Custom, Excise & Service Tax Tribunal
Indian Farmers Fertilizers Co ... vs Jamnagar(Prev) on 24 February, 2020
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
AHMEDABAD
REGIONAL BENCH - COURT NO. 3
CUSTOMS Appeal No. 11356 of 2016-DB
(Arising out of Order-in-Original No. 04/COMMR/2016 dated 30.03.2016
passed by Principal Commissioner of Customs (Preventive), Jamnagar)
M/s. Indian Farmers Fertilizers ...Appellant
Co-Operative Limited (IFFCO)
IFFCO Sadan, C-1, Distt Centre, Saket Place,
New Delhi
Versus
Principal Commissioner of Customs, ....Respondent
Jamnagar
Sarda House, Opp. Panchvati, Bedi Bunder,
Jamnagar - 361002
APPEARANCE:
Mr. Deepak Kumar, Consultant with Atul S. Chhabra, Taxation
Head for the Appellant
Mr. T.G. Rathod, Authorised Representative for the Respondent
CORAM : HON‟BLE MR.JUSTICE DILIP GUPTA, PRESIDENT
HON‟BLE MR. RAJU, MEMBER (TECHNICAL)
Date of Hearing: 23.12.2019
Date of Decision:24.12.2020
FINAL ORDER No.: A/10521/2020
JUSTICE DILIP GUPTA
The Appellant has sought the quashing of the order dated
30 March 2016 passed by the Principal Commissioner of Customs
1
(Preventive) Jamnagar by which the demand of differential
customs duty has been confirmed after rejecting the declared
value and re-determining it. Penalty and interest has also been
1 . the Principal Commissioner
2
C/11356/2016-DB
directed to be paid. An order for confiscation of urea imported by
M/s. Indian Farmers Fertilizers Co-operative Limited 2 has also
been passed under the provisions of section 111 (m) of The
Customs Act 19963.
2. IFFCO is a multi unit Co-operative Society and is
primarily engaged in the production and distribution of fertilizers.
The Appellant claims that it imports and distributes in India urea
that is imported on Government Account by the Department of
Fertilizers through canalising agencies like the State Trading
Corporation4 and Minerals and Metals Trading Corporation5.
3. The scheme of import involves the Government of India
estimating the requirement of urea to be imported every year.
Urea being a canalised item, the import requirement is made
known to the canalising agencies called State Trading Entities 6 .
The STEs place the order on exporters located outside India. The
exporter issues the commercial invoice to STE, and the Bill of
lading to the Ministry of Chemical and Fertilizer as a consignee.
Thereafter, the Government of India transfers the goods to the
Fertilizer Marketing Entity. To select this Entity, the Department
of Fertilizer in the Government of India invites quotation from pre-
qualified Fertilizer Marketing Entities for marketing of the
imported urea in the country after receipt, bagging, handling and
standardisation at Indian Ports. Based on the rates quoted by
2. IFFCO
3. the Customs Act
4. STC
5. MMTC
6. STE
3
C/11356/2016-DB
IFFCO, the Department of Fertilizer agreed to appoint IFFCO as
the Fertilizer Marketing Entity for Pipavav and New Mangalore
ports. Thereafter, an agreement dated 1 May 2012 was entered
into between the Government of India and IFFCO.
4. It is stated that STE pays the full import price to the
exporter and the Government of India pays this import price to
STE. IFFCO, on the other hand pays "pool issue price" to the
Government of India. Thus, for example, if STE purchases urea at
300 US$ per MT from the exporter, the Government of India pays
300 US$ per MT to STE. However, IFFCO would pay "pool issue
price" of Rs.5110 per MT (approximately 83 US$ per MT) to the
Government of India as per the agreement and this is the price at
which IFFCO sells urea to the farmers. The differential amount is
borne by the Government of India as a subsidy to the farmers.
IFFCO, however, pays customs duty on the price paid by STE to
the exporter, that is 300 US$ per MT. It is stated that
subsequently, in view of a communication dated 2 February 2015
sent by the Assistant Commissioner mentioning therein that the
Government of India was also paying Rs.17/- per MT as service
charges to STE, IFFCO stated adding this miscellaneous charge in
the Bill of Entry dated 4 April 2015 in the assessable value for the
purpose of payment of duty.
