2007 Supreme(SC) 278

2007(3) Supreme 185
SUPREME COURT OF INDIA
(From Kolkatta High Court)
S.H. Kapadia and B. Sudershan Reddy, JJ.
Rabindra Chandra Paul—Appellant
versus
Commr. of Customs (Preventive) Shillong—Respondent
Civil Appeal No. 4498 of 2006
With
Civil Appeal No. 4753 of 2006
Decided on 27-2-2007
Counsel for the Parties :
For the Appellant : V. Lakshmi Kumaran, Bikas Kar Gupta and Avijit Bhattacharjee, Advocates.
For the Respondent : K.P. Pathak, A.S.G., Ms. Shilpa Singh and B. Krishna Prasad, Advocates.

Headnote:Customs Act, 1962—Section 14(1), (1A), (2)—Customs Valuation (Determination of Price of Imported Goods) Rules, 1988—Rule 7A—Valuation of imported goods—Determination of assessable value on basis of international sale price—Primary base for Customs Valuation is the Transaction Value—Price mentioned in the invoice should be held to represent the transaction value when—Appellant-assessee purchased two consignments of Refined Soyabean Oil from M/s United Edible Oils Ltd., Bangladesh—Goods imported were accompanied with invoice—C & F value of Soyabean Oil (Final Product) showed the price to be Rs. 24.50 per kg calculated at the prevailing rate of US $—Before the Assistant Commissioner, appellant presented actual price of raw material plus processing charges plus transportation charges from the factory gate to the point of exportation—However, the Department fixed the assessable value of Refined Soyabean Oil at Rs. 31.66 per kg.—On challenge, Tribunal held that the Department was right in invoking Rule 7A—No allegation made by the Department stating that the transaction was tainted—Whether computation made under Rule 7A by the Assistant Commissioner was justified—(No).

       Held : The primary base for Customs Valuation is the Transaction Value, i.e., the price actually paid or payable for the goods when sold for export to the country of importation, subject to adjustment. The said price should not be subject to any condition or consideration that could prevent the value from being determined under Rule 4(1). Where the Department has reason to doubt the truth or accuracy of a declared value, it may ask the importer to provide further explanation to the effect that the declared value represents the total amount actually paid or payable for the imported goods. If the declared value is lower than the declared value of similar goods imported by other buyers at or about the same time, it can constitute “reason to doubt” the truth or accuracy of the declared value indicated in the commercial invoice (see Rule 10A). Under Rule 8(2)(i) no value shall be determined based on the selling price of the goods produced in India. In cases where the Department fails to establish circumstances mentioned in Rule 4(2), the transaction value declared by the assessee cannot be rejected and the price mentioned in the Invoice should be held to represent the transaction value.(Para 7)

       Applying the above principles to the facts of the present case, we find that the Department had erred in invoking Rule 7A. Firstly, there was no allegation made by the Department stating that the transaction was tainted. The appellant has proved that the transaction was at arm’s length. There was no evidence before the Department to show that the price was pegged at a lower level on account of the circumstances mentioned in Rule 4(2). Secondly, the Department has not even alleged that on account of discounts the price stood pegged at a lower level. Thirdly, we may point out that in a given case, the Department would be entitled to invoke Rule 7A. For example, in matters of agro-processing, processing of seeds, refined oil from crude oil etc., the cost of the raw material has a crucial role to play in the method of costing. In such cases, crude oil which is the raw material is the major component of the refined oil (final product). In such cases, if the cost of the raw material exceeds the price of the final product then in that event the Department can invoke Rule 7A. However, in the present case, even assuming for the sake of argument that Rule 7A applies, the Assistant Commissioner of Customs while applying Rule 7A has followed a peculiar method. She has examined the cost break-up. She rejects the cost of the raw material but, at the same time, she accepts the processing charges (figures supplied by the appellant). Rule 7A refers to Computed Value in contradistinction to Rule 7 which refers to Deductive Value. Computed value under Rule 7A is the value of the imported goods consisting of the cost or value of materials plus amount for profit and cost or value of all other expenses under Rule 9(2). Further, Rule 7A is subject to the provisions of Rule 3. Rule 3 applies in cases where the buyer and seller are related. In the present case, there is no finding given that the buyer and seller are related. In the interpretative note to Rule 7A, value of imported goods is to be determined by examining the costs of production of the goods and the said interpretative note clarifies that Rule 7A should be applied to those cases where the buyer and seller are related. Further, if the officer wants to proceed under Rule 7A, the cost or value has got to be decided on the basis of the commercial accounts of the producer, provided that such accounts are consistent with the accounting standards applicable in the country where the goods are produced. In the present case, the producer is from Bangladesh. There is no finding that M/s United Edible Oils Ltd. has not followed the accounting system of that country (Bangladesh). In such cases, normally the Department should call upon the assessee to furnish the value/ cost of raw materials plus all costs (direct, indirect, fixed and variable) plus profit at an average rate. In such cases, the Department should call upon the assessee to produce a certificate from the Chartered Accountant of the foreign seller indicating the turnover, profit and other details on the basis of which computation of the Deductive Value under Rule 7 could be determined. This exercise had not been done in the present case. As stated above, in the present case, the Assistant Commissioner has rejected the cost of raw materials and, at the same time, she has accepted the value of the processing charges. Therefore, even if Rule 7A was to be applied, which, in our opinion, is not attracted, still the computation made under Rule 7A by the Assistant Commissioner was erroneous. None of these aspects have been considered by the Tribunal in the impugned judgment.(Para 8)