General Concept and Definitions

Definitions:

Import with its grammatical variations and cognate expressions, means bringing into India
from a place outside India - 2(23)

imported goods means any goods brought into India from a place outside India but does not
include goods which have been cleared for home consumption 2(25)

India includes the territorial waters of India - 2(27)

Indian Customs Waters means the waters extending into the sea upto the limit of contiguous
zone of India under section 5 of the Territorial Waters Continental Shelf, Exclusive Economic
Zone and other Maritime Zones Act, 1976 and includes any bay, gulf, harbour, creek or tidal
river 2(28) jurisdiction of the Act

Goods includes-

(a) vessels, aircrafts and vehicles;

(b) stores;

(c) baggage;

(d) currency and negotiable instruments; and

(e) any other kind of movable property 2(22)

Bill of Entry means a Bill of Entry referred to in Section 46 -2(4)

Levy of duty

Section 12. Dutiable goods

(1) Except as otherwise provided in this Act, or any law for the time being in force, duties
of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975
or any other law for the time being in force, on goods imported into, or exported from, India

India is presently following the provisions of the WTO Agreement on Customs Valuation
(ACV) for determination of value on imported goods where Customs duty is levied with
reference to value (ad-valorem rates).

India is a founding Member of the GATT (presently WTO) and was actively involved in the
GATT negotiations (Tokyo Round, 1973-79), which developed the Agreement on Customs
Valuation (ACV). India implemented the ACV in August 1988.
A common valuation law at international level applies only to imported goods and its basic
principles are laid down in Article VII of General Agreement on Tariffs and Trade (GATT),
1948, currently known as GATT 1994 (administered by the World Trade organization, WTO).

The Indian valuation law under Section 14(1) of the Indian Customs Act is based on the
principles of Article VII of the GATT.

The Agreement on Customs Valuation (ACV), which came into force on 1st January 1981,
lays down well defined methods of valuation to be strictly followed so as to ensure uniformity
and certainty in valuation approach and to avoid arbitrariness.

Section 2(41) of the Customs Act, 1962 defines Value in relation to any goods to mean the
value thereof determined in accordance with the provisions of sub-section (1) of Section 14
thereof.

Section 14

- (1) For the purposes of the Customs Tariff Act, 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 goods are not related and price is the sole
consideration for the sale subject to conditions as may be specified in the rules made in this
behalf

Provided that such transaction value shall include, in addition to the price, any amount paid or
payable for

costs and services, including commissions and brokerage, engineering, design work, royalties
and licence fees, costs of transportation to the place of importation, insurance, loading,
unloading and handling charges to the extent and in the manner specified in the rules in this
behalf

Provided further that the rules in this behalf may provide for:

The circumstances in which the buyer and seller are deemed to be related

The manner of determination of value when there is no sale or the buyer and seller are related
or price is not the sole consideration for sale or in any other case, the manner and acceptance
or rejection of value declared by the importer or exporter, where the proper officer has reason
to doubt the truth and accuracy of of such value, and determination of value for the purpose of
this section.
Provided also that such price shall be calculated with reference to the rate of exchanges as in
force on the date on which a bill of entry is presented under section 46, or a shipping bill or bill
of export, as the case may be, is presented under section 50;

(2) Notwithstanding anything contained in sub-section (1), if the Board is satisfied that it is
necessary or expedient so to do it may, by notification in the Official Gazette,

fix tariff values for any class of imported goods or export goods, having regard to the trend of
value of such or like goods, and where any such tariff values are fixed, the duty shall be
chargeable with reference to such tariff value.

Explanation - For the purposes of this section-

(a) "rate of exchange" means the rate of exchange-

(i) determined by the Board , or

(ii) ascertained in such manner as the Board may direct, for the

conversion of Indian currency into foreign currency of foreign currency into Indian currency;

(b) foreign currency" and "Indian currency" have the meanings respectively assigned to them
in the Foreign Exchange Management Act, 1999

In Re: The Bill To Amend The Sea Customs Act.

1964 3 SCR 787

The main question, on this reference by the President of India under Art.143(1) of the
Constitution depends upon the true scope and interpretation of Art. 289. of the Constitution
relating to the immunity of States from Union taxation.

The reference is in these terms :

" It is proposed to amend Customs Act so as to levy customs duties on import or export , in
respect of all goods belonging to the Government of a State and used for the purposes of a trade
or business of any kind carried on by, or on behalf of, that Government, or of any operations
connected with such trade or business as they apply in respect of goods not belonging to any
Government;

It is also proposed to amend Section 3 of the Central Excises and Salt Act, 1944 so as to levy
of duties of excise on all excisable goods which are produced or manufactured in India , on
behalf of, the Government of a State and used for the purposes of a trade or business of any
kind carried on by, or on behalf of, that Government, or of any operations connected with such
trade or business as they apply in respect of goods which are not produced or manufactured by
any Government;

Governments of certain States have expressed the view that the amendments as proposed in
the said draft of the Bill may not be constitutionally valid as the provisions of article 289. read
with the definitions of 'taxation' and 'tax' in clause (28) of article 366 of the Constitution of
India preclude the Union from imposing or authorising the imposition of any tax, including
customs duties and excise duties; or in relation to any property of a State ;

Government of India is on the other hand is of the view that -

(i) that the exemption from Union taxation granted by clause (1) of article 289 is
restricted to Union taxes on the property of a State and does not extend to Union
taxes in relation to the property of a State.

(ii) that customs duties are taxes on the import or export of property and not taxes on
property as such and further that excise duties are taxes on the production or manufacture
of property and not taxes on property as such; and

(iii) that the union is not precluded by the provisions of article 289 of the Constitution of India
from imposing or authorising the imposition of customs duties on the import or export of the
property of a State and other Union taxes on the property of a State which are not taxes on
property as such;

In exercise of the powers conferred by clause (1) of article 143 of the Constitution of India,
President of India, hereby refer the following question to the Supreme Court of India for
consideration and report of its opinion thereon;

"(1) Do the provisions of article 289. of the Constitution preclude the Union from imposing, or
authorising the imposition of, customs duties on the import or export of the property of a State
?

(2) Do the provisions of article 289 of the Constitution of India preclude the Union from
imposing, or authorising the imposition of, excise duties on the production or manufacture in
India of the property of a State ?

(3) Will the proposed amendments in the Customs Act and Central Excise Act be inconsistent
with the provisions of article 289. of the Constitution of India ?"

Contentions of the Union.

That clause (1) of Art. 289. properly interpreted would mean that the immunity from taxation
granted by the Constitution to the States is only in respect of tax on property and on income,
and that the immunity does not extend to all taxes; the clause should not be interpreted so as to
include taxation in relation to property; a tax by way of import or export duty is not a tax on
property but is on the fact of importing or exporting goods into or out of the country; similarly,
an excise duty is not a tax on property but is a tax on production or manufacture of goods;

In essence import or export duties or excise duty re not taxes on property, including goods, as
such, but on the happening of a certain event in relation to goods, namely, import or export of
goods or production or manufacture of goods; the true meaning of Art. 289. is to be derived
not only from its language but also from the scheme of the Indian Constitution distributing
powers of taxation between the Union and the States in and the context of those provisions;
 Parliament has exclusive power to make laws with respect to trade and commerce with foreign
countries and with respect to duties of customs, including export duties and duties of excise on
certain goods manufactured or produced in India, the Union is competent to impose or to
authorise the imposition of custom duties on the import or export of goods by a State which
may be its property or excise duty on the production or manufacture of goods by a State; if
clause (1) of Art. 289. were to be interpreted as including the exemption of a State in respect
of customs duties or excise duty, it will amount to a restriction on the exclusive competence of
Parliament to make laws with respect to trade and commerce - a restriction which is not
warranted in view of the scheme of the Constitution;

Contention of the States.

While interpreting Art. 289. of the Constitution, it has to be borne in mind that our Constitution
does not make a distinction between direct and indirect taxation;

that trade and commerce and industry have been distributed between the Union and the States;

that the power of taxation is different from the power to regulate trade and commerce;

that the narrower construction of the Article, contended for and on behalf of the Union, will
seriously and adversely affect the activities of the States and their powers under the
Constitution;

that customs duties and duties of excise affect property and are, therefore, within the immunity
granted by Art. 289(1). ; properly construed Art. 289(1). grants complete immunity from all
taxation on any kind of property; and any kind of tax on property or in relation to property is
within the immunity; therefore, the distinction sought to be made on behalf of the Union
between tax on property and tax in relation to property is wholly irrelevant;

Reasoning of the Court.

Whereas the Union is for interpreting clause (1) of Art. 289. in the restricted sense of the
immunity being limited to a direct tax on property and on the income of a State, the States
contend for an all-embracing exemption from Union taxes which have any relation to or impact
on State property and income.

When dealing with the general considerations which should govern the interpretation of Art.
289(1) that the power of the Union would be crippled if Art. 289 is interpreted as exempting
the property of a State from all Union taxes.

Even though the taxes may be collected and levied by the Union, there are provisions in Part
XII of the Constitution for the assignment or distribution of many Union taxes to the States.
There are also provisions for grants-in-aid by the Union from the Consolidated Fund of India
to a State.

In these circumstances it would be in consonance with the scheme of the Constitution relating
to taxation to read Art. 289(1) as laying down that the property and income of a State shall be
exempt from Union taxation on property and income.
The effect of reading the word "all" before the words "Union taxation" would be so serious,
and so crippling to the resources, which the Constitution intended the Union to have, as to make
it impossible to give that intention to the words of clause (1) of Article 289.

On the other hand, the States would not be so seriously affected if we read the words "on
property and income" after the words "Union taxation" in Art. 289(1), for unlike other
Constitutions there is provision in Part XII of our Constitution for assignment or distribution
of taxes levied and collected by the Union to the States and also for grants-in-aid from the
Union to the States, so that the burden which may fall on the States by giving a restrictive
meaning to the words used in clause (1) of Art. 289 would be alleviated to a large extent in
view of the provisions in Part XII of the Constitution for assignment and distribution of taxes
levied by the Union to the States and also for grants-in-aid from the Union to the States.

Art. 289 only exempts taxes directly either on income or on property of a state and is not
concerned with taxes which may indirectly affect income or property.

The contention therefore on behalf of the Union that Article 289 should be read in the
restricted sense of exempting the property or income of a State from taxes directly either on
property or on income as the case may be, is correct.

Referred cases .

Attorney-General of The Province of British Columbia v. The Attorney-General of the

Dominion of Canada (64 Can. S.C.R. 377).

In this case , the question arose whether the Province of British Columbia could import liquors
into Canada for the purposes of sale, pursuant to the provisions of the Government Liquor Act
without payment of customs duties imposed by the Dominion of Canada.