5. A show cause notice dated 12 August 2015 was
issued to the Appellant (IFFCO) mentioning therein that the
service charges of Rs. 17/- per MT were in the nature of
4
C/11356/2016-DB
"miscellaneous charges" and accordingly, were required to be
included in the assessable value from 5 October 2010 to 5 May
2015, in view of the provisions of rule 10 (1) (e) of the Customs
Valuation (Determination of Value of Imported Goods) Rules,
20077. The show cause notice mentions that the STE purchased
urea of its own and then sold it to Indian buyers on High Sea Sale
basis. Thus, the purchases made by STE from foreign sellers and
subsequent sale to Indian buyers are independent transactions.
The show cause notice also mentions that 2% High Sea Sale
Commission should be included in the assessable value for
calculation of Customs duty. The relevant portions of the show
cause notice are reproduced below:
" M/s. Indian Farmers Fertilizers Cooperative Ltd., IFFCO
Sadan, C-1, Distt Centre, Saket place, New Delhi- 110017 having
IEC Code Number- 0588034096 (herein after referred to as the
„IFFCO‟) is a Multistate Co-Operative Society primarily engaged in
production and distribution of fertilizers. During the investigation
of the angle of supplier (OMIFCO) and buyer (IFFCO) as related
persons in terms of Rule 2(2) of the Customs Valuation
(Determination of Value of Imports Goods) Rules, 2007 for the
import of urea from Customs House Pipavav, it has been
revealed by the importer that their import is High Sea Sale.
Further during the filling of their Bill of Entry No. 8800082
dated 04.04.2015, the importer paid duty on Misc.
Charges. However, the importer has not been paying duty
on 2% High Sale Commission and Misc Charges in their
previous Bills of Entries filed at Customs House, Pipavav.
An investigation has been initiated in the matter for non-payment
of duty on 2% High Sale Commission and Misc Charges.
--------
7.3 As per the letter F.No. 8-2/2013-Ship-II dated 02.02.2015 of Assistant commissioner (S), Ministry of Chemicals & Fertilizers, Department of Fertilizers addressing to the Deputy Commissioner, Krishnapatnam Port, Andhra Pradesh clarifying that the STEs (State Trading Enterprises) are paid Rs.17/- per MT as service charges on the urea imported by them. Based on this letter, the notice started paying duty on Rs. 17/- per MT from the B/E No. 8800082 dated 04.04.2015.
7 . 2007 Valuation Rules 5 C/11356/2016-DB 7.4 It is seen from the High Sea Sale Agreement as well from the statement of Shri Surinder Singh Rawat, Joint General Manager (Finance), other documents available on record that the present import is on High Sea Sale basis. Under the provisions of the Import and Export Policy of the Government of India the STE‟s is designated as a canalizing agent for import of Urea from foreign Countries. The STEs import the urea in bulk purchasing the same from the foreign sellers. It then enters into sale agreement with Ministry of Chemicals & Fertilizers, Government of India on what is known as high seas sales basis. Consideration paid by the purchasers of the urea from the STE‟s includes apart from the purchase value incurred by the STE‟s an additional sum of Rs. 17/- per MT as service charges. These service charges are in the nature of „Misc Charges‟ and accordingly to be includible in the assessable value in view of the Rule 10(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007. The STE has represented the Indian buyer abroad to purchase the material. On the contrary the STE has purchased the material of its own and then sold the goods to Indian buyers on high seas sales basis. The purchases of STE‟s from foreign sellers and subsequent sale of it to Indian buyers are independent of each other. Therefore, it evident that the „Misc Charges‟ should form part of the assessable value for calculation of Customs Duty in terms of Section 14(1)(a) of Customs Act, 1962 and Rule 10(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007.
7.5 It is also seen that by virtue of the high seas sales through which the notice purchased the urea from the Ministry of Chemicals & Fertilizers, Govt. of India, it has derived the benefit of avoiding the payment of sales tax/ VAT on these goods. Further, on what price the 2% HSS Commission should be charged, as there are various prices available i.e. the price of the goods which STE purchased from the foreign supplier or the price on which STE sale to the Ministry of Chemicals & Fertilizers, Govt. of India or the price at which Ministry of Chemicals & Fertilizers, Govt. of India sale to M/s. IFFCO? It is also evident from the statement of Shri Surinder Singh Rawat, JT. GM (F&A), IFFCO that M/s. IFFCO pays pool price as defined in the contract to Govt. of India. To clarify the examples he cited is if STE purchases urea at 300 USD per MT from exporter, Govt. of India pays to STE 300 USD per MT, and M/s. IFFCO pays pool issue price as define in the handling contract (gross) i.e. Rs. 5110/- (which is approximate 83 UDS) to govt. of India etc. The duty levied, collected on import of urea is the price at which the STE purchases from foreign seller, these duty calculation falls squarely within the ambit of Customs Act, 1962 read with CVR, 2007. It is evident that 2% High Sea Sale Commission should be included in the Assessable value for calculation of Customs Duty and on the amount at which the importer is paying duty.
