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PETITIONER:

M/S EICHER TRACTORS LTD., HARYANA

Vs.

RESPONDENT:

COMMISSIONER OF CUSTOMS, MUMBAI

DATE OF JUDGMENT: 14/11/2000

BENCH:

A.P.Misra, Ruma Pal

JUDGMENT:

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J U D G M E N T

RUMA PAL, J.

M/s Eicher Tractors Ltd., the appellant before us,

manufacturers tractors and tractor engines in India. From

1955 the appellant imported bearings of a specific size for

their tractors and tractor engines from M/s NTN Corporation,

Osaka, Japan. This 33 year relationship was snapped in 1988

when the appellant started utilizing bearings manufactured

for them in India by M/s HMT Ltd. The Japanese vendor was

left with a stock of the bearings which had been

manufactured by it for the appellant anticipating the

appellants continued custom. Not finding any customer for

the bearings, by letter dated 12th February 1993 the

vendors agent in India offered to sell the 1989 stock of

3579 bearings to the appellant at a price of Japanese Yen

(JY) 826 per piece. The appellant found the offer

competitive and agreed to buy the bearings from the vendor

at the price offered. An order was placed by the appellant

on the vendor on 17th April 1993. The bearings were shipped

from Japan and arrived in India. The appellant filed the

Bill of Entry on 3rd December 1993 together with the invoice

dated 6th October, 1993 with the Custom authorities. The

Assistant Commissioner of Customs was not satisfied that the

value of the bearings as declared by the appellant was the

value of the bearings for the purposes of levying customs

duty. He issued a notice on 14th December 1993 to the

appellant. The appellant gave a detailed reply setting out

the facts noted earlier. The Assistant Commissioner noted

that the declared price was only 23% of the vendors list

price and was of the view that the 77 per cent discount

allowed to the appellant by the vendor was not normal and

could not be accepted for the purpose of determining the

price of the bearings under Section 14 of the Customs Act,

1962 and Rule 4 of the Customs Valuation (Determination of

Price of Imported Goods) Rules, 1988 (referred to briefly as

the Rules). The Assistant Commissioner determined the

price of the bearings at JY 2507 per piece under Rule 8. In

arriving at this figure, the Assistant Commissioner took the

list price of the vendor and deducted 30 per cent on account

of discount, which, according to the terms of agency between

the vendor and its Indian agent, was the maximum permissible

discount allowable. The appellant preferred an appeal

before the Commissioner of Customs (Appeals), Mumbai. The

Commissioner allowed the appeal. The respondent preferred

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an appeal before the Customs, Excise and Gold (Control)

Appellate Tribunal. The Tribunal allowed the appeal by its

order dated 23rd September 1998. The Tribunal accepted the

reasoning of the Assistant Commissioner and relied upon the

decision of this Court in Padia Sales Corporation V. CC

1993 Supp(4) SCC 57 to hold that specially quoted price was

not acceptable in preference to the ordinary price in the

course of international trade. According to the Tribunal,

the ordinary price of the bearings in question was as

mentioned in the vendors price list. The decision of the

Tribunal has been assailed before us by the Appellant.

According to the appellant, Rule 8 of the Rules, could not

have been relied on by the Assistant Commissioner without

determining the value of the bearings under Rule 4. It was

submitted that giving of discounts was a normal incidence of

commerce and given the circumstances of the case a discount

of 77% was perfectly justified. Reference was made to the

decision in Mirah Export Pvt. Ltd. V. Collector of

Customs 1998 (98) ELT 3 where discounts ranging between 50%

to 70% were found to be acceptable. According to the

appellant, the reason given by the Assistant Collector for

not accepting the actual price paid for the bearings as the

true value of the transaction was erroneous particularly

when there was no allegation of under-valuation. The

respondent contended that the principle for valuation of

imported goods was to be found in Section 14(1) of the Act

which provides for the determination of the value on the

basis of the international sale price. It is argued that

the Rules would have to be read subject to Section 14(1) and

that the use of the words price payable in Rule 4 meant

the market value of the goods in international trade. While

conceding that the onus was on the Customs authority to

establish the market value of the imported goods, the

respondent claimed that the onus had been discharged by

proof of the vendors price list. In support of this

argument, the respondent relied on Sharp Business Machines

Pvt. Ltd., Bangalore V. Collector of Customs, Bangalore

1991 (1) SCC 154. Under the Act customs duty is chargeable

on goods. According to Section 14 (1) of the Act, the

assessment of duty is to be made on the value of the goods.

