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TMI Blog2019 (9) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... oods) Rule, 2007, specifically the value towards freight charges is required to be added to the value of ATF determined on the basis of sale price of IOC of ATF to Air India/Indian Airlines for their foreign going aircrafts? Matter referred to President for placing the above question before a larger bench. - Appeal No. C/86898/2017 - Interim Order No. 47/2019 - Dated:- 28-6-2019 - Hon ble Dr. D.M. Misra, Member (Judicial) And Hon ble Mr. Sanjiv Srivastava, Member (Technical) Ms. Lakshmi Menon, Advocate for the Appellant Ms. P. Vinitha Sekhar, Authorised Representative for the Respondent ORDER PER: SANJIV SRIVASTAVA This appeal is directed against the order in original No Commr/VRM/ Adjn/04/2017-18 dated 02.05.2017 of Commissioner Customs (Airport) Mumbai. By the impugned order Commissioner has held as follows: (i) I confirm demand of Customs duty of ₹ 8,70,64,405/- (Rupees Eight Crores Seventy Lakhs Sixty Four Thousand Four Hundred and Five only) and interest thereon respectively under Section 28(1) 28AA of the Customs Act, 1962. (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order referred in para 1, supra. Aggrieved by the order of Commissioner, appellants are in appeal before tribunal. 3.1 In their appeal appellants have challenged the order impugned order stating that- i. The provisions of Rule 10 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007 is in applicable for determining the customs duty payable on ATF entered for import at the time of conversion from international run to domestic run. ii. Freight and Insurance is not to be included when computing the assessable value of the remnant ATF. As no transportation/ insurance cost is involved in import of stores/ consumable/ shipping containers/ aircrafts. iii. For the purpose of determining the correct transaction value, undue refinement is not to be made. iv. The cost of freight and insurance is ascertainable therefore notional value could not have been applied. v. Freight charges are not included as per Mumbai Commissionerate s Instruction No 06/2006 dated 26/10/2006. vi. Landing Charges are not to be included in the assessable value of the goods as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the present case the transportation charges are ascertainable, and are nil as the ATF was carried in sufficient quantity for the purpose of carriage of goods and passengers onboard the aircraft, there can be no addition of notional freight @ 20% as per Rule 10(2). iii. No procedure established for filing of Bill of Entry, and procedure as prescribed for filling bill of entry under section 46 cannot be applied in connection with the ATF in dispute. iv. The price at which they are discharging the duty, is all inclusive price and thus no freight is required to be added. v. Benefit of Notification No 151/94-Cus dated 13.07.1994 should have been taken into consideration at time of computing the remnant ATF while demanding the duty. vi. Appellants were regularly filing a statement and discharging the duty in respect of remnant ATF. The fuel log book, duly certified by the flight captain and the summary sheet duly certified by the Custom Officers show that they were aware of the method of computation of duty by the appellants. When all the facts in relation to manner of assessment and determination of duty payable was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to the knowledge of department the fact of non addition of the freight element to determine the assessable value of ATF, to the notice of department. Thus it is clearly a case of suppression where appellants deliberately did not add the value of freight to the value of goods and hence extended period of limitation is rightly invokable. 5.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments. The issue for consideration in the present appeal can be listed as follows: i. Whether the insurance, freight and landing charges required to be added to the IOC price (the basis for payment of duty) for determination of assessable value of remnant ATF in the aircraft at time of conversion from international to domestic run. ii. Scope of Rule 10(2) of the Custom Valuation (Determination of Price of Imported Goods) Rules, 2007. iii. Whether benefit of exemption under Notification No 151/94-Cus admissible to the appellants. iv. Whether extended period of limitation as provided by Section28 of Customs Act, 1962 can be invoked in the present case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t/ airlines and duty discharged accordingly. From the perusal of the above instruction on the basis of which appellants have claimed to discharge the duty it is quite evident that this is an instruction issued by the Commissioner to his officers for performing their duties for determination of quantum of duty payable on the remnant ATF in the aircraft. This instruction is neither the statement of law or a circular issued by the Board clarifying the position in law. Binding value of such instructions an circulars has been finally settled by the five member bench of Apex Court in case of Ratan Melting and Wire Industries [2008 (231) ELT 22 (SC)], wherein Hon ble Apex Court has categorically stated- 6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident that the principles of valuation incorporated in Section 14(1)(a) of the Act therein show that : a) the price is a deemed price; b) at which such or like goods are ordinarily sold or offered for sale; c) for delivery at the time and the place of importation or exportation; d) in the course of international trade; e) where the seller and the buyer have no interest in the business of each other and f) the price is the sole consideration for the sale or offer for sale. 9. This Section clearly indicates that it is not the price stated in the CIF contract which alone is to be accepted as being the value of such goods for the purpose of Section 14 of the Act. The said Section requires determination of the value of the imported