---------
6
C/11356/2016-DB
8. In the light of the facts discussed in the foregoing paras and material evidence available on records, it appears that the importer has mis-declared Misc. Charges & High Sea Sale in the declaration form filled by them as per provisions of Section 46 of the Customs Act, 1992 along with bill of entry; the said declaration form is in terms of provisions of Rule 10 of the Customs Valuation Rules, 1988. Further, the importer has suppressed the facts by not intimating the High Sea Sale Agreement between Govt. of India and M/s. IFFCO and same has been confirmed from the records and statement of Shri S.S. Rawat, Jt. GM (F & A). Therefore, it appears that the extended period of five years is invokable in the present case. This also renders M/s. IFFCO liable for penal action under Section 114A of the Customs Act, 1962.
------
9. ------------M/s. IFFCO paid Rs.30,41,704/- vide challan No. CUS/128/15-16 23.06.2015 on account of duty on Misc. Charges @ Rs.17/- PMT (for import from 19.05.2010 to 18.05.2015) paid by Ministry of Chemicals & Fertilizers, Govt. of India to STE, and paid interest thereof Rs.9,37,680/- vide challan No. CUS/128/15- 16 26.05.2015.
(emphasis supplied)
6. The Appellant was, therefore, called upon to show cause as to why:
"(i) The value of Rs.62,38,13,12,997/- (Rupees Six Thousand Two Hundred and Thirty Eight Crore Thirteen Lakh Twelve Thousand Nine Hundred and Ninety Seven only), declared by them in respect of 3032282.5 MTs "Urea" imported by them, should not be rejected under rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and re-
determined as Rs.63,68,08,88,946/- (Rupees Six Thousand Three Hundred and Sixty Eight Crore Eight Lakh Eighty Eight Thousand Nine Hundred and Forty Six only), as detailed in Annexure-III to this Notice, under Section 14 of the Customs Act, 1962 read with the Rule 4 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007;
(ii) The 3032282.5 MTs goods i.e. "Urea" imported, as detailed in Annexure „III‟ totally valued at Rs. 63,68,08,88,946/- should not be held liable for confiscation under Section 111(m) of the Customs Act, 1962;
(iii) The differential Customs duty amounting to Rs. 7,64,84,141/- (Rupees Seven Crore Sixty Four Lakh Eighty Four Thousand One Hundred Forty One only) on import of Urea, for 57 finally assessed Bills of Entry as detailed in the Annexure „III‟ to the show cause notice, should not be demanded and recovered from them under Section 28(4) of the Customs Act, 1962;
(iv) The differential Customs duty amounting to Rs.44,98,936/- (Rupees Forty Four Lakh Ninety Eight Thousands 7 C/11356/2016-DB Nine Hundred Thirty Six only) on import of Urea, for 03 provisionally assessed Bills of Entry as detailed in the Annexure „III‟ to the show cause notice, should not be demanded and recovered from them under Section 18(2) of the Customs Act, 1962/ the bond executed during the provisional assessment/ Section 28 of the Customs Act, 1962;
(v) Interest should not be recovered from them on the said differential Customs duty, as at (iii) above, under Section 28AA of the Customs Act, 1962;
(vi) Interest should not be recovered from them on the said differential Customs duty, as at (iv) above, under Section 18(3) of the Customs Act, 1962;
(vii) Why the differential duty of Rs.30,41,704/- and interest of Rs. 9,37,680/- paid by the notice in reference to Misc Charges for the said period should not be adjusted against the demand;
(viii) Penalty should not be imposed on them under Section 112
(a) of the Customs Act, 1962;
(ix) Penalty should not be imposed on them under Section 114A of the Customs Act, 1962."
