Venus Insulation Products Mfg. Co. v. Commissioner Of Cus., Goa

[Order per : P.G. Chacko, Member (J)]. - This appeal is against the order dated 19-10-2001 passed by the Commissioner of Customs, Goa, pursuant to our remand order dated 18-7-2000 passed in an earlier appeal of the present appellants. The facts of the case are, briefly, as follows :- The appellants had imported from Italy a few hundred pieces of “original sculptures” (CTH 9703.00) and sought clearance thereof under Bill of Entry No. 169, dated 13-1-99 declaring the value of the goods as Rs. 3,76,503/- (CIF). After inspecting the goods, scrutinizing the invoice produced by the party and comparing the declared price with the price of what were claimed to be identical goods mentioned in the price list obtained from Internet, the Customs authorities inferred that the goods were grossly undervalued on FOB basis. They, by show cause notice (SCN), dated 1-3-99, proposed to enhance the value to Rs. 63,87,580/- (FOB) on the basis of the price obtained from Internet, in terms of Rule 10A of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The SCN further proposed to confiscate the goods under Section 111(m) of the Customs Act and impose personal penalty on the importer under Section 112 of the Act. The party contested the proposals and was heard, on the dispute, by the Commissioner on 7-7-99. Subsequently, however, the department obtained a price list dated 7-4-99 (relating to January, 1999) from the Italian manufacturers/suppliers of the goods viz. FLORENCE Sculpture d’arte, and wanted to enhance the value on the basis of that list, giving up the Internet prices. Hence an addendum to the SCN was issued to the importer on 30-9-99. The party did not reply to it, nor did they appear before the Commissioner for being heard in the matter. When the matter was still pending with the adjudicating authority, the party, through their Consultant, requested that authority to take into account the Supreme Court’s ruling in Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai [ (S.C.)] while determining the assessable value of the goods. The Commissioner, later, passed Order-in-Original dated 28-2-2000 enhancing the value of the goods to Rs. 18,83,101/- (CIF) on the basis of the manufacturer's aforesaid price list, confiscating the goods with option for redemption thereof on payment of a fine of Rs. 12.5 lacs and imposing a penalty of Rs. 7.5 lacs on the importer. It was that order which was challenged in the earlier appeal of the importer and was ultimately set aside under the aforesaid remand order of this Bench. In the remanded proceedings, the party replied to the addendum to the SCN, submitting, inter alia, that the manufacturer’s price list was neither contemporaneous nor relating to comparable goods and that the transaction was not at the same commercial level or in substantially the same quantity. They further contended that it was the department’s burden to prove that the goods could have fetched any price higher than the declared value. Relying, once again, on the Apex Court’s ruling in the Eicher Tractors case, the party, in their reply, urged that the declared price be accepted under Rule 4(1) of the Valuation Rules. The adjudicating authority dubbed the invoice as a manipulated document and refused to recognize the invoiced price as the ‘real transacted value’. It held that Rules 4 to 8 of the Valuation Rules were not applicable to the case. The adjudicating authority, professedly acting under Rule 10A, accepted the manufacturer’s price list dated 7-4-99 read with its Discount Schedule and enhanced the assessable value of the goods to Rs. 18,83,101/- (CIF) for the purpose of charging duty. The Commissioner confiscated the goods (with option for redemption) and imposed penalty on the party, with no change in the quanta of redemption fine and penalty from those adjudged in his earlier order.

