D. Thotawatte, J.

Factual Background Introduction:

The impugned Sri Lanka Customs inquiry stemmed from a post-clearance investigation into the importation of submarine telecommunication cables by Dialog Axiata PLC for the Bay of Bengal Gateway (“BBG”) project. The Petitioner, a telecommunications service provider, participated as a member of an international consortium responsible for establishing this undersea fiber-optic cable system connecting Sri Lanka with the Middle East and Asia. In furtherance of this project, Dialog Axiata PLC (hereinafter sometimes referred to as the “Petitioner”) together with other members of the consortium had entered into a what is described by the Petitioner as a “turnkey” contract (hereinafter sometimes referred to as the “contract”) with Alcatel-Lucent Submarine Networks of France (hereinafter sometimes referred to as the “ALSN”), for “work and build the system” which inter alia consisted of supply and installation of the Sri Lankan segment of the submarine cable system. According to clause 13.1.1 of the contract, the total contract price amounted to USD 179,705,194 on Delivered Duty Unpaid terms (DDU), of which Dialog’s investment was approximately USD 32.5 million. Significantly, clause 13.2.2 of the contract expressly stipulated that all taxes, duties, and levies imposed in any purchaser’s country would be borne exclusively by the purchaser. Accordingly, the Petitioner was obligated to pay all applicable Sri Lankan import duties and taxes.

Customs Declarations:

In 2017, pursuant to the contract, the Petitioner had imported several consignments of submarine cable and related equipment into Sri Lanka. These imports were declared to Sri Lanka Customs via 17 Customs Declarations (hereinafter sometimes referred to as the “CusDecs”). Following the import and clearance of the cable materials, the Sri Lanka Customs had conducted a Post Clearance Audit and found discrepancies in the Petitioner’s CusDecs. In particular, with regard to two CusDecs S-17693 and S-28036 [annexed marked respectively as P19(b) and P20(b)] the Petitioner appears to have failed to declare the value of the goods/articles in accordance with the provisions of schedule “E” of the Customs Ordinance, omitting;

(a) freight charges,

(b) insurance costs (in one entry),

(c) cable laying/installation charges, and

(d) the value of a portion of cable laid in Sri Lanka’s Exclusive Economic Zone (EEZ).

By not including these in the declared value, the Petitioner was initially suspected of deliberately or inadvertently under-reporting the transaction value.

In Sri Lanka, Customs duty on imports and other levies is calculated on “customs value”, is a statutory expression, [1Article 9, Schedule E of SLCustoms Ordinance] which establishes the legal base for levying ad valorem customs duty that must be determined according to Schedule E of the Customs Ordinance, [2Section 51 of the Ordinance]. The “customs value” of imported goods shall be the “transaction value,” the price actually paid or payable for the goods when sold for export,, [3Article 1 Schedule Eof SL Customs Ordinance] adjusted in accordance with the provisions of Article 8.

Article 8 of Schedule E requires that certain elements be added to the price actually paid or payable if not already included. These include:

 Transport (freight) to the port/place of importation.

 Loading, unloading, and handling charges.

 Insurance cost.

If explained in a simple manner, these adjustments together effectively convert a FOB invoice price into a CIF equivalent customs value (Cost + Insurance + Freight), and the CIF value is thus ‘generally’ the basis for duty assessment.

Regardless of the INCOTERMS used or whether the total value mentioned in the CusDec includes the cost of freight and Insurance or not, in order for the customs to arrive at the “customs value”, the Customs need to know exactly the cost of freight (freight component) and the cost of Insurance (Insurance Component) separately. If freight or ins