Can customs authorities reject the declared transaction value of imported goods without proper justification? The Supreme Court of India addressed this critical question in a case involving the import of aluminum scrap. The Court clarified the procedure for customs valuation, emphasizing the importance of adhering to statutory provisions and rules. This judgment has significant implications for importers, ensuring fair and transparent assessment practices.
Date of the Judgment: 17 May 2019
Citation: (2019) INSC 481
Judges: Ranjan Gogoi, CJI, Deepak Gupta, J., Sanjiv Khanna, J.
Bench Composition: The judgment was delivered by a three-judge bench, with the opinion authored by Justice Sanjiv Khanna.
Case Background
The appellant, Century Metal Recycling Pvt. Ltd., is a company engaged in manufacturing aluminum alloys. They regularly import aluminum waste as raw material. The company alleged that the customs authorities were not clearing their consignments based on the declared transaction value. Instead, the authorities insisted that the company provide a letter agreeing to pay customs duty as per their valuation, thereby compelling them to forego their right to provisional assessment under Section 18 of the Customs Act, 1962.
The company contended that the customs authorities, contrary to Section 14 of the Customs Act, discarded the declared transactional value and recomputed the consignment value based on a Valuation Alert issued by the Central Board of Excise and Customs.
The appellant had initially filed a Writ Petition in the High Court of Judicature at Allahabad, seeking a direction to the Assessing Officer to assess the aluminum scrap based on the declared transaction value and, if not accepted, to allow provisional assessment under Section 18 of the Customs Act. The High Court dismissed the petition, stating it wouldn’t exercise its extraordinary jurisdiction under Article 226 of the Constitution as the matter related to valuation and could be assailed in a statutory appeal. The Supreme Court, however, decided to hear the matter given the important legal questions involved.
Timeline
| Date | Event |
|---|---|
| Various Dates | Century Metal Recycling Pvt. Ltd. imports aluminum scrap. |
| 22nd December, 2016 | Appellants wrote a letter requesting for clearance of the imported consignment of aluminium scrap on the declared transaction value. |
| 1st December, 2016 | Central Board of Excise and Customs issued a Valuation Alert. |
| 4th March, 2017 | Appellants wrote a letter requesting for clearance of the imported consignment of aluminium scrap on the declared transaction value. |
| 6th March, 2017 | Appellants issued a letter of consent agreeing to assessment/valuation by the customs authorities. |
| 7th April, 2017 | Adjudication order passed by customs authorities. |
| 12th September, 2017 | High Court of Judicature at Allahabad dismisses Writ Petition Tax No.307 of 2017. |
| 10th December, 2018 | Supreme Court decides the case of Commissioner of Central Excise and Service Tax, Noida v. M/s Sanjivini Non-Ferrous Trading Pvt. Ltd |
| 17th May, 2019 | Supreme Court delivers judgment in Century Metal Recycling Pvt. Ltd. vs. Union of India. |
Course of Proceedings
The appellants filed a writ petition before the High Court of Judicature at Allahabad, challenging the actions of the customs authorities. The High Court dismissed the petition, stating that it would not exercise its extraordinary jurisdiction under Article 226 of the Constitution as the matter related to valuation, which could be addressed through a statutory appeal. The appellants then approached the Supreme Court by way of a Special Leave Petition. The Supreme Court decided to hear the matter, despite the availability of an alternative remedy, given the important legal questions involved and the fact that a similar issue had been decided in the case of the appellant’s sister concern, M/s Sanjivini Non-Ferrous Trading Pvt. Ltd.
Legal Framework
The Supreme Court examined the following key legal provisions:
- Section 14 of the Customs Act, 1962: This section deals with the valuation of goods for the purpose of customs duty. It states that the value of imported goods shall be the transaction value, which is the price actually paid or payable for the goods when sold for export to India, provided the buyer and seller are not related, and the price is the sole consideration. The section also allows for the inclusion of costs and services in the transaction value.
