Introduction
Ascertaining the valuation for tax purposes is an arduous task. It requires one to traverse the maze of relevant statutory provisions, the detailed rules or regulations which govern the valuation and also account for the judicial observations which have been made interpreting such provisions or otherwise. The same certainly holds true for customs purposes with an added complexity.
In a recent decision in CCE and Service Tax v. Sanjivani Non-Ferrous Trading (P) Ltd.,[1] the Supreme Court has examined the various aspects relating to the customs valuation and enunciated the legal position in vivid detail. The Supreme Court has inter alia set out the limitations of the Customs Officers seeking to enhance the valuation of the imported goods and declared the parameters to be followed for determining the customs valuation particularly when the transaction is between unrelated parties. This decision is examined in this article to cull out the legal position on the subject.
Setting the Context
The valuation for customs purposes is carried out in terms of the stipulations under Section 14 of the Customs Act, 1962. Up to the year 2007, it provided as under;
(1) For the purposes of the Customs Tariff Act, 1975 or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where—
(a) the seller and the buyer have no interest in the business of each other; or
(b) one of them has no interest in the business of the other, and the price is the sole consideration for the sale or offer for sale.…
The Supreme Court consistently interpreted this provision to mean that the actual price of imported goods was irrelevant as the provision involved a deeming fiction in terms of which “the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation” was to be adopted as the valuation for customs purpose. Interpreting this provision the Supreme Court in Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs[2] had made the following observations;
- This means that the value of the goods is to be ascertained on the basis of the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation and exportation in the course of international trade. The relevant date would, therefore, be the date of importation or exportation. Shri Mehta has laid stress on the words “ordinarily sold or offered for sale” and has submitted that in view of these words the date of contract is the relevant date. We are unable to agree. 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 course 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. We are, therefore, unable to accept the contention urged by Shri Mehta that the Tribunal has committed any error in proceeding on the basis that value has to be assessed according to the price as on the date of importation and not on the basis of the date of contract. (emphasis supplied)
Expanding the appreciation of this provision further, the Supreme Court in its famous case in Ispat Industries Ltd. v. Commr. of Customs[3] has made the following observations signifying (i) the relevance of the deeming fiction in the statutory provision; (ii) its consequences; and (iii) the irrelevance of the actual contract price of the imported goods;
- From a perusal of the above provisions (quoted above), it is evident that the most important provision for the purpose of valuation of the goods for the purpose of assessment is Section 14 of the Customs Act, 1962. Section 14(1), has already been quoted above, and a perusal of the same shows that the value to be determined is a deemed value and not necessarily the actual value of the goods. Thus, Section 14(1) creates a legal fiction. Section 14(1) states that the value of the imported goods shall be the deemed price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place of importation in the course of international trade. The word “ordinarily” in Section 14(1) is of great importance. In Section 14(1) we are not to see the actual value of the goods, but the value at which such goods or like goods are ordinarily sold or offered for sale for delivery at the time of import. Similarly, the words “in the course of international trade” are also of great importance. We have to see the value of the goods not for each specific transaction, but the ordinary value which it would have in the course of international trade at the time of its import
* * *
- If we read Rule 9(2) of the Rules independently without considering it along with Section 14 of the Act, then of course the submission of the learned counsel for the revenue could be sustained. However, in our opinion, Rule 9(2) has to be read along with Section 14 and it cannot be read independently. As already stated above, Section 14 creates a legal fiction and we have to see the ordinary value of the imported goods in the course of international trade at the place and time of import. This means that specific cases of import should be ignored. In fact, it is for this reason that Rules 4, 5 and 6 of the Rules have been promulgated. The actual price paid for the goods can only be taken into consideration provided the sale is in the ordinary course of trade under fully competitive conditions and the other provisions of Rule 4 are satisfied. (emphasis supplied)
Both the review petition and the curative petition[4] of the Government of India against this judgment in Ispat Industries[5] having been dismissed, the provision was amended by the Finance Act, 2007 to substitute a new provision for customs valuation altogether.
The new customs valuation provision[6] states as under:
(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, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf.… (emphasis supplied)
Thus clearly, as a reading by way of contrast, the provision providing for “deemed value” was substituted to provide for “transaction value” as the basis for carrying out customs valuation. It was the interpretation of this provision which was undertaken by the Supreme Court in Sanjivani[7].
Dispute Before the Supreme Court and its Decision in Sanjivani
In Sanjivani,[8] the party concerned imported various consignments of aluminium waste and scrap across a period of more than one year. The valuation of these imported goods was made on the basis of the “transaction value” i.e. on the basis of the amount paid by the party to the overseas seller. This value was rejected by the Customs Officer and the customs value was reassessed many times over the originally assessed value. This reassessment order was set aside by the High Court in writ petition filed by Sanjivani[9] directing the officer concerned to pass a speaking order.
