2015 (4) TMI 643 - SC - Customs

Valuation - inclusion of 1% of the F.O.B. value of goods on account of loading, unloading and handling charges - Constitutional validity of proviso (II-i) of Rule 9(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - Violation of Section 14(1) and Section 14(1-A) of the Customs Act, 1962 - Violation of Article 14 and Article 19(1)(g) of the Constitution of India - Held that - It contains the provisions from Section 12 to Section 28BA. Section 12 which talks of dutiable goods , provides that duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975, or any other law for the time being in force, on goods imported into, or exported from, India. Thus, the rates at which the customs duties is to be imposed are specified in the Customs Tariff Act, 1975. That rate is on the value of goods imported or exported, as the case may be. Therefore, there is a need to determine the value of the goods imported and exported. The yardsticks for arriving at this value are contained in Section 14 of the Act. - It introduced a deeming/fictional provision by stipulating that the value of the goods would be the price at which such or like goods are ordinarily sold, or offered for sale . Under the new provision, however, the valuation is based on the transaction price namely, the price actually paid or payable for the goods . Even when the old provision provided the formula of the price at which the goods are ordinarily sold or offered for sale, at that time also if the goods in question were sold for a particular price, that could be taken into consideration for arriving at the valuation of goods. The underlying principle contained in amended sub-section (1) of Section 14 is to consider transaction value of the goods imported or exported for the purpose of customs duty. Transaction value is stated to be a price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation. Therefore, it is the price which is actually paid or payable for delivery at the time and place of importation, which is to be treated as transaction value. However, this sub-section (1) further makes it clear that the price actually paid or payable for the goods will not be treated as transaction value where the buyer and the seller are related with each other. In such cases, there can be a presumption that the actual price which is paid or payable for such goods is not the true reflection of the value of the goods. This Section also provides that normal price would be the sole consideration for the sale. However, this may be subject to such other conditions which can be specified in the form of Rules made in this behalf. Rule 9 which is incorporated in the Valuation Rules and pertains to costs and services also contains the underlying principle which runs though in the length and breadth of the scheme so eloquently. It categorically mentions the exact nature of those costs and services which have to be included like commission and brokerage, costs of containers, cost of packing for labour or material etc. Significantly, Clause (a) of sub-rule (1) of Rule 9 which specifies the aforesaid heads, cost whereof is to be added to the price, again mandates that it is to be to the extent they are incurred by the buyer . That would clearly mean the actual cost incurred. Likewise, Clause (e) of sub-rule (1) of Rule 9 which deals with other payments again uses the expression all other payments actually made or to be made as the condition of the sale of imported goods - The provision of sub-rule (2) of Rule 9, as originally stood, made it clear that wherever loading, unloading and handling charges are ascertainable i.e. actually paid or payable, it is those charges that would be added. Proviso to the said Rule contained the provision that only in the event the same are not ascertainable, it shall be 25% of the free on board value of such goods. In fact, sub-rule (3) of Rule 9 leave no manner of doubt when it mentions that additions are to be made on the basis of objective and quantifiable data. Only justification for stipulating 1% of the F.O.B. value as the cost of loading, unloading and handling charges is that it would help customs authorities to apply the aforesaid rate uniformly. This can be a justification only if the loading, unloading and handling charges are not ascertainable. Where such charges are known and determinable, 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. 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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Constitutional validity of proviso (II-i) of Rule 9(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.
2. Whether the proviso is ultravires Section 14(1) and Section 14(1-A) of the Customs Act, 1962.
3. Whether the proviso is violative of Article 14 and Article 19(1)(g) of the Constitution of India.

Detailed Analysis:

1. Constitutional Validity of Proviso (II-i) of Rule 9(2) of the Customs Valuation Rules, 1988:
The appellant challenged the constitutional validity of proviso (II-i) of Rule 9(2) of the Customs Valuation Rules, 1988, inserted by Notification No.39/90 dated 05.07.1990. The High Court had dismissed the writ petitions and writ appeals challenging this proviso, leading to the present appeals.

2. Ultravires Section 14(1) and Section 14(1-A) of the Customs Act, 1962:
The appellant contended that the proviso was ultravires Section 14(1) and Section 14(1-A) of the Customs Act, 1962. The Customs Authorities added 1% of the F.O.B. value of goods as handling charges, even when actual handling charges were ascertainable. This was argued to be contrary to the provisions of Section 14, which aims to determine the actual transaction value of imported goods.

The Court examined the scheme of the Customs Act and the Valuation Rules, emphasizing that the value of imported goods should be based on the actual transaction value. Rule 9 of the Valuation Rules specifies that costs and services, including handling charges, should be added to the transaction value. However, this should be based on actual costs incurred by the buyer, as per sub-rule (3) of Rule 9, which mandates additions based on "objective and quantifiable data."

The Court found that the impugned proviso introduced a fiction by mandating 1% of the F.O.B. value for handling charges, even when actual costs were ascertainable. This was deemed contrary to Section 14 and the underlying principle of determining actual transaction value.

3. Violation of Article 14 and Article 19(1)(g) of the Constitution of India:
The appellant argued that the proviso was arbitrary and irrational, violating Article 14 (right to equality) and Article 19(1)(g) (right to practice any profession or to carry on any occupation, trade, or business) of the Constitution. The notional fixation of handling charges at 1% of the F.O.B. value, irrespective of the nature of goods or actual costs, was claimed to be discriminatory and lacking a rational basis.

The Court agreed with this contention, stating that introducing a fictional cost for handling charges when actual costs are ascertainable is arbitrary and lacks a nexus with the objectives of Section 14. The Court held that the proviso was violative of Article 14 as it was irrational and arbitrary.

Conclusion:
The Supreme Court set aside the judgment of the High Court and allowed the appeals. The impugned amendment, namely, proviso (ii) to sub-rule (2) of Rule 9 introduced by Notification dated 05.07.1990, was declared unsustainable and bad in law. The Court read down the proviso to mean that it would apply only when actual handling charges are not ascertainable.