Customs Act, 1962 – s.28 – Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 – rr. 3 to 5, 7 & 9 – Appellant was a regular importer of electric decorative lightings and in the process of such imports filed a bill of entry for clearance of electric decorative lightings – Enquiry was initiated to ascertain correct value of goods for purposes of customs duty – A show cause notice was issued u/s. 28 of the Act on grounds that appellant did not declare the brand of imported goods and he imported goods from its related party (M/s. ‘IL’ Ltd., United Kingdom), and undervalued the same with the intention of evading customs duty – Consequent to which, adverse order was passed against the appellant by the authorities under r.7 and r. 9 of the Rules – Appellants contended that the scheme of rules was not correctly understood and implemented by the competent authority – Held: Even though the imports were under the brand names ‘Diyas’ and ‘mAntra’, they were not trademarks of such nature as would make them an exclusive product and there was some mix up in understanding of a trademark protection, as the same was compared with ‘patented goods’ – Further, data was available, which could have been utilised to obtain the pricing for imports from the United Kingdom, of identical goods or similar goods – There was a fundamental mistake committed in the manner of implementation of the statutory Rules – Once the statutory Rules exist and provide for sequential implementation, the assessing authority has no option but to proceed in accordance with those Rules, in that manner – The concerned authority chose to ignore, in the facts of the case, Rules 3 to 5 and did not proceed ‘sequentially’ – Sub-r.(4) of r.3 provides that there has to be a sequential implementation of the Rules, i.e. that Rules 3 to 5 would have to be exhausted first and only in the eventuality of an inability to apply the rules would the assessing authority proceed to impose Rules 7 to 9 – Therefore, matter remitted back to the Principal Commissioner of Customs to proceed afresh.
Allowing the appeals, the Court
HELD: 1. In substance, there were two grounds for the show cause notice:
(a) that the appellant, knowingly, did not declare the brand of imported goods, and undervalued the same with the intent of evading customs duty;
(b) that the appellant had imported the branded goods from its related party, and had undervalued the same to evade customs duty. [Para 2][229-C-D]
2. In the context of the Rules, it is the submission of the appellant that the factual matrix of the present case shows that the twenty one consignments (including the one directly in question) were not imported from one source, but three different sources. Out of the three different sources, the competent authority came to the conclusion that the import from United Kingdom, from M/s. ‘IL’ Limited, is liable to be construed as import from a related party. Though this is sought to be disputed by the appellants, but even assuming that to be correct, it was contended that there were imports available from two other sources, from China and Spain. These suppliers are not found to be related parties. Thus, the pricing from these two sources, with requisite adjustments for the distance or any other parameter, could always be taken as the transactional value for all the goods forming part of the twenty one consignments. [Para 12][235-G-H; 236-A-B]
3. A further explanation offered on behalf of the appellants, in respect of the second aspect, i.e., non-declaration of the brand ‘Diyas’ and ‘mAntra’, pertaining to the consignments in question, was that the brands were not so well-known as to make a difference to the value. In fact, for the import from China, the brand ‘Diyas’ had been clearly mentioned. The consignments had been cleared after physical verification. In effect, the plea was that the two brands really do not attract any intrinsic market value. [Para 13][236-C]
4. It is a submission that the sequential application of Rules, thus, required the valuation to be done in accordance with Rules 3 to 5, before proceeding to the subsequent Rules, and it is not a case where valuation was not possible under Rules
3 to 5. [Para 14][236-D]
5. First taking note of the fact that electrical decorative lightings, normally, are not highly branded products, exceptions apart. It does appear that even though the imports were under the brand names ‘Diyas’ and ‘mAntra’, they were not trademarks of such nature as would make them an exclusive product. It also appears that there has been some mix up in the understanding of a trademark protection, as the same has been compared with ‘patented goods’. Thus, data was certainly available, which could have been utilised to obtain the pricing for imports from the U.K., of identical goods or similar goods. [Para 18][237-A-B]
6. The irony is that if the competent authority thought that these were goods where trademark was of significance, it could not simultaneously have ignored the imports under the same trademark, from different countries, where there were no related parties. Naturally, there would have to be made adjustments for the distance from which the import was made, or the size of the consignment, if applicable, as set out in Rules 3 to 5. There was really no occasion to straightaway proceed to determine the transactional value by relying on Rules 7 to 9. There is no doubt this principle of sequential application would apply, especially in view of sub-Rule (4) of Rule 3, which provides that there has to be a sequential implementation of the Rules, i.e., that Rules 3 to
5 would have to be exhausted first, and only in the eventuality of an inability to apply the Rules would the assessing authority proceed to impose Rules 7 to 9. [Para 19][237-C-E]
7. The result of the aforesaid discussion is that both, the order of the Principal Commissioner of Customs (Preventive), Customs, New Delhi, dated 30.3.2017, as well as the order of the CESTAT, dated 6.11.2017, are liable to be set aside, and the matter remitted back to the Principal Commissioner of Customs (Preventive) to proceed afresh and thus, it is Rules 3 to 5 which would have to be applied first, as it is provided for the Rules to apply “sequentially”. [Para 22][238-F-G]
Collector of Customs, Bombay v. Swastic Woollens (P) Ltd. & Others 1988 Suppl. SCC 796 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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