It was argued, that the word "tax" was wide enough to include the imposition of customs duties,
and that the word "property" included property of all kinds.

The answer given by the Dominion was that customs duties did not constitute taxes but were
merely in the nature of regulation of trade and commerce, and secondly, assuming that customs
duties were included in the expression "taxation", they did not constitute taxation on property.
The word "taxation" was not intended to comprehend customs duties inasmuch as the
prohibition on taxation of property of state did not extend as regards the Dominion to indirect
taxation.

The Supreme Court of Canada, held that the import by the Province was liable to pay import
duty to the Dominion. Thus the contention raised on behalf of the Dominion was accepted that
customs duties were not taxes imposed on property as such but were levied on the importation
of certain goods into Canada as a condition of their importation.

This decision of the Supreme Court was challenged before the Privy Council, in Attorney-
General of British Columbia v. Attorney-General of Canada (1924 A.C. 222).
The Privy Council upheld the decision appealed from and held that import duties imposed by
the Dominion upon alcoholic liquors imported into Canada by the Government of British
Columbia for the purposes of trade was valid. The Privy Council based its decision on a
consideration of the whole scheme of the Canadian Constitution under which Dominion had
the power to regulate trade and commerce throughout the Dominion and observed that the he
true solution is to be found in the adaptation of exemption clause to the whole scheme of the
Constitution

Attorney-General of New South Wales v. The Collector of Customs for New South Wales
(1907-8) 5 C.L.R. 818.

In this case an action was brought by the State of New South Wales to recover the amount of
customs duties realised by the Collector of Customs in respect of certain steel rails imported
by the plaintiff from England for use in the construction of the railways of the State. The State
claimed that those rails were not liable to customs duties on the ground that they were the
property of the Government and as such exempt from customs duties by virtue of s. 114 of the
Constitution. The majority of the Court decided that the imposition of customs duties being a
mode of regulating trade and commerce with other countries as well as of exercising the taxing
power, the goods imported by a State Government were subject to the customs laws of the
Commonwealth. They also laid it down that the levying of the duties of customs is not an
imposition of a tax on property within the meaning of s. 114 aforesaid. The Court added that
even if the words of the section were capable of bearing that comprehensive meaning, that was
not the only or necessary meaning and should be rejected as inconsistent with the provisions
of the Constitution conferring upon the Commonwealth exclusive power to impose duties of
customs and to regulate trade and commerce. The levying of customs duties was not within the
comprehension of the expression "imposition of a tax on property" as customs duties were
imposed in respect of goods and in a sense "upon" goods. The Court recognised the legal
position that customs duties are not really taxation upon property but upon operations or
movements of property.

These authorities based on the interpretation of analogous provisions in the Canadian and
Australian Constitutions fully support the contention raised on behalf of the Union that customs
duties are not taxes on property but are imposts by way of conditions or restrictions on the
import and export of goods, in exercise of the Union's exclusive power of regulation of trade
and commerce read along with the power of taxation and that the general words of the
exemption have to be limited in their scope so as not to come into conflict with the power of
the Union to regulate trade and commerce and to impose duties of customs.

The next argument of the States is that , even if Art. 289(1) only exempts the property of the
States from tax directly on property, the levy of excise on goods under item 84 of List I is a tax
on property and therefore no excise can be levied on goods belonging to States and
manufactured by them.

It is further urged that duties of customs including export duties under item 83 of List I are
equally duties on the goods imported or exported and therefore the property of the State must
be exempt under Art. 289(1), both from excise duties and from duties of customs including
export duties.

This raises the question of the nature of duties of excise and customs.

In Amalgamated Coalfields Ltd. v. Union of India the Supreme Court observed as follows :

Excise duty is primarily a duty on the production or manufacture of goods produced or

manufactured within the country. It is an indirect duty which the manufacturer or producer
passes on to the ultimate consumer, that is, ultimate incidence will always be on the consumer.
Therefore, subject always to the legislative competence of the taxing authority, the said tax can
be levied at a convenient stage so long as the character of the impost, that is it is a duty on the
manufacture or production, is not lost. The method of collection does not affect the essence of
the duty, but only relates to the machinery of collection for administrative convenience."

This will show that the taxable event in the case of duties of excise is the manufacture of goods
and the duty is not directly on the goods but on the manufacture thereof. We may in this
connection contrast sales tax which is also imposed with reference to goods sold, where the
taxable event is the act of sale. Therefore, though both excise duty and sales-tax are levied with
reference to goods, the two are very different imposts; in one case the imposition is on the act
of manufacture or production while in the other it is on the act of sale. In neither case therefore
can it be said that the excise duty or sales tax is a tax directly on the goods for in that event
they will really become the same tax. It would thus appear that duties of excise partake of the
nature of indirect taxes as known to standard works on - economics and are to be distinguished
from direct taxes like taxes on property and income.

Similarly in the case of duties of customs including export duties though they are levied with
reference to goods, the taxable event is either the import of goods within the customs barriers
or their export outside the customs barriers. They are also indirect taxes like excise and cannot
be equated with direct taxes on goods themselves.

Imposition of an import duty, by and large, results in a condition which must be fulfilled before
the goods can be brought inside the customs barriers, i.e., before they form part of the mass of
goods within the country. Such a condition is imposed by way of the exercise of the power of
the Union to regulate the manner and terms on which goods may be brought into the country
from a foreign land. Similarly an export duty is a condition precedent to sending goods out of
the country to other lands. It is not a duty on property in the sense of Art. 289(1). Though the
expression "taxation", as defined in Art. 366(28), "includes the imposition of any tax or impost,
whether general or local or special", the amplitude of that definition has to be cut down if the
context otherwise so requires.

The position is that whereas the Union Parliament has been vested with exclusive power to
regulate trade and commerce, both foreign and inter-State (Entries 41 and 42) and with the sole
responsibility of imposing export and import duties and duties of excise, with a view to
regulating trade and commerce and raising revenue, an exception has been engrafted in Art.
289(1) in favour of the States, granting them immunity from certain kinds of Union taxation.
It, therefore, becomes necessary so to construe the provisions of the Constitution as to give full
effect to both, as far as may be.

If it is held that the States are exempt from all taxation in respect of their export or imports, it
is not difficult to imagine a situation where a State might import or export all varieties of things
and thus nullify to a large extent the exclusive power of Parliament to legislate in respect of
those matters. The provisions of Art. 289(1) being in the nature of an exception to the exclusive
field of legislation reserved to Parliament, the exception has to be strictly construed, and
therefore, limited to taxes on property and on income of a State. In other words, the immunity
granted in favour of States has to be restricted to taxes levied directly on property and income.
Therefore, even though import and export duty or duties of excise have reference to goods and
commodities, they are not taxes on property directly and are not within the exemption in Art.
289(1).

Though in the scheme of our Constitution no distinction has been made between direct and
indirect tax. It is true that no such express distinction has been made under our Constitution;
even so taxes in the shape of duties of customs (including export duties) and excise, particularly
with a view to regulating trade and commerce in so far as such matters are within the
competence of Parliament and are covered by various entries in List I , cannot be called taxes
on property; they are imposts with reference to the movement of property by way or import or
export or with reference to production or manufacture of goods. Therefore even though our
Constitution does not make a clear distinction between direct and indirect taxes, there is no
doubt that the exemption provided in Art. 289(1) from Union taxation to property must refer
to what are known to economists as direct taxes on property and not to indirect taxes like duties
of customs and excise which are in their essence trading taxes and not taxes on property.

The contention of the States that a narrower construction of Article 289 would very seriously
and adversely affect activities of the States is not valid . This argument does not take into
account the more serious consequences that would follow if the wider interpretation suggested
on behalf of the States were to be adopted.

For example, a State may decide to embark upon trade and commerce with foreign countries
on a large scale in respect of different commodities. On the interpretation put forward by the
States, the Union Parliament would be powerless to regulate such trade and commerce by the
use of the power of taxation conferred on it by entry 83 of List I, thus largely nullifying the
exclusive power of Parliament to legislate in respect of international trade and commerce,
including the power to tax such trade. Trade and commerce with foreign countries, export and
import across the customs frontriers and inter-State trade and commerce are all within the
exclusive jurisdiction of the Union Parliament.

Article 289 cannot be interpreted in a manner which will lead to such a startling result as to
nullify the exclusive power of Parliament in these matters.

For these reasons given above, it must be held that the immunity granted to the States in
respect of Union taxation does not extend to duties of customs including export duties or duties
of excise
Taxable Event in Customs.

Bharat Surfactants (Pvt.) Ltd., v. Union of India AIR 1989 SC 2054

Customs Act

S.15(1), Proviso - CUSTOMS - Import duty - Rate of - Determination - Relevant date - Import
for home consumption

It is date on which Bill of Entry is presented - Bill of entry, however, presented before date of
entry inwards of vessel - Bill of Entry is deemed to have been presented on date of entry
inwards.

15. Date for determination of rate of duty and tariff valuation of imported goods:

(1) The rate of duty and tariff valuation, if any, applicable to any imported goods, shall be the
rate and valuation in force,-

(a) in the case of goods entered for home consumption , on the date on which a bill of entry in
respect of such is presented under that section;

(b) in the case of goods cleared from a warehouse , on the date on which the goods are actually
removed from the warehouse;

(c) in the case of any other goods, on the date of payment of duty:

Provided that if a bill of entry has been presented before the date of entry inwards of the vessel
or

the arrival of the aircraft by which the goods are imported, the bill of entry shall be deemed to
have been presented on the date of such entry inwards or the arrival, as the case may be.

(2) The provisions of this section shall not apply to baggage and goods imported by post

The petitioners entered into a contract with foreign sellers for the supply of edible oils. The
consignment of edible oils was sent by the ocean going vessel which arrived and registered in
the Port of Bombay on 11 July, 1981.

Port Authorities at Bombay were unable to allot a berth to the vessel, and as she was under
heavy pressure from the parties whose goods she was carrying she left Bombay for Karachi for
unloading other cargo intended for that port.

The vessel set out on its return journey from Karachi and arrived in Bombay port on 23 July
1981 and waited for a berth.

On 4 August, 1981 she was allowed to berth and the Customs Authorities made the" final
entry" on that date.

The petitioners point out that when the vessel made its original journey to Bombay and was
waiting in the waters of the Port , the petitioners presented the Bill of Entry to the Customs
Authorities on 9 July 1981, that the Bill of Entry was accepted by the Import Department and
an order was passed by the Customs Officer on the Bill of Entry on 18 July 1981 directing the
examination of the consignment.

It is stated that the Customs Authorities have imposed customs duty on the import of the edible
oils at the he rate of 150 per cent on the footing that the import was made on 31 July 1981, the
date of "'Inward Entry".