In the second round of reassessment, the officer concerned again enhanced the customs valuation of the imported goods. This reassessment was sustained by the departmental appellate authority. Thereafter the appeal was filed before the Appellate Tribunal before whom it was inter alia contended that:
- … the price of each variety of aluminium scrap depends on the negotiation between the buyer and the seller and that the price is fixed on the basis of the marked condition, demand and supply, content of aluminium and the expected recovery of aluminium from such scrap.[10]
The Appellate Tribunal accepted the appeal and observed inter alia as under to set aside the outcome of reassessment:
- … Further, we find that as held in the case laws stated above and as provided by Section 14 of the Customs Act, 1962, the assessable value has to be arrived at on the basis of the price which is actually paid and in a case the price is not sole consideration or if the buyers and sellers are related persons then after establishing that the price is not sole consideration the transaction value can be rejected and taking the other evidences into consideration the assessable value can be arrived at. Such exercise has not been done in these cases on hand. Therefore, we reject the enhancement of assessable value in respect of the bills of entry which are involved in all the appeals being decided and we restore the assessable value as declared by the appellant in said bills of entry.[11]
Being aggrieved by the order of the Appellate Tribunal, the Customs Department approached the Supreme Court by way of statutory appeals. Before the Supreme Court the principal contention of the Customs Department was that the statutory provision provided for the transaction value as the basis for customs valuation and therefore it was necessary that all evidences and corroborating material establishing the transaction value was closely examined.
The Customs Department thus found fault with the action of the Appellate Tribunal contending to the effect before the Supreme Court that:
- … if the original authority/assessing officer had failed to examine the evidence that was available with the Department and had not undertaken the exercise regarding price being not the sole consideration, the Tribunal should have remanded the case back to the assessing officer for examining the material and undertaking that exercise. To put it otherwise, … appeals could not have been allowed straightaway by accepting the transaction value given by the respondent-assessee and another opportunity should have been given to the assessing authority in this behalf.[12]
The Supreme Court, however, did not accede to the submissions of the Customs Department. In its view the Appellate Tribunal was right that “the assessable value has to be arrived at on the basis of the price which is actually paid” and thus “the assessing officer is supposed to act on the basis of price which is actually paid and treat the same as assessable value/transaction value of the goods”. The Supreme Court extensively referred to its earlier decisions on the subject[13] to affirm the view adopted by the Appellate Tribunal and dismiss the appeal of the Customs Department.
Critical Analysis of the Supreme Court’s Decision
A number of facets in the Supreme Court’s decision require a critical evaluation. These are discussed in this section.
Firstly, the decision does not seem to factor that there was an amendment in the year 2007 in which the entire provision relating to customs valuation was substituted a new scheme for valuation was provided for. Thereby instead of the “deemed value’’ concept the “transaction value” concept was introduced. Thus, reference to the earlier decisions of the Supreme Court may not have been apposite to delineate the contours of the customs valuation provision as it currently exists.
Secondly, this decision merely confirms the view of the Appellate Tribunal that the transaction value is to be adopted. There can be no two views on this position once the statutory provision itself is cast on such lines. However the decision fails to delineate the factors, the possibility for whose existence is contemplated in the statutory provision itself, whereby the transaction value may be abandoned. Extensive aberrations in the transaction value as contrasted from the value in contemporaneous transactions; intelligence reports and tax analytical solutions hinting at the industry operating on artificial margins, for illustration, are two such factors are fairly regularly employed by the Customs Department in the current dispensation but their relevance has been discussed or enunciated neither by the Appellate Tribunal nor the Supreme Court. These are some crucial ground level issues the relevance of which cannot be underplayed given the massive number of transactions which take place in India’s international trade on a daily basis.
Thirdly, there is no discussion on the depth of the inquiry required to be undertaken by the Customs Officer in order to establish that the transaction value is not reflecting of the correct valuation. Is the inquiry required to merely present prima facie doubts on the transaction value before the burden is shifted upon the party concerned or is the Customs Officer required to go beyond the balance of probabilities test and instead evidentially depict the entire chain of events which may eventually lead to displacement of the transaction value? This is one essentially question which continues to remain unanswered, at least in the context of this decision.