7. The Appellant filed a detailed reply dated 2 March 2016 to the aforesaid show cause notice. It was pointed out that rule 10(1) (e) of the 2007 Valuation Rules would not be applicable since the Appellant was not paying any miscellaneous or service charge of Rs. 17/- per MT to the Government of India, as it was the Government of India which was paying this amount to the STE. It was clarified that this charge of Rs. 17/- per MT, which the STE was receiving from the Government of India, was in the nature of "agency charges" which the STE as an agent of the Government of India was getting for the services provided for identifying and indenting the urea from foreign suppliers. It was also stated that the ultimate import of urea takes place on behalf of the Government of India. It was also mentioned that the Government of India was deducting 2% TDS while making payment of miscellaneous charges to the STE, which could, in 8 C/11356/2016-DB view of provisions of the Income Tax Act, be deducted only on payment of commission and not on sale. Thus, this amount could not be added to the transaction value. The Appellant also pointed out that it had already paid Rs.30,41,704/- by challan dated 23 May 2015 towards the duty for the miscellaneous charges for imports from 19 May 2010 to 18 May 2015 with interest of Rs.9,37,68/- by challan dated 26 May 2015 only as a commercial decision to avoid litigation and the same could not be taken as an admission on the part of the Appellant to include the miscellaneous charges in the transactions value.
8. The Appellant also pointed out in its reply that the Central Board of Excise and Customs, New Delhi8, in its Circular dated 11 May 2004, had clarified that it had not approved the Mumbai Customs House existing practice of adding 2% Notional High Sea Sales Commission in the Cost, Insurance and Freight 9 value and the actual High Sea Sale Contract price paid by the buyer would constitute the transaction value. The Appellant also stated that the extended period of limitation provided for under the proviso to section 73(1) of the Finance Act 199410 could not have been invoked as there was no wilful mis-statement or suppression of facts with intent to avoid payment of service tax. The Appellant also pointed out that the goods could not have been confiscated nor penalty could have been imposed. 8 . CBEC 9 . CIF 10 . the Finance Act 9 C/11356/2016-DB
9. The Principal Commissioner, however, did not accept the contentions of the Appellant and after rejecting the declared value, re-determined it. Accordingly, the demand of differential customs duty was confirmed and the urea imported by IFFCO was held liable for confiscation under section 111(m) of the Customs Act. Interest was also directed to be paid and penalty was also imposed. It is this order 13 May 2015 passed by the Principal Commissioner that has been assailed in this appeal.
10. Shri Deepak Kumar, learned consultant appearing with Shri Atul S. Chabra, Taxation Head of the Appellant made the following submissions:
i) The Principal Commissioner committed an error in including the miscellaneous charges of Rs. 17/- per MT paid by the Government of India to the STE in the assessable value on which the Appellant was required to pay duty. These charges are in the nature of agency charges which the canalising agency (STE) gets from the Government of India for the service of identifying and indenting the import of urea from foreign suppliers. The ultimate import of urea by STE takes place on behalf of the Government of India. These charges are not paid by the Appellant to the Government of India when it purchases the urea nor these charges are paid by the Appellant to a third party and therefore, cannot be included under rule 10(1) (e) of the 2007 Valuation Rules in the assessable value. The decision of the Supreme Court in Hyderabad 10 C/11356/2016-DB Industries Ltd. vs Union of India 11 would not be applicable in the present case as the service charges were paid by the Appellant therein to MMTC;
ii) Under the Income Tax Act, tax is deducted at source on payment of agency commission and not when sale or purchase takes place. Thus, deduction of 2% TDS by the Government of India fortifies the contention of the Appellant that STE is actually an agent of the Government of India and the agency commission cannot enter into the transaction value. In support of this contention, learned counsel placed reliance upon the decisions of the Tribunal in: (a) Gupta Chemicals Ltd. vs Commissioner of 12 Customs, Jaipur ; (b) Anand Textiles vs Commissioner of Customs, Amritsar13 ; (c) Morgan Industries Ltd vs Commissioner of Customs, Chennai 14 and the decision of the Supreme Court in Apollo Tyres Ltd vs Collector of Customs15;
iii) The notional 2% High Sea Sale Commission could not have been included in the assessable value of goods and therefore, customs duty was not required to be paid.
iv) The extended period of limitation provided for under the proviso to section 73(1) of the Finance Act could
11 . 2000 (115) ELT 593 (S.C) 12 . 2002 (148) ELT 545 (Tri. Delhi) 13 . 2008 (226) ELT 477 14 . 2003 (161) ELT 634 (Tri. Chennai) 15 . 1997 (89) ELT 7 (SC) 11 C/11356/2016-DB not have been invoked either in regard to non-payment of 2% Notional High Sea Sale Commission in the assessable value nor on the miscellaneous charges of Rs.17/- per MT as there was no wilful mis-statement or suppression of facts with an intent to evade payment of service tax.