2. In the present appeal, the appellants have challenged the above decision of the Commissioner on the following grounds :- (i) The adjudicating authority has exceeded the terms of remand insofar as its finding regarding the authenticity of the invoice is concerned, (ii) Some of the findings are contrary to official record, (iii) The appellants’ plea that the material cost of the goods was very low and that it was the department’s burden to establish that the goods could have fetched anything more than the invoiced price has not been controverted, (iv) The manufacturer’s price list of January, 1999 was not contemporaneous for the goods imported and the stock lot of ‘611’ sculptures imported was not substantially in the same quantity and the goods were not of comparable quality and customer appeal, (v) The valuation law laid down by the Supreme Court in Eicher Tractors case was not followed by the adjudicating authority and (vi) After ruling out the applicability of Rules 4 to 8, the only course open to the Commissioner was to take recourse to Rule 11, which was not done. It is contended that the goods did not fall under any of the exceptions in Rule 4(2) and hence the transaction value could have been determined only under Rule 4(1) read with Section 14(1) of the Customs Act. It is pointed out that the SCN or the addendum thereto had not alleged existence of any exceptional circumstances to attract the provisions of Rule 4(2). The invoiced price was the actual price payable for the goods and hence the transaction value. The appellants have prayed for acceptance of that value under Rule 4(1).

3. Heard both sides. Ld. Consultant for the appellants submitted that the ‘611’ pieces of statues imported by them were made of low cost material viz. clay. The goods were an old left-over stock, which the Italian manufacturer, in July, 1998, agreed to sell to the appellants at very cheap price on the condition that the latter would purchase the entire stock. The Consultant submitted that the goods were not identical with those mentioned in the price list and that the price list itself, being of January, 1999, was not contemporaneous with the goods which were contracted for sale in July, 1998 and shipped in September, 1998. Hence the price list was not liable to be relied upon in determining the transaction value of the goods. The invoiced price was the real transaction value and no valid reason has been stated for rejecting the same. Ld. Consultant also challenged the Commissioner’s observation that the invoice was a manipulated document. Relying on the Apex Court’s judgment in Eicher Tractors case, he argued that the adjudicating authority ought to have accepted the invoiced price as transaction value under Rule 4(1). Ld. SDR opposed the argument. He submitted that, the price list and the importation both being of January, 1999, the price list was contemporaneous and that 90% of the imported items were covered by the price list. He reiterated the other findings of the Commissioner also.

4.1 First of all, we shall consider the appellants’ grievance that the adjudicating authority exceeded the terms of the remand order of this Tribunal while adjudging the invoice to be a manipulated document. We note that, in the addendum to the SCN itself, the department had indicated its disinclination to take cognizance of the invoice for the purpose of assessment of the goods and had proposed to rely on the manufacturer’s price list of January, 1999 for the said purpose. This Bench, after taking note of the addendum to the SCN, passed the remand order so as to make available to the party an effective opportunity of meeting the allegations in the addendum as also to ensure that the Supreme Court's judgment cited by the party received due consideration at the adjudicating authority’s end. The party, in their letter dated 13-8-2001 submitted in reply to the addendum to the SCN, put forward their defence of the invoice and the invoiced price of the goods and raised their objections to the price list of January, 1999. Strong reliance was placed on the Supreme Court’s decision in Eicher Tractors, in support of the plea for acceptance of the invoiced price of the goods. It appears that the Commissioner has rejected all arguments advanced against the price list and accepted those prices as discounted in terms of the Discount Schedule attached to the price list. As regards the invoice price, the Commissioner has not chosen to examine its merits as he did not accept it as a genuine document. He has also not considered the Apex Court’s judgment. The Commissioner has only acted short of what he was meant to accomplish under the remand order. Conversely, while reserving (for the moment) our decision on the legality and propriety of the view taken by the Commissioner in relation to the invoice, we hold that he has not acted in excess of the terms of our remand order.

4.2 The appellants had produced two photocopies of the import invoice on two different occasions. They produced what was claimed to be the original, later. The Commissioner has found certain “discrepancies” between the original and its copies. One “discrepancy” is that the description ‘Prodotti artistici in caolino e resina decorati a mano Goods of Italian origin’ appears in three lines in the original invoice whereas it is in two lines only in the photocopies. Another “discrepancy” is that the address of the manufacturer with telephone/telefax numbers etc. appears in three lines at the foot of each page of the original invoice whereas it is in two lines in the photocopies. One of the two photocopies carries Banker's endorsement and the other one does not. Further, some difference in the manner of endorsement between the photocopy and the original has been noted by the Commissioner. However, it has been found by the adjudicating authority that there is no material discrepancy between the original and the photocopies. Both the original and the photocopies are on the manufacturer’s letter-head sheets, and so is the covering letter dated 7-4-1999 for the price list relied on by the adjudicating authority. We note that the manufacturer’s letter-head used for the original invoice is identical in all respects to the one used for the covering letter for the price list. In view of this facet coupled with the admitted fact that there is no textual discrepancy between the original invoice and the photocopies, there is no reasonable ground for dubbing the invoice as manipulated or for doubting the authenticity of the document.