goods. The appellants are right in contending that this is a deeming provision. The value of such goods is to be deemed to be the price at which such goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation in the course of international trade, where the seller and the buyer have no interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Another v. Union of India and Another, 1989 (43) E.L.T. 189 (S.C.) = 1989(4) SCC 21 and Dhiraj Lal H. Vohra and Others v. Union of India and Others 1993 (66) E.L.T. 551 (S.C.) = 1993 (Supp. 3) SCC 453, this Court came to the conclusion in Apar s Private Limited case that the duty has to be paid with reference to the relevant date as mentioned in Section 15 of the Act. 18. It is also submitted on behalf of the appellants that onus of proving that the transaction value does not represent the value for the purposes of Section 14 of the Act and that it has to be loaded with any other elements such as landing charges, is on the Department. We are unable to agree with the submission. The value at which the goods are to be assessed is indicated by the importer when he makes a declaration while submitting a bill of entry under Section 46 of the Act. Once, we come to the conclusion that the landing charges would be included in the determining of the value of the goods imported then the onus has to be on the importer to show that the price indicated in the CIF contract includes therein this element of landing charges. If such an element is included in the CIF contract, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een found by any fact finding authority, even in cases of CIF contracts, that the Port Trust Authorities did receive the landing charges from the shipper or the foreign seller and that the said charges were included in the CIF contract. 21. We notice that various High Courts in India since 1982 have held that for the purpose of arriving at the value at which goods are delivered to the buyer at the time and place of importation into India, the concept of value as understood in Section 14 of the Act necessarily requires the landing charges to be included in the value. These decisions are : (a) 1982 (10) E.L.T. 203 (Gujarat High Court) Prabhat Cotton and Silk Mills v. Union of India judgment dated 9-3- 1982. (b) 1983 (12) E.L.T. 258 (Delhi High Court) Super Traders and Anr. v. Union of India and Others, judgment dated 23-9-1982, followed by another judgment in 1983 (12) E.L.T. 661 (Delhi High Court) in Bhartiya Plastic Udyog v. Union of India, judgment dated 7-1-1983. (c) 1984 (18) E.L.T. 235 (Punjab and Haryana High Court) Oswal Woollen Mills Ltd. v. Union of India, judgment dated 22-2-1983. (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese rules. 4. Transaction Value. - (1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these rules. (2) The transaction value of imported goods under sub-rule (1) above shall be accepted. Provided that . 5. A conjoint reading of the aforesaid two provisions would make it clear that the value of the imported goods has to be the transaction value and in those cases where transaction value cannot be determined, such a value is to be determined by resorting to Rules 5 to 8 thereof in a sequential order. Therefore, first attempt has to ascertain the transaction value. As per the formula contained in sub-rule (1) of Rule 4, the authorities are to find out the price actually paid or payable for the goods when sold for exports to India, to arrive at the value of the goods. Once this value is arrived at, it is to be adjusted in accordance with the provisions of Rule 9 of the said Rules. The final outcome, after such an adjustment made, is to be treated as transaction value to attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us values. 7. Once the transaction value is arrived at by applying the formula applicable in a given case in terms of aforesaid provision, exercise is still incomplete. Adjustments to this value are still to be made in accordance with the provision of Rule 9. Only thereafter, exact transaction value gets determined on which Customs duty is to be paid. It is so stated in Rule 4 itself. So, at this stage, Rule 9 comes into play, with which we are concerned in the present case. It deals with cost of services . It lays down that in determining the transactional value, cost of certain services is to be added to the price actually paid or payable for the imported goods, as mentioned in clauses (a) to (e) of sub-rule (1) of Rule 9. We would like to reproduce this Rule, as it originally stood, in its entirety : 9. Cost of services. - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - (a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of importation; and (c) the cost of insurance : Provided that in the case of goods imported by air, the cost and charges referred to in clauses (a), (b) and (c) above, - (i) where such cost and charges are ascertainable, shall not exceed twenty per cent of the free on board value of such goods, (ii) where such cost and charges are not ascertainable such cost and charges shall be twenty per cent of the free on board value of such goods; Provided further that in the case of goods imported other than by air and the actual cost and charges referred to in clauses (a), (b) and (c) above are not ascertainable, such cost and charges shall be twenty-five per cent of the free on board value of such goods. (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data. (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. 8. Rule 9 was amended in the year 1989 vide Notification dated 19- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of transport referred to in clause (a) plus the cost of insurance referred to in clause (c). 