11. Shri T.G. Rathod, learned Authorized Representative of the the Department has, however, supported the impugned order and made the following submissions:
(i) The Principal Commissioner was justified in coming to a conclusion that the miscellaneous charges of Rs. 17/- per MT paid by the Government of India to STE would be included in the assessable value in view of the provisions of rule 10(1) (e) of the 2007 Valuation Rules;
(ii) The Principal Commissioner was also justified in holding that 2% High Sea Sale Commission should be included in the assessable value in view of the decision of the Supreme Court in Hyderabad Industries Ltd;
(iii) The extended period of limitation was correctly invoked; and
(iv) The Principal Commissioner was justified in confiscating the goods and imposing penalty.
12. The submissions advanced by the learned Consultant for the Appellant and the learned Authorised Representative of the Department have been considered.
12
C/11356/2016-DB
13. In order to appreciate the contentions it would be appropriate to examine the salient features of the transaction that takes place and they are as follows:
(i) Based on the future requirement of urea in the country and availability of domestic production, the Department of Fertilizers in the Government of India assesses the import requirements;
(ii) Urea is a canalised item under the Foreign Trade Policy;
(iii) The Department of Fertilizer intimates the import requirements periodically to the canalising agencies called the STEs;
(iv) The STEs then call for a global tender and after identifying the foreign supplier, purchase the urea in bulk which is then sold to the Government of India for which the STEs charges, apart from the sale consideration paid by it to the foreign buyer, an additional sum of Rs. 17/-
per MT;
(v) Since the Department of Fertilizers is not in a position to distribute the imported urea in the country, it invites quotation from pre-qualified Fertilizer Marketing Entities for marketing imported urea in the country after receipt, handling, bagging and standardisation at Indian ports;
13
C/11356/2016-DB
(vi) Based on the rates quoted by IFFCO, the
Department of Fertilizers agreed to appoint IFFCO as a Fertilizer Marketing Entity at Pipavav and New Mangalore Ports and an agreement dated 1 May 2012 was entered into between the Government of India and IFFCO, which agreement was to remain valid upto 13 March 2015, but could be extended for further period of two years on the discretion of the Department of Fertilizers;
(vii) As an example, if the STE purchases urea at the rate of US$ 300 per MT from a foreign exporter, the Government of India pays US$ 300 per MT and Rs. 17/- per MT as miscellaneous charges to the STE. The Appellant, however, pays the pool price of Rs. 5110/-, which would be approximately US$ 83 to the Government of India. This is the price at which the Appellant also sells urea to the farmers. The balance amount is borne by the Government of India as subsidy to the farmers. However, the Appellant pays duty on the price actually paid by the STE to the foreign exporter;
(viii) The Appellant started including the miscellaneous charges of Rs. 17/- per MT as service charges in the Bills of Entry from 4 April 2015 in view of the communication dated 2 February sent by the Assistant Commissioner to the Deputy Commissioner of Customs. It also paid Rs. 30,41,704/- by challan dated 23 May 2015 towards miscellaneous charges of Rs. 17/- per MT for 14 C/11356/2016-DB import of urea from 19 May 2010 up to 18 May 2015 with interest to the extent of Rs. 9,37,680/- by challan dated 25 May 2015. According to the Appellant, this amount was paid purely as a commercial decision to avoid litigation and should not be treated as an admission on the part of the Appellant that it is liable to pay this charge.
14. The issues, therefore, that arise for consideration in this Appeal are as follows:
(i) Whether for the purchase of urea by the Appellant from the Government of India on High Sea Sale, miscellaneous charges of Rs. 17/- per MT paid by the Government of India to STE is required to be included in the assessable value and consequently duty payable on it;
(ii) Whether in regard to the aforesaid purchase of urea by the Appellant from the Government of India on High Sea Sale, notional 2% High Sea Sale Commission is required to be included in the assessable value of goods and consequential duty is payable;
(iii) Whether the extended period of limitation could have been invoked in the facts and circumstances the case for both non-payment of miscellaneous charges and notional High Sea Sale Commission;
(iv) Whether urea imported by the Appellant was liable for confiscation under section 111(m) of the Customs Act;
15
C/11356/2016-DB
(v) Whether penalty could have been imposed on the Appellant under section 112(a) of the Customs Act; and
(vi) Whether penalty could have been imposed on the Appellant under section 114 of the Customs Act.
15. Each of the aforesaid issues shall be dealt with separately.
MISCELLANEOUS CHARGES OF RS.17/- PMT
16. The findings of the Principal Commissioner on this issue are as follows;
"13.1 The first issue to be examined is, as to whether the service charges of Rs. 17/- per MT paid by GOI to STE is to be included in the assessable value or not. The noticee have argued that the same is in the nature of „buying commission‟ and hence should be excluded in terms of rule 10 (1)(a)(i) of CVR, 2007 and interpretative note to rule 10. In support of their argument, they have stated that GOI, while paying these charges to STE is deducing 2% TDS, which in terms of Income Tax is required to be paid on payment of commission and not on sale consideration.
