ANIL KUMAR ANAND versus COMMISSIONER OF CUSTOMS (PREVENTIVE) on 22 April 2019

[2019] 6 S.C.R. 225

ANIL KUMAR ANAND

v.

COMMISSIONER OF CUSTOMS (PREVENTIVE)

(Civil Appeal No. 3138 of 2018)

APRIL 22, 2019

[SANJAY KISHAN KAUL AND HEMANT GUPTA, JJ.]

Customs Act, 1962 – s.28 – Customs Valuation (Determinationof Value of Imported Goods) Rules, 2007 – rr. 3 to 5, 7 & 9 –Appellant was a regular importer of electric decorative lightingsand in the process of such imports filed a bill of entry for clearanceof electric decorative lightings – Enquiry was initiated to ascertaincorrect value of goods for purposes of customs duty – A show causenotice was issued u/s. 28 of the Act on grounds that appellant didnot declare the brand of imported goods and he imported goodsfrom its related party (M/s. ‘IL’ Ltd., United Kingdom), andundervalued the same with the intention of evading customs duty –Consequent to which, adverse order was passed against the appellantby the authorities under r.7 and r. 9 of the Rules – Appellantscontended that the scheme of rules was not correctly understoodand implemented by the competent authority – Held: Even thoughthe imports were under the brand names ‘Diyas’ and ‘mAntra’, theywere not trademarks of such nature as would make them an exclusiveproduct and there was some mix up in understanding of a trademarkprotection, as the same was compared with ‘patented goods’ –Further, data was available, which could have been utilised to obtainthe pricing for imports from the United Kingdom, of identical goodsor similar goods – There was a fundamental mistake committed inthe manner of implementation of the statutory Rules – Once thestatutory Rules exist and provide for sequential implementation, theassessing authority has no option but to proceed in accordancewith those Rules, in that manner – The concerned authority choseto 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 asequential implementation of the Rules, i.e. that Rules 3 to 5 wouldhave to be exhausted first and only in the eventuality of an inabilityto apply the rules would the assessing authority proceed to impose

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ARules 7 to 9 – Therefore, matter remitted back to the PrincipalCommissioner of Customs to proceed afresh.

Allowing the appeals, the Court

HELD: 1. In substance, there were two grounds for the show cause notice:B

(a) that the appellant, knowingly, did not declare the brandof imported goods, and undervalued the same with the intent ofevading customs duty; (b) that the appellant had imported the branded goods fromCits related party, and had undervalued the same to evade customsduty. [Para 2][229-C-D]

2. In the context of the Rules, it is the submission of theappellant that the factual matrix of the present case shows thatthe twenty one consignments (including the one directly inDquestion) were not imported from one source, but three differentsources. Out of the three different sources, the competentauthority came to the conclusion that the import from UnitedKingdom, from M/s. ‘IL’ Limited, is liable to be construed asimport from a related party. Though this is sought to be disputedby the appellants, but even assuming that to be correct, it wasEcontended that there were imports available from two othersources, from China and Spain. These suppliers are not found tobe 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 allthe goods forming part of the twenty one consignments.F[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 differenceGto the value. In fact, for the import from China, the brand ‘Diyas’had been clearly mentioned. The consignments had been clearedafter physical verification. In effect, the plea was that thetwo brands really do not attract any intrinsic market value.[Para 13][236-C]

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4. It is a submission that the sequential application ofRules, thus, required the valuation to be done in accordance withRules 3 to 5, before proceeding to the subsequent Rules,and it is not a case where valuation was not possible under Rules3 to 5. [Para 14][236-D]