“Section 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 such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation…”
- Rule 3 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007: This rule states that the value of imported goods shall be the transaction value adjusted in accordance with Rule 10, subject to Rule 12. It also specifies conditions under which the transaction value shall be accepted.
“Rule 3. Determination of the method valuation: (1) Subject to rule 12, the value of imported goods shall be the transaction value adjusted in accordance with provisions of rule 10; (2) Value of imported goods under sub-rule (1) shall be accepted…”
- Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007: This rule allows the proper officer to reject the declared value if they have a reason to doubt its truth or accuracy. It outlines the procedure for rejecting the declared value, including the requirement to provide the importer with the grounds for doubting the value and an opportunity to be heard.
“Rule 12. 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…”
- Section 18 of the Customs Act, 1962: This section provides for provisional assessment of duty in certain cases, such as when the importer is unable to make self-assessment or when the proper officer deems it necessary to make further inquiry.
“Section 18. Provisional assessment of duty. — (1) Notwithstanding anything contained in this Act but without prejudice to the provisions of Section 46 and Section 50, — (a) where the importer or exporter is unable to make self-assessment under sub-section (1) of Section 17 and makes a request in writing to the proper officer for assessment; or (b) where the proper officer deems it necessary to subject any imported goods or export goods to any chemical or other test; or (c) where the importer or exporter has produced all the necessary documents and furnished full information but the proper officer deems it necessary to make further enquiry; or (d) where necessary documents have not been produced or information has not been furnished and the proper officer deems it necessary to make further enquiry, the proper officer may direct that the duty leviable on such goods be assessed provisionally…”
Arguments
Appellant’s Submissions:
- The appellant argued that the customs authorities were not accepting the declared transaction value of the imported aluminum scrap. Instead, they were insisting on a letter of consent from the appellant to pay duty as per their valuation, forcing them to forego their right to provisional assessment under Section 18 of the Customs Act.
- The appellant contended that the customs authorities were discarding the declared transactional value without proper justification and recomputing the value based on a Valuation Alert, which is contrary to Section 14 of the Customs Act.
- The appellant submitted that the authorities were compelling them to waive their right to provisional assessment, which is a statutory right.
- They emphasized that the customs authorities must have “certain reasons” to doubt the declared value, and these reasons must be communicated to the importer.
Respondent’s Submissions:
- The respondents argued that the appellant had given a letter dated 6th March, 2017, agreeing to the valuation done by the customs authorities and had not sought provisional assessment.
- The respondents contended that the Valuation Alerts issued by the Director General of Valuation are meant to guide the field formations in valuation matters and ensure uniform practice.
- The respondents stated that they had contemporaneous import data indicating higher values for aluminum scrap, which justified their rejection of the declared transaction value.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Rejection of Declared Transaction Value |
|
|
| Statutory Rights and Procedures |
|
|
Issues Framed by the Supreme Court
The Supreme Court addressed the following key issues:
- Whether the customs authorities can reject the declared transaction value of imported goods without providing proper justification.
- Whether the customs authorities can compel importers to waive their right to provisional assessment under Section 18 of the Customs Act.