--------
13.3 As per SCN (para7.4), the STE imports urea in bulk purchasing the same from the foreign sellers. It then enters into sale agreement with Ministry of Fertilizer, GOI on high sale basis. In addition to the purchase price, GOI also pays an additional Rs.17/- per MT as service charges. Thus, STE has purchased the goods on its own and then sold the goods to GOI. In the case of Hyderabad Industries, the canalizing agency was importing asbestos and selling the same on high sale basis to the importer. The Supreme Court held that the service charges paid by the importer to the canalizing agency is not buying commission but service charges and hence includable in the assessable value.
16
C/11356/2016-DB 13.4 In the instant case also, the canalizing agency i.e. STE has imported Urea independently on commercial basis from purchasers abroad and then sold to Ministry of Fertilizer, GOI on high sea sale basis. There is a further sale from GOI to IFFCO on high sea sale basis. Thus, there are two high sea sales. It is the price at which GOI has purchased goods from STE, on which the import duty is being paid by IFFCO. It is because, the price which is being paid by GOI to IFFCO is not the transaction value, but the lower price at which IFFCO has to sell the goods to farmers. The difference is being born by GOI as subsidy. Therefore, the question to be decided is whether in the first high sea sale, which forms the basis for arriving at transaction value, the service charges of Rs.17/- per MT is to be added in terms of rule 10(1) (e) of CVR, 2007. As held by Hon‟ble Supreme Court in Hyderabad Industries case, this payment cannot be treated as buying commission, as the relationship between STE and GOI cannot be treated as relationship between a principal and agent. There is an independent sale between STE and GOI on high sea sale basis. Further, deduction of TDS by GOI in terms of Income Tax Act, cannot be the basis to decide, whether in terms of provisions of Customs Act, 1962, this amount is to be added in assessable value or not.
13.5 In view of the above reasoning, I hold that service charges of Rs.17/- per MT paid by GOI to STE as service charges are to be added in the assessable value in terms of rule 10(1) (e) of CVR, 2007."
(emphasis supplied)
17. The Principal Commissioner has observed that since the STE imported urea independently on commercial basis from foreign purchasers and then sold it to the Government of India on High Sea Sale basis and there is a further sale by the Government of India to IFFCO on High Sea Sale basis, the relationship between STE and Government of India cannot be treated as a relationship between a principal and agent and these are two independent 17 C/11356/2016-DB High Sea Sales. To arrive at this conclusion, reliance was placed on a decision of the Supreme Court in Hyderabad Industries Ltd. The Principal Commissioner also observed that mere deduction of TDS by the Government of India would not mean that this amount has not to be added in the assessable value. The Principal Commissioner, therefore, concluded that service charges Rs. 17/- per MT paid by the Government to STE is required to be added in the assessable value in terms of rule 10(1) (e) of the 2007 Valuation Rules.
18. As noticed above, it is after assessing the import requirement, that the Department of Fertilizer intimates the said requirement periodically to the canalising agencies. This is for the reason that under the export and import policy, goods which are canalised, can be permitted to be imported by a canalising agency only. Urea is a canalised item under the Foreign Trade Policy and, therefore, import can be done only by the canalising agency called STEs. The STEs call for a global tender and after identifying the foreign supplier, purchase urea in bulk. According to the Appellant, the import of urea by the canalising agency takes place on behalf of the Government of India and the amount of Rs. 17/- per MT which the Government pays to the STEs is the agency charges which the STEs get for providing the services of identifying and indenting the import of urea from foreign suppliers. To support this fact, the Appellant has placed reliance upon a letter dated 12 November 1991 sent by the Ministry of Chemicals and Fertilizers in the Government of India to the 18 C/11356/2016-DB Deputy Controller of Accounts in connection with service charges payable to MMTC for import of fertilizer on behalf of the Ministry of Chemical and Fertilizers. It has been stated in this letter that service charges for import of fertilizers on behalf of the Ministry have been revised in consultation with the Ministry of Finance and for urea it has been stated that the service charges would be Rs.17/- per MT.
