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Gira Enterprises v. Commissioner Of Customs, Ahmedabad
Structured Summary of the Opinion (per C. Satapathy, Member (T))
Factual and Procedural Background
Two appellants (Appellant No.1 and Appellant No.2) each imported 74.10 MT of the impugned goods and declared them as "Trichloro 1-3-5 Triazine" at a unit price of Singapore $750 per MT CIF (equivalent to US $500 PMT). The goods were of Chinese origin but were imported from traders located in Ajman and Dubai, U.A.E. Five related Bills of Entry were filed between 30-7-1994 and 2-12-1994 through the same Customs House Agent. The goods were provisionally cleared against a PD Bond pending chemical testing and value verification. Subsequent chemical testing identified the goods as "Cyan uric Chloride."
On verification the Customs authorities ascertained comparable imports of Cyan uric Chloride of Chinese origin during June–November 1994 at unit prices ranging from US $1860 PMT to US $1950 PMT. The authorities therefore ordered assessment of the appellants' imports at the lowest comparable price of US $1860 PMT CIF. The lower appellate authority issued a detailed order rejecting the appellants' valuation claim and upholding the Customs valuation. The appellants appealed to the Tribunal, and the present opinion records the Tribunal's hearing and decision (pronounced in court on 23-8-2005).
Legal Issues Presented
- Whether the declared transaction value (Singapore $750 / US $500 PMT) should have been accepted under Rule 4 of the Customs Valuation Rules, 1988 in the absence of proof that any amount was paid over and above the invoiced price.
- Whether Customs authorities were entitled to reject the declared value as "ridiculously low" and instead determine customs value by reference to the value of contemporaneous comparable imports (i.e., apply methods under Rule 5 and other valuation methods consistent with Section 14(1) of the Customs Act, 1962).
- Whether Advisory Opinion 2.1 of the WTO Technical Committee on Customs Valuation (cited to support acceptance of a price below prevailing market prices) required acceptance of the appellants' declared low price.
Arguments of the Parties
Appellants' Arguments
- The declared invoice price should be accepted because there is no allegation or evidence that the appellants paid any amounts over and above the invoiced price.
- Reliance on the Supreme Court decision in Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai — that Rule 4 (transaction value) ought to be accepted in appropriate circumstances — to argue that the transaction value should be adopted here.
- Reliance on an extract (from "Customs Valuation Law & Practice — 2003") citing Advisory Opinion 2.1 of the WTO Technical Committee, which states that a price lower than prevailing market prices need not be rejected for the purpose of Article 1 (Rule 4) subject to Article 17 [Rule 19(2)]. The appellants argued this supports acceptance of their lower price.
Respondent / Revenue (as argued by the learned SDR)
- The declared value (US $500 PMT) is "ridiculously low" and unrealistic compared to contemporaneous comparable imports from China at US $1860–$1950 PMT; such declared values can be rejected.
- No invoices from the actual manufacturer were produced; imports were routed through U.A.E. traders, suggesting possible intermediary margins which would normally increase the price relative to direct import from China.
- The Supreme Court decision in Commissioner of Customs, Bombay v. Shibani Engineers Ltd. supports rejection of totally unrealistic declared values.
- The Eicher Tractors decision is distinguishable: it concerned a one-time sale of five-year-old stock with a 77% discount; the facts and commercial circumstances in Eicher were specific and not comparable to the present case.
- Rajkumar Knitting Mills (three-judge Bench of the Supreme Court) interprets Section 14(1) of the Customs Act, 1962 to require valuation to correspond to prevailing market prices at the time and place of importation; this interpretation is binding and supports valuation by reference to prevailing market prices rather than accepting the appellants' invoice in the present circumstances.