5. First taking note of the fact that electrical decorativelightings, normally, are not highly branded products, exceptionsapart. It does appear that even though the imports were underthe brand names ‘Diyas’ and ‘mAntra’, they were not trademarksof such nature as would make them an exclusive product. It alsoappears that there has been some mix up in the understanding ofa trademark protection, as the same has been compared with‘patented goods’. Thus, data was certainly available, which couldhave 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 thatthese were goods where trademark was of significance, it couldnot simultaneously have ignored the imports under the sametrademark, from different countries, where there were no relatedparties. Naturally, there would have to be made adjustments forthe distance from which the import was made, or the size of theconsignment, if applicable, as set out in Rules 3 to 5. There wasreally no occasion to straightaway proceed to determine thetransactional value by relying on Rules 7 to 9. There is no doubtthis principle of sequential application would apply, especially inview of sub-Rule (4) of Rule 3, which provides that there has tobe a sequential implementation of the Rules, i.e., that Rules 3 to5 would have to be exhausted first, and only in the eventuality ofan inability to apply the Rules would the assessing authorityproceed to impose Rules 7 to 9. [Para 19][237-C-E]

7. The result of the aforesaid discussion is that both, theorder of the Principal Commissioner of Customs (Preventive),Customs, New Delhi, dated 30.3.2017, as well as the order of theCESTAT, dated 6.11.2017, are liable to be set aside, and thematter remitted back to the Principal Commissioner of Customs(Preventive) to proceed afresh and thus, it is Rules 3 to 5 which A

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Awould have to be applied first, as it is provided for the Rules toapply “sequentially”. [Para 22][238-F-G]

Collector of Customs, Bombay v. Swastic Woollens (P) Ltd.& Others 1988 Suppl. SCC 796 – referred to.

Case Law Reference

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1988 Suppl. SCC 796referred toPara 20

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3138of 2018.

From the Judgment and Final Order No. 57650/2017 datedC06.11.2017 of the Customs, Excise & Service Tax Appellate Tribunal,New Delhi in Customs Appeal No. 51117 of 2017.

With

Civil Appeal Nos. 3139, 3140 of 2018.

DV. Lakshmikumaran, L. Charanya, Aaditya Bhattacharya, ManishRastogi, Victor Das, Ms. Apeksha Mehta, Punit Dutt Tyagi, Advs. forthe Appellant.

K. Radhakrishna, Sr. Adv., Ms. Aruna Gupta, Ms. Swati Ghildyal(for Mr. B. Krishna Prasad), Advs. for the Respondent.

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The Judgment of the Court was delivered by SANJAY KISHAN KAUL, J.

1. The appellant in CA No.3140/2018, M/s. Diyas Mantra LightingPrivate Limited, as well as its Directors, are aggrieved by the impugnedForder dated 30.3.2017 of the Principal Commissioner of Customs(Preventive), New Delhi, as well as the order of the Customs, Excise &Service Tax Appellate Tribunal (for short ‘CESTAT’) dated 6.11.2017,dismissing the appeal and sustaining the order of the Original Authority,revaluing the import consignments of the appellant, numbering twentyone, for the period from December, 2012 to January, 2015.

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2. The appellant is stated to be a regular importer of electricdecorative lightings, and in the process of such imports, filed a bill ofentry on 21.1.2015 at the ICD, Tughlakabad, New Delhi, for clearanceof electric decorative lightings. These import consignments were of H

brand names ‘Diyas’ and ‘mAntra’, and the enquiry proceeded toascertain whether the goods had been correctly valued for the purposesof customs duty. On completion of the enquiry, proceedings were initiatedfor revaluing the current import consignment, as well as past consignmentswithin the aforesaid window, apart from the proposal for confiscation ofgoods and imposition of penalties under the provisions of the CustomsAct, 1962 (hereinafter referred to as the ‘said Act’). A show causenotice was issued under Section 28 of the said Act, providing for recoveryof duties not levied or short-levied or erroneously refunded, for any reasonother than collusion or any wilful mis-statement or suppression of facts.In substance, there were really two grounds for the show cause notice:

(a) that the appellant, knowingly, did not declare the brand ofimported goods, and undervalued the same with the intent ofevading customs duty; (b) that the appellant had imported the branded goods from itsrelated party, and had undervalued the same to evade customsduty.