19. In this connection, the Appellant has also placed the letter dated 2 February 2015 sent by the Ministry of Chemicals and Fertilizers in the Government of India to the Deputy Commissioner, Krishnapatnam Port in connection with the finalisation of provisional Bills Of Entry in respect of urea imported through the said port. The contents of the letter are reproduced below:
"I am directed to refer to your letter dated 22.01.2015 on the subject cited above and to say that urea is the only fertilizer under statutory price control and it is imported for direct agriculture use on Government account through State Trading Enterprises (STEs) i.e. MMTC Limited (MMTC), State Trading Corporation Limited (STC) and Indian Potash Limited (IPL). These agencies are paid Rs.17/- per MT as service charges on the urea imported by them on Government account for direct agricultural use. Fertilizers other than Urea are imported under Open General License (OGL). Companies import these fertilizers as per their commercial judgment."
20. The contents of these two letters do support the contention of the Appellant. Both these letters are in connection with the amount of Rs. 17/- per MT paid as service charges on urea imported by the STEs. In the first letter dated 12 November 1991, it has been clearly stated that Rs. 17/- per MT shall be payable by the Government of India to MMTC (which is also a STE 19 C/11356/2016-DB apart from State Trading Corporation) as service charges for import of urea on behalf of the Government of India. The second letter dated 2 February 2015 also emphasises that urea is imported for direct agriculture use on Government account through STEs and that "these agencies" are paid Rs. 17/- per MT as service charges on the urea imported by them on Government Account. The "agencies" referred to are the STEs i.e. MMTC, State Trading Corporation Limited and Indian Potash Limited.
21. This apart, what needs to be noticed is that TDS has also been deducted by the Government of India while making payment of service charges to the STEs. Under the Income Tax Act, TDS is required to be deducted on payment of commission and not on sale consideration. Thus, the Government of India itself is treating this amount of Rs. 17/- per MT as commission paid to the STEs.
22. It also needs to be noted that the amount of Rs. 17/- per MT is paid by the Government of India to the STE and is not paid by the Appellant to the STE when it purchases the urea. It, therefore, clearly transpires that the canalising agencies import urea on behalf of the Government of India for which they are paid commission of Rs.17/- per MT for identifying and indenting the import of urea from foreign suppliers.
20
C/11356/2016-DB
23. It is in this light that rule 10(1) (a) and (e) of the 2007 Valuation Rules, on which reliance has been placed by the Revenue, have to be examined. The said rules are as follows:
"Rule 10. Cost and services.- (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods,-
(a) The following to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:-
(i) Commissions and brokerage, except buying commissions;
(ii) The cost of containers which are treated as being one for customs purposes with the goods in question;
----------
(e) All other payment actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.
---------
(4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule."
24. Rule 13 provides that the interpretative notes specified in the Schedule to the rules shall apply for interpretation of the rules. Interpretative note to rule 10 is as follows:
"Note to rule 10- In rule 10(1) (a) (i), the term "buying commissions" means fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued."
25. A perusal of rule 10(1) shows that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, amongst others, commissions and brokerage, except buying commissions. Interpretative Note to rule 10 defines "buying commissions" to mean fees paid by an 21 C/11356/2016-DB importer to his agent for the service of representing him abroad in the purchase of the goods being valued.
26. It has, therefore, to be examined whether the amount of Rs. 17/- per MT paid by the Government of India to the STE can be termed as "buying commission" because in that event it will not be included in the „transaction value‟. To examine this, it has to be seen whether the STE has represented the Government of India abroad in the purchase of the goods being valued. Urea being a canalised item under the Foreign Trade Policy, import can only be made through canalising agencies called the STEs. As noticed above, the two communications dated 12 November 1991 and 2 February 2015 leave no manner of doubt that urea is imported on Government Account on behalf of the Ministry of Chemical and Fertilizers in the Government of India. Though, the terms used in the aforesaid communications refer to "service charges", but in fact they are "buying commissions" as was also observed by the Tribunal in Anand Textiles. Paragraph 9 of the decision of the Tribunal is reproduced below:
"Rule 9 of the Custom Valuation Rules clearly permits exclusion of buying commission and note to rule 9(I)(a)(i) also clarifies the term buying commission as "fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued". On going through the judgment of the Hon‟ble Supreme Court in the case of Apollo Tyres Ltd. (supra) we find that the facts of the present case are substantially the same as facts of the said case. Therefore, we hold that the amount of about 10% of the value paid by the appellant to the Singapore based party is in the nature of buying commission only. It appears to be a case of difference in nomenclature in describing the said commission as documentation and services charges by the Singapore based agent. We, therefore, hold that the said amount is eligible to be excluded in arriving at the assessable value of the imported goods."22
C/11356/2016-DB
27. The Principal Commissioner has, however, relied upon the decision of the Supreme Court in Hyderabad Industries Ltd to arrive at a conclusion that the payment of Rs. 17/- per MT paid by the Government of India to STE cannot be treated as "buying commission" since the relationship between the Government of India and STE cannot be treated as between a principal and an agent.