4.3 The original invoice dated 24-9-98 was apparently issued by FLORENCE sculpture d’arte to the appellants against an order placed by the latter in July, 1998. It provided the quantity, unit price and total value of each of the statue (sculpture) items supplied thereunder. The statue items were 100 in number and the total number of pieces 331. There were also six non-priced/non-statue items like the supplier's brochure etc. in the consignment, which totalled to 280 pieces. 331+280=611 accounted for the total number of units/pieces mentioned in the Bill of Entry. (Notably, both the importer and the Customs authorities appear to have, all along, put the number of pieces of the imported sculptures erroneously at 611). The goods were imported against Bill of Lading dated 26-9-98. It is difficult to hold that the price quoted in the manufacturers price list for January, 1999 was contemporaneous for the price of the goods contracted for sale in July, 1998 and shipped in September, 1998. The declared price was for 100 items/331 pieces of sculptures only. There is no finding by the Commissioner that the price quoted in the price list was for substantially the same quantity. The covering letter for the said price list had clarified that the January, 1999 price list was valid upto December, 1999 only, which meant that the manufacturer intended to revise the prices of their products w.e.f. January, 2000. Apparently the manufacturer used to revise price from year to year and therefore the January, 1999 prices were not meant to be applied to the goods exported by them in September, 1998. The covering letter for the January, 1999 price list lays down the manufacturer’s terms relating to trade discount, payment, minimum order, delivery etc. The trade discount, for instance, is 50%. These terms are, expressly, their “general sales terms”, which expression impliedly provides room for reduction of prices on negotiation in specific cases. The appellants have claimed that they were permitted to buy the entire stock-lot of sculptures on highly discounted prices mentioned in the invoice. The adjudicating authority has not been able to demolish this case of the appellants. It has observed that “the examination did not show that the lustre and customer appeal has been diminished over the years”. How could it be said that there was no diminution of lustre and customer appeal over the years, without there being a record of the original lustre and customer appeal of the goods? Further, the Commissioner has not requisitioned or obtained any expert opinion on the oldness or otherwise of the imported sculptures to disprove the appellants’ claim. The manufacturer’s letter dated 7-4-99 also does not contain anything to support the Commissioner’s finding on the aspect. In the result, we uphold the appellants’ contention that the price list of 1999 was not contemporaneous for the imported sculptures and the items covered thereunder were not substantially in the same quantity or of comparable quality and customer appeal.

4.4 We further find that the adjudicating authority has grossly misunderstood the legal provisions relating to determination of the value of the goods. He has “invoked” Rule 10-A which is not a substantive provision governing determination of value in the sequential scheme laid down under the Valuation Rules. That rule is a procedural provision which is meant to act as an aid to determining as to whether it is clause (i) or clause (ii) of Rule 3 that will be applicable to a given case. The sequential scheme for determination of value, under the Valuation Rules, comprises Rules 3 to 8. Rule 3 reads as under :-

“Determination of the method of valuation. - For the purpose of these rules, -

(i)    the value of imported goods shall be the transaction value;

(ii)  if the value cannot be determined under the provisions of clause (i) above, the value shall be determined by proceeding sequentially through Rules 5 to 8 of these rules.”

What has been broadly laid down under clause (i) of Rule 3 appears in specific terms under Rule 4(1) which reads as follows :-

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.