- Various Tribunal and Supreme Court decisions (including Pan Asia Enterprises, Plast Fab, India Infusion Ltd., Chandni International, and Pasupati Traders) support the use of comparable contemporaneous imports or other valuation methods where declared values are grossly undervalued; these precedents were cited to justify the valuation adopted by the Customs authorities.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai (Supreme Court) | Acceptance of declared transaction value under Rule 4 in special factual circumstances (example: one-time sale of 5-year-old stock with 77% discount). | The Tribunal distinguished Eicher on facts: Eicher involved a specific, one-time discounted sale where the Court was satisfied the discount would have been available to any purchaser; therefore Eicher did not compel acceptance of the appellants' declared value here and was found inapplicable. |
| Commissioner of Customs, Bombay v. Shibani Engineers Ltd. (Supreme Court) | Authority for rejecting declared values that are totally unrealistic. | The Tribunal relied on the principle in Shibani Engineers to uphold the power to reject the appellants' declared value as unrealistic. |
| Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs, Bombay (Three-Judge Bench of the Supreme Court) | Interpretation of Section 14(1) of the Customs Act, 1962: "ordinarily sold or offered for sale" refers to prevailing market price at time and place of importation/exportation. | The Tribunal treated this decision as binding and used it to support the proposition that valuation must correspond to ordinary competitive price in international trade; accordingly, a declared price grossly below prevailing market prices could be rejected. |
| Pan Asia Enterprises v. Collector of Customs, Bombay (Tribunal) — appeal dismissed by Supreme Court | Declared values grossly undervalued are not acceptable; Tribunal decision upheld by Supreme Court. | Cited as authority supporting the rejection of grossly undervalued declared prices and the use of alternative valuation methods. |
| Plast Fab v. Collector of Customs (Tribunal) | Valuation must accord with Section 14(1) where goods are invoiced in a third country and declared values are much below comparable goods. | Used to support the proposition that declared values invoiced from third countries can be rejected where they are much lower than comparable contemporaneous imports. |
| India Infusion Ltd. v. Collector of Customs (Three-Member Bench of the Tribunal) | Approval of valuation based on comparable imports under Rule 5; transaction value must be consistent with Section 14(1). | Cited as a Tribunal precedent approving valuation by reference to comparable imports where transaction value method was inappropriate. |
| Chandni International v. Commissioner of Customs (Import), Mumbai (Tribunal) | Approval of valuation on the basis of contemporaneous comparable imports. | Presented as Tribunal authority consistent with using comparable contemporaneous imports for valuation. |
| Pasupati Traders v. Commissioner of Customs (Import), Mumbai (Tribunal) | Approval of valuation on the basis of contemporaneous comparable imports. | Presented as another Tribunal authority supporting valuation by reference to comparable imports. |
Court's Reasoning and Analysis
The Tribunal's analysis proceeded by applying statutory principles and the cited authorities to the factual matrix:
- Factual comparison: The Tribunal noted that contemporaneous imports of Cyan uric Chloride from China during June–November 1994 were in the range US $1860–$1950 PMT, whereas the appellants declared a price equivalent to US $500 PMT. The Court observed that goods routed through U.A.E. traders would ordinarily attract higher prices (trader margins and higher freight) than direct imports from China; hence the appellants' declared price was anomalously low.
- On the Eicher Tractors precedent: The Tribunal examined Eicher and held it factually distinguishable. Eicher involved a unique commercial circumstance (a one-time sale of five-year-old stock with a 77% discount) and the Supreme Court in Eicher had accepted the declared price because the discount would have been available to any purchaser. The present case lacked any analogous factual foundation to invoke Eicher.
- On Section 14(1): The Tribunal relied on the three-judge Bench decision in Rajkumar Knitting Mills interpreting Section 14(1) of the Customs Act, 1962. That interpretation equates "ordinarily sold or offered for sale" with prevailing market prices at the relevant time and place of importation. The Tribunal treated this as binding and held that customs valuation must correspond to ordinary competitive price in international trade.
- Transaction value vs. other methods: The Tribunal explained that the transaction value (Rule 4) is the actual price paid or payable but it may not represent the customs transaction value in every case. Where the declared value is "ridiculously low" and does not correspond to ordinary competitive prices, the transaction value method is inapplicable. The Customs Valuation Rules provide six methods; where transaction value is unreliable, other methods (including valuation by reference to comparable contemporaneous imports under Rule 5) are available and legally permissible.
- On evidence of extra payments: The Tribunal rejected the appellants' contention that other valuation methods cannot be used unless there is proof of payments over and above the invoice. The Tribunal noted that if such extra payments are established, transaction value could incorporate those payments, but in their absence and where declared values are manifestly unrealistic, other methods must be applied.