3. The aforesaid proceedings, as noticed, resulted in an adverseorder against the appellant by the authorities, resulting in the impositionof differential duty of about Rs.9.53 lakhs for the consignment in question,and around Rs.1.23 crores for the past consignments. The goods wereheld liable for confiscation, and were ordered to be released on paymentof redemption fine, with the levy of Rs.13 lakhs penalty imposed on theDirectors of the appellant (appellants in CA No.3138/2018 & CANo.3139/2018). A perusal of the order shows that the valuation of thegoods had been made under Rule 7 and Rule 9 of the Customs Valuation(Determination of Value of Imported Goods) Rules, 2007 (hereinafterreferred to as the ‘said Rules’). It is this very method of valuationwhich is sought to be assailed by the appellants on a reasoning that thescheme of the Rules has not been correctly understood and implementedby the competent authority. In order to appreciate the contention of theappellantsin the context of the Rules, we proceed to discuss the schemeof the Rules.

4. It is appropriate to first refer to the definition clauses underRule 2, where, the expressions ‘identical goods’ and ‘similar goods’ aredefined as under:

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A“2. Definitions.-

(1) In these rules, unless the context otherwise requires, -

(d) “identical goods” means imported goods –

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(i) which are same in all respects, including physical characteristics,quality and reputation as the goods being valued except for minordifferences in appearance that do not affect the value of the goods;

(ii) produced in the country in which the goods being valued wereproduced; and C

(iii) produced by the same person who produced the goods, orwhere no such goods are available, goods produced by a differentperson, but shall not include imported goods where engineering,development work, art work, design work, plan or sketchundertaken in India were completed directly or indirectly by theDbuyer on these imported goods free of charge or at a reducedcost for use in connection with the production and sale for exportof these imported goods;”

….….….….

“2. Definitions.-

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(1) In these rules, unless the context otherwise requires, -

(f) “similar goods” means imported goods –

(i) which although not alike in all respects, have like characteristicsand like component materials which enable them to perform thesame functions and to be commercially interchangeable with thegoods being valued having regard to the quality, reputation andthe existence of trade mark; F

(ii) produced in the country in which the goods being valued wereproduced; and G

(iii) produced by the same person who produced the goods beingvalued, or where no such goods are available, goods produced bya different person, but shall not include imported goods whereengineering, development work, art work, design work, plan or H

sketch undertaken in India were completed directly or indirectlyby the buyer on these imported goods free of charge or at areduced cost for use in connection with the production and salefor export of these imported goods;”

5. Rule 3 provides for the value of imported goods to be thetransaction value adjusted in accordance with the provisions of Rule 10.In cases where buyers and sellers are related, as alleged in the presentcase, the transaction value can be accepted if the relationship did notinfluence the price. We reproduce the relevant extracts as under:

“3. Determination of the method of valuation.-

(3) (a) Where the buyer and seller are related, the transactionvalue shall be accepted provided that the examination of thecircumstances of the sale of the imported goods indicate that therelationship did not influence the price, (b) In a sale between related persons, the transaction value shallbe accepted, whenever the importer demonstrates that thedeclared value of the goods being valued, closely approximates toone of the following values ascertained at or about the same time.

(i) the transaction value of identical goods, or of similar goods, insales to unrelated buyers in India;

(ii) the deductive value for identical goods or similar goods;

(iii) the computed value for identical goods or similar goods:

Provided that in applying the values used for comparison, dueaccount shall be taken of demonstrated difference in commerciallevels, quantity levels, adjustments in accordance with theprovisions of rule 10 and cost incurred by the seller in sales inwhich he and the buyer are not related;

(c) substitute values shall not be established under the provisionsof clause (b) of this sub-rule.

-(4) if the value cannot be determined under the provisions of subrule (1), the value shall be determined by proceeding sequentiallythrough rule 4 to 9"

(emphasis supplied)

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6. It is, thus, important to note that Rule 3(4) clearly provides thatthe scheme of Rules 4 to 9 is to operate “sequentially”.

7. Rule 4 deals with the transactional value of identical goods,which reads as under:

“4. Transaction value of identical goods. –

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(1) (a)Subject to the provisions of rule 3, the value of importedgoods shall be the transaction value of identical goods sold forexport to India and imported at or about the same time as thegoods being valued; Provided that such transaction value shall not be the value of thegoods provisionally assessed under section 18 of the CustomsAct, 1962.