The value may be fixed by the Central Government under

Section 14(2). Where the value is not so fixed, the value

has to be determined under Section 14(1). The value,

according to Section 14(1), 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

in the course of international trade. The word

ordinarily necessarily implies the exclusion of

extraordinary or special circumstances. This is

clarified by the last phrase in Section 14 which describes

an ordinary sale as one where the seller or the buyer

have no interest in the business of each other and the price

is the sole consideration for the sale.. Subject to

these three conditions laid down in Section 14(1) of time,

place and absence of special circumstances, the price of

imported goods is to be determined under S. 14(1A) in

accordance with the rules framed in this behalf. The rules

which have been framed are the Customs, Valuation

(Determination of Price of Imported Goods) Rules, 1988. The

rules came into force on 16th August, 1988. Under Rule 3(i)

the value of imported goods shall be the transaction

value. Transaction value has been defined in Rule 2(f)

as meaning the value determined in accordance with Rule 4.

Rule 4 (1) in turn states: The transaction value of

imported goods shall be the price actually paid or payable

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for the goods when sold for export to India, adjusted in

accordance with the provisions of Rule 9 of these rules.

Reading Rule 3( i ) and Rule 4 (1) together, it is

clear that a mandate has been cast on the authorities to

accept the price actually paid or payable for the goods in

respect of the goods under assessment as the transaction

value. But the mandate is not invariable and is subject to

certain exceptions specified in Rule 4(2) namely: a) there

are no restrictions as to the disposition or use of the

goods by the buyer other than restrictions which

i) are imposed or required by law or by the public

authorities in India;

or ii) limit the geographical area in which the goods

may be resold; or

iii) do not substantially affect the value of the

goods;

b) the sale or price is not subject to same condition

or consideration for which a value cannot be determined in

respect of the goods being valued;

c) no part of the proceeds of any subsequent resale,

disposal or use of the goods by the buyer will accrue

directly or indirectly to the seller, unless an appropriate

adjustment can be made in accordance with the provisions of

Rule 9 of these rules; and

d) the buyer and seller are not related, or where the

buyer and seller are related, that transaction value is

acceptable for customs purposes under the provisions of

sub-rule (3).

These exceptions are in expansion and explicatory of

the special circumstances in Section 14 (1) quoted earlier.

It follows that unless the price actually paid for the

particular transaction falls within the exceptions, the

customs authorities are bound to assess the duty on the

transaction value. The respondents 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 value of the goods to be ascertained

on the basis of data other than the price actually paid for

the goods. This, according to the respondent, would be in

keeping with the overriding effect of Section 14(1). We

cannot agree. It is true that the Rules are framed under

Section 14(1A) and are subject to the conditions in Section

14(1). Rule 4 is in fact directly relatable to Section

14(1). Both Sections 14(1) and Rule 4 provide that the

price paid by an importer to the vendor in the ordinary

course of commerce shall be taken to be the value in the

absence of any of the special circumstances indicated in

Section 14(1) and particularized in rule 4(2). Rule 4 (1)

speaks of the transaction value. Utilization of the

definite article indicates that what should be accepted as

the value for the purpose of assessment to customs duty is

the price actually paid for the particular transaction,

unless of course the price is unacceptable for the reasons

set out in Rule 4 ( 2 ). Payable in the context of the

language of Rule 4 ( 1 ) must, therefore, be read as

referring to the particular transaction and payability in

respect of the transaction envisages a situation where

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payment of price may be deferred. That Rule 4 is limited to

the transaction in question is also supported by the

provisions of the other Rules each of which provide for

alternate modes of valuation and allow evidence of value of

goods other than those under assessment to be the basis of

the assessable value. Thus, Rule 5 allows for the

transaction value to be determined on the basis of identical

goods imported into India at the same time; Rule 6 allows

for the transaction value to be determined on the value of

similar goods imported into India at the same time as the

subject goods. Where there are no contemporaneous imports

into India, the value is to be determined under Rule 7 by a

process of deduction in the manner provided therein. If

this is not possible the value is to be computed under Rule

7A. When value of the imported goods cannot be determined

under any of these provisions, the value is required to be

determined under Rule 8 using reasonable means consistent

with the principles and general provisions of these rules

and sub Section 1 of Section 14 of the Customs Act, 1962 and

on the basis of data available in India. If the phrase the

transaction value used in Rule 4 were not limited to the

particular transaction then the other Rules which refer to

other transactions and data would become redundant. It is

only when the transaction value under Rule 4 is rejected,

then under Rule 3(ii) the value shall be determined by

proceeding sequentially through Rules 5 to 8 of the Rules.

