TaxTMI 
TaxTMI 
2021 (5) TMI 908
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....n they were not confiscated. The Commissioner also imposed penalty under section 114A of the Customs Act. 2. The appellant operates flights on different international routes. Every aircraft after conversion from a domestic flight to an international flight is filled with ATF, which is consumed during the course of such flight outside India. Likewise, ATF may also be filled at the foreign destination airport to be consumed on the return journey to India. At the time of arrival of an international flight into India, the aircraft may be flown on a domestic route. For this route, the airlines are required to discharge customs duty liability on the ATF that is left over in the tank, remnant ATF, to be used for the domestic sector. 3. The issue involved in the appeal is with regard to the valuation of this remnant ATF. According to department, in view of rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, 2007 Rules, cost of transportation of the remnant AFT should be added to the Indian Oil Corporation Limited, IOCL price, on which customs duties have been discharged by the appellant. For determining the cost of transport, the department inv....
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.... been registered as case Diary No. 10284 of 2020, the hearing before the Larger Bench may be adjourned till the appeal was decided by the Supreme Court. 8. It would, therefore, be necessary to reproduce the order dated 15.10.2020 passed by the Supreme Court in Civil Appeal bearing Diary No. 10284 of 2020, which Civil Appeal had been filed by the Commissioner of Customs to assail the order passed by the Tribunal in the Appeal noted at C. The order of the Supreme Court is as follows: "In Civil Appeal No. 933 of 2019, following order was passed by this Court on 03.01.2019. "Delay condoned. List in the first week of February, 2019. In the meantime, we direct that a committee consisting of Secretary, Revenue; Commissioner of Customs and Chairman-cum-Managing Director, Air India be constituted which shall look into the matter. We are passing this direction as one side the Commissioner of Customs is a party, while on the other side there is a Public sector Undertaking. This direction has been passed in keeping with the observations and directions issued by this Court in ONGC matter. The committee is directed to place on record by 31.01.2019 its findi....
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....or M/s Air India Ltd. was constituted. The Committee had deliberations and the Minutes of its Meeting dated 17.01.2019 have now been placed on record. Paragraphs 6 and 7 of the Minutes are as under: '6. CMD, Air India stated that financial position of Air India is precarious and Government has already decided to have a revival plan. Thus, in such situation it would not be viable for them to pay the duty for the said period i.e., November, 2010 to June 2012. Commissioner of Customs, Airport explained that there is no provision in the law to waive off the duty except writing off such dues/amount as per law. However, Revenue Secretary stated that as Government is the 100% shareholder of Air India and financial situation of Air India being precarious, writing off the said amount may be considered by the Government. It was, however, felt that such special dispensation in this case should not become a precedence for other pending cases. Accordingly, Committee agreed that while making a recommendation, it shall be clearly spelt out that this recommendation was governed by special circumstances in view of precarious financial condition of Air India and shall not be a precedent in ....
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....Diary No. 36480 of 2018 before the Supreme Court against the aforesaid decision of the Tribunal. 15. Both the Civil Appeals bearing Diary No. 21545 of 2019 and Diary No. 36480 of 2018, were dismissed by the Supreme Court on August 26, 2019. 16. The order passed in Civil Appeal bearing Diary No. 21545 of 2019 is reproduced below:- "There is a delay of 178 days for which no satisfactory explanation is offered for the application seeking condonation of delay. Hence, the appeal is dismissed on the ground of delay." 17. The order passed in Civil Appeal bearing Diary No. 36480 of 2018 is reproduced below:- "There is a delay of 340 days for which no satisfactory explanation is offered for the application seeking condonation of delay. Hence, the appeal is dismissed on the ground of delay." 18. It is, therefore, clear that it was only when a public sector undertaking namely, Air India was involved, that the Supreme Court condoned the delay and constituted a Committee for giving its findings/observations and recommendations as to how the dispute could be sorted out. 19. As noticed above, the Committee had been constituted by the Supreme Court in the appeal ar....
