1. Import of goods — Calculation of customs duty — Dispute over exchange rate notified under Section 14(3) of the Customs Act. (Para 1 , 2 )
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1999 Supreme(SC) 844
SUPREME COURT OF INDIA
N.Santosh Hegde : R.C.Lahoti : S.P.Bharucha
Indian Acrylics
Versus
Union Of India
Case No. : 11858 of 1995
Date of Decision : 8/12/99
Important Points
Fixation of an exchange rate for customs valuation that deviates significantly from the central bank's determinative rate without providing supporting reasons or material is arbitrary and legally unsustainable.
Subject
Tax Law - Customs Law
Act Referred
Headnote
(A) Customs Act - Section 14(3) - Determination of rate of exchange for computation of value of imported goods - Fixation of exchange rate by Central Government significantly higher than the rate notified by the central bank - In the absence of any material or reason provided for such deviation, the fixation of the rate is arbitrary. (Para 6)
(B) Administrative Action - Arbitrariness - When a determinative and accepted rate of exchange exists, any deviation from such rate must be supported by good reasons; failure to provide such reasons renders the action arbitrary. (Para 6)
Facts of the case:
An importer filed a bill of entry for a consignment of chemicals. The central bank's exchange rate on the date of filing was one US dollar equal to Rs 25.95. However, the Central Government, exercising power under the Customs Act, had notified a rate of one US dollar equal to Rs 31.44. The customs duty was calculated based on the higher notified rate. The importer challenged this notification as arbitrary.
Findings of Court:
The court found that the central bank's rate is the accepted and determinative rate for foreign exchange transactions. Since the respondents failed to provide any reason or material to justify the deviation of Rs 5.51 from the central bank's rate, the notified rate was held to be arbitrary.
Issues: Whether the fixation of the exchange rate by the Central Government under Section 14(3) of the Customs Act was arbitrary, given the significant difference from the rate notified by the central bank.
Ratio Decidendi: The exchange rate fixed by the central bank is the determinative rate for foreign exchange transactions. Any deviation from this rate by the government must be justified with good reasons; otherwise, such fixation is arbitrary.
Result: Appeal allowed to the extent that the value of the consignment shall be calculated at the exchange rate of one US dollar equal to Rs 25.95.
(B) Administrative Action - Arbitrariness - When a determinative and accepted rate of exchange exists, any deviation from such rate must be supported by good reasons; failure to provide such reasons renders the action arbitrary. (Para 6)
Facts of the case:
An importer filed a bill of entry for a consignment of chemicals. The central bank's exchange rate on the date of filing was one US dollar equal to Rs 25.95. However, the Central Government, exercising power under the Customs Act, had notified a rate of one US dollar equal to Rs 31.44. The customs duty was calculated based on the higher notified rate. The importer challenged this notification as arbitrary.
Findings of Court:
The court found that the central bank's rate is the accepted and determinative rate for foreign exchange transactions. Since the respondents failed to provide any reason or material to justify the deviation of Rs 5.51 from the central bank's rate, the notified rate was held to be arbitrary.
Issues: Whether the fixation of the exchange rate by the Central Government under Section 14(3) of the Customs Act was arbitrary, given the significant difference from the rate notified by the central bank.
Ratio Decidendi: The exchange rate fixed by the central bank is the determinative rate for foreign exchange transactions. Any deviation from this rate by the government must be justified with good reasons; otherwise, such fixation is arbitrary.
Result: Appeal allowed to the extent that the value of the consignment shall be calculated at the exchange rate of one US dollar equal to Rs 25.95.