Conversely if the transaction value can be determined under

Rule 4(1) and does not fall under any of the exceptions in

Rule 4(2), there is no question of determining the value

under the subsequent Rules. The Assistant Collector in this

case determined the value of the imported goods under Rule

8. The question is whether he should have determined the

transaction value under Rule 4 at the price actually paid by

the appellant for the 1989 bearings. Naturally, if Rule 4

applies to the facts of this case, the Assistant Collectors

reasoning under Rule 8 must, by virtue of language of Rule 3

(ii), be set aside. The Assistant Collector appears to have

proceeded on the law as it was prior to the 1988 Rules when

special considerations on the basis of which a transaction

was held not to be an ordinary sale in the course of

international trade within the meaning of Section 14(1), had

not been statutorily particularized. As to what would

constitute such special consideration has been considered

in several decisions of this Court. For example, a special

quotation for the importer singling him out from other

importers in India was held to be a special consideration in

Padia Sales Corporation V. Collector of Customs Bombay

(supra) justifying the rejection of price paid as the

transaction value. On the other hand in Basant Industries

V. Addl. Collector of Customs, Bombay 1996 (81) ELT 195

(SC), a special quotation for an old and valued customer

was upheld as not being a special circumstance. The

decision in Sharp Business Machines Pvt. Ltd., relied upon

by the respondent is another case where the transaction

value was rejected. In that case, the importer had wrongly

mis-described the imported goods and sought to defraud the

Revenue by attempting to surreptitiously import items

prohibited under the import policy. It was found that there

was justification, in the circumstances, for rejecting the

price shown in the invoice. The transaction value having

been rejected, assessment of value was made on the basis of

the price list of the foreign vendor. Both the decisions,

Padia Sales Corporation and Sharp Business Machines Pvt.

Ltd. were distinguished subsequently in Mirah Exports

Pvt. Ltd. V. Collector of Customs 1998 (98) ELT 3. As

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the facts of this case are somewhat similar to the case

before us, it is dealt with in some detail. Mirah Exports

Pvt. Ltd. along with other importers had imported bearings

at high rates of discount. The declared value was rejected

by the Customs authorities on the basis of the price list of

the vendors. This Court set aside the decision of the

respondent authorities accepting the argument that a

discount is a recognised feature of international trade

practice and that as long as those discounts are uniformly

available to all and based on logical commercial bases, they

cannot be denied under Section 14. It appears from the

judgment that a distinction was drawn between a discounted

price special to a particular customer and discounts

available to all customers. As already noted all these

cases dealt with imports made prior to the coming into force

of the Rules in 1988. Now the special considerations are

detailed statutorily in Rule 4(2). In the case before us,

it is not alleged that the appellant has mis-declared the

price actually paid. Nor was there a mis- description of

the goods imported as was the case in Padia Sales

Corporation. It is also not the respondents case that the

particular import fell within any of the situations

enumerated in Rule 4(2). No reason has been given by the

Assistant Collector for rejecting the transaction value

under Rule 4(1) except the price list of vendor. In doing

so, the Assistant Collector not only ignored Rule 4(2) but

also acted on the basis of the vendors price list as if a

price list is invariably proof of the transaction value.

This was erroneous and could not be a reason by itself to

reject the transaction value. A discount is a commercially

acceptable measure which may be resorted to by a vendor for

a variety of reasons including stock clearance. A price

list is really no more than a general quotation. It does

not preclude discounts on the listed price. In fact, a

discount is calculated with reference to the price list.

Admittedly in this case discount upto 30% was allowable in

ordinary circumstances by the Indian agent itself. There

was the additional factor that the stock in question was old

and it was a one time sale of 5 year old stock. When a

discount is permissible commercially, and there is nothing

to show that the same would not have been offered to any one

else wishing to buy the old stock, there is no reason why

the declared value in question was not accepted under Rule

4(1). In the circumstances, production of the price list

did not discharge the onus cast on the Customs authorities

to prove that the value of the 1989 bearings in 1993 as

declared by the appellant was not the ordinary sale price

of the bearings imported. The decision of the Tribunal

accepting the determination of value by the Assistant

Collector cannot, therefore, be sustained. We accordingly

allow the appeal by setting aside the judgment under appeal

but without any order as to costs.