The case of the petitioners is that the rate of duty leviable on the import should be that ruling
on 11 July 1981, when the vessel actually arrived and registered in the Port of Bombay, and
that but for the fact that a berth was not available the vessel would have discharged its cargo at
Bombay and would not have left that Port and proceeded to Karachi to return to Bombay
towards the end of July 1981.

The rate of duty and tariff valuation applicable to the imported goods is governed by Cl. (a) of
S. 15(l). In the case of good,, entered for home consumption under S. 46. it is the date on which
the Bill of Entry in respect of such goods is presented under that section. S. 46 provides that
the importer of any goods shall make entry thereof by presenting to the proper officer a Bill of
Entry for home consumption in the prescribed form, and it is further provided that a Bill of
Entry may be presented at any time after delivery of the Import Manifest or an Import Report.

The Bill of Entry may be presented even before the delivery of such Manifest if the vessel by
which the goods have been shipped for importation into India is expected to arrive within a
week from the date of such presentation.

S. 47 empowers the proper officer, on being satisfied that the goods entered for home
consumption are not prohibited goods and that the importers had paid the import duty assessed
thereon as well as charges in respect of the same, to make an order permitting clearance of the
goods for home consumption.

According to the petitioners, the cargo of edible oil could not be unloaded in Bombay during
the original entry of the ship into the Port for want of an available berth, and it is for no fault
of the petitioners that the vessel had to proceed to Karachi for unloading other cargo.

S. 15, the petitioners contend, is arbitrary and vague and therefore unconstitutional because it
provides no definite standard or norm for determining the rate of duty and tariff valuation and
does not take into account situations which are uncertain and beyond the control of an importer.

The petitioners contend that the rate of customs duty chargeable on the import of goods in India
is the rate in force on the date when the vessel carrying the goods enters the territorial waters
of India.

The petitioners point out that S. 12(l) declares that customs duty will be levied at the rates in
force on goods imported into India, and the expression 'India', they urge, is defined by S. 2(27)
as including the territorial waters of India. In other words, the petitioners contend that when
the vessel entered the territorial waters on 11 July, 1981 the rate of customs duty at 12.5 percent
ruling on that date was is the rate which was attracted to the import.

In any event, the petitioners contend, the rate should not have been more than 42.5 per cent
because that, was the rate of customs duty ruling on 23 July, 1981 when the vessel entered the
port of Bombay.

To preserve the validity of S. 15 the petitioners urge, we must read the expression "the date of
entry inwards" in the proviso to, S. 15(l) as the date on which the vessel enters the territorial
waters of India.

The rate of duty and tariff valuation has to be determined in accordance with S. 15(l) of the
Customs Act.

Under S.15(l)(a), the rate and valuation is the rate and valuation in force on the date on which
the Bill of Entry is presented under S. 46.

According to the proviso, however, if the Bill of Entry has been presented before the entry
inwards of the vessel by which the goods are imported, the Bill of Entry shall be deemed to
have been presented on the date of such entry inwards.

In the present case the Bill of Entry was presented on 9 July, 1981.

Question which arises for consideration is :

What is "the date of entry inwards" of the vessel?

In M/s. Omega Insulated Cable Co. (India) Limited v. The Collector of Customs, the Madras
High Court addressed itself to the question whether the words in S. 15(l)(a) of the Act. viz.
"date of entry inwards of the vessel by which the goods are imported"' mean "the actual entry
of the vessel inwards or the date of entry in the Register kept by the department permitting the
entry inwards of the vessel".

It was held that the date of entry inward for the purpose of S.. 15(l)(a) and the proviso thereto
is the date when the entry is made in the Customs Register.

Held that

"the date of entry inwards of the vessel" is the date recorded as such in the Customs register.

In the present case, "the date of inwards entry" is mentioned as 31 July, 1981. In the absence
of anything else, it may be assumed that the entry was recorded on that date itself.

Accordingly, the rate of import duty and the tariff valuation shall be that in force on 31 July,
1981.

AIR 2000 SUPREME COURT 3448 "Kiran Spinning Mills v. Collector of Customs"
The appellants had, between 4th of April, 1977 and 20th September, 1978 imported acrylic
polyster fibre. The imported articles were placed in the bonded warehouse after they had landed
in India.

3. On 3rd of October, 1978. The Additional Duty of Excise (Textiles and Textile Articles)
Ordinance, 1978 was promulgated which came into force w.e.f. 19th October, 1978. In terms
of the Ordinance articles were charged with an additional duty of excise equal to 10 per cent
of the basic excise duty payable on such articles under the Central Excise and Salt Act, 1944

The articles which were imported by the appellants were cleared from the bonded warehouse
after 4th October, 1978. The Customs Authorities demanded an additional duty at the rate of
10 per cent 'under the aforesaid Ordinance. The appellants paid the amount demanded under
the protest but thereafter filed an application for refund of the amount so paid. After being
unsuccessful before the Authorities under the Act and the Tribunal the appellants have come
up in appeals to the SC.

It is contended by the appellants

that at the time when the goods were imported into India the Ordinance had not been
promulgated and no additional duty of excise was payable on like articles. Thereafter,
additional duty under Section 3 of the Tariff Act could not be imposed.

The contention was that at the time when the goods had landed in India additional duty of
excise was not payable on a similarly manufactured goods in India even if they were placed in
a bonded warehouse in India and, therefore, no additional duty could be charged under the
Excise Act similarly under Section 3 of the Tariff Act, no additional duty should be charged.

Held that

Section 15 of the Customs Act , provides that the rate of duty which will be payable would be
on the day when the goods are removed from the bonded warehouse.

That apart, the SC has held in Sea Customs Act, (1964) 3 SCR 787

that in the case of duty of customs the taxable event is the import of goods within the customs
barriers. In other words, the taxable event occurs when the customs barrier is crossed. In the
case of goods which are in the warehouse the customs barriers would be crossed when they are
sought to be taken out of the customs and brought to the mass of goods in the country.

Admittedly this was done after 4th of October, 1978. As on that day when the goods were so
removed additional duty of excise under the said Ordinance was payable on goods
manufactured after 4th October, 1978

It is not possible to accept the contention that what has to be seen is whether additional duty of
excise was payable at the time when the goods landed in India or they had crossed into the
territorial waters.
Import being complete, when the goods entered the territorial waters is the contention which
has already been rejected by the SC in Union of India v. Apar Private Ltd. : AIR 1999 SC
2515.

The import would be completed only when the goods are to cross the customs barriers and that
is the time when the import duty has to be paid and that is what has been termed by this Court
in In Re : The Bill to amend Section 20 of the Sea Customs Act (1964) 3 SCR 787, as being
the taxable event.

The taxable event, therefore, being the day of crossing of customs barrier, and not on the date
when the goods had landed in India or had entered the territorial waters, we find that on the
date of the taxable event the additional duty of excise was leviable under the said Ordinance
and, therefore, additional duty under Section 3 of the Tariff Act was rightly demanded from
the appellants.

Ratio is

- that import would commence when the goods cross into territorial waters but is
completed only when the goods become part of the mass of goods within the country.

- Taxable event when goods reach customs barriers and that is the time when bill of entry
is filed as per section 15

ALL INDIA GLASS MANUFACTURERS FEDERATION Versus

COLLECTOR OF CUSTOMS. 1991 (55) E.L.T. 5 (S.C.)

Facts

The appellant is a federation of glass manufacturers in India. The Federation entered into a
contract with a Company in Kenya, for supply of soda ash c.i.f. Bombay.

The consignment arrived from Kenya and the goods were cleared on payment of customs duty
from Bombay.

The appellant on distribution of the goods to various members of the federation, received
complaints that the soda ash which had been supplied was of sub-standard quality.

The complaint about damage and deterioration was made long after clearance. The team of
experts examined the goods and confirmed the defects. The customs authorities were not
associated with such inspection.

As per agreement , the sellers paid the compensation on account of the defective goods .

The compensation amount was deducted from the remittance made for the import to the tune
of 1/ 3rd of the earlier contracted amount .
In view of such reduction, the appellant filed a refund application before the Customs
Department .

The Assistant Collector was not satisfied as to the extent of deterioration of the goods before
clearance as provided by Section 22 of the Customs Act and rejected the refund application .

The appeal preferred against the order was rejected by the Collector of Customs on the
reasoning that the damage was discovered after the goods were out of customs control.

The further appeal to the Tribunal was also unsuccessful. The Tribunal held that the alleged
inferior nature of goods was discovered after clearance.

Hence the present appeal to the SC.

The question involved in the present appeal is

whether the appellant is entitled to the refund of customs duty on account of the compensation
given by the seller to the appellant on supply of goods. The appellant who imported the goods
detected defects and the foreign supplier accepted the defects and damages and agreed for
payment of compensation.

Contention of the appellants.

Goods supplied were not in accordance with the contractual specification. The defects being
inherent in nature resulted in diminution in the real value of the goods and what had been
agreed upon by the foreign seller is reduction in price on account of these defects.

The appellant claimed that it would be entitled to refund of customs duty under Section 22 of
the Act for these reasons .

The value to be assessed under Section 14 of the Act is the real price at which goods imported
are ordinarily sold at the time and place of importation and not the price erroneously indicated
by the seller at the time of filing the bill of entry.

The buyer who successfully sets up diminution of price on account of breach of warranty,
which claim is accepted by the seller, can seek refund or adjustment in the customs duty
payable where the duty has been paid erroneously on the full price prior to such diminution.

The claim under Section 22 of the Act would be maintainable where imported goods were
defective and had deteriorated in quality even prior to the import when the assessment has to
be on the basis of the real value of goods.

The appellant claimed that on account of the reduction in the value of the consignment, the
appellant is entitled to refund of customs duty proportionately.

Contention of the Revenue

The duty is leviable on the basis of the value of such or like goods at the time of clearance. It
has not been proved that the alleged defect on account of which the price has been reduced was
present in the goods at the time of clearance.

Some of the defects are such , which could develop due to exposure to moisture etc. during
the period the goods were out of customs.

In any case, the customs were not associated even with the post-clearance examination. Any
alleged reduction in value on the basis of a post-clearance agreement between the buyer and
the supplier on some alleged grounds which the customs had no chance to verify prior to
clearance is fraught with great risks to Revenue.

Terming reasoning of the Revenue as wrong , the appellant submitted that.

Most of the defects were due to non-adherence to specification provided under the contract.
The defects being inherent in character, the appellant could not have known about the same at
the time of clearance of the consignment from customs.

The ground of deterioration of goods was not relevant as the claim for refund was based on the
ground of diminution in value of the goods as the same were not as per the standard contracted
for.