- On the WTO Advisory Opinion 2.1: The Tribunal found the appellants' reliance on Advisory Opinion 2.1 to be "out of context" because Rule 4 was discarded in this case due to the declared value's unreliability. The Tribunal observed that the Advisory Opinion recognizes Customs' power to verify declarations under Article 17 (Rule 10(2) of the Customs Valuation Rules) and does not bind countries; further, Advisory Opinions lack legal force when contrary to domestic precedents. Thus the Advisory Opinion could not justify accepting a price (US $500 PMT) that was grossly inconsistent with contemporaneous import prices.
- Equity and policy: The Tribunal reasoned that the different valuation methods exist to arrive at an equitable customs value; importers cannot claim unfair advantage when a declared value is grossly lower (25–30% of competing importers' values). Using a fair alternate method prevents a grossly undue duty advantage and ensures equality of duty burden on similar goods.
Holding and Implications
DISMISSED. The Tribunal dismissed the appeals and upheld the valuation determined by the lower Appellate Authority (which had assessed the goods at the lowest comparable contemporary import price of US $1860 PMT CIF).
Direct effect on the parties: The Customs valuation adopted by the lower Appellate Authority stands; the appellants' declared transaction value (Singapore $750 / US $500 PMT) was not accepted for assessment and was replaced by valuation based on comparable contemporaneous imports. The Tribunal did not set aside the lower authority's order and ordered no interference.
Broader implications: The opinion applies existing statutory principles (Section 14(1) of the Customs Act, 1962) and earlier judicial and Tribunal precedents to reject a manifestly unrealistic declared value and to permit valuation by reference to contemporaneous comparable imports. The Tribunal did not purport to create a new precedent beyond applying and following the cited authorities.
Pronounced in Court on 23-8-2005.
[Order per : C. Satapathy, Member (T)]. - Heard both sides at length. Appellant No. 1 and Appellant No. 2 had each imported 74.10 MTs of the impugned goods and decleared the same as Trichloro 1-3-5 Triazine at unit price of Singapore $ 750 PMT CIF. The impugned goods were of Chinese origin but the same were imported from M/s. Sun Flower General Trading Co., Ajman, U.A.E. and G.A. International, Dubai, U.A.E. The related five Bills of Entry were filed between 30-7-1994 and 2-12-1994 through the same CHA. The goods were allowed provisional clearance against PD Bond pending chemical test and verification of value. On subsequent test, such goods were found to be ‘Cyan uric Chloride’.
2. On verification, the Customs authorities have ascertained the value of large number of imports of Cyan uric Chloride of Chinese origin imported at unit price of US $ 1860 PMT to US $ 1950 PMT during the period June, 1994 to November, 1994 as against the price declared by the appellants which was Singapore $ 750 equivalent to US $ 500 PMT only. As such, the Customs authorities have ordered assessment of the impugned goods at the lowest comparable price of US $ 1860 PMT CIF. The lower appellate authority has passed a detailed order considering all aspects of the case as well as various case laws while rejecting the appellants’ claim and upholding the valuation ordered by the lower authority. Hence this appeal.
3. The main thrust of the arguments by Shri V.S. Nankani, learned Advocate appearing for the appellants is that in the absence of any allegation of appellants paying any amount over and above the invoiced price to the suppliers, the declared value should have been accepted by the authorities below for assessment purposes. He further states that in the light of the decision of the Hon’ble Supreme Court in the case of Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai - (S.C.), the authorities below were required to accept the declared value under Rule 4 of the Customs Valuation Rules, 1988 instead of determining the value under Rule 5 on the basis of comparable goods. He also relies on an extract from the book “Customs Valuation Law & Practice — 2003” to argue that the price below prevailing market price is acceptable as per the Advisory Opinion 2.1 of the WTO Committee. The said extract is reproduced below :-
“The Committee opined that the mere fact that a price is lower than prevailing market prices for identical goods should not cause it to be rejected for the purpose of Article 1 (Rule 4), subject of course to the provisions of Article 17 [Rule 19(2)] of the Agreement.”
