs authorities to apply the aforesaid rate uniformly. This can be a justification only if the loading, unloading and handling charges are not ascertainable. Where such charges are known and determinable, there is no reason to have such a yardstick. We, therefore, are not impressed with the reason given by the authorities to have such a provision and are of the opinion that the aut....
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....tion only of such building which was within the ceiling area. The provision impugned therein imposed a restriction on transactions by way of sale, mortgage, gift or lease of vacant land or buildings for a period exceeding ten years, or otherwise for a period of ten years from the date of the commencement of the Act even though such vacant land, with or without a building thereon, fell within the ceiling limits. The Constitution Bench held (by majority) that such property will be transferable without the constraints mentioned in sub-section (1) of Section 27 of the said Act. Their Lordships opined that the light to carry on a business guaranteed under Article 19(1)(g) of the Constitution carried with it the right not to carry on business. It logically followed, as a necessary corollary, that the right to acquire, hold and dispose of property guaranteed to citizen under Article 19(1)(f) carried with it the right not to hold any property. It is difficult to appreciate how a citizen could be compelled to own property against his will though he wanted to alienate it and the land being within the ceiling limits was outside the purview of Section 3 of the Act and that being so the person ....