The assessable value of the goods under Section 14 of the Act is the price at which such goods
were actually sold in the course of international trade. It is the real price of the goods actually
imported which is ordinarily the basis for assessable value.

Where goods do not conform to the description or stipulation as to quality or fitness, it is open
to the buyer to treat the defect as a breach of warranty.

It is also open to the buyer to set up against the seller the breach of warranty in diminution of
the price.

It is the diminished price which will be the real price of the goods and not the price claimed by
the buyer initially which is reflected as c.i.f. value on the invoice.

Customs duty paid on the c.i.f. value is a duty paid under mistake of fact. At the time of
clearance of goods, the buyer did not have any knowledge of the defects in the goods. Where
defect which constitutes a breach of warranty and which the buyer elects to treat as a breach of
warranty became apparent and ultimately culminated in diminution of price, it would be open
to the buyer to claim refund of the customs duty paid under mistake of fact.

It is not relevant as to when the defect became apparent to the buyer. The fact that the
documents proving the true and real value of the goods were not in existence at the time when
the goods were cleared from the customs is wholly irrelevant.

Reasoning of the Court

Duties of customs shall be levied under Section 12 at such rate as may be specified under the
Customs Tariff Act or any other law for the time being in force on goods imported into or
exported from India.

Section 14 of the Customs Act provides that 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 in the course of international trade.

Such price shall be calculated with reference to the rate of exchange as in force on the date on
which a bill of entry is presented under Section 46.

The duty is ordinarily chargeable with reference to the tariff value in the case of goods entered
for home consumption on the date on which the bill of entry in respect of such goods is
presented.

Section 22 provides for payment of duty on damaged or deteriorated goods.

It reads as :- Abatement of duty on damaged or deteriorated goods.

22. (1) Where it is shown to the satisfaction of the Assistant Collector of Customs -

(a) that any imported goods had been damaged or had deteriorated at any time before or
during the unloading of the goods in India; or

(b) that any imported goods, other than warehoused goods, had been damaged at any time after
the unloading thereof in India but before their examination under Section 17, on account of any
accident not due to any wilful act, negligence or default of the importer, his employee or agent;
or

(c) that any warehoused goods had been damaged at any time before clearance for home
consumption on account of any accident not due to any wilful act, negligence or default of the
owner, his employee or agent, such goods shall be chargeable to duty in accordance with the
provisions of sub-section (2).

(2) The duty to be charged on the goods referred to in sub-section (1) shall bear the same
proportion to the duty chargeable on the goods before the damage or deterioration which the
value of the damaged or deteriorated goods bears to the value of the goods before the damage
or deterioration.

Where it is shown to the satisfaction of the Assistant Collector that any imported goods have
been lost or destroyed at any time before clearance for home consumption, the Assistant
Collector of Customs shall remit the duty on such goods.

The period of six months has been prescribed under Section 27 to claim refund of duty paid
with protest. Refund is allowed when the Assistant Collector of Customs is satisfied that the
whole or any part of the duty paid should be refunded. No claim for refund of any duty shall
be entertained except in accordance with the provisions of Section 27.

The imported goods unloaded in a customs area remain in the custody of the approved person
until they are cleared for home consumption. Without permission in writing of the appropriate
officer, such goods are not removed or otherwise dealt with.

The importer shall give a declaration as to the truth of the contents of the bill of entry supported
by the invoice. The order permitting clearance of the goods for home consumption is made on
payment of the import duty, if any, assessed.

Thus, under the scheme of the Act, the importer is entitled to clear the goods on payment of
duty assessed and such assessment is to be made with reference to the tariff value of the goods
where tariff values are fixed.

In other cases, the price at which the goods are ordinarily sold for delivery at the time and place
of importation represents the tariff value for the purpose of the assessment.

When the value is assessed on the basis of the invoice and the goods are cleared, the implication
is that no remission is allowed and no abatement has been occasioned.

There is no express provision which enables the proper officer to make a re-assessment for the
purpose of remission on the ground that the goods at the time of their importation or at the time
of the clearance was sub-standard or damaged and the invoice price does not represent the real
value.

It is necessary for the importer to prove to the satisfaction of the proper officer that the goods
at the time of the clearance was chargeable to a lesser or lower duty for any one of the reasons
contained in Sec. 22 which alone provides for abatement of duty

The question of redetermining the value of the imported goods can arise only in a case where
such damage or deterioration before the clearance is proved to the satisfaction of the proper
officer. When there had been no indication of any such condition and the duty has been assessed
on the basis of the invoice value and duty is paid, the assessment would be binding.

The importer on finding the goods cleared and distributed not to his entire satisfaction may
have a claim in contract against the seller for providing sub-standard, damaged or deteriorated
goods for the value in the invoice, and it may be open to the buyer to realize from the seller
such damages as he would in law be entitled to.

That claim for damages cannot have any bearing to the assessment at the time of the clearance.

The price at which the goods had been sold is represented by the invoice price and whatever
amount is realized on subsequent agreement is only by way of compensation as damages.

It cannot be said that the damages thus received represents the difference in price that had been
paid and that ought to have been paid. When the seller had agreed to compensate the buyer for
the quality of the goods imported, the buyer does not get the right to claim abatement of duty
on the assumption that the real price was something less than what has been indicated in the
invoice.

It is admitted case of the appellants that the alleged inferior nature of goods was discovered by
the appellant after clearance. Until the refund application was made, no requisition appears to
have been made to the customs authorities to have the value of the goods re-determined for the
purpose of Section 22.

The correspondence between the appellants and the sellers and their agents could only reveal
that the appellant put forward a claim for compensation on the ground that the goods imported
was of inferior standard. Ultimately the sellers agreed to reimburse the appellants and pay
compensation to the tune of US $ 2,40,000. What appellants have received from the sellers is
compensation for the damage for breach of warranty.

It does not appear that the value was reduced or amount remitted by the appellant was the
reduced value of the goods. The amount was the total compensation extended by the sellers to
the appellants. From the fact of payment of compensation or reimbursement by the sellers it
cannot be taken that at the time and place of importation the goods imported was worth only
the amount stated in the invoice less the compensation paid.

In other words, there is no proof that the real value of the goods at the time and place of
importation was less than what had been entered in the invoice and stated in the Bill of Entry.
So long as examination of the goods had not been made or its value re-assessed to the
satisfaction of the assessing authorities, it cannot be said that duty was charged not on the real
value of the goods but on a higher amount.

What had been estimated is only quantum of damages sustained by the buyers and to that extent
they had been compensated. That arrangement between the buyer and the seller cannot be
linked with the assessment of duty and no claim for abatement of duty under the provisions of
Section 22 or a claim for refund under Section 27 could be legitimately entertained.

Appeal Dismissed.

ASSOCIATED CEMENT COMPANIES LTD. Versus COMMISSIONER OF CUSTOMS

2001 (128) ELT 21 (S.C)

Facts

Leela Ventures are engaged in the business of setting up, operating and maintaining Hotels and
Resorts. For designing the Hotels and Resorts, it engaged a foreign company M/s. Wimberly
Allison Tong & Goo, USA (WAT for short) for providing architectural services including
design development drawings.

In terms of the said agreements entered into with WAT, the appellants received drawings and
diskettes through couriers . The drawings so received were part of technical collaboration
and/or technical know-how and were accompanied by an airway bill and an invoice issued by
the consignor. The courier, in all the cases, declared the drawings with various descriptions
such as drawings, architectural designs etc. The value of these drawings and designs was
declared at a nominal value of one dollar.

According to Leela Ventures one dollar was the correct value because drawings by themselves
have no value, since if the drawings are lost they could be replaced and the loss would merely
be of the cost of paper. The value, declared by the courier was bona fide and was based on the
invoice carried by it. As per the appellants, the declaration by the courier was in accordance
with the accepted practice at that time. At the time of the imports these designs and the diskettes
were cleared at the nominal value declared.

The other appellants in these appeals are also public corporations engaged in the manufacture
of excisable goods. Like Leela Ventures the other appellants also entered into technical
collaboration with leading manufacturers in their own fields abroad. The agreements provided
for exchange of technology in the form of supply of know-how, drawings and designs on media
training by personnel staff and similar other activities.

As a part of fulfilment of the contracts, the contracting parties abroad, from time to time, sent
drawings, designs, etc. In one case these drawings etc. were imported by hand . In all other
cases the drawings etc. were imported through Professional Courier or by post parcels. In each
case only a nominal value was declared at the time of its importation.

According to the Revenue , intelligence gathered by the Directorate of Revenue Intelligence

and Special Valuation Branch, revealed that the appellants had imported drawings, designs
and plans through couriers on remitting the consideration for the same but these had been
cleared without proper declaration and without payment of correct amount of duty.

In view of the omission on the part of the appellants to declare the correct transaction value,
show cause notices were issued asking the appellants as to why: the sum remitted or declared
during investigation as consideration for drawings, designs and plans supplied by their
collaborators should not be taken as transaction value under Section 14 of the Customs Act
read with the Customs Valuation Rules, 1988 as the basis for assessment of goods to customs
duty;

The appellants sent their replies, submitting that what was imported were not goods .

The revenue not being satisfied by their replies insisted on payment of duty assessed thereon
and the same was paid under protest by the appellants.

Against this the appellants have come to the SC .

In their appeals, the appellants urged the following contentions .

(i)Excise duty cannot be levied on the value of ideas as they are not goods;

(ii) Even if what was imported were goods, the valuation of the same has to be nominal;
(iv) the imports through the courier could not be governed by Heading No. 98 of the Customs
Tariff Act.

Issue for consideration.

(i)Whether drawings, diskettes, manual, etc., imported are goods on which excise duty could
be levied

Contention of the Appellants.

(a) The transaction between the appellants and their respective foreign collaborators was
one for transfer of technology. This knowledge or know-how though valuable was intangible.
The technology when transmitted to India on some media does not get converted from an
intangible thing to tangible thing or chattel.

Media is only vehicle for transmission and is wholly incidental to the main transaction. By way
of analogy it was submitted that legal opinions or judgments of Courts when communicated on
legal briefs or as certified copies do not constitute transfer of goods by the counsel to his clients
or by a Court to a litigant.

Reasoning of the Court.

Section 2(22) of the Customs Act defines goods as follows :

Goods includes-

(a) vessels, aircrafts and vehicles;

(b) stores;

(c) baggage;

(d) currency and negotiable instruments; and

(e) any other kind of movable property

The Central Govt. has framed Customs Valuation (Determination of Price of Imported Goods)
Rules, 1988.Under these rules the valuation of imported goods is done.

Rule 3. Determination of the method of valuation.