4. On the other hand, Shri Hitesh Shah, learned SDR arguing for the department makes the following submissions :-
(1) The value declared by the appellants is equivalent to US $ 500 which is ridiculously low and unrealistic compared to the comparable imports of the same origin during the same period at prices ranging from US $ 1860 to US $ 1950. He also states that the impugned goods of Chinese origin have been imported from Ajman and Dubai in U.A.E. and no invoices from the manufacturer have been produced. As such, the Hon’ble Supreme Court’s decision in the case of Commissioner of Customs, Bombay v. Shibani Engineers Ltd. [ (S.C.)] is squarely applicable to this case wherein it was held that Customs authorities are right in rejecting declared values which are totally unrealistic.
(2) The decision of the Hon’ble Supreme Court in Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai - (S.C.) is distinguishable as in that case the impugned goods was one time sale of five years old stock on which discount of 77% on the list price was allowed. The Hon’ble Supreme Court’s decision in that case, to accept the declared price with 77% discount on 5 years old stock being one time sale cannot be applied to the present case. In the case of Eicher Tractors (supra), the Hon’ble Supreme Court was satisfied that the same discount would have been offered to any one else wishing to buy the same stock and hence there was no question as to why the declared value in question was not acceptable under Rule 4(1) of the Customs Valuation Rules, 1988. The present case has no similarity whatsoever to the case of Eicher Tractors.
(3) In the case of Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs, Bombay - (S.C.) the three Judges Bench of the Hon’ble Supreme Court has held as follows :-
“The words “ordinarily sold or offered for sale” have to be read along with the words which precede and the words that follow these words. If thus read these words mean that for the purpose of assessing the value it is necessary to ascertain the price at which the said or like goods are sold or offered for sale for delivery at the time and place of importation and exportation in the cases of international trade. The words “ordinarily sold or offered for sale” do not refer to the contract between the supplier and the importer, but to the prevailing price in the market on the date of importation or exportation.”
The learned S.D.R. contends that in Rajkumar Knitting Mills (supra), the three Judges Bench of the Hon’ble Supreme Court have interpreted Section 14(1) of the Customs Act, 1962 and the same is binding on Courts and Tribunals as words in the said Section 14(1) have not undergone any change till date.
(4) In Pan Asia Enterprises v. Collector of Customs, Bombay - (Tribunal), it was held that declared values are not acceptable if the same are grossly undervalued. This decision of the Tribunal has been upheld by the Hon’ble Supreme Court by dismissing the civil appeal vide Pan Asia Enterprises v. Collector - (S.C.).
(5) Plast Fab v. Collector of Customs - (Tribunal) has held that valuation has to be in accordance and subject to the provision of Section 14(1) of the Customs Act, 1962 when goods are invoiced in a 3rd country and the declared value is much below the value of comparable goods. In that case declared value was $ 950 PMT against the value of comparable goods which was $ 1675 PMT.
(6) Three Member Bench of the Tribunal in the case of India Infusion Ltd. v. Collector of Customs - (Tribunal) has approved valuation on the basis of value of comparable imports under Rule 5 of the Customs Valuation Rules, 1988 holding that transaction value in terms of Rule 4 ought to be consistent with the provision of Section 14(1) of the Customs Act, 1962.
(7) In Chandni International v. Commissioner of Customs (Import), Mumbai - (Tribunal) = 2003 (55) R.L.T. 635 (CEGAT-Del.) and in Pasupati Traders v. Commissioner of Customs (Import), Mumbai - (Tri.- Mumbai) also, the Tribunal has approved of valuation on the basis of value of comparable goods contemporaneously imported.