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....sion of the Tribunal consisting of five Members in Tetragon Chemi (Pvt.) Limited vs. Collector of Central Excise, Bangalore 2001 (138) E.L.T. 414 (Tri.-LB) repelled this contention and the observations are as follows: "46. xxxxxxxx Mere filing or pendency of an appeal against the decision in ABN Amro Bank Limited, neither eclipses this decision nor operates as a fetter on another Division Bench, which would be free to either follow the ABN Amro Bank Limited decision or could doubt its correctness and seek interpretation, by a Larger Bench. There is also no purpose served in adjourning the reference to await the decision of the Hon'ble Supreme Court. In case the ABN Amro Bank Limited decision is confirmed by the Supreme Court, that would be the governing law and the reference would not survive. The same would be the position if ABN Amro Bank Limited decision is reversed in appeal. Till a final pronouncement by the Supreme Court emerges, there exist diametrically contrary views in the Tribunal; one the final order in ABN Amro Bank Limited and the other which is expressed in the order of reference and in respect of the same subject matter, namely identification of th....
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....eliance has been placed on the judgments of the Supreme Court in Eicher Tractors Ltd. vs. Commissioner of Customs, Mumbai 2000 (122) ELT 321 (S.C.). and Purolator India Ltd. vs. Commissioner of Central Excise, Delhi-lll. 2015 (323) E.L.T. 227 (S.C.); and (v) Rule 10(2) of the 2007 Rules read with the first proviso to section 14(1) of the Customs Act contemplates the following conditions to be fulfilled for any amount to be added to the transaction value of the imported goods: (i) there should be transport of goods for delivery to India; (ii) there should be an amount agreed to be paid or payable by the importer; and (iii) such an amount should be towards the cost of transportation of the goods. Thus, only when transportation of goods is involved and cost is incurred or is liable to be incurred for such transportation, such cost is to be added to the transaction value. Where neither there is any transport of goods nor there is a liability to incur the cost of such transport, the first proviso to section 14(1) and rule 10(2) would not get attracted; There is no transport of ATF (vi) The airlines are not transporting ATF for delivery to India. ATF is required to f....
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....ime and place of importation. Place of importation means the customs station where the goods are brought for being cleared for home consumption or for being removed for deposit in a warehouse; (iii) Value at the place of importation does not mean that only expenses till the goods enter Indian Customs water should be included. Import is an integrated process which culminates when goods land on landmass of India so that they can be introduced in stream of supplies to form part of mass of goods within the country. Thus, all expenses upto the destination port, including freight, transit insurance, unloading and handling charges are to be included. In this connection reliance has been placed on the decision of the Tribunal in Essar Oil Ltd. vs. C.C. 2004 (174) E.L.T. 379 (CESTAT); (iv) The assessable value of imported goods is determined under the provisions of section 14 (1) of the Customs Act read with 2007 Rules. Section 14(1) provides that the value of the imported goods is its transaction value. The 2007 Rules lay down a detailed procedure for determination of assessable value of imported goods and provides that the value of the imported goods has to be determined....
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....d added to arrive at the assessable value. 27. The submissions advanced by the learned Counsel for the appellant and the learned Authorized Representative of the Department have been considered. 28. The issue is with regard to the valuation of the remnant ATF. To examine this, it would be necessary to refer to Chapter V of the Customs Act. It deals with levy of, and exemption from, customs duties. Section 12 deals with dutiable goods. It provides that duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975, The Tariff Act, or any other law for the time being in force, on the goods imported into or, exported from, India. The rates at which customs duties are to be imposed are specified in the Tariff Act. That rate is on the value of goods imported or exported, as the case may be. There is, therefore, a need to determine the value of the goods that are imported or exported. The yard stick for arriving at this value is contained in section 14 of the Customs Act. 29. Section 14 of the Customs Act underwent an amendment w.e.f. 10.10.2007. The period involved in this appeal is from 2010-2011 to 2014-2015. 30. Sub-section (1) of s....