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(b) In applying this rule, the transaction value of identical goods ina sale at the same commercial level and in substantially the sameDquantity as the goods being valued shall be used to determine thevalue of imported goods.

(c) Where no sale referred to in clause (b) of sub-rule (1), isfound, the transaction value of identical goods sold at a differentcommercial level or in different quantities or both, adjusted totake account of the difference attributable to commercial level orto the quantity or both, shall be used, provided that such adjustmentsshall be made on the basis of demonstrated evidence which clearlyestablishes the reasonableness and accuracy of the adjustments,whether such adjustment leads to an increase or decrease in thevalue.

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(2) Where the costs and charges referred to in sub-rule (2) ofrule 10 of these rules are included in the transaction value ofidentical goods, an adjustment shall be made, if there are significantdifferences in such costs and charges between the goods beingvalued and the identical goods in question arising from differencesGin distances and means of transport.

(3) In applying this rule, if more than one transaction value ofidentical goods is found, the lowest such value shall be used todetermine the value of imported goods.”

8. The aforesaid Rule envisages that the transaction value ofHidentical goods imported at the same time as the goods valued, can be applied. It is, of course, clarified that they should be substantially of thesame quantity, as there can be variation in pricing, depending on the sizeof the consignment. In case identical goods sold are not found in respectof the same quantity, different quantities of identical goods can be takeninto account, with adjustments made on the basis of demonstrated evidencewhich clearly establishes the reasonableness and accuracies ofadjustment. The difference in distance, having implication on thetransport cost, is another factor mentioned under the Rules. It is lastlyclarified that the lowest of such value is to be used to determine thevalue of the goods.

9. On identical goods not being available, we have to turn to Rule5, which is transaction value of similar goods. Rule 5 reads as under:

“5. Transaction value of similar goods.-

(1) Subject to the provisions of rule 3, the value of imported goodsshall be the transaction value of similar goods sold for export toIndia and imported at or about the same time as the goods beingvalued:

Provided that such transaction value shall not be the value of thegoods provisionally assessed under section 18 of the CustomsAct, 1962.

(2) The provisions of clauses (b) and (c) of sub-rule (1), sub-rule(2) and sub-rule (3), of rule 4 shall, mutatis mutandis, also applyin respect of similar goods.”

10. In case determination is not possible under Rules 3 to 5, thedetermination would have to be made under the provisions of Rule 7 orRule 8, as per Rule 6, provided that, at the request of the importer, theorder of application of Rules 7 and 8 could be reversed. Rule 7 refers toDeductive Value, while Rule 8 refers to Computed Value. The relevantportions of Rule 7 & Rule 8 read as under:

“7. Deductive value.-

(1) Subject to the provisions of rule 3, if the goods being valuedor identical or similar imported goods are sold in India, in thecondition as imported at or about the time at which thedeclaration for determination of value is presented, the value ofimported goods shall be based on the unit price at which theimported goods or identical or similar imported goods are sold in A

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the greatest aggregate quantity to persons who are not relatedto the sellers in India, subject to the following deductions : - xxxxxxxx xxxx xxxx

(2) If neither the imported goods nor identical nor similar importedgoods are sold at or about the same time of importation of thegoods being valued, the value of imported goods shall, subjectotherwise to the provisions of sub-rule (1), be based on the unitprice at which the imported goods or identical or similar importedgoods are sold in India, at the earliest date after importation butbefore the expiry of ninety days after such importation.

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(3) (a) If neither the imported goods nor identical nor similarimported goods are sold in India in the condition as imported,then, the value shall be based on the unit price at which theimported goods, after further processing, are sold in the greatestaggregate quantity to persons who are not related to the sellerin India.

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(b) In such determination, due allowance shall be made for thevalue added by processing and the deductions provided for initems (i) to (iii) of sub-rule (1).”

