Supreme Court Upholds Transaction Value for Imported Aluminum Scrap: Commissioner of Central Excise vs. Sanjivani Non-Ferrous Trading (2018)

Introduction

Date of the Judgment: December 10, 2018
Citation: [Not Available in Source]
Judges: A.K. Sikri, J. and S. Abdul Nazeer, J.
Can customs authorities reject the declared value of imported goods simply because they believe it is too low? The Supreme Court of India recently addressed this question in a case involving the import of aluminum scrap. The core issue was whether the customs department could reject the transaction value declared by the importer without providing sufficient evidence of comparable imports at higher prices. The judgment was delivered by a bench comprising Justices A.K. Sikri and S. Abdul Nazeer, with the opinion authored by Justice A.K. Sikri.

Case Background

M/s. Sanjivani Non-Ferrous Trading Pvt. Ltd. (the respondent) imported various types of aluminum scrap between August 27, 2013, and December 29, 2014. They filed 843 Bills of Entry, declaring the transaction value of the imported goods for customs duty purposes. The Assessing Officer rejected the declared value, deeming it too low, and reassessed the value by considering the grades of scrap aluminum and the presence of other metals. This led to an increase in the assessable value of the imported goods.

Timeline:

Course of Proceedings

The respondent challenged the assessment order dated March 25, 2015, before the Commissioner (Appeals), Central Excise and Customs, NOIDA, but the appeals were dismissed. The respondent then appealed to the Customs, Excise and Service Tax Appellate Tribunal (Tribunal). The Tribunal allowed the appeals, rejecting the enhanced assessable value imposed by the Assessing Officer and restoring the value declared by the respondent. The Tribunal’s decision was based on the finding that the Assessing Officer had not properly examined the evidence required to justify the enhancement of the assessable value and had not established that the declared price was not the sole consideration for the transaction.

Legal Framework

The core legal provision at play here is Section 14 of the Customs Act, 1962, which deals with the valuation of goods for customs duty. According to Section 14(1) of the Customs Act, 1962, the value of goods is 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. This section also specifies that an ordinary sale is one where the buyer and seller have no interest in each other’s business, and the price is the sole consideration for the sale. Section 14(1-A) of the Customs Act, 1962, states that the value of imported goods shall be determined in accordance with the rules framed in this behalf. The Customs Valuation Rules, particularly Rule 4(1), stipulate that the transaction value, i.e., the price actually paid or payable for the goods, should be accepted as the basis for assessment, unless there are reasons to reject it under Rule 4(2). Rule 4(2) specifies conditions under which the transaction value can be rejected, such as when there are imports of identical or similar goods at a higher price around the same time, or if the buyers and sellers are related.

Arguments

Arguments of the Revenue:

• The Revenue argued that the Tribunal itself noted that the Assessing Officer did not properly examine the evidence available with the department for enhancing the assessable value.
• The Revenue contended that the Tribunal also acknowledged that the Assessing Officer did not undertake the necessary exercise to determine if the price was the sole consideration, as required under Section 14 of the Customs Act, 1962.
• The Revenue submitted that instead of allowing the appeals outright, the Tribunal should have remanded the case back to the Assessing Officer to examine the material and undertake the necessary exercise.

Arguments of the Respondent:

• The respondent argued that the Tribunal correctly applied the principle that the assessable value should be based on the price actually paid, as per Section 14 of the Customs Act, 1962 and relevant case law.
• The respondent contended that the Tribunal rightly held that the declared price could only be rejected with cogent reasons and after establishing that the price was not the sole consideration for the transaction.
• The respondent emphasized that the Assessing Authority had not undertaken the necessary exercise to reject the price declared in the Bills of Entry, making the Order-in-Original erroneous.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the Court was:

1. Whether the Customs, Excise and Service Tax Appellate Tribunal was correct in setting aside the order of the lower authorities and restoring the transaction value declared by the respondent.

Treatment of the Issue by the Court

Authorities

Cases Cited by the Court:

• Eisher Tractors Ltd., Haryana vs. Commissioner of Customs, Mumbai, [(2001) 1 SCC 315] – Supreme Court of India: This case established that customs duty should be assessed on the transaction value unless it falls within the exceptions provided in the rules. The Court emphasized that the price actually paid for a particular transaction should be accepted unless there are specific reasons to reject it.
• Commissioner of Customs, Calcutta vs. South India Television (P) Ltd., [(2007) 6 SCC 373] – Supreme Court of India: This case clarified that value is derived from price and that the invoice price forms the basis of transaction value. It held that the department must provide cogent reasons for rejecting the invoice price, supported by evidence of contemporaneous imports of like goods at higher prices.
• Chaudhary Ship Breakers vs. Commissioner of Customs, Ahmedabad, [(2010) 10 SCC 576] – Supreme Court of India: This case reiterated the principle that the transaction value should be accepted unless there is evidence to the contrary.
• Commissioner of Customs, Vishakhapatnam vs. Aggarwal Industries Ltd., [(2012) 1 SCC 186] – Supreme Court of India: This case further reinforced the importance of accepting the transaction value unless there are valid reasons to reject it.
• Commissioner of Customs vs. Prabhu Dayal Prem Chand, [(2010) 13 SCC 535] – Supreme Court of India: This case dealt with a similar fact situation where the customs department enhanced the price based on information from the London Metal Exchange (LME) without any corroborative evidence of contemporaneous imports. The Court held that such an assessment was not permissible under law.