(i) For the purpose of these rules,the value of imported goods shall be the transaction
value;

Rule 4. Transaction value. - (1) The transaction value of imported goods shall be the price
actually paid or payable for the goods when sold for export to India, adjusted in accordance
with the provisions of these Rules.
Customs Tariff Act provides for the rates at which the customs duty is levied under the Customs
Act, 1962.

Chapter 98 of Customs Tariff Act , inter alia, applies to passengers baggage which states
that on all dutiable articles, imported by a passenger or a member of a crew in his baggage,
customs duty will be paid at the standard rate of duty.

According to Section 12 of the Customs Act, duty is payable on goods imported into India.
The word goods has been defined in Section 2(22) of the Customs Act and it includes in sub-
clause (c) baggage and sub-clause (e) any other kind of movable property. It is clear from
mere reading of the said provision that any movable article brought into India by a passenger
as part of his baggage can make him liable to pay customs duty as per the Customs Tariff Act.

An item which does not fall within sub-clause (a), (b), (c) or (d) of Section 2(22) will be
regarded as coming under Section 2(22) (e) Even though the definition of the goods purports
to be an exclusive one, in effect it is so worded that all tangible movable articles will be the
goods for the purposes of the Act by residuary clause 2(22)(e).

Whether movable article comes as a part of a baggage, or is imported into the country by any
other manner, for the purpose of the Customs Act, the provision of Section 12 would be
attracted. Any media whether in the form of books or computer disks or cassettes which contain
information technology or ideas would necessarily be regarded as goods under the aforesaid
provisions of the Customs Act. These items are movable goods and would be covered by
Section 2(22)(e) of the Customs Act.

The rate at which the customs duty is to be imposed has to be such as may be specified in
the Customs Tariff Act. This is stipulated by Section 12 of the Customs Act. Thus the two Acts
have to be read in conjunction with each other.

Chapter 49 of the Customs Tariff Act relates to printed books, newspapers, pictures and other
products of the printing industry; manuscripts, typescripts and plans.

According to Chapter Note , the term printed also means reproduced by means of a
duplicating machine, produced under the control of a computer, embossed, photographed,
photocopied, or typewritten.

Heading 49.05 pertains to maps and hydrographic or similar charts of all kinds, including
atlases, wall maps, topographic plans and globes.

Heading No. 49.06 specifies plans and drawings for architectural, engineering, industrial,
commercial, topographical or similar purposes, being originals drawn by hand; handwritten
texts; photographic reproductions on sensitised paper and carbon copies of the foregoing.

The residuary Heading No. 49.11 reads as follows:

Other printed matter, including printed pictures and photographs

 Drawings, plans, manuals, etc., specified in Chapter 49 of the Tariff Act are thus statutorily
regarded as goods attracting a specified rate of customs duty on their import into India. There
is no challenge to any of the statutory provisions and reading the two Acts together there can
be no manner of doubt that what has been imported into India by the appellants, through the
courier or otherwise, from their technical collaborators were goods even though the tangible
articles so imported contained information or knowledge for use by the appellants.

In view of the clear provisions of the Customs Act and the Tariff Act, whenever any goods or
movables or tangible articles are imported into this country customs duty is payable. For the
purpose of attracting levy it would be immaterial as to what are the types of goods imported or
what is contained in them or recorded thereon. The contents will be relevant for the purpose of
valuation.

Furthermore the provisions of the Customs Act and the Tariff Act are clear and unambiguous.
Any movable articles, irrespective of what they may be or may contain would be goods as
defined in Section 2(22) of the Customs Act.

It is true that what the appellants had wanted was technical advice or information technology.
Payment was to be made for this intangible asset. But the moment the information or advice is
put on a media, whether paper or diskettes or any other thing, that what is supplied becomes
chattel.

It is in respect of the drawings, designs, etc., which are received that payment is made to the
foreign collaborators. It is these papers or diskettes, etc., containing the technological advice,
which are paid for and used. The foreign collaborators part with them in lieu of money. It is,
therefore, sold by them as chattel for use by the Indian importer. The drawings, designs,
manuals, etc., so received are goods on which customs duty could be levied.

VALUATION

In support of the contention that even if what was imported were goods on which customs duty
was payable the value thereof should be nominal, it was contended that the levy could only be
on the media on which transfer was made and not on the whole of the intellectual content. in
the present cases only the media on which the know-how was transmitted could be subjected
to duty and its value was only nominal.

Chapter 49 of the Customs Tariff Act also includes items which have substantial intellectual
value as opposed to the value of the paper on which it is put. Newspapers, periodicals, journals,
dictionaries, etc., are to be found in Chapter 49 wherein maps, plans and other similar items
are also included. It is clear that intellectual property when put on a media would be regarded
as an article on the total value of which customs duty is payable.
To put it differently, the legislative intent can easily be gathered by reference to the Customs
Valuation Rules and the specific entries in the Customs Tariff Act. The value of an
encyclopaedia or a dictionary or a magazine is not only the value of the paper.

The value of the paper is in fact negligible as compared to the value or price of an
encyclopaedia. Therefore, the intellectual input in such items greatly enhance the value of the
papers and ink in the aforesaid examples. This means that the charge of a duty is on the final
product whether it be the encyclopaedia or the engineering or architectural drawings or any
manual.

Similar would be the position in the case of a programme of any kind loaded on a disc or a
floppy. For example in the case of music the value of a popular music cassette is several times
more than the value of the blank cassette. However, if a pre-recorded music cassette or a
popular film or a musical score is imported into India duty will necessarily have to be charged
on the value of the final product

In State Bank of India v. Collector of Customs, Bombay [2000 (115) E.L.T. 597 (S.C.) ,the
Bank had, under an agreement with the foreign company, imported a computer software and
manuals, the total value of which was US $ 4,084,475. The bank filed an application for refund
of customs duty on the ground that the basic cost of software was US $ 401,047. While the rest
of the amount of US $ 3,683,428 was payable only as a licence fee for its right to use the
software for the bank countrywide.

The claim for the refund of the customs duty paid on the aforesaid amount of US $ 3,683,428
was rejected by the Supreme Court.

It was held that , on a correct interpretation of Section 14 read with the Custom Valuation
Rules , duty was payable on the transaction value determined therein.

In determining the transaction value there has to be added to the price actually paid or payable
for the imported goods, royalties and the licence fee for which the buyer is required to pay,
directly or indirectly as a condition of sale of goods to the extent that such royalties and fees
are not included in the price actually paid or payable.

This clearly goes to show that when technical material is supplied whether in the form of
drawings or manuals the same are goods liable to customs duty on the transaction value in
respect thereof.

It is misconception to contend that what is being taxed is intellectual input. What is being taxed
under the Customs Act read with Customs Tariff Act and the Customs Valuation Rules is not
the input alone but goods whose value has been enhanced by the said inputs.

The final product at the time of import is either the magazine or the encyclopaedia or the
engineering drawings as the case may be. There is no scope for splitting the engineering
drawing or the encyclopaedia into intellectual input on the one hand and the paper on which it
is scribed on the other.
For example, paintings are also to be taxed. Valuable paintings are worth millions. A painting
or a portrait may be specially commissioned or an article may be tailor made. This aspect is
irrelevant since what is taxed is the final product as defined and it will be an absurdity to
contend that the value for the purposes of duty ought to be the cost of the canvas and the oil
paint even though the composite product, i.e., the painting is worth millions.

It will be appropriate to note that the Customs Valuation Rules, 1988 are framed keeping in
view the GATT protocol and the WTO agreement. In fact our Rules appear to be an exact copy
of the GATT and WTO. For the purpose of valuation under the 1988 Rules the concept of
transaction value which was introduced was based on the aforesaid GATT protocol and WTO
agreement.

The shift from the concept of price of goods, as was classically understood, is clearly
discernible in the new principles. Transaction value may be entirely different from the classic
concept of price of goods. Full meaning has to be given to the rules and the transaction value
may include many items which may not classically have been understood to be part of the sale
price.

The concept that it is only chattel sold as chattel, which can be regarded as goods has no role
to play in the present statutory scheme as the word goods as defined under the Customs Act
, has an inclusive definition taking within its ambit all kinds of property.

The list of goods as prescribed by the law are different items mentioned in various chapters
under the Customs Tariff Act.

Some of these items are clearly items containing intellectual property like designs, plans, etc.

Relying on the judgment in Advent Systems Limited v. Unisys Corporation - 925 F 2d 670
(3d Cir 1991) where it was contended before the Court in United States that software referred
to in the agreement between the parties was a product and not a good but intellectual
property outside the ambit of Uniform Commercial Code. In the said Code, goods were defined
as all things (including specially manufactured goods) which are movable at the time of the
identification for sale.

Holding that computer software was a goods the court held as follows :

Computer programs are the product of an intellectual process, but once implanted in a
medium are widely distributed to computer owners. An analogy can be drawn to a compact
disc recording of an orchestral rendition. The music is produced by the artistry of musicians
and in itself is not a goods, but when transferred to a laser-readable disc becomes a readily
merchantable commodity, Similarly, when a professor delivers a lecture, it is not a goods, but,
when transcribed as a book, it becomes a goods.

Holding that computer software was a goods the court held as follows :

Computer programs are the product of an intellectual process, but once implanted in a
medium are widely distributed to computer owners. An analogy can be drawn to a compact
disc recording of an orchestral rendition. The music is produced by the artistry of musicians
and in itself is not a goods, but when transferred to a laser-readable disc becomes a readily
merchantable commodity, Similarly, when a professor delivers a lecture, it is not a goods, but,
when transcribed as a book, it becomes a goods.

That a computer program may be copyrightable as intellectual property does not alter the fact
that once in the form of a floppy disc or other medium, the program is tangible, moveable and
available in the marketplace. The fact that some programs may be tailored for specific purposes
need not after their status as goods because the Code definition, includes specially
manufactured goods.

We are in agreement with the aforesaid observations and hold that the value of the goods
imported would depend upon the quality of the same and would be represented by the
transaction value in respect of the goods imported.

Appeal Dismissed.

Eicher Tractors v. Commissioner of Customs. "AIR 2001 SC 196

Facts.

Eicher Tractors Ltd. (appellant) manufactures tractors and tractor engines in India.

From 1955 the appellant imported bearings of a specific size for their tractors and tractor
engines from M/s. NTN Corporation, Osaka, Japan.

This 33 year relationship was snapped in 1988 when the Eicher Tractors started utilising
bearings manufactured in India .

The Japanese vendor was left with a stock of the bearings which had been manufactured by it
for the appellant anticipating the appellant's continued demand.

Not finding any customer for the bearings, the NTN offered to sell the leftover stock of
bearings to the appellant at 77% discount.

The appellant found the offer competitive and agreed to buy the bearings from the vendor at
the price offered.