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.... (1) Subject to rule 12, the value of imported goods shall be the transaction value adjusted in accordance with provisions of rule 10; Provided that- xxxxxxxxx Rule 10 (2) For the purpose of sub-section (1) of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include - (a) the cost of transport of the imported goods to the place of importation; (b) loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and (c) the cost of insurance: Provided that (i) where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty percent of the free on board value of the goods; (ii) the charges referred to in clause (b) shall be one percent of the free on board value of the goods plus the cost of transport referred to in clause (a) plus the cost of insurance referred to in clause (c); (iii) where the cost referred to in clause (c) is not ascertainable, such cost shall be 1.125....
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.... cost of transportation is actually incurred, but it is not ascertainable that the cost of transportation should be taken to be 20% of the FOB value of the goods. 36. It is not possible to accept the contention of the learned Authorized Representative of the Department that because of the use of word 'payable' in section 14(1) of the Customs Act, cost of 20 % of the FOB value of the goods has to be included. 37. The words 'paid' or 'payable' have been interpreted in various decisions of the Supreme Court. In Eicher Tractors, the Supreme Court pointed out, in the context of the unamended section 14(1) of the Customs Act and the predecessor of the 2007 Rules - namely Customs, Valuation (Determination of Price of Imported Goods), 1988 Rules, 1988 Rules that 'payable' must be read as referring to 'the particular transaction' and 'payability' in respect of the transaction envisages a situation where payment of price may be deferred. The relevant portion of the decision is reproduced below: "10. The respondent's submission is that the phrase "the transaction value" read in conjunction with the word "payable" in Rule 4(1) allows determination of the ordinary international v....
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....the value of the excisable goods even on the basis of "transaction value" has only to be at the time of removal, that is, the time of clearance of the goods from the appellant's factory or depot as the case may be. The expression "actually paid or payable for the goods, when sold" only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of "transaction value" is therefore the agreed contractual price. Further, the expression "when sold" is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject matter of an agreement of sale. Once this becomes clear, what the learned counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is "known" at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods "at the time of removal"." (emphasis supplied) 40. It is, therefore, clear that an amount....
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....transportating or being transported. 48. It is not in dispute that the appellant has discharged the duty liability on the price of remnant ATF for more than a decade treating it to be imported goods taking into consideration the prevalent IOCL price. The question that arises for consideration in this appeal is whether the ATF which is filled in the fuel tank of an aircraft is actually being transported through an aircraft. The answer clearly is that the airlines are not transporting ATF for delivery to India. ATF which is filled in the fuel tank of the aircraft is actually required to fly the aircraft and is a consumable for the airlines. It cannot, in such circumstances, be urged that ATF is being transported through the aircraft. A different situation would, however, arise if an oil company specifically imports ATF in large containers/tanker as 'goods' or as cargo, for the purpose of selling the same to airlines. There can be no doubt that in such a situation the cost of transportation for import of ATF would have to be included in the transaction value for the purpose of determining the customs duty liability. 49. It also needs to be remembered that any excess ATF is on ac....
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....s not only ultra vires sub-sections (1) and (1A) of section 14 of the Customs Act, as it stood prior to the amendment in 2007, but was also violative of article 14 and article 19 of the Constitution. 54. The relevant portion of section 14 of the Customs Act, as it stood prior to its amendment in 2007, is reproduced below: "Section - 14 Valuation of goods - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where - (a) where the seller and buyer have 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 offer for sale. Provided also that such price shall be calculated with reference to the rate of exchange as in force on the date on which ....
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....still added a further sum to the value of goods, being 1% FOB value of the goods. The appellant was aggrieved by this addition and it is this addition that was the cause for filing a writ petition in the High Court. 57. The Supreme Court examined the unamended provision of section 14 of the Customs Act, as also the provision amended in the year 2007. It noticed that under the unamended provision, the principle was to find out the valuation of goods "by reference to the value" and it introduced a determining / fictional provision by stipulating that the value of all the goods would be the price at which such or like goods are "ordinarily sold". However, under the amended provisions, the valuation was based on the "transaction" price namely, the price "actually paid or payable for the goods". This change in the principle that had been brought about in section 14(1) of the Act was highlighted by the Supreme Court in paragraphs 21, 22 and 23 of the judgement and they are as follows: "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 ....