5. After hearing both sides and perusal of case records and the cited case laws, we find that the appellants have imported goods of Chinese origin from traders in U.A.E. Ordinarily the price of Chinese goods brought from U.A.E. should be more than goods imported directly on account of the traders margin and higher freight compared to similar goods imported from China directly. On the contrary, the price declared is equivalent to US $ 500 only as against contemporaneous imports of comparable goods imported from China in the price range of US $ 1860 to US $ 1950. It is not the case of the appellants that the impugned goods are akin to the kind of goods dealt in the case of Eicher Tractors (supra) where 77% discount was allowed by the manufacturer on one time sale of five years old stock. As such, the present appeals are clearly distinguishable from the case dealt in Eicher Tractors (supra). Moreover, the decision of the three Member Bench of the Hon’ble Supreme Court in the case of Rajkumar Knitting Mills (supra) interpreting Section 14(1) of the Customs Act, 1962 is binding on us in view of the fact that the relevant words of Section 14(1) have not undergone any change and there is no contrary decision of any Larger Bench of the Hon’ble Supreme Court. Section 14(1) of the Customs Act, 1962 (which is incidentally in line with Article VII of GATT and Article VII in Annex I to GATT, to which India is a signatory) requires customs valuation to correspond to ordinary competitive price in international trade. Transaction value method is one of the methods of valuation under the Customs Valuation Rules, 1988 (which follows the Agreement to implement the said Article VII of GATT). The transaction value has been defined to be the actual price paid or payable. The declared value may not represent the transaction value in every case. When the declared value is ridiculously low compared to the ordinary competitive price of comparable goods contemporaneously imported, such declared values cannot be adopted as customs value. In such cases, the transaction value method is clearly inapplicable as the declared value does not conform to the requirement of the said Section 14(1). Valuation by adopting value of comparable goods contemporaneously imported is an equally efficacious method of valuation. Such valuation is also perfectly legal as has been held by the Hon’ble Supreme Court and various Tribunal Benches vide various decisions cited by the learned S.D.R. and listed in Paragraph 4 above.
6. The argument that in the absence of any evidence of the appellants remitting any amount over and above the invoiced price, other methods of valuation cannot be adopted is not acceptable. In fact, where evidence of extra payment is available, then the transaction value method itself would be adequate to deal with such a case. Since transaction value is defined as the actual price paid or payable, the customs value would in such cases be the invoice price plus the extra payments made and the transaction value method would still be applicable. On the other hand, where the declared value is ridiculously low and does not correspond to the ordinary competitive price in international trade, then the other methods of valuation under the Rules are to be used to arrive at the customs value as has been done in this case adopting the lowest of the values of comparable contemporaneous imports.
7. The law provides for six different methods of valuation for the simple reason that the transaction value method may not be proper in all cases and the Customs authorities cannot be forced to accept the declared value in every case notwithstanding how ridiculously low these are. It may not also be possible in every doubtful case for the customs officers to establish payments made over and above the invoice price without information from the originating and intermediate countries which may not always be forthcoming. When the extra payments can be established, the transaction value method itself can be used, otherwise one of the other methods can be used. Therefore, the precedent decisions of the Tribunal cited by the learned SDR approving valuation on the basis of comparable value of contemporaneous imports are sound and the same fully support the basis of valuation adopted in this case. Moreover, the different methods of valuation, whether based on transaction value, or comparable value (of identical/similar goods), or deductive value based on resale price, or computed value based on cost and profit etc. are designed to arrive at an equitable customs value for the purpose of charging customs duty. The importers cannot have a grievance so long as one of these methods is fairly used, unless he is trying to secure a grossly undue duty advantage as in this case by declaring a value which is 25-30% of the value declared by competing importers importing similar goods. Equity considerations justify levy of duty to the same extent on similar goods.
8. As regards the Advisory Opinion 2.1 of the Technical Committee on Customs Valuation cited by the learned advocate for the appellants, we note that the citation is out of context as in this case Article 1 (Rule 4) method of valuation has been discarded. In any case, the said Opinion recognizes power of the Customs authorities to satisfy themselves as to the truth and accuracy of any declaration made by the importers under Article 17 of the Agreement on Customs Valuation [Rule 10(2) of the Customs Valuation Rules, 1988]. The opinion merely says that it is permissible to have different transaction values of comparable goods under the Transaction Value method. As seen in this case also, the comparable goods were found to have been imported at different prices in a price range of US $ 1860 to $ 1950 PMT. However, the said Advisory Opinion cannot be taken to support a ridiculously low price of US $ 500 PMT. We also note that the Advisory Opinion given by the Technical Committee on Customs Valuation does not bind any country nor it has the same status as of the Decisions of the WTO Committee on Customs Valuation. The Advisory Opinions have no legal force and are not acceptable on the face of contrary decisions rendered by the Tribunal and the courts in India.
9. In view of our finding as above and cited case laws, we are of the opinion that the valuation approved by the lower Appellate Authority after taking into consideration all submissions made by the appellants in his detailed order is proper and the same does not require any interference. Accordingly, we dismiss these appeals.
(Pronounced in Court on 23-8-2005)
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