11. Reverting to the facts of the present case, it is on the strength of this proviso, even when the actual handling charges were shown as ₹ 69.98 paisa, that too as fixed by the International Airport Authority, the Customs Authorities added further sum of ₹ 15,214.69 paisa to the value of goods of handling charges, being one per cent free on board value of the goods. Obviously, the appellant was aggrieved by this addition and handling charges on notional basis pursuant to the aforesaid proviso whereby the charges for loading, unloading and handling associated with the delivery of imported goods at the place of importation had been fixed at one per cent free on board value of the goods plus the cost of the transport of the imported goods to the place of importation plus cost of insurance. 19. In order to arrive at the answer to the issue raised, we shall have to go through the scheme of customs duties as payable under the Act. Chapter V is the relevant chapter which deals with Levy of, and Exemption from, Customs Duties . It contains t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. (3) For the purposes of this section - (a) rate of exchange means the rate of exchange - (i) determined by the Board, or (ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency; (b) foreign currency and Indian currency have the meanings respectively assigned to them in clause (m) and clause (q) of Section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999). 20. This provision was amended in the year 2007. Though, we are not concerned with this amended provision, we are taking note of the same in order to examine as to whether any change, in principle, is brought about or not. The amended provision reads as follows : 14. Valuation of goods. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find the valuation of goods by reference to their value . 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 very expression ordinarily sold, or offered for sale would indicate that the price at which these goods are actually sold would be the price at which they are ordinarily sold or offered for sale. Of course, under the old provision, under certain circumstances, the authorities could discard the price mentioned in the invoice. However, that is only when it is found that the price mentioned in the invoice is not the reflection of the price at which these are ordinarily sold or offered for sale. To put it otherwise, the reason for disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges are to be added which are in the form of amount paid or payable for costs and services including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner which can be prescribed in the rules. Sub-section (2) of Section 14, which remains the same, is an over-riding provision which empowers the Board to fix tariff values for any class of imported goods or export goods under certain circumstances. We are not concerned with this aspect in the instant case. 24. In contrast, in the unamended Section 14, we had provision like sub-section (1A) which stipulated that the price referred to in sub-section (1) in respect of imported goods shall be determined in accordance with rules made in this behalf. Therefore, rules can be made in determining the price. However, these rules have to be subject to the provisions of sub-section (1), the underline principle whereof, as stated above, is to take into consideration actual price of the goods unless it is impermissible because of certain circumstances stipulated therein. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be arrived at, one has to resort to residual method provided in Rule 8 which prescribes that the value shall be determined using reasonable means . This would indicate adopting Best Judgment Assessment principle. However, even while having best judgment assessments, Rule 8 reminds the authorities that such reasonable means or best judgment assessments has to be in consonance with the principles of general provisions contained in the Rules as well as sub-section (1) of Section 14 of the Act and also on the basis of data available in India. 26. On the aforesaid examination of the scheme contained in the Act as well as in the Rules to arrive at the valuation of the goods, it becomes clear that wherever actual cost of the goods or the services is available, that would be the determinative factor. Only in the absence of actual cost, fictionalised cost is to be adopted. Here again, the scheme gives an ample message that an attempt is to arrive at value of goods or services as well as costs and services which bear almost near resemblance to the actual price of the goods or actual price of costs and services. That is why the sequence goes from the price of identical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 36. We are, therefore, of the opinion that impugned amendment, namely, proviso (ii) to sub-rule (2) of Rule 9 introduced vide Notification dated 5-7-1990 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. 5.5 From the reading of the above referred decisions of the Apex Court along with Section 14 of Customs Act, 1962 and Custom Valuation (Determination of Price of Imported Goods) Rules, 2007, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance charges to determine the CIF value of the imported goods. Interestingly Commissioner instruction though seeks to add the insurance charges notionally is silent about the addition of freight charges. However in terms of Rule 10(2) of Customs Valuation (Determination of Price of Imported Goods) Rules, 2007 which is pari materia with the erstwhile Rule 9(2) of Custom Valuation Rules, 1988, value has to be added towards insurance freight and landing charges. If actual are available on the actual basis and if actual are not available the additions will have to be made on notional basis in the manner prescribed by the said rules. 5.8 Appellant have claimed that actual charges towards the freight arte ascertainable as zero in their case. We are not in agreement with the said submissions. Appellants are carrying the remnant fuel as extra baggage in the aircraft and if the freight charges are to be ascertained, then they should be equal to the actual extra baggage charged by them for carriage of equivalent amount of fuel. 5.9 In our view on the issue of addition of freight charges for determination of assessable value the order of Commissioner canno ..... 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