Century Metal Recycling Pvt. Ltd. and Another vs Union of India and Others

Customs Valuation (Determination of Value of Imported Goods) Rules, 2007: r.12 – Rejection of declared value – Essential requirement – Reasonable doubt of proper officer as to transactional value – The proper officer should have reasonable doubt as to the transactional value on account of truth or accuracy of the value declared in relation to the imported goods – Proper officer must ask the importer of such goods, further information which may include documents or evidence – On receiving such information or in the absence of response from the importer, the proper officer has to apply his mind and decide whether or not reasonable doubt as to the truth or accuracy of the value so declared persists – When the proper officer does not have reasonable doubt, the goods are cleared on the declared value – When the doubt persists, sub-rule (1) to r.3 is not applicable and transaction value is determined in terms of rr.4 to 9 of the 2007 Rules – The importer has to be given opportunity of hearing before the proper officer finally decides the transactional value in terms of rr.4 to 9 of the 2007 Rules. Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 – r.12 – Interpretation of – Held: The choice of words deployed in r.12 of the 2007 Rules are significant and of much consequence – The Legislature did not use the expression “reason to believe” or “satisfaction” or such other positive terms as a pre-condition on the part of the proper officer – The expression “reason to believe” which would have required the proper officer to refer to facts and figures to show existence of positive belief on the undervaluation or lower declaration of the transaction value – 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.

Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 – r.18 – Case of appellants that respondentsauthorities discarded the declared transactional value and recomputed the consignment value by compelling the appellant to give a letter of consent to assessment/valuation by custom authorities – Contention of the respondents was predicated on letter of appellants dated 6th March, 2017 that the appellants did not seek provisional assessment of the bill of entry and had accepted and paid duty on the valuation done by the customs authorities – The contention is rejected since this letter exposited the predicament faced by the appellants as it stated that the appellants were in urgent requirement and wanted clearance of the goods – Appellants had earlier also written several letters requesting for clearance of the imported consignment of aluminium scrap on the declared transaction value pointing out therein that on account of delay in the clearance of the imported consignments, the appellants and its sister concern had been compelled to pay excess duty of over Rs.25 crores – Therefore, respondent authorities had compelled and forced the appellant to furnish letter dated 6th March, 2017 thereby waiving of its right to provisional assessment and accepting valuation in terms of rr.4 to 10.

Customs Act, 1962: Valuation Alerts – The Valuation Alerts are issued by the Director General of Valuation based on the monitoring of valuation trends of sensitive commodities with a view to take corrective measures – They provide guidance to the field formation in valuation matters – They help ensure uniform practice, smooth functioning and prevent evasion and short payment of duty – However, they should not be construed as interfering with the discretion of the assessment authority who is required to pass an Assessment Order in the given factual matrix – Declared valuation can be rejected based upon the evidence which qualifies and meets the criteria of ‘certain reasons’ – Besides, the opinion formed must be reasonable – Reference to foreign journals for the price quoted in exchanges etc., to find out the correct international price of concerned goods would be relevant but reliance can be placed on such material only when the adjudicating authority had conducted enquiries and ascertained details with reference to the goods imported which are identical or similar and ‘certain reasons’ exists and justifies detailed investigation – These reasons are to be recorded and if requested disclosed/ communicated to the importer – Valuation alerts could be relied upon for default valuation computation under the Rules.

Allowing the appeal, the Court

HELD : 1.1 The word ‘payable’ used 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. As per Section 14(1) of the Act, value of the imported goods shall be the transactional value of such goods, which means the price actually paid or payable for the goods when sold for export to India where the buyers and sellers are not related and the price fixed is the sole consideration for sale. [Para 7, 9] [655-G-H; 657-B] Commissioner of Central Excise and Service Tax, Noida v. M/s Sanjivini Non-Ferrous Trading Pvt. Ltd. (2019)