- Whether the customs authorities are required to communicate the reasons for doubting the declared value to the importer.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Whether the customs authorities can reject the declared transaction value of imported goods without providing proper justification. | The Court held that the customs authorities cannot reject the declared transaction value without having “certain reasons” to doubt its truth or accuracy. These reasons must be based on objective criteria and not on mere suspicion. The Court emphasized that the authorities must follow the procedure outlined in Rule 12 of the Customs Valuation Rules, 2007, which requires them to conduct a preliminary inquiry, ask for further information from the importer, and provide reasons for doubting the declared value. |
| Whether the customs authorities can compel importers to waive their right to provisional assessment under Section 18 of the Customs Act. | The Court held that the customs authorities cannot compel importers to waive their right to provisional assessment under Section 18 of the Customs Act. The Court stated that Section 18 provides a statutory right to the importer, and any insistence by the authorities that the importer should forego this right is incorrect. |
| Whether the customs authorities are required to communicate the reasons for doubting the declared value to the importer. | The Court held that the customs authorities are required to communicate the reasons for doubting the declared value to the importer. The Court emphasized that Rule 12(2) of the Customs Valuation Rules, 2007, mandates that the proper officer must intimate to the importer in writing the grounds for doubting the truth or accuracy of the value declared. The Court stated that this mandate cannot be ignored or waived. |
Authorities
The Supreme Court relied on the following authorities:
| Authority | Court | How it was used | Legal Point |
|---|---|---|---|
| Eicher Tractors Limited, Haryana v. Commissioner of Customs, Mumbai [2001] 1 SCC 315 | Supreme Court of India | The Court referred to this case to interpret the meaning of the word ‘payable’ used in Section 14(1) of the Customs Act, 1962. | The word ‘payable’ in Section 14(1) refers to the particular transaction and the payability in respect of ‘the transaction’. It refers to the notional value, albeit the transaction value as declared in the bill of entry plus the amount which has to be added in terms of Rule 10 of the 2007 Rules. |
| Commissioner of Central Excise and Service Tax, Noida v. M/s Sanjivini Non-Ferrous Trading Pvt. Ltd. | Supreme Court of India | The Court relied on this case to interpret the provisions of Section 14 and Rules 3, 4, and 12 of the Customs Valuation Rules, 2007. | The Court reiterated that the Assessing Officer is supposed to act on the basis of the price actually paid and treat the same as the assessable value/transaction value of the goods. The transaction value can be discarded only if there are imports of identical or similar goods at a higher price or if the buyers and sellers are related. Reasons must be given for rejecting the transaction value. |
| Commissioner of Customs, Calcutta v. South India Television (P) Ltd. [2007] 6 SCC 373 | Supreme Court of India | The Court quoted this case to emphasize that the invoice price can be disputed but it is for the Department to prove that the invoice price is incorrect. | When there is no evidence of contemporaneous imports at a higher price, the invoice price is liable to be accepted. |
| Commissioner of Customs vs. Prabhu Dayal Prem Chand [2010] 13 SCC 535 | Supreme Court of India | The Court referred to this case to reject the plea that the Revenue was justified in redetermining the value of brass and copper scrap based on information from London Metal Exchange. | The importer must be confronted with contemporaneous material for enhancing the transaction value. |
| Varsha Plastic Pvt. Ltd. vs. Union of India [2009] 3 SCC 365 | Supreme Court of India | The Court referred to this case to state that Valuation alerts could be relied upon for default valuation computation under the Rules. | Valuation alerts can be relied upon for default valuation computation under the Rules. |
Judgment
| Submission by Parties | Treatment by the Court |
|---|---|
| Appellant’s argument that customs authorities were not accepting the declared transaction value and were forcing them to forego provisional assessment. | The Court agreed with the appellant, stating that the customs authorities cannot reject the declared transaction value without proper justification and cannot force the importer to waive their right to provisional assessment. |
| Respondent’s argument that the appellant had agreed to the valuation by the customs authorities through a letter dated 6th March, 2017. | The Court rejected this argument, stating that the letter was given under coercion and the appellant had previously requested clearance based on the declared transaction value. |
| Respondent’s argument that Valuation Alerts justify the rejection of declared value. | The Court clarified that Valuation Alerts are for guidance and do not override the need for proper assessment based on evidence and adherence to the rules. |
| Respondent’s argument that they had contemporaneous import data indicating higher values for aluminum scrap. | The Court held that such data must be specific and should meet the criteria of “certain reasons” as per Rule 12. The Court found that the order in original did not provide sufficient reasons for rejecting the declared value. |
How each authority was viewed by the Court?
- Eicher Tractors Limited, Haryana v. Commissioner of Customs, Mumbai [2001] 1 SCC 315: The Court used this case to clarify the meaning of “payable” in Section 14(1) of the Customs Act, emphasizing that it refers to the transaction value declared in the bill of entry.