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....f 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 imported goods or export goods under certain circumstances. We are not concerned with this aspect in the instant case." (emphasis supplied) 58. It is in this context, that the Supreme Court thereafter observed: "26) On the aforesaid examination of the scheme contained in the Act as well as in the Rules to arrive at the valuation of the goods, it becomes clear that wherever actual cost of the goods or the services is available, that would be the determinative factor. Only in the absence of actual cost, fictionalised cost is to be adopted. Here again, the scheme gives an ample message that....
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.... 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 that such costs and charges shall be 25% of the free on board value of such goods. Even when the aforesaid proviso was amended vide notification dated 19.12.1989, the spirit behind the unamended proviso was maintained and kept intact. Only difference was that instead of addition of 25% of free on board value of goods in respect of all the three kinds of charges, under the amended proviso. This percentage fixed was different in respect of each of the aforesaid charges. As far as cost of transport is concerned, it was changed at 20% of the free on board value of goods. Insofar as loading, unloading and handling charges are concerned, it was reduced to 1% of the free on board value of goods and in case of insurance charges, the amended provision provided for such cost at 1.12% free on board value goods. However, as mentioned above, the spirit behind this proviso continued to be the same ....
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....eterminable, 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 authorities have not been able to satisfy as to how such a provision helps in achieving the object of Section 14 of the Act. It cannot be ignored that this provision as well as Valuation Rules are enacted on the lines of GATT guidelines and the golden thread which runs through is the actual cost principle. Further, the loading, unloading and handling charges are fixed by International Airport Authority. xxxxxxxx 36) We are, therefore, of the opinion that impugned amendment, namely, proviso (ii) to sub-rule (2) of Rule 9 introduced vide Notification dated 05.07.1990 is unsustainable and bad in law as it exists in the present form and it has to be read down to mean that this clause would apply only when actual charges referred to in Clause (b) are not ascertainable." (emphasis supplied) 59. What needs to be noted from the aforesaid paragraphs of the judgment of the Supreme Court in Wipro is that even when the proviso to rule 9(2) of the 1988 Rules provided that 1% of FOB val....
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....he difference between 'cost' and 'value' was highlighted by the Supreme Court in Hindustan Polymers vs. Collector of C. EX., 1989 (43) E.L.T. 165 (S.C.). Justice Sabyasachi Mukharji, in paragraph 12 of the judgment, observed as follows: "The contention that the value of packing materials including those supplied by the buyer, has to be included in the value of the goods, is repugnant to the very scheme of Section 4. It overlooks the use of the expression "cost" in relation to packing in the clause (i) of Section 4(4)(d) of the Act. The word "cost" has a definite connation and is used generally in contradiction of the expression "value". Thus, the clear implication of the use of the word "cost" is that only packing cost of which is incurred by the assesseee i.e. the seller, to be included. The use of the expression "cost" could not obviously be by way of reference to packing for which the cost is incurred by the buyer. It has to be borne in mind that such a provision would make the provision really unworkable, since in making the assessment of seller, there is no machinery for ascertaining the "cost" of the packing which might be supplied by the buyer." (emphasis supplie....
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.... of such ATF is in dispute. The Original Authority held that the remnant ATF is transported by the aircraft and as such, as the actual freight is not ascertainable, a notional freight in terms of Rule 10(2) is to be added to arrive at the assessable value of ATF. We note that the aircraft requires ATF for its propulsion. As per the Civil Aviation Regulating requirements and also for safety, aircraft caries adequate amount of fuel in its flight. The consumption of fuel depends on various factors. Factually, when the aircraft completes the inward journey to reach the Indian Airport, certain quantity of fuel is left in the tanks. We are not in agreement that there should be a freight element attributable to such fuel in the tank. In other words, the aircraft did not transport the fuel as a cargo or goods for the purpose of freight. Such interpretation will be a result of hyper-technical approach to the facts of the case. Admittedly, the remnant fuel is construed to be an imported item for the purpose of customs duty. In the importation of such remnant fuel, we could not discern any separate freight element, which can be added in the assessable value. The fuel in the tank is part of ai....