An order was placed by the appellant and the bearings were shipped from Japan and arrived
in India.

The appellant filed the Bill of Entry together with the invoice with the Custom authorities.

The Assistant Commissioner of Customs was not satisfied that the value of the bearings as
declared by the appellant was the value of the bearings for the purposes of levying customs
duty.

He issued a notice to the appellant.

The appellant gave a detailed reply setting out the circumstances under which the NTN has
agreed to supply the bearings at 77% discount.

The Assistant Commissioner noted that the declared price was only 23% of the vendor's list
price and was of the view that the 77 per cent discount allowed to the appellant by the vendor
was not normal.

Therefore such value could not be accepted for the purpose of determining the price of the
bearings under Section 14 of the Customs Act and Rule 4 of the Customs Valuation Rules.

The Assistant Commissioner determined the price of the bearings taking the list price of the
vendor and deducted 30 per cent on account of discount , which, according to the terms of
agency between the vendor and its Indian agent, was the maximum permissible discount
allowable.

The appellant preferred an appeal before the Commissioner of Customs (Appeals).

The Commissioner allowed the appeal.

The Revenue preferred an appeal before the CEGAT.

The CEGAT allowed the appeal of the Revenue accepting the reasoning of the Assistant
Commissioner and held that "specially quoted price was not acceptable in preference to the
ordinary price in the course of international trade"

According to the CEGAT , the ordinary price of the bearings in question was as mentioned in
the vendor's price list.

Against this Eicher Tractors has come in appeal to the Supreme Court.

Statutory Provisions:

Rule 4. Customs Valuation Rules.

Transaction value.

1.The transaction value of imported goods shall be the price actually paid or payable for the
goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of
these rules.

2.The transaction value of imported goods under sub-rule (1) above shall be accepted:

Provided that -

1.there are no restrictions as to the disposition or use of the goods by the buyer other than
restrictions which are imposed or required by law or by the public authorities in India; or

2. limit the geographical area in which the goods may be resold; or

3.do not substantially affect the value of the goods;

2.the sale or price is not subject to same condition or consideration for which a value cannot
be determined in respect of the goods being valued;

3.no part of the proceeds of any subsequent resale,disposal or use of the goods by the buyer
will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in
accordance with the provisions of Rule 9 of these rules; and

4.the buyer and seller are not related, or where the buyer and seller are related, that transaction
value is acceptable for customs purposes under the provisions of sub-rule (3) below.

3. 1. Where the buyer and seller are related, the transaction value shall be accepted provided
that the examination of the circumstances of the sale of the imported goods indicate that the
relationship did not influence the price.

2.In a sale between related persons, the transaction value shall be accepted, whenever the
importer demonstrates that the declared value of the goods being valued, closely approximates
to one of the following values ascertained at or about the same time.

Rule 8.Residual method.

Subject to the provisions of Rule 3 of these rules, where the value of imported goods cannot be
determined under the provisions of any of the preceding rules, the value shall be determined
using reasonable means consistent with the principles and general provisions of these rules and
sub-section (1) of Section 14 of the Customs Act and on the basis of data available in India.

Section 14. Customs Act.

Valuation of goods for purposes of assessment:

(1) For the purposes of the Customs Tariff Act or any other law for the time being in force
where under 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 the seller and the buyer have no interest in
the business of each other and the price is the sole consideration for the sale or offer for sale.

Provided that such price shall be calculated with reference to the rate of exchanges as in force
on the date on which a bill of entry is presented under section 46, or a shipping bill or bill of
export, as the case may be, is presented under section 50;

(1A) Subject to the provisions of sub-section (1), the price referred to in that sub-section in
respect of imported goods shall be determined in accordance with the rules made in this behalf.

(2) Notwithstanding anything contained in sub-section (1),or sub-section(1A) if the Central

Government is satisfied that it is necessary or expedient so to do it may, by notification in the
Official Gazette, fix tariff values for any class of imported goods or export goods, having regard
to the trend of value of such or like goods, and where any such tariff values are fixed, the duty
shall be chargeable with reference to such tariff value.
Contention of Eicher Tractors:

Rule 8 of the Valuation Rules, could not have been relied on by the Assistant Commissioner
without determining the value of the bearings under Rule 4.

It was submitted that giving of discounts was a normal incidence of commerce and given the
circumstances of the case a discount of 77% was perfectly justified.

The reason given by the Assistant Collector for not accepting the actual price paid for the
bearings as the true value of the transaction was erroneous particularly when there was no
allegation of under-valuation

Contention of the Revenue.

That the principle for valuation of imported goods was to be found in Section 14(1) of the Act
which provides for the determination of the value on the basis of the international sale price.

Custom Valuation Rules would have to be read subject to Section 14(1) and that the use of
the words 'price payable" in Rule 4 meant the market value of the goods in international trade.

Though the onus was on the Customs authority to establish the market value of the imported
goods, the Revenue claimed that the onus had been discharged by proof of the vendor's price
list.

Reasoning of the Court.

Under the Customs Act c , duty is chargeable on goods.

According to Section 14(1) of the Act, the assessment of duty is to be made on the value of the
goods. The value may be fixed by the Central Government under Section 14(2).

Where the value is not so fixed, the value has to be determined under Section 14(1). The value,
according to Section 14(1), 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 - in the
course of international trade.

The word "ordinarily" necessarily implies the exclusion of "extraordinary"or"special"

circumstances.

This is clarified by the last phrase in Section 14 which describes an "ordinary" sale as one"
where the seller or the buyer have no interest in the business of each other and the price is the
sole consideration for the sale .........."

Subject to the conditions laid down in Section 14(1) , the price of imported goods is to be
determined in accordance with the rules framed in this behalf.

The rules which have been framed are the Customs, Valuation (Determination of Price of
Imported Goods) Rules, 1988.
 Under Rule 3(i) "the value of imported goods shall be the transaction value". "Transaction
value" has been defined in Rule 2(f) as meaning the value determined in accordance with Rule
4.

Rule 4 (1) states that :

"The transaction value of imported goods shall be the price actually paid or payable for the
goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of
these rules."

Reading Rule 3(i) and Rule 4(1) together it is clear that a mandate has been cast on the custom
authorities to accept the price actually paid or payable for the goods in respect of the goods
under assessment as the transaction value.

But the mandate is not invariable and is subject to certain exceptions specified in Rule 4(2)
namely :

"(a) there are no restrictions as to the disposition or use of the goods by the buyer other than
restrictions which -

(i) are imposed or required by law or by the public authorities in India; or

(ii) limit the geographical area in which the goods may be resold, or

(iii) do not substantially affect the value of the goods;

(b) the sale or price is not subject to same condition or consideration for which a value cannot
be determined in respect of the goods being valued;

(c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer
will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made .

(d) the buyer and seller are not related, or where the buyer and seller are related, that transaction
value is acceptable for customs purposes .

These exceptions are in expansion and explicatory of the special circumstances in Section 14(1)
.

It follows that unless the price actually paid for the particular transaction falls within the
exceptions, the customs authorities are bound to assess the duty on the transaction value.

The Revenue's submission is that the phrase "the transaction value" read in conjunction with
the word "payable " in Rule 4(1) allows determination of the ordinary international value of
the goods to be ascertained on the basis of data other than the price actually paid for the goods.

This would be in keeping with the overriding effect of Section 14(1).

However such a contention cannot be accepted.

It is true that the Custom Valuation Rules are subject to the conditions in Section 14(1).

Rule 4 is in fact directly relatable to Section 14(1).

Both Sections 14(1) and Rule 4 provide that the price paid by an importer to the vendor in the
ordinary course of commerce shall be taken to be value in the absence of any of the special
circumstances indicated in Section 14(1) and particularised in Rule 4(2).

Rule 4(1) speaks of the transaction value.

Utilization of the definite article indicates that what should be accepted as the value for the
purpose of assessment to customs duty is the price actually paid for the particular transaction,
unless of course of the price unacceptable for the reasons set out in Rule 4(2).

"Payable" in the context of the language of Rule 4(1) must, therefore, be read as referring to
"the particular transaction" and payability in respect of the transaction envisages a situation
where payment of price may be deferred.

That Rule 4 is limited to the transaction in question is also supported by the provisions of the
other Rules each of which provide for alternate modes of valuation and allow evidence of value
of goods other than those under assessment to be the basis of the assessable value .

Thus, Rule 5 allows for the transaction value to be determined on the basis of identical goods
imported into India at the same time,

Rule 6 allows for the transaction value to be determined on the value of similar goods imported
into India at the same time as the subject goods.

Where there are no contemporaneous imports into India, the value is to be determined under
Rule 7 by a process of deduction in the manner provided therein.

When value of the imported goods cannot be determined under any of these provisions, the
value is required to be determined under Rule 8 "using reasonable means consistent with the
principles and general provisions of these rules and sub-section (1) of Section 14 of the
Customs Act and on the basis of data available in India.

If the phrase "the transaction value" used in Rule 4 were not limited to the particular transaction
then the other Rules which refer to other transactions and data would become redundant.

It is only when the transaction value under Rule 4 is rejected, then under Rule 3(ii) the value
shall be determined by proceeding sequentially through Rules 5 to 8 of the Rules.

Conversely if the transaction value can be determined under Rule 4(1) and does not fall under
any of the exceptions in Rule 4(2), there is no question of determining the value under the
subsequent Rules.

The Assistant Collector in this case determined the value of the imported goods under Rule 8.
The question is whether he should have determined the transaction value under Rule 4 at the
price actually paid by the appellant for the bearings .

Naturally, if Rule 4 applies to the facts of this case, the Assistant Collector's reasoning under
Rule 8 must by virtue of language of Rule 3(ii), be set aside.

The Assistant Collector appears to have proceeded on the law as it was prior to the 1988 Rules
when 'special considerations' on the basis of which a transaction was held not to be an ordinary
sale in the course of international trade within the meaning of Section 14(1), had not been
statutorily particularized.

As to what would constitute such "special consideration" has been considered in several
decisions of the SC.

A special quotation for the importer singling him out from other importers in India was held
to be a special consideration in Padia Sales Corporation v. Collector of Customs Bombay,
(1993 AIR SCW 2669 : AIR 1993 SC 2411) justifying the rejection of price paid as the
transaction value.

On the other hand in Basant Industries v. Addl. Collector of Customs, Bombay (1995 AIR
SCW 1785), a special quotation for an old and valued customer "was upheld as not being a
special circumstance.

In Sharp Business Machines Pvt. Ltd. , (1991 (1) SCC 154) the importer had wrongly mis-
described the imported goods and sought to defraud the Revenue by attempting to
surreptitiously import items prohibited under the import policy.