2 SCC 378 ; Commissioner of Customs, Calcutta

v. South India Television (P) Ltd. (2007) 6 SCC

373 : [2007] 8 SCR 95 ; Eicher Tractors Limited, Haryana v. Commissioner of Customs, Mumbai (2001)

1 SCC 315 : [2000] 4 Suppl. SCR 597 – relied on.

1.2 Sub-section (2) of Section 14 is a non-obstante provision, which applies notwithstanding sub-section (1), i.e. when the Board has issued a notification in the Official Gazette fixing tariff values for any class of imported or exported goods. The Board has been authorised to issue notifications under Section 14(2) of the Act when it is satisfied that it is necessary or expedient. In the instant case, the Board has not considered it necessary and expedient to issue a notification under Section 14(2) of the Act to fix a tariff for the imported aluminium waste. The second proviso to Section 14(1) deals with different situations, enumerated under the three clauses; (i) when buyers and sellers are deemed to be related;

(ii) when there is no sale, or buyers and sellers are related or the price is not the sole consideration for sale, etc. and (iii) where the proper officer has reason to doubt the truth or accuracy of such value. When the conditions specified in the second proviso are satisfied, the transactional value for the purpose of charging of customs duty is to be made as per rules framed in this behalf. [Paras 10, 11] [657-D-H]

2.1 Rules 3 and 12 of the 2007 Rules i.e. Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 were enacted and enforced with effect from 10 th October, 2007 replacing and superseding the 1988 Rules. Rule 3(1) of the 2007 Rules states that value of the imported goods shall be the transaction value adjusted in accordance with the provisions of Rule 10 of the 2007 Rules. Sub-rule (2) to Rule 3 states that value of the imported goods under sub-rule (1) shall be accepted i.e. accepted by the customs authorities. Rule 11 provides for declaration to be given by the importer or his agent certifying that they had disclosed full and accurate details of the value of the imported goods and any other statement, information and document. Sub-rule (2) states that the declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value after an enquiry in consultation with the importers. [Para 12] [658-A-E]

2.2 Sub-rule (3) to Rule 3 deals with cases when the buyer and seller are related. As per sub-rule (4), where the value cannot be determined under sub-rule (1) to Rule 3, the transaction is to be valued by step wise applying Rules 4 to 9. Rule 4 and 5 deal with transaction value based on identical goods and on similar goods respectively. Rule 6 deals with the determination of value where the transactional value cannot be determined under Rules 3, 4 and 5. Rules 7 and 8 deal with deductive value and computed value respectively. Rule 9 prescribes the residual method for computing the transaction value. Rules 4 to 9 are subject to the provisions of Rule 3 thereby giving primacy to Rule 3 which in turn gives primacy to Rule 12 of the 2007 Rules. Rule 12 uses the expression ‘the proper officer has reason to doubt the truth or accuracy of the value declared in relation to the imported goods’. This expression is distinctly different from the words and preconditions imposed for rejecting the declared transactional value under the repealed Customs Valuation (Determination of Price of Imported Goods) Rules,1988 and the pre-amended Section 14(1) of the Act. Thus, Rule 12, which enjoys primacy and pivotal position, applies where the proper officer has reason to doubt the truth or accuracy of the value declared for the imported goods. It envisages a two-step verification and examination exercise. At the first instance, the proper officer must ask and call upon the importer to furnish further information including documents to justify the declared transactional value. The proper officer may thereafter accept the transactional value as declared. However, where the proper officer is not satisfied and has reasonable doubt about the truth or accuracy of the value so declared, it is deemed that the transactional value of such imported goods cannot be determined under the provision of sub-rule (1) of Rule 3 of the 2007 Rules. Clause-(iii) of Explanation to Rule 12 states that the proper officer can on ‘certain reasons’ raise doubts about the truth or accuracy of declared value. ‘Certain reasons’ would include conditions specified in clauses (a) to (f) i.e. higher value of identical similar goods of comparable quantities in a comparable transaction, abnormal discount or abnormal deduction from ordinary competitive prices, sales involving the special prices, misdeclaration on parameters such as description, quality, quantity, country of origin, year of manufacture or production, nondeclaration of parameters such as brand and grade etc. and fraudulent or manipulated documents. Grounds mentioned in (a) to (f) however are not exhaustive of ‘certain reasons’ to raise doubt about the truth or accuracy of the declared value. Clause