Sub-rule (2) of Rule 4 lays down some exceptions to sub-rule (1). If the facts of a given case will attract any of those exceptions, the case will go out of the purview of Rule 4(1) and, in that case, the transaction value shall be determined by proceeding sequentially through Rules 5 to 8 as prescribed under Clause (ii) of Rule 3. Rule 8 is the residuary provision under this scheme. Rule 9 provides for certain additions to the price actually paid or payable, to arrive at the assessable value. Rule 10 casts an obligation on the importer to declare the details of the value of the goods accurately as also to furnish such document or information as may be required by the proper officer for determination of the assessable value. Rule 10A is extracted below :-

“Rejection of declared value. - (1) When the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any imported goods, he may ask the importer of such goods to furnish further information including documents or other evidence and if, after receiving such further information, or in the absence of a response of such importer, the proper officer still has reasonable doubt about the truth or accuracy of the value so declared, it shall be deemed that the value of such imported goods cannot be determined under the provisions of sub-rule (1) of rule 4.

(2) At the request of an importer, the proper officer, shall intimate the importer in writing the grounds for doubting the truth or accuracy of the value declared in relation to goods imported by such importer and provide a reasonable opportunity of being heard, before taking a final decision under sub-rule (1).”

The above rule is a rule of procedure which enables the proper officer to decide as to whether he can accept the declared value of the goods under Rule 4(1) or should proceed sequentially through Rules 5 to 8 for arriving at the value of the goods. If, even after considering the information documents/evidence furnished by the importer, the proper officer has reasonable doubt about the truth or accuracy of the declared value, it shall be deemed that the value of the goods cannot be determined under Rule 4(1). This deeming provision contained in Rule 10-A has necessarily to be pressed into service at the very initial stage under the sequential scheme. It has no role after the scheme has worked itself out.

4.5 In the instant case, the Commissioner, obviously, thought, that it was the turn of Rule 10-A to operate when Rule 8 was found to be inapplicable. He has sequentially tried Rules 5 to 8 and found all those provisions to be inapplicable on one ground or the other. Rules 5 and 6 could not be invoked for want of contemporaneous imports from the same country of origin at the same commercial level. Rules 7 and 7A failed for want of sale of like goods in India as also for the reason that it was difficult to compute the value of original sculptures. The residuary Rule 8 did not work on account of non-availability of data of such goods in India. The adjudicating authority seems to have done well in his sequential attempts to invoke Rules 5 to 8. But his venture into Rule 10A after exhausting the residuary rule is an aberration. It ought to have occurred to him that, beyond the residuary rule, there was no substantive provision for determining the value and that, once Rules 5 to 8 failed, the only course open to him was to examine, in retrospection, as to whether his decision to reject the declared price was correct. Since neither the SCN nor the addendum thereto had alleged that the invoice was a manipulated document, it was not open to the adjudicating authority to dub the document as manipulated. What was open to him was only to examine under Rule 10A the accuracy of the price of the goods mentioned in the document. The Commissioner has not even made an attempt at this.

4.6 For the reasons recorded in paras (4.2) and (4.3) above, we reject the price list and, there being no good reason for doubting the truth or accuracy of the declared value of the goods, we hold that the price mentioned in the invoice represents the transaction value under Rule 4(1). We are supported, in taking this view, by the Apex Court’s ruling in Eicher Tractors (supra), wherein it was observed that a price list was only a general quotation and that mere production of price list could not discharge the onus cast on Customs authorities to prove the existence of special circumstances indicated in Section 14(1) of the Customs Act and particularized in Rule 4(2) of the Valuation Rules. In the instant case, the department has not been able to establish the existence of any such circumstances so as to rule out acceptance of the declared value as the transaction value under Rule 4(1).

5. In view of our findings recorded hereinbefore, we set aside the valuation, confiscation/redemption fine and penalty ordered by the adjudicating authority and direct that authority to determine the assessable value of the goods on the basis of the price declared by the importer and release the goods to them in accordance with law, against payment of duty.