It was found that there was justification, in the circumstances,for rejecting the price shown in
the invoice.

The transaction value having been rejected, assessment of value was made on the basis of the
price list of the foreign vendor.

In Mirah Exports Pvt. Ltd. v. Collector of Customs (AIR 1998 SC 928).

Mirah Exports Pvt. Ltd. along with other importers had imported bearings at high rates of
discount.

The declared value was rejected by the Customs authorities on the basis of the price list of the
vendors.

The Supreme Court set aside the decision of the Revenue authorities

The Court accepted the argument that a discount is a recognised feature of international trade
practice and that as long as those discounts are uniformly available to all and based on logical
commercial bases, they cannot be denied under Section 14.

It appears from the judgment that a distinction was drawn between a discounted price special
to a particular customer and discounts available to all customers.
However all these cases dealt with imports made prior to the coming into force of the Rules in
1988.

Now the 'special considerations' are detailed statutorily in Rule 4(2).

In the present case , it is not alleged that the appellant has misdeclared the price actually paid.

Nor was there a misdescription of the goods imported . It is also not the Revenue's case that
the particular import fell within any of the situations enumerated in R. 4(2).

No reason has been given by the Assistant Collector for rejecting the transaction value under
R. 4(1) except the price list of vendor.

In doing so, the Assistant Collector not only ignored R. 4(2) but also acted on the basis of the
vendor's price list as if a price list is invariably proof of the transaction value.

This was erroneous and could not be a reason by itself to reject the transaction value.

A discount is a commercially acceptable measure which may be resorted to by a vendor for a

variety of reasons including stock clearance.

A price list is really no more than a general quotation.

It does not preclude discounts on the listed price.

In fact, a discount is calculated with reference to the price list.

Admittedly in this case discount up to 30% was allowable in ordinary circumstances by the
Indian agent itself.

There was the additional factor that the stock in question was old and it was a one time sale of
5 year old stock.

When a discount is permissible commercially, and there is nothing to show that the same would
not have been offered to any one else wishing to buy the old stock, there is no reason why the
declared value in question was not accepted under R. 4(1).

In the circumstances, production of the price list did not discharge the onus cast on the Customs
authorities to prove that the value of the bearings as declared by the appellant was not the
"ordinary"sale price of the bearings imported.

The decision of the CEGAT accepting the determination of value by the Assistant Collector
cannot, therefore, be sustained.

Accordingly appeal of the Eicher Tractors is allowed.

GARDEN SILK MILLS LTD vs UNION OF INDIA 1999 (113) ELT 358 (S.C.)
The main question which arises in these appeals is whether while assessing customs duty
payable in respect of imported gods, the customs authorities can add/include landing charges
in arriving at the value of those goods.

Facts

The appellants had imported polyester yarn from abroad. The transactions for sale and
purchase between the foreign supplier and the appellant company were in the nature of CIF
contracts i.e. price included costs, insurance and freight charges.

The customs authorities, in determining the value of the goods for the purpose of ascertaining
the amount of duty payable, added to the CIF price the landing charges which were paid to the
Port Trust Authorities. On the payment of the customs duty being made, the goods were cleared
and used by the appellants.

The appellant company then filed writ petitions in the High Court of Gujarat, contending
that the landing charges which were paid at the rate 3/4% of the CIF value of goods had been
wrongly added while arriving at the assessable value of those goods and, therefore, the High
Court should direct a refund of the amount of duty relatable to the landing charges.

The High Court came to the conclusion that the Customs Authorities had rightly added the
landing charges to the CIF value of the goods for the purpose of determining the customs duty
and therefore, no refund was due to the appellants.

Against this, appeals in the SC.

Contention of the appellants

It was contended that under Section 12 of the Act the duty was leviable on goods imported into
India and the value of the goods must be fixed at the time and place of importation.

In the case of C.I.F. contracts, it was contended that the contracts reflect the price for sale in
the course of international trade and for delivery at the time and place of importation, which,
in the case of appellants, was Bombay.

The expressions time and the place of importation must be understood in an ordinary sense.
In commercial world and in international trade, time and place of importation could only mean

(a) the date of import and

(b) the place of import i.e. port of import.

It was submitted that place of importation could not mean wharf, dock, port, quays or the
customs barrier. Similarly the expression delivery, it was contended, had to be construed in
ordinary sense which, in the case of C.I.F. contracts, would mean the port of discharge i.e.
Bombay and not the wharf at the port of Bombay.

According to the appellants the words for delivery at the time and place of importation
occurring in Section 14 of the Act could only mean delivery on the date and the port of
discharge and the price must, therefore, be an ordinarily available price at about the same time
and place of discharge.

It could not be a price anterior or posterior to the point of time when the goods arrived and,
therefore, landing charges which are levied after the delivery of the goods could not be
imposed.

According to Customs Act, 1962 , import with its grammatical variations and cognate
expressions, means into India from a place outside India: 2(23)

India includes the territorial waters of India. 2(27)

It was submitted that reading Section 12 of the Act with Sections 2(23) and 2(27), the import
of goods into India would be completed when they enter the territorial waters of India and it is
the value at that point of time which alone can be taken into consideration for the purposes of
assessing the customs duty.

If this be so, the question of there being any addition of landing charges to the C.I.F. value can
under no circumstances arise because landing charges are levied in relation to goods after they
have been off-loaded from the ship.

Reasoning of the Court.

Section 14 clearly indicates that it is not the price stated in the CIF contract which alone is
to be accepted as being the value of such goods for the purpose of Section 14 of the Act. The
said Section requires determination of the value of the imported goods

The value of such goods is to be 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, where the seller and the buyer have no interest in the business of each other
and the price is the sole consideration for the sale or offer for sale

The price of the imported goods, has to be determined in respect of import of those goods for
delivery at the time and place of importation.

It appears to us that the word delivery must necessarily mean the point of time when the
goods can be physically delivered to the importer. In other words, delivery and discharge
are not synonymous.

The mere fact that the shipper has discharged the goods at the port of import does not ipso
facto give the importer a right to take the delivery thereof.

All imported goods unloaded in a customs area are required to remain under the customs
authorities until they are cleared for home consumption or are warehoused or are transshipped
(Section 45).
The goods can be cleared by the importer only after, as provided by Section 46, the importer
files a bill of entry for home consumption or warehousing pursuant to which clearance of goods
is granted under Section 47 by the Customs Officer. This clearance is given after the officer is,
inter alia, satisfied that the importer has paid the import duty assessed on the imported goods.

The aforesaid provisions of the Act, therefore clearly show that after the imported goods are
discharged from the vessel at the wharf the importer cannot immediately take delivery thereof.

The imported goods remain in the custody of the Port Trust Authorities till they are inter alia,
cleared for home consumption. This being the position the goods cannot be cleared and delivery
taken without their being valued and assessed and, thereafter, duty being paid.

Section 14 of the Act provides that the value of the goods shall be deemed to be the price of
the goods for the delivery at the time and place of importation in the course of international
trade. The value has to be determined with relation to the time when physical delivery to the
importer can take place. Physical delivery can take place only after the bill of entry, inter alia,
for home consumption is filed and it is the value at that point of time which would be relevant.

It is evident that there normally will be some lapse of time between the time when the shipper
discharges the goods and the time when the bill of entry is filed.

Section 14 is a deeming provision. The legislative intent is clear that the actual price of the
imported goods, namely the landing cost, cannot alone be regarded as the value for the purpose
of calculating the duty.

If the C.I.F. price represents the value of the imported goods, then the Section 14 would have
been differently worded. It could, for instance, have easily been stated that the value of the
imported goods would be the transaction value of the goods.

The language of Section 14 clearly indicates that though the transaction value may be a relevant
consideration, the value for the purpose of Customs duty will have to be determined by the
Customs Authorities which value can be more, and at times even less, than what is indicated
in the documents of purchase or sale.

It was submitted by appellants that the landing charges are already included in the CIF value
of the goods as they form part of the freight paid to the steamer agent and the said charges are
recovered by the Port Trust authorities directly from the steamer agents and, therefore, a second
inclusion of such landing charges by loading a flat percentage of the CIF value is uncalled for.

In this connection, reliance was placed on clause 15 of the terms and conditions of a Bill of
Lading which deals with loading, discharge and delivery and reads as under :any expenses,
costs, dues and other charges which incur before loading and after discharge of the goods shall
be borne by the Merchant.

Rejecting the submission, the Court held that

 In determining deemed price in international trade the element of port charges which have to
be borne by the importer, in addition to the CIF value, before the goods can be cleared for
human consumption must necessarily form a part or an element of the value.

Section 14 does not accept as final the price fixed by the purchaser and the seller in the course
of international trade as reflected in the CIF contract but it requires determination of value by
the customs authorities in the manner indicated therein.

What has to be seen is the value or cost of the imported articles at the time of importation i.e.
at the time when they reach the customs barrier. Landing charges which have to be paid to the
Port Trust must therefore, be taken into consideration while determining the value of the
imported goods for the purpose of assessment of duty.

It is only if the importer establishes that the obligation to pay the landing charges is on the
seller and not on the importer and that the seller or his agent has, in fact, paid the said landing
charges to the Port Trust Authorities, that the importer can claim that the landing charges should
not be again added to the price.

The question as to whether the import is completed when the goods entered the territorial
waters and it is the value at that point of time which is to be taken into consideration is no
longer disputed.

This contention was raised in Union of India v. Apar Industries Limited - 1999 (112) E.L.T. 3
(S.C.) .

In that case the day when the goods entered the territorial waters, the rate of duty was nil but
when they were removed from the warehouse, the duty had become leviable. The contention
which was sought to be raised was that what is material is the day when the goods had entered
the territorial waters because by virtue of Section 2(23) read with Section 2(27) the import into
India had taken place when the goods entered the territorial waters.

Following the decision of the SC in Bharat Surfactants Ltd. v. Union of India , 1989(4) SCC
21 and Dhiraj Lal H. Vohra v. Union of India ,1993 (Supp. 3) SCC 453, it was held in Apars
Private Limited case that the duty has to be paid with reference to the relevant date as
mentioned in Section 15 of the Act.

The Supreme Court in its opinion in Re. The Bill to Amend Section 20 of the Sea Customs
Act, 1878 and Section 3 of the Central Excises and Salt Act, 1944, 1964 (3) SCR 787 observed
as follows :

Truly speaking, the imposition of an import duty, by and large, results in a condition which
must be fulfilled before the goods can be brought inside the customs barriers i.e. before they
form part of the mass of goods within the country.

It would appear to us that the import of goods into India would commence when the same cross
into the territorial waters but continues and is completed when the goods become part of the
mass of goods within the country; the taxable event being reached at the time when the goods
reach the customs barriers and the bill of entry for home consumption is filed.