(ii) to Explanation states that the declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value after enquiry in consultation with the importers. Clause-(i) to the Explanation states that Rule 12 does not provide a method of determination of value but provides the procedure or mechanism in cases where declared value can be rejected when there is a reasonable doubt that the declared transaction value does not represent the actual transaction value. In such cases, the transaction value is to be sequentially determined in accordance with Rules 4 to 9 of the 2007 Rules. Sub-rule (2) of Rule 12 stipulates that on request of an importer, the proper officer shall intimate to the importer in writing the grounds, i.e. the reason for doubting the truth or accuracy of the value declared in relation to the imported goods. Further, the proper officer shall provide a reasonable opportunity of being heard to the importer before he makes the valuation in the form of final decision under sub-rule (1). [Paras 7, 13, 14] [655-D-E; 658-F-H; 659-G-H]

3.1 The choice of words deployed in Rule 12 of the 2007 Rules are significant and of much consequence. The Legislature, has not used the expression “reason to believe” or “satisfaction” or such other positive terms as a pre-condition on the part of the proper officer. The expression “reason to believe” which would have required the proper officer to refer to facts and figures to show existence of positive belief on the undervaluation or lower declaration of the transaction value. 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 uncertainty 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’. [Para 17] [661-B-D]

3.2 The expression ‘proof beyond reasonable doubt’ in criminal law requires the prosecution to establish guilt and secure conviction of the accused by proving the charge ‘beyond reasonable doubt’. Proof beyond ‘reasonable doubt’ is certainly not the requirement under proviso to Section 14 of the Act and Rule 12 of the 2007 Rules. In the context of the proviso to Section 14 read with Rule 12 and clause (iii) of Explanation to the 2007 Rules, the doubt must be reasonable and based on ‘certain reasons’. The proper officer must record ‘certain reasons’ specified in (a) to (f) or similar grounds in writing at the second stage before he proceeds to discard the declared value and decides to determine the same by proceeding sequentially in accordance with Rules 4 to 9 of the 2007 Rules. It refers to a doubt which the proper officer possesses even after the importer has been asked to furnish further information including documents and evidence during the preliminary enquiry to clear his doubt about the truth and accuracy of the value declared. Therefore, there has to be a preliminary enquiry by the proper officer in which the importer must be given an opportunity for clarification of the doubts of the officer by furnishing of documents and evidence as to the accuracy or truth of the value declared. It is only in case where the doubt of the proper officer persists after conducting examination of information including documents or on account of non-furnishing of information that the procedure for further investigation and determination of value in terms of Rules 4 to 9 would come into operation and would be applicable. A doubt to justify detailed enquiry under the proviso to Section

14 read with Rule 12 should not be based on initial apprehension, be imaginary or a mere perception not founded on reasonable and ‘certain’ material. Subjecting imports to detailed enquiry on mere suspicion because one is distrustful and unsure without reasonable and certain reasons would be contrary to the scheme and purpose behind the provisions which ensure quick and expeditious clearance of imported goods. [Para 18] [661-G-H; 662-A-E]

Ramakant Rai v. Madan Rai & Ors. (2003) 12 SCC

395 : [2003] 4 Suppl. SCR 17 – relied on.