Legal Category Hierarchy
Table of Contents
2. Challenge to the notification fixing the exchange rate as arbitrary for deviating from the Reserve Bank of India's notified rate. (Para 3 )
3. Deviation from the accepted Reserve Bank of India exchange rate without providing supporting reasons or material on record constitutes arbitrary exercise of power. (Para 5 , 6 )
4. Fixation of an exchange rate for customs valuation that deviates from the determinative Reserve Bank of India rate without justification is arbitrary. (Para 6 )
5. Appeal allowed to the extent that the consignment value be calculated at the Reserve Bank of India exchange rate; bank guarantee discharged. (Para 7 , 8 )
6. Can the Central Government fix an exchange rate for customs duty different from the RBI rate?
Yes, the Central Government has the power to determine the rate of exchange for the purposes of Section 14 of the Customs Act. However, if it deviates from the accepted and determinative Reserve Bank of India rate, it must show good reasons for doing so. (Para 4 , 6 )
7. When is the fixation of an exchange rate by the government considered arbitrary?
The fixation of an exchange rate is considered arbitrary when it deviates from the determinative Reserve Bank of India rate and the government fails to provide reasons or material on record to justify such deviation. (Para 6 )
8. What is the legal status of the exchange rate fixed by the Reserve Bank of India in foreign exchange transactions?
The exchange rate fixed by the Reserve Bank of India is the accepted and determinative rate of exchange for foreign exchange transactions. (Para 6 )
(1) THIS appeal is against the judgment and order of a Division Bench of the High Court of Punjab and Haryana. Thereby the writ petition filed by the appellant was dismissed. Briefly stated, these are the facts: The appellant purchased a consignment of acrylonitrile from a supplier in the United States of America and, on 29-4-1992, filed with the Customs Authorities at Kandia the bill of entry in respect thereof. It is common ground that the price indicated in the bill of entry reflects the true value of the consignment.
(2) ON 29-4-1992 the exchange rate notified by Reserve Bank of India was one US dollar equal to Rs 25.95. On 27-3-1992 the respondents, acting in exercise of the power conferred by Section 14(3) of the Customs Act, notified the rate of exchange for the purposes of Section 14 at one US dollar equal to Rs 31.44. For the purposes of customs duty the rupee equivalent of the price paid for the appellants consignment was calculated at this rate.
(3) THE appellants filed the writ petition to quash the notification dated 27-3-1992, inter alia, on the ground that the fixation of the exchange rate thereunder was arbitrary. As aforestated, the writ petition was dismissed.
(4) IT is clear that there is power in the Central Government to determine the rate of exchange for the purposes of Section 14 of the Act, that is to say, in respect of the rate of exchange applicable in the computation of the value of imported goods. The question is whether the fixation of the rate of Rs 31.44 on 27-3-1992, with effect from 1-4-1992, is arbitrary, principally, having regard to the fact that Reserve Bank of Indias rate at the relevant time was Rs 25.95, which is riot disputed.
(5) THE counter filed by the respondent before the High Court, as also before this Court, does not indicate why the rate was Fixed at Rs 31.44. The affidavits do not indicate that the prevalent Reserve Bank of India rate had been taken into consideration. Strangely, the High Court, adverting to this contention, stated that "... In the absence of any other material brought on record, it cannot be held that the rate of exchange by the Central Government under Section 14(3)(0 is arbitrary" and it said this after noting the contention on behalf of the appellant that the Central Government rate was arbitrary being different from that fixed by Reserve-Bank of India.
(6) THE exchange rate fixed by Reserve Bank of India is the accepted and determinative rate of exchange for foreign exchange transactions. If it is to be deviated from to the extent that the notification dated 27-3-1992 does, it must be shown that the Central Government had good reasons for doing so. Reserve Bank of Indias rate, as we have pointed out, was Rs 25.95, the rate fixed by the notification dated 27-3-1992 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 27-3-1992 must be held to be arbitrary.
(7) HAVING regard to the lapse of time and the complications which might result, we refrain from striking down the said notification, but direct that so far as the appellants are concerned, the value of their consignment shall be calculated at the exchange rate of one US dollar equal to Rs 25.95. This is what, in fact, has been paid.
(8) THE appeal is allowed to the extent aforestated. The order under challenge is set aside. The bank guarantee furnished by the appellants for the balance at the higher exchange rate shall stand discharge
(9) NO order as to cost