UNION OF INDIA Vs JALYAN UDYOG 1993 (68) E.L.T. 9 (S.C.)

Facts.

The Central Government issued an exemption notification in 1958 in exercise of the power
vested in it by Section 25 of the Customs Act, which exempted the Ocean going vessels other
than vessels imported to be broken up from the payment of Customs duty . The proviso to the
notification said that any such vessel subsequently broken up shall be chargeable with the duty
which would be payable on her if she were imported to be broken up.

In 1968 the Shipping Corporation of India purchased two second-hand ships for operating
between India and the Gulf and other destinations as `ocean-going vessels (passenger ships).
No import duty was levied on the import of these ships in view of the exemption notification.

These ships were operated as ocean-going vessels till 1983 after which they were laid-up in
the Bombay harbour inasmuch as they had become obsolete and unfit to ply .

In 1984,the ships were sold to Jalyan Udyog. Jalan Udyog applied for permission to scrap these
vessels which was granted. Subsequently the Collector of Customs, Bombay issued a public
notice prescribing the procedure for assessment of the value of Vessels meant for scrapping
and other allied matters.

The procedure prescribed in the public notice stated that : the valuation of Vessels cleared for
breaking/scrapping will be on the basis of current import prices of similar vessels imported by
M.S.T.C. (Metal Scrap Trading Corporation Limited), for scrapping during the period of sale.

The ship-owners have to approach the M.S.T.C. and obtain a certificate from the Corporation
with respect to the value of the ship proposed to be scrapped. The ship-owners have also got to
approach the customs authorities for taking inventory of movable gears and stores of the vessel
which are sold along with vessel and for their valuation. A no objection certificate has also to
be obtained from the Corporation which will be granted subject to the conditions prescribed
therein.

Jalan Udyog wrote to the Customs Authorities repeatedly asserting that the public notice has
no application to them inasmuch as the said ships were imported long prior to the constitution
of the Metal Scrap Trading Corporation and the issuance of the public notice .

Not getting a fovourable response, it approached the Bombay High Court by way of a writ
petition . The High Court allowed the petition and held that as M.S.T.C. was not the canalising
agency in regard to ships imported prior to 1978, the authorities cannot insist upon the
production of No Objection Certificate from the said Corporation for the purpose of grant of
approval for disposal of ships for scrapping. Since the ships were imported in the year 1968
and not in the year 1983 or 1984 and, therefore, the value and the rate relevant for the purpose
of levying duty is the value and the rate prevailing in the year 1968. The Court directed that
the value of the ships be assessed on the basis that the said ships were imported in the year
1968 for the purpose of breaking up .

Against this, the Union of India appealed to the Supreme Court.

Contentions of Jalan Udyog.

A ship is imported only once into India. The import is when it first enters India and is registered
in India according to law. It then becomes an Indian flag-bearing ship. There can be no second
import of such ship into India.

The import of the ships was done in the year 1968. There was no re-import or second import
subsequently.

The Customs Act fixes the stage at which the duty is leviable viz., the date of import. The
imported goods have to be valued with reference to such date.

The rate of duty applicable is the rate prevailing on that date.

The exemption notification does not and cannot in law alter or change the stage at which and
the point of time with reference to which the duty is payable. It cannot treat the date of
conversion as the date of import.

The power conferred by Section 25 is a limited power. It has to be exercised subject to and
consistent with the several provisions of the Act. The only power conferred upon the Central
Government by Section 25 is to exempt, either absolutely or subject to specified conditions,
the duty payable on imported goods.

This power cannot be enlarged to affect Sections 14, 15 and 16 of the Act.

Further, the power under Section 25 is either to exempt the duty in full or to reduce the
incidence of duty. The duty cannot be increased or enhanced under Section 25

The power of exemption under Section 25 is exercisable by the executive. The executive cannot
enhance the duty over what is prescribed by the Act.

Contentions of the Union of India.

The exemption notification clearly says that where a ship is imported as an ocean-going vessel
it is exempt from duty but if such vessel is scrapped at a later point of time it would be subject
to the duty on the basis as if it were imported for breaking-up on that date.

Reasoning of the Court.

Section 12 of the Customs Act is the charging section which says that except as otherwise
provided in this Act, or any other law for the time being in force, duties of customs shall be
levied at such rates as may be specified under the Customs Tariff Act, or any other law for the
time being in force, on goods imported into, or exported from India.
Section 14 prescribes the manner in which the value of imported goods is to be determined.
Sub-section (1) says that the value of imported 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 the
seller and the buyer have no interest in the business of each other and the price is the sole
consideration for the sale or offer the sale.

Section 15 specifies the point of time with reference to which the rate of duty and tariff
valuation of the imported goods is to be determined.

It states that :

Section 15 (1). The rate of duty and tariff valuation, if any, applicable to any imported goods,
shall be the rate and valuation in force, -

(a)in the case of goods entered for home consumption , on the date on which a bill of entry in
respect of such goods is presented ;

(b) in the case of goods cleared from a warehouse , on the date on which the goods are actually
removed from the warehouse;

(c) in the case of any other goods, on the date of payment of duty .

Provided that if a bill of entry has been presented before the date of entry inwards of the vessel
by which the goods are imported, the bill of entry shall be deemed to have been presented on
the date of such entry inwards.

The provisions of this section shall not apply to baggage and goods imported by post.

Section 25 confers upon the Central Government the power to exempt goods either wholly or
partly or either absolutely or subject to such conditions as it may specify in that behalf.

It States that :

Section 25. Power to grant exemption from duty.

(1)If the Central Government is satisfied that it is necessary in the public interest so to do it
may, by notification in the Official Gazette, exempt generally either absolutely or subject to
such conditions (to be fulfilled before or after clearance), as may be specified in the notification
goods of any specified description from the whole or any part of duty of customs leviable
thereon.

(2)If the Central Government is satisfied that it is necessary in the public interest so to do, it
may, by special order in each case, exempt from the payment of duty, under circumstances of
an exceptional nature to be stated in such order, any goods on which duty is leviable.

The Central Government had issued an exemption notification stating that Ocean going vessels
other than vessels imported to be broken up, are exempt from the payment of Customs duty .
However any such vessel subsequently broken up shall be chargeable with the duty which
would be payable on her as if it were then imported to be broken up.

The notification in clear language states that ocean-going vessels other than vessels imported
to be broken-up are exempt from payment of customs duty but will be charged with duty if
subsequently broken-up .

The idea behind the notification evidently was to encourage the import of ocean-going vessels.
The notification also contemplates and provides for the situation where an imported ocean-
going vessel becomes `not sea-worthy after a few years and the ship-owner decides to
scrap/break it.

It provides that in such a situation it would be deemed as if the ship is imported for breaking-
up when it is broken up and the customs duty is charged on that basis.

The notification thus creates a fiction viz., the vessel must be deemed to have been imported
for being broken-up when it is broken up, though as a matter of fact the import was at an earlier
point of time.

Ordinarily speaking, customs duty is levied with reference to the date of actual import but the
exemption notification says that if the ship imported is an ocean-going vessel it shall be exempt
from customs duty on the date of its import but in case it is subsequently broken-up the duty
shall be paid as if it were then imported for being broken-up - which necessarily means that
duty will be levied on the value and at the rate prevailing on the date of breaking-up.

By virtue of the fiction created by the proviso in the notification, the vessel is deemed to have
been imported for breaking-up on the date it is broken-up.

It is well settled that where a fiction is created by a provision of law, the court must give full
effect to the fiction. According to this notification, therefore, the date relevant for determining
the value and rate of the customs duty chargeable in the case of two ships concerned in Jalyan
Udyog is the date on which they were broken-up.

However, since the date of breaking-up is an uncertain event and may require an enquiry in
each case and also because no ship can be broken-up or scrapped except under the prior
permission granted by the Director General of Shipping, the date of breaking-up contemplated
by the said proviso should be deemed to be the date on which the permission for
scrapping/breaking is accorded by the Director General of Shipping. This clarification is made
in the interest of certainty and to obviate avoidable controversy. It is with reference to such
date that the value and the rate have to be determined.

Interpretation of power of exemption under Section 25.

A proper analysis of sub-section (1) of Section 25 shows that the power of exemption can be
exercised:

(a) where the Central Government is satisfied that in the public interest it is necessary to either
waive or reduce the duty chargeable on any goods,
(b) it can do so by way of a notification published in the Official Gazette,

(c) such exemption, however, must be a general one,

(d) the exemption granted may be an absolute one or subject to such conditions, as may be
specified in the notification, and

(e) the conditions, if any, specified may be conditions to be fulfilled before the clearance of
goods or after the clearance of goods, as the case may be.

The above analysis shows that an exemption granted may be an absolute one or subject to such
conditions, as may be specified in the notification and further that the conditions specified may
relate to a stage before the clearance of goods or to a stage subsequent to the clearance of goods.

Section 25(1) is a part of the enactment and must be construed harmoniously with the other
provisions of the Act.

The power of exemption is variously described as conditional legislation and also as a species
of delegated legislation. Whether it is one or the other, it is a power given to the Central
Government to be exercised in public interest. Such a provision has become a standard feature
in several enactments and in particular, taxing enactments.

It is equally well settled by now that the power of taxation can be used not merely for raising
revenue but also to regulate the economy, to encourage or discourage as the situation may call
for the import and export of certain goods as also for serving the social objectives of the State.

Since the Parliament cannot constantly monitor the needs of and the emerging trends in the
economy and is in no position to engage itself in day-to-day regulation and adjustment of
import-export trade accordingly, power is conferred upon the Central Government to provide
for exemption from duty of goods, either wholly or partly, and with or without conditions, as
may be called for in public interest.

There is no warrant for reading any limitation into this power. If the public interest demands
that the exemption should be absolute, the Central Government can do so. Similarly, if the
public interest demands that exemption should be granted only subject to certain conditions it
can provide such conditions. Then again if the public interest demands that conditions specified
should relate to a stage subsequent to the date of clearance it can do so.

The guiding factor is the public interest. The power given by Section 25 to the Central
Government to specify conditions which may even relate to a stage subsequent to the clearance
of goods clearly shows that the power of exemption

A legal fiction can be created not only by the legislature but by the executive also. Here the
Central Government is exercising a power conferred upon it by the Parliament. The provision
conferring such power does contemplate and empower the Central Government to create such
a fiction.
The nature of power under Section 25 is conditional legislation or a species of delegated
legislation : an exemption notification under Section 25 is not an executive act. Therefore the
exemption notifications have not in any way violated the provisions of Section 25. It is
perfectly within the ambit of Section 25.

For the above reasons, appeal of Union of India is allowed .