- Commissioner of Central Excise and Service Tax, Noida v. M/s Sanjivini Non-Ferrous Trading Pvt. Ltd.: The Court relied heavily on this case, reiterating that the transaction value should be accepted unless there are clear reasons for rejection and that reasons must be given for rejecting the transaction value.
- Commissioner of Customs, Calcutta v. South India Television (P) Ltd. [2007] 6 SCC 373: The Court cited this case to emphasize that the burden of proof lies with the department to show that the invoice price is incorrect.
- Commissioner of Customs vs. Prabhu Dayal Prem Chand [2010] 13 SCC 535: The Court used this case to highlight that the importer must be confronted with contemporaneous material for enhancing the transaction value.
- Varsha Plastic Pvt. Ltd. vs. Union of India [2009] 3 SCC 365: The Court cited this case to clarify that valuation alerts can be used for default valuation computation but not for arbitrary rejection of declared value.
What weighed in the mind of the Court?
The Supreme Court was primarily concerned with ensuring that the customs authorities adhere to the statutory provisions and rules while assessing the value of imported goods. The Court emphasized the importance of transparency, fairness, and the protection of the importer’s rights. The following points weighed heavily in the mind of the Court:
- Statutory Mandate: The Court stressed that the customs authorities must follow the procedures laid down in Section 14 of the Customs Act and Rule 12 of the Customs Valuation Rules, 2007.
- Reasonable Doubt: The Court clarified that the authorities must have “certain reasons” to doubt the declared transaction value, and these reasons must be objective and based on evidence, not mere suspicion.
- Provisional Assessment: The Court upheld the importer’s right to provisional assessment under Section 18 of the Customs Act, stating that this right cannot be waived or denied by the authorities.
- Transparency and Fairness: The Court emphasized that the authorities must communicate the reasons for doubting the declared value to the importer, ensuring transparency and fairness in the assessment process.
- Coercion: The Court took note of the fact that the letter of consent given by the appellant was under coercion and the authorities cannot compel the waiver of statutory rights.
The Court’s reasoning was driven by the need to protect importers from arbitrary and unfair valuation practices by the customs authorities.
| Sentiment | Percentage |
|---|---|
| Statutory Compliance | 30% |
| Reasonable Doubt | 25% |
| Provisional Assessment | 20% |
| Transparency and Fairness | 15% |
| Coercion | 10% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
Issue: Can customs authorities reject declared transaction value?
Step 1: Does the officer have “reason to doubt” the declared value?
Step 2: If yes, did the officer ask for further information from the importer?
Step 3: If yes, did the officer communicate the reasons for doubt to the importer?
Step 4: If yes, then only the declared value can be rejected and further assessment can be made as per Rules 4 to 9.
The Court emphasized that the customs authorities must follow a step-by-step procedure before rejecting the declared transaction value. This procedure includes having a “reason to doubt,” seeking further information from the importer, and communicating the reasons for doubt. Failure to follow this procedure would render the rejection of the declared value invalid.
The Court also considered the argument that the appellant had agreed to the valuation by the customs authorities through a letter of consent. However, the Court rejected this argument, stating that the letter was given under coercion and the appellant had previously requested clearance based on the declared transaction value. The Court found that the customs authorities had compelled and forced the appellant to furnish the letter, thereby waiving its right to provisional assessment.
The Court also clarified that Valuation Alerts issued by the Director General of Valuation are meant to provide guidance to the field formations but do not override the need for proper assessment based on evidence and adherence to the rules.
The Court’s decision was based on a careful analysis of the relevant legal provisions, the facts of the case, and the need to ensure fairness and transparency in the customs valuation process.
“The mandate to record reasons at the second stage of enquiry is not expressly stipulated, albeit it has been read by us by implication in Rule 12.”
“Formation of opinion regarding reasonable doubt as to the truth or accuracy of the valuation and communication of the said grounds to the importer is mandatory, subterfuge to by-pass and circumvent the statutory mandate is unacceptable.”