Legal Provisions Cited by the Court:

• Section 14 of the Customs Act, 1962: This section deals with the valuation of goods for customs duty. It stipulates that the value of goods is 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.
• Rule 4(1) of the Customs Valuation Rules: This rule states that the transaction value, i.e., the price actually paid or payable for the goods, should be accepted as the basis for assessment, unless there are reasons to reject it under Rule 4(2).
• Rule 4(2) of the Customs Valuation Rules: This rule specifies conditions under which the transaction value can be rejected, such as when there are imports of identical or similar goods at a higher price around the same time, or if the buyers and sellers are related.

Judgment

How each authority was viewed by the Court:

• Eisher Tractors Ltd., Haryana vs. Commissioner of Customs, Mumbai [(2001) 1 SCC 315]*: The Court relied on this case to emphasize that the price actually paid for a particular transaction should be accepted unless there are specific reasons to reject it.
• Commissioner of Customs, Calcutta vs. South India Television (P) Ltd. [(2007) 6 SCC 373]*: The Court used this case to reinforce that the invoice price forms the basis of transaction value and that the department must provide cogent reasons for rejecting the invoice price.
• Chaudhary Ship Breakers vs. Commissioner of Customs, Ahmedabad [(2010) 10 SCC 576]*: The Court cited this case to reiterate that the transaction value should be accepted unless there is evidence to the contrary.
• Commissioner of Customs, Vishakhapatnam vs. Aggarwal Industries Ltd. [(2012) 1 SCC 186]*: The Court referred to this case to further reinforce the importance of accepting the transaction value unless there are valid reasons to reject it.
• Commissioner of Customs vs. Prabhu Dayal Prem Chand [(2010) 13 SCC 535]*: The Court used this case to support its decision that the assessment based on LME without corroborative evidence is not permissible.
• Section 14 of the Customs Act, 1962: The Court emphasized that this provision establishes that the value of goods is deemed to be the price at which such goods are ordinarily sold.
• Rule 4(1) of the Customs Valuation Rules: The Court highlighted that this rule stipulates that the transaction value should be accepted as the basis for assessment.
• Rule 4(2) of the Customs Valuation Rules: The Court referred to this rule to explain the conditions under which the transaction value can be rejected.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that the transaction value, i.e., the price actually paid or payable for the goods, should be the basis for assessment unless there are clear and justifiable reasons to reject it. The Court emphasized that the customs authorities cannot arbitrarily reject the declared transaction value without providing concrete evidence of comparable imports at higher prices or establishing that the price was not the sole consideration. The Court’s reasoning was also influenced by the need to ensure that the customs authorities adhere to the legal provisions and precedents, which emphasize the importance of accepting the transaction value declared by the importer unless there is a valid reason to reject it. The Court highlighted that the burden of proof lies on the customs authorities to demonstrate that the declared value is not correct, and this burden cannot be discharged merely by casting suspicion on the declared value.

Logical Reasoning:

The court’s decision was based on the following reasons:

• The basic principle is that the assessable value has to be arrived at on the basis of the price which is actually paid, as provided by Section 14 of the Customs Act, 1962.
• The declared price could be rejected only with cogent reasons by undertaking the exercise as to on what basis the Assessing Authority could hold that the paid price was not the sole consideration of the transaction value.
• The Assessing Authority did not undertake the necessary exercise to reject the price declared in the Bills of Entry, making the Order-in-Original erroneous.

“It is the basic principle enshrined in the aforesaid provision, i.e., Section 14, which can be culled out from the catena of judgments pronounced by this Court.”

“The Tribunal has clearly mentioned that this declared price could be rejected only with cogent reasons by undertaking the exercise as to on what basis the Assessing Authority could hold that the paid price was not the sole consideration of the transaction value.”

“Since there is no such exercise done by the Assessing Authority to reject the price declared in the Bills of Entry, Order-in-Original was, therefore, clearly erroneous.”

Key Takeaways

• Customs authorities must accept the transaction value declared by importers unless they have concrete evidence to reject it.
• The burden of proof lies on the customs authorities to demonstrate that the declared transaction value is incorrect.
• The customs authorities cannot reject the declared value merely based on suspicion or general price lists.
• The authorities must provide cogent reasons, supported by material evidence, for rejecting the declared transaction value.
• The authorities must establish that the price is not the sole consideration for the transaction to reject the declared value.
• This judgment reinforces the importance of adhering to the principles of valuation as laid down in Section 14 of the Customs Act, 1962 and the Customs Valuation Rules.

Directions

No specific directions were given by the Supreme Court in this judgment.

Specific Amendments Analysis

There was no specific amendment discussed in this judgment.

Development of Law

The ratio decidendi of this case is that the transaction value declared by the importer should be accepted as the basis for assessment unless the customs authorities can demonstrate, with proper evidence and reasoning, that the declared value is not correct. This judgment reinforces the principle that the customs authorities must adhere to the statutory provisions and precedents that emphasize the importance of accepting the transaction value unless there is a valid reason to reject it. This case does not introduce any new legal principles but rather reaffirms the existing legal position regarding the valuation of imported goods for customs duty purposes.

Conclusion

The Supreme Court dismissed the appeals filed by the Commissioner of Central Excise and Service Tax, Noida, upholding the decision of the Customs, Excise and Service Tax Appellate Tribunal. The Court reiterated that the transaction value declared by the importer should be accepted unless the customs authorities provide concrete evidence to reject it, emphasizing that the burden of proof lies with the authorities to demonstrate that the declared value is incorrect. This judgment reinforces the importance of adhering to the principles of valuation as laid down in Section 14 of the Customs Act, 1962 and the Customs Valuation Rules, ensuring that the customs authorities do not arbitrarily reject the declared transaction value without proper justification.