1983 (12) TMI 65 - HC - Customs

Summary

Issues Involved:
1. Legitimacy of loading 2% to the invoice value by Customs Authorities.
2. Applicability of Rule 5 of the Customs Valuation Rules, 1963.
3. Nature of the import by the petitioners.
4. Basis for loading 2% to the invoice value.

Detailed Analysis:

1. Legitimacy of Loading 2% to the Invoice Value by Customs Authorities:
The Customs Authorities insisted on loading 2% of the invoice price for imports made by the petitioners, including quantities meant for the State Trading Corporation. The petitioners paid the duty under protest and filed refund applications, which were disallowed. The Appellate Collector rejected the appeals, and the revisional authority concluded that no commission was allowable to the petitioners, making it incorrect in law to load 2% to the invoice value. However, the revisional authority still upheld the loading of 2% based on Rule 5 of the Customs Valuation Rules, 1963, treating the petitioners as a 'branch-cum-distributor' of the American company.

2. Applicability of Rule 5 of the Customs Valuation Rules, 1963:
Rule 5(a) states that expenses incurred by a sole agent, distributor, or indentor should be included while determining the value of imported goods. Rule 5(b) applies the same principle to imports by a branch or subsidiary of the exporter. The revisional authority applied this rule, assuming the petitioners were a 'branch-cum-distributor' of the American company. However, the court found this application erroneous as the petitioners imported the goods for their own consumption and not for further distribution, making Rule 5(a) and (b) inapplicable.

3. Nature of the Import by the Petitioners:
The petitioners imported the product for their own use and not for further distribution. The import licence had conditions that 50% of the imports would be transferred to the State Trading Corporation at cost price without any commission. The court held that the petitioners were not acting as agents or distributors for the State Trading Corporation but were importing for their own use with a condition to transfer 50% of the imports. Thus, the import could not be considered as made by an agent or distributor under Rule 5(a).

4. Basis for Loading 2% to the Invoice Value:
The revisional authority's assumption that loading 2% to the invoice value was reasonable lacked any basis or logic. The court found no foundation for this assumption and concluded that even if the revisional authority's conclusion was correct, the loading of 2% was without any basis. The court emphasized that Rule 5(a) and (b) did not apply to the import in question, making the order of the revisional authority erroneous.

Judgment:
The petition succeeded, and the court set aside the order dated July 27, 1979, passed by the Government of India, Ministry of Finance (Department of Revenue), along with other related orders. The proceedings were remitted back to the Assistant Collector for disposing of the refund applications on merits. The Assistant Collector was directed to calculate the refund amount and award it within three months. The competent authority, to whom the proceedings were remitted by the Central Government on September 15, 1977, was also directed to dispose of the proceedings within three months in accordance with the judgment and grant the refund amount. There was no order as to costs.