“The expression “reason to doubt” as a sequitur would require a different threshold and examination. It cannot be equated with the requirements of positive reasons to believe, for the word ‘doubt’ refers to un-certainty and irresolution reflecting suspicion and apprehension. However, this doubt must be reasonable i.e. have a degree of objectivity and basis/foundation for the suspicion must be based on ‘certain reasons’.”
Key Takeaways
- Customs authorities must have “certain reasons” to doubt the declared transaction value of imported goods. These reasons must be objective and based on evidence.
- Customs authorities cannot compel importers to waive their right to provisional assessment under Section 18 of the Customs Act.
- Customs authorities are required to communicate the reasons for doubting the declared value to the importer in writing.
- Valuation Alerts are meant to provide guidance but do not override the need for proper assessment based on evidence.
- Importers have a right to a fair and transparent valuation process.
- The transaction value declared by the importer should be accepted unless there are clear and valid reasons for rejection.
Directions
The Supreme Court allowed the appeal and quashed the order of assessment dated 7th April, 2017, by issuing a writ of certiorari. The Court clarified that the matter has to be examined on a case-to-case basis, based on the evidence before the authorities, the material placed on record, and the inquiries conducted by the adjudicating authorities.
Development of Law
The ratio decidendi of this case is that the customs authorities must adhere to the statutory provisions and rules while assessing the value of imported goods. The Court clarified that the authorities must have “certain reasons” to doubt the declared transaction value, and these reasons must be objective and based on evidence. The Court also emphasized that the authorities cannot compel importers to waive their right to provisional assessment under Section 18 of the Customs Act. This judgment reinforces the principles of fair and transparent assessment practices, ensuring that importers are not subjected to arbitrary or unfair valuation by the customs authorities. The judgment clarifies the process to be followed by the customs authorities while assessing the value of imported goods.
Conclusion
The Supreme Court’s judgment in Century Metal Recycling vs. Union of India reinforces the importance of adhering to statutory provisions and rules in customs valuation. The Court held that the customs authorities cannot reject the declared transaction value of imported goods without proper justification and cannot compel importers to waive their right to provisional assessment. This judgment provides clarity on the procedure for customs valuation and ensures that importers are treated fairly and transparently. It serves as a crucial reminder to customs authorities to act within the bounds of the law and to respect the rights of importers.
Category
- Customs Law
- Valuation of Goods
- Section 14, Customs Act, 1962
- Section 18, Customs Act, 1962
- Customs Valuation Rules, 2007
- Import and Export
- Imported Goods
- Transaction Value
- Provisional Assessment
- Administrative Law
- Judicial Review
- Statutory Interpretation
- Rule of Law
- Customs Act, 1962
- Section 14, Customs Act, 1962
- Section 18, Customs Act, 1962
FAQ
Q: What is the main issue in the Century Metal Recycling case?
A: The main issue was whether customs authorities can reject the declared transaction value of imported goods without proper justification and compel importers to waive their right to provisional assessment.
Q: What did the Supreme Court decide about the rejection of declared transaction value?
A: The Supreme Court held that customs authorities must have “certain reasons” to doubt the declared transaction value, and these reasons must be objective and based on evidence, not mere suspicion. They must also follow the procedure outlined in Rule 12 of the Customs Valuation Rules, 2007.
Q: Can customs authorities force importers to waive their right to provisional assessment?
A: No, the Supreme Court stated that customs authorities cannot compel importers to waive their right to provisional assessment under Section 18 of the Customs Act.
Q: What are Valuation Alerts, and how should they be used?
A: Valuation Alerts are issued by the Director General of Valuation to guide field formations. They should not be used to override the need for proper assessment based on evidence and adherence to the rules. They can be used for default valuation computation.
Q: What should importers do if they believe their declared transaction value is unfairly rejected?
A: Importers should ensure they have all necessary documents and information to support their declared value. If the customs authorities reject the value, importers should request written reasons for the rejection and insist on their right to provisional assessment under Section 18 of the Customs Act.