Fourthly, it has been consistently held that the Appellate Tribunal is the last fact-finding authority and to such effect it is conferred with extensive statutory powers[14] to ascertain the correct factual position and decide therein. Thus, assuming that the Appellate Tribunal in this case was correct in not remitting the matter back to the Customs Officer for reconsideration, the decision of the Supreme Court fails to consider that the Appellate Tribunal should in fact have taken upon itself the task of ascertaining the correctness of the prima facie doubts pointed out by the Customs Department to the transaction value in the instant case. It is a different matter to say that there is absolutely no evidence at all and the conclusion of the Customs Officer is based on surmises and conjunctures. However, when there are genuine doubts over the correctness of the transaction value or where the Customs Officer is able to point out the logically acceptable deficiencies in the declarations by the Customs Officer, the legislative obligation of the Appellate Tribunal to ascertain the correct facts cannot be ignored.[15]
Fifthly, the insistence on the contemporaneous values in the decision of the Supreme Court, which is a highlight at multiple parts of the decision, is indeed a confusing reflection. Does it not amount to importing the contours of the statutory provision pre-amendment even though there the legislative intent to such effect does not seem to be manifest. In fact the declaration of the Supreme Court that the value for customs valuation purpose under the amended Section 14 of the Customs Act, 1962 continues to be a “deemed value”[16] appears not to be backed by the statutory scheme as there is no deeming fiction in the current Section 14 unlike the pre-amended Section 14. In any case no reference has been made to the salient features pre and post amendment of the provision so as to highlight the rationale for treating the two provisions alike and with similar consequences.
Conclusion
The decision of the Supreme Court in Sanjivani[17] is perhaps its only decision which adverts to the legislative scheme underlying customs valuation in the context of the current statutory provision. Thus it clearly settles the legal position. Further, the decision is categorical and thus there is no further room for contentions which have already been addressed before the Court in this case. More importantly, the decision is relevant on two counts. Firstly, it highlights the importance of “transaction value” in the customs valuation scheme and transposes it with the concept of “contemporaneous value” in the pre-amended statutory provision. Thus, the Supreme Court has elevated the transaction value, which is essentially a factual inquiry, into a “deemed value” concept, which is pragmatically difficult to reject. Secondly, it enunciates that the burden of displacing the transaction value is on the Customs Department and, the wide powers of the Appellate Tribunal to establish the facts notwithstanding, the Appellate Tribunal would be well within its rights if the Customs Department fails to meaningfully discharge its burden of establishing that the transaction value is not the correct depiction of the real value of the imported goods. In short, the task of the Customs Department is now clearly cut out that it must evidentially demolish the value declared by the importer as the transaction value or give effect to it without demur. Hopefully this decision will lead to reduction in customs valuation disputes given the high level of burden which has been placed on the Customs Department to challenge the transaction value.
† BBA LLB (Hons.) (Double Gold Medalist), National Law University, Jodhpur, LLM, London School of Economics, Advocate, Supreme Court of India.
[3] (2006) 12 SCC 583, 595 & 597.
[4] Curative Petition (C) Nos. 154-157 in RP (C) No. 557 of 2007 in CA Nos. 5921-5924 of 2004.
[6] Inserted with effect from 10-10-2007 vide S. 95 of the Finance Act, 2007.
[7] CCE and Service Tax v. Sanjivani Non-Ferrous Trading (P) Ltd., (2019) 2 SCC 378.
[8] Facts of this case have been noted on the basis of the order of the Appellate Tribunal, as in Sanjivani Non-Ferrous Trading (P) Ltd. v. CCE & Service Tax, 2017 SCC OnLine CESTAT 495 : (2017) 7 GSTL 82.
[9] 2017 SCC OnLine CESTAT 495 : (2017) 7 GSTL 82.
[10] Sanjivani case, 2017 SCC OnLine CESTAT 495 : (2017) 7 GSTL 82.
[11] Sanjivani case, 2017 SCC OnLine CESTAT 495 : (2017) 7 GSTL 82.
[12] CCE and Service Tax v. Sanjivani Non-Ferrous Trading (P) Ltd., (2019) 2 SCC 378, 381, contention of the Customs Department, as noted in para 6 of the Supreme Court decision.
[13] Eicher Tractors Ltd. v. Commr. of Customs, (2001) 1 SCC 315; Commr. of Customs v. South India Television (P) Ltd., (2007) 6 SCC 373; Chaudhary Ship Breakers v. Commr. of Customs, (2010) 10 SCC 576; Commr. of Customs v. Aggarwal Industries Ltd., (2012) 1 SCC 186; Commr. of Customs v. Prabhu Dayal Prem Chand, (2010) 13 SCC 535.
[14] S. 129-C(7) of the Customs Act, 1962 which include power to undertake “discovery and inspection”, “enforcing the attendance of any person and examining him on oath”, “issuing commissions”, etc.
[15] It is not out of place to point out that there have been instances in the past to such effect wherein the Appellate Tribunal has been directed by the Supreme Court to evaluate the evidences and determine correct factual position on the valuation of imported goods. For illustration, see SI2 Micro Systems Ltd. v. CCE and Customs, 2016 SCC Online SC 495; Commr. v. Bhagyanagar Metals Ltd., CCE-Hyderabad-II 2016(333) ELT 395 (Tri-LB); Chaudhary Ship Breakers v. Commr. of Customs, (2010) 10 SCC 576.
[16] Sanjivani case, (2019) 2 SCC 378, para 10 of the Supreme Court decision.