“8. Computed value.-E

Subject to the provisions of rule 3, the value of imported goodsshall be based on a computed value, which shall consist of thesum of:- (a) the cost or value of materials and fabrication or otherprocessing employed in producing the imported goods; F

(b) an amount for profit and general expenses equal to that usuallyreflected in sales of goods of the same class or kind as thegoods being valued which are made by producers in the countryof exportation for export to India;

(c) the cost or value of all other expenses under sub-rule (2) ofrule 10.”

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11. In order to complete the reference to the Rules, for theirunderstanding, we refer also to Rule 9, which reads as under:

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“9. Residual method.-

(1) Subject to the provisions of rule 3, where the value of importedgoods cannot be determined under the provisions of any of thepreceding rules, the value shall be determined using reasonablemeans consistent with the principles and general provisions ofthese rules and on the basis of data available in India; Provided that the value so determined shall not exceed the priceat which such or like goods are ordinarily sold or offered for salefor delivery at the time and place of importation in the course ofinternational trade, when the seller or buyer has no interest in thebusiness of other and price is the sole consideration for the sale oroffer for sale.

(2) No value shall be determined under the provisions of this ruleon the basis of :-

(i) the selling price in India of the goods produced in India;

(ii) a system which provides for the acceptance for customspurposes of the highest of the two alternative values;

(iii) the price of the goods on the domestic market of the countryof exportation;

(iv) the cost of production other than computed values which havebeen determined for identical or similar goods in accordance withthe provisions of rule 8;

(v) the price of the goods for the export to a country other thanIndia;

(vi) minimum customs values; or

(vii) arbitrary or fictitious values.”

12. In the context of the aforesaid, it is the submission of learnedcounsel for the appellant that the factual matrix of the present caseshows that the twenty one consignments (including the one directly inquestion) were not imported from one source, but three different sources.Out of the three different sources, the competent authority came to theconclusion that the import from United Kingdom, from M/s. InspiredLighting Limited, is liable to be construed as import from a related party.

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AThough this is sought to be disputed by the appellants, but even assumingthat to be correct, it was contended that there were imports availablefrom two other sources, from China and Spain. These suppliers are notfound to be related parties. Thus, the pricing from these two sources,with requisite adjustments for the distance or any other parameter, couldalways be taken as the transactional value for all the goods forming partBof the twenty one consignments.

13. A further explanation offered on behalf of the appellants, inrespect of the second aspect, i.e., non-declaration of the brand ‘Diyas’and ‘mAntra’, pertaining to the consignments in question, was that thebrands were not so well-known as to make a difference to the value. InCfact, for the import from China, the brand ‘Diyas’ had been clearlymentioned. The consignments had been cleared after physical verification.In effect, the plea was that the two brands really do not attract anyintrinsic market value.

14. It is a submission that the sequential application of Rules, thus,Drequired the valuation to be done in accordance with Rules 3 to 5, beforeproceeding to the subsequent Rules, and it is not a case where valuationwas not possible under Rules 3 to 5.

15. As an alternative submission, it was also pleaded that evenwhere identical or similar goods are not available, data is available, ofEthe value of the goods in the National Import Database (‘NIDB’) or theDepartment of Valuation database (‘DOV’).

16. In a nutshell, the submission really is that the valuation waspossible on the basis of import from the other two countries if the brandwas to be given some significance, and in the alternative, if the plea wasFaccepted that the brand was not of any significance, then the other importsfrom the U.K. of the same kind of lights could be taken into consideration.It was clarified that the endeavour was not to compare oranges andapples, but to compare apples of a particular variety with the apples ofthe same variety, i.e., if it was one lamp light, it was to be compared withGone lamp light. In this behalf data was available.

17. We may notice there were certain other pleas advanced,including the plea of limitation, but that is not of much significance forre-determination, on account of the conclusion we are reachinghereinafter.

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18. We must first take note of the fact that electrical decorativelightings, normally, are not highly branded products, exceptions apart. Itdoes appear that even though the imports were under the brand names‘Diyas’ and ‘mAntra’, they were not trademarks of such nature as wouldmake them an exclusive product. It also appears that there has beensome mix up in the understanding of a trademark protection, as the samehas been compared with ‘patented goods’. Thus, data was certainlyavailable, which could have been utilised to obtain the pricing for importsfrom the U.K., of identical goods or similar goods.