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....hree cases noted at B,C and D and it was held that cost of transportation was not required to be added to the transaction value. 68. The referring order has also examined the Instructions dated 20.10.2006 issued by the Commissioner, Airport Mumbai, the provisions of section 14(1) of the Customs Act, and the decisions of the Supreme Court in Garden Silk Mills Ltd. vs. Union of India 1999 (9) TMI 88 - Supreme Court and Wipro. 69. Regarding the Instructions dated 20.10.2006, it has been observed that the Instructions have been issued by the Commissioner to his Officers for performing their duties and cannot be regarded as a statement of law or a Circular issued by the Board for clarifying the position in law. 70. In regard to the provisions of section 14(1) of the Customs Act and aforesaid two decisions the Supreme Court, the referring Bench made the following observation: "5.5 From the reading of the above referred decisions of the Apex Court along with Section 14 of Customs Act, 1962 and Custom Valuation (Determination of Price of Imported Goods) Rules, 2007, it is quite evident that assessable value for the purpose of determination of Custom Duty has to be the sum....
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.... their case. We are not in agreement with the said submissions. Appellants are carrying the remnant fuel as extra baggage in the aircraft and if the freight charges are to be ascertained, then they should be equal to the actual extra baggage charged by them for carriage of equivalent amount of fuel." (emphasis supplied) 71. The Division Bench did not properly appreciate the decision rendered by the Supreme Court in Wipro. The provisions of the amended and unamended section 14(1) of the Customs and the provisions of the 1988 Rules had been examined at length. The Supreme Court made it clear that all the cost of services have to be included only on actual basis and only when such cost is not ascertainable that the proviso would get attracted. Transaction value, as noted above, contemplated under section 14(1) of the Customs Act means the price actually 'paid' or 'payable' for the goods when sold for export to India for delivery at the time and place of importation. 'Payable' merely envisages a situation where the payment is deferred. What has to be seen, therefore, is whether the ATF which is filed in the fuel of an aircraft is actually transported through the aircraft. It is o....
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....eration. In case the invoice value is declared in Foreign Currency the exchange rate will be as per the CBEC notification on exchange rate for imports being issued every month. The field Security Officer must ensure that all the duties are paid through Bill of Entry by representative of the aircraft/ airlines and duty charged accordingly." 75. According to the learned Authorized Representative of the Department, the said Instructions mandate inclusion of notional insurance charges, and in any case when the appellant is adding notional insurance charges for discharging customs duty liability, there is no reason for the appellant not to add the cost of transportation. 76. Notional charges have to be included only in cases where actual invoice price for the remnant ATF is not available or such invoice price does not include the cost of transportation when actually incurred but the amount incurred is not ascertainable. The Instructions further provide that in the absence of such invoice price, the price at which Indian Airlines/ Air India purchase the ATF at the Mumbai Airport i.e. IOCL price for International flights should be taken into consideration. The Instructions do not ma....
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.... charges towards the freight are ascertainable as 'nil', in the facts of the present case. 84. It appears that the Division Bench wanted to add what is called in accounting parlance 'imputed costs' i.e. cost which are not paid but are derived as if they have been paid. 85. There is no provision either in section 14(1) of the Customs Act or the 2007 Rules to add 'imputed costs' of transportation when actually no costs is incurred by the airlines for carrying its own fuel. The proviso to section 14(1) of the Customs Act specifically indicates that the cost must be 'paid' or 'payable', which means that if no cost of transportation is incurred, none needs to be added. The cost of transportation, in the facts of the present case, has to be taken as 'nil' and it will not be a case where the cost is not ascertainable. There can be several cases where no transport charges are incurred and one such case is where personal baggage is carried by a passenger. When a passenger comes to India and brings goods as baggage in excess of duty free allowance, the passenger is required to pay duty as applicable upon the value of goods so brought. The cost of the goods is ascertained either from th....