Indian Acrylics v. Union Of India And Another

Factual and Procedural Background

The appeal challenged a judgment of a Division Bench of the High Court of Punjab and Haryana which dismissed the appellant’s writ petition. The appellant imported a consignment of acrylonitrile from a supplier in the United States of America and, on 29-4-1992, filed a bill of entry at Kandla Customs. It was common ground that the price declared in the bill of entry reflected the true value of the consignment.

On 29-4-1992, the Reserve Bank of India (RBI) notified an exchange rate of 1 US dollar = Rs 25.95. Separately, on 27-3-1992, the respondents (acting under Section 14(3) of the Customs Act) notified an exchange rate for purposes of Section 14 at 1 US dollar = Rs 31.44, effective from 1-4-1992. For customs duty purposes, the rupee equivalent of the appellant’s import price was calculated using the higher rate under the notification.

The appellant filed a writ petition seeking to quash the notification dated 27-3-1992, inter alia, on the ground that the exchange rate fixed therein was arbitrary. The writ petition was dismissed by the High Court, leading to the present appeal.

Legal Issues Presented

1. Whether the Central Government’s fixation of the exchange rate at 1 US dollar = Rs 31.44 under Section 14(3) of the Customs Act (effective from 1-4-1992) was arbitrary, particularly in view of the RBI rate of 1 US dollar = Rs 25.95 at the relevant time.

Arguments of the Parties

Appellant's Arguments

• The notification dated 27-3-1992 fixing the exchange rate at Rs 31.44 was arbitrary, especially because the RBI rate at the relevant time was Rs 25.95.

Respondents' Position (as reflected in the record)

• The counter-affidavits filed before the High Court and before the appellate court did not indicate why the rate was fixed at Rs 31.44.
• The affidavits did not indicate that the prevalent RBI rate had been taken into consideration.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court first accepted that the Central Government had the power to determine the exchange rate for purposes of Section 14 of the Customs Act, i.e., for computing the value of imported goods. The central inquiry, however, was whether the specific fixation of Rs 31.44 per US dollar (notified on 27-3-1992 with effect from 1-4-1992) was arbitrary when compared with the RBI exchange rate of Rs 25.95, which was undisputed.

The court noted a critical evidentiary deficiency: the respondent’s counter filed before the High Court and before the court did not explain the basis for fixing the rate at Rs 31.44. Further, the affidavits did not suggest that the RBI rate had been considered. The court found it notable that the High Court had rejected the arbitrariness challenge by stating that, “In the absence of any other material brought on record, it cannot be held that the rate of exchange by the Central Government under Section 14(3)(i) is arbitrary,” despite having noted the appellant’s contention that the Central Government rate differed from the RBI rate.

Substantively, the court treated the RBI rate as the accepted and determinative rate for foreign exchange transactions. It held that if the Central Government deviates from the RBI rate to the extent reflected in the notification (a difference of Rs 5.51 per US dollar), it must be shown that there were good reasons for such deviation. In the absence of any material on record and even a reason stated on affidavit, the court concluded that the rate fixed by the notification dated 27-3-1992 had to be held arbitrary.

Despite reaching this conclusion on arbitrariness, the court declined to strike down the notification due to the lapse of time and potential complications. Instead, it confined relief to the appellant by directing that, for the appellant’s consignment, valuation should be computed at the exchange rate of Rs 25.95 per US dollar (the RBI rate), noting that this was what had in fact been paid.

Holding and Implications

ALLOWED IN PART: The appeal was allowed to the extent that, for the appellants’ consignment, the value was directed to be calculated at the exchange rate of 1 US dollar = Rs 25.95, and the impugned order was set aside. The bank guarantee furnished for the balance amount computed at the higher exchange rate was ordered to stand discharged. There was no order as to costs.

In practical effect, the decision granted the appellants transaction-specific relief from the higher exchange rate applied under the notification, without invalidating the notification itself. The opinion did not state any broader implications beyond this directed recalculation and discharge of the bank guarantee, and it did not purport to set out any new precedent.