4. Section 18 of the Act envisages that when there is a dispute between the customs authorities and the importer as regards the valuation of the imported goods, on satisfaction of the conditions enumerated in sub-section (1), the authorities should make provisional assessment of customs duty under Section 18 of the Act. This expedites clearance, pending final adjudication on merits which may take time. This is also the mandate of the Board Circular No.38/2016 dated 22nd August, 2016. Any insistence and compulsion by the authorities that the importer should disclaim and forgo his statutory right under Section 18 of the Act would not be correct. Neither would it be right to reject the valuation as declared by the importer without reasonable doubt for certain reasons. The contention of the respondents predicated on the letter of appellants dated 6 th March, 2017 that the appellants did not seek provisional assessment of the bill of entry and had accepted and paid duty on the valuation done by the customs authorities is rejected. This letter exposits the predicament faced by the appellants as it states that the appellants were in urgent requirement and wanted clearance of the goods. The appellants had earlier written several letters requesting for clearance of the imported consignment of aluminium scrap on the declared transaction value pointing out therein that on account of delay in the clearance of the imported consignments. It is unfortunate and has to be accepted that the respondent authorities had compelled and forced the appellant to furnish the letter dated 6th March, 2017 thereby waiving of its right to provisional assessment and accepting valuation in terms of Rules 4 to 10. [Paras 19, 20] [665-B-F]

5. As per sub Rule (2) of Rule 12, the proper officer when required must intimate to the importer in writing the grounds for doubting the truth or accuracy of the value declared. The said mandate of sub-Rule (2) of Rule 12 cannot be ignored or waived. 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. Formation of belief and recording of reasons as to reasonable doubt and communication of the reasons when required is the only way and manner in which the proper officer in terms of Rule 12 can proceed to make assessment under Rules 4 to 9 after rejecting the transaction value as declared. The mandate to record reasons at the second stage of enquiry is not expressly stipulated, albeit it is read by implication in Rule 12. Being conscious that this mandate if applied to past cases would possibly lead to complications and difficulties, the doctrine of prospective application is invoked with the direction that the past cases will be decided on a case to case basis, depending upon the factual matrix and considerations like whether the importer has asked for ‘certain reasons’, whether the reasons were not communicated, whether ‘certain reasons’ can be deciphered from the assessment/valuation order, whether misdescription or false declaration was apparent, etc. [Paras 20, 21] [665-G-H; 666-A-D]

Commissioner of Customs v. Prabhu Dayal Prem Chand (2010) 13 SCC 535 – relied on.

6. The findings of the order in original in this case was that the appellants had declared value of the aluminium scrap as Rs.81.31 per kg, albeit the contemporaneous import data in the form of different bills of entry had indicated aluminium scrap values between Rs. 83.26 to Rs. 120.897 per kg. The said portion of the order refers to at least four bills of entries declaring assessable value of less than Rs. 85 per kg. The order in original also recorded that the imported goods being aluminium scrap was not a homogeneous commodity and therefore, cannot be evaluated on the basis of the samples or lab testing. Further, the order held that it was very difficult to find any identical/ similar goods imported in India having same chemical and physical composition and that the values of aluminium scrap identical/similar to the imported goods in nature and specification were not available. Without commenting on correctness of the said statements, the aforesaid reasoning for rejection of the transactional value, would not meet the mandate of Section 14 and the Rules. Wherein it was held that the transaction value mentioned in the bill of entry should not be discarded unless there are contrary details of contemporaneous imports or other material indicating and serving as corroborative evidence of import at or near the time of import which would justify rejection of the declared value and enhancement of the price declared in the bill of entry. Therefore, in the facts and circumstances of the present case, it has to be held that the adjudication order in original is flawed and contrary to law for it does not give cogent and good reason in terms of Section 14(1) and Rule 12 for rejection of the transaction value as declared in the bill of entry. The order in original is not in accordance with Section 14 and Rules 3 and

12 as the mandate of these provisions has been ignored. [Paras 23, 24] [666-F-H; 667-A-E]

7. The Valuation Alerts are issued by the Director General of Valuation based on the monitoring of valuation trends of sensitive commodities with a view to take corrective measures. They provide guidance to the field formation in valuation matters. Valuation alerts could be relied upon for default valuation computation under the Rules. [Para 25] [667-F; 668-B] Varsha Plastic Pvt. Ltd. v. Union of India (2009) 3 SCC

365 : [2009] 1 SCR 896 – relied on.