19. The irony is that if the competent authority thought that thesewere goods where trademark was of significance, it could notsimultaneously have ignored the imports under the same trademark, fromdifferent countries, where there were no related parties. Naturally, therewould have to be made adjustments for the distance from which theimport was made, or the size of the consignment, if applicable, as set outin Rules 3 to 5. There was really no occasion to straightaway proceedto determine the transactional value by relying on Rules 7 to 9. We haveno doubt this principle of sequential application would apply, especially inview of sub-Rule (4) of Rule 3, which provides that there has to be asequential implementation of the Rules, i.e., that Rules 3 to 5 would haveto be exhausted first, and only in the eventuality of an inability to applythe Rules would the assessing authority proceed to impose Rules 7 to 9.

20. Learned counsel for the respondent did endeavour to persuadeus that since there were concurrent findings, this Court ought not tointerfere, given the scope of appeal before this Court under Section130E(b) of the said Act, and referred to the judgment in Collector ofCustoms, Bombay v. Swastic Woollens (P) Ltd. & Others1, where itwas observed as under:

“9. ...... The decision of such a question of fact must be arrived atwithout ignoring the material and relevant facts and bearing inmind the correct legal principles. Judged by these yardsticks thefinding of the Tribunal in this case is unassailable. We are, however,of the view that if a fact finding authority comes to a conclusionwithin the above parameters honestly and bona fide, the fact thatanother authority be it the Supreme Court or the High Court mayhave a different perspective of that question, in our opinion, is no 1 1988 Suppl. SCC 796

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Aground to interfere with that finding in an appeal from such afinding. In the new scheme of things, the Tribunals have beenentrusted with the authority and the jurisdiction to decide thequestions involving determination of the rate of duty of excise orto the value of goods for purposes of assessment. An appeal hasbeen provided to this Court to oversee that the subordinate tribunalsBact within the law. Merely because another view might be possibleby a competent court of law is no ground for interference underSection 130-E of the Act though in relation to the rate of duty ofcustoms or to the value of goods for purposes of assessment, theamplitude of appeal is unlimited. But because the jurisdiction isCunlimited, there is inherent limitation imposed in such appeals. TheTribunal has not deviated from the path of correct principle andhas considered all the relevant factors. If the Tribunal has actedbona fide with the natural justice by a speaking order, in our opinion,even if superior court feels that another view is possible, that is noground for substitution of that view in exercise of power underDclause (b) of Section 130-E of the Act.”

21. We are, however, not persuaded by this argument becausethere appears to be a fundamental mistake committed in the manner ofimplementation of the statutory Rules. Once the statutory Rules existand provide for sequential implementation, the assessing authority hasno option but to proceed in accordance with those Rules, in that manner.We did put this squarely to learned senior counsel for the respondent,who really could not persuade us, or give a satisfactory answer as towhy the concerned authority chose to ignore, in the given facts of thecase, Rules 3 to 5, and did not proceed “sequentially”.

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22. The result of the aforesaid discussion is that both, the order ofthe Principal Commissioner of Customs (Preventive), Customs, NewDelhi, dated 30.3.2017, as well as the order of the CESTAT, dated6.11.2017, are liable to be set aside, and the matter remitted back to thePrincipal Commissioner of Customs (Preventive), Customs, New Delhi,Gto proceed afresh with the matter in accordance with our observationsaforesaid, and thus, it is Rules 3 to 5 which would have to be appliedfirst, as it is provided for the Rules to apply “sequentially”.

23. We make it clear that since we have not gone into other pleassought to be raised by the appellant, all pleas can be raised by the H

ANIL KUMAR ANAND v. COMMISSIONER OF CUSTOMS(PREVENTIVE) [SANJAY KISHAN KAUL, J.]

appellant, as are available to the appellant in law, and the same will bedealt with on merits.

24. The appeals are accordingly allowed, leaving the parties tobear their own costs.

Ankit Gyan

Appeals allowed.

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