28. It will, therefore, be necessary to examine the factual position in Hyderabad Industries Ltd. The question that arose for consideration before the Supreme Court was whether the service charges payable to MMTC by the Appellant Hyderabad Industries Ltd for the import or raw asbestos could be included in the assessable value of import as provided for in the Customs Act and the Customs Valuation (Determination of Price) Rule 1988. The Appellant was a manufacturer of asbestos cement products for which it used raw asbestos that was mainly imported from foreign countries. Under the provisions of the Export and Import policy of the Government of India, MMTC was designated as a canalising agency. MMTC imported raw asbestos in bulk from foreign sellers and then entered into sale agreements on High Sea Sale basis with various users of raw asbestos. The consideration paid by the purchasers of the raw asbestos from MMTC, including the Appellant, is the purchase value incurred by MMTC and an additional sum equivalent to 3.5% of the CIF value of the imports as service charges. The Supreme Court concluded from these facts that there was no relationship of principal and an agent 23 C/11356/2016-DB between the Appellant and MMTC as MMTC had not purchased the raw asbestos for and on behalf of a particular consumer of raw asbestos in India. On the contrary, it made bulk purchases to cater to the needs of various consumers of the raw asbestos in India and it is only after the goods were sold on the basis of High Sea Sales, that the goods become property of the Appellant. The observations made by the Supreme Court in paragraph 7 of the judgment are reproduced below:
"The argument of agency is obviously put forth to invoke the benefit of exemption granted to "buying commission" under Rule 9(I) (a) (i) of the Valuation Rules referred to above. This rule excludes the amount paid as "buying commission" from the cost and services which is to be included in determining the transaction value. To attract this exclusion the appellant seeks to rely upon interpretative note to Rule 9 which reads thus: In Rule 9(I)(a) (i), the terms "buying commission" means fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued". The appellant wants this Court to firstly equate "service commission" to "buying commission", then on this basis to treat MMTC as an agent. It is not possible to accept this argument of the appellant for more than one reason. As already noticed, there is no relationship of principal and agent between the appellant and the MMTC nor is there any agreement between the parties to pay "buying commission" nor has the MMTC agreed with the appellant to represent it abroad in the purchase of raw asbestos. Material on record, on the contrary, shows that the MMTC on its own without representing any particular buyer in India and sells the same to the purchaser on high seas sales basis to the Indian buyers like the appellant. Purchase by MMTC from the foreign seller and subsequent sale by it to the Indian buyers are independent of each other. Therefore, MMTC when it includes service charges in its sale consideration, it does not include the same as "buying commission". Therefore, this contention of the appellant is rejected."
29. In the present case, the factual position is different. The STE buys urea on behalf of the Government of India. The STE in fact represents the Government of India abroad and the foreign sellers know that the urea will be ultimately purchased by the Government of India. It is the Government of India that ultimately sells urea to the Appellant and the Appellant sells urea 24 C/11356/2016-DB to the farmers. The decision of the Supreme Court in Hyderabad Industries Limited, therefore, does not help the respondent.
30. The Principal Commissioner has also placed reliance upon Rule 10(1) (e) to contend that Rs. 17/- per MT paid by the Government of India to STE should be included in the transaction value. This rule provides that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. This rule speaks of payment made or to be made by the buyer to the seller, or by the buyer to a third party. The seller in the instant case is the Government of India and the buyer is the Appellant. This amount of Rs. 17/- per MT has neither been paid by the Appellant to the Government of India nor the Appellant paid this amount to a third party. This amount of Rs.17/- per MT, therefore, could not have been included in the „transaction value‟ under rule 10(1) (e) of the 2007 Valuation Rules.
31. What further needs to be noticed is that under 10 (1)
(e) of the 2007 Rules, all other payments can be added to the transaction value if they are actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to the third party to satisfy an obligation 25 C/11356/2016-DB of the seller to the extent that such payments are not included in the price actually paid or payable. Since the aforesaid payment of Rs. 17/- per MT has not been made as a condition of sale of urea by the Government of India to the Appellant to satisfy an obligation of the Government of India, this amount cannot be added to the transaction value under rule 10 (1) (e) of the 2007 Rules.
ADDITION OF 2% NOTIONAL HIGH SEA SALE COMMISSION
32. The finding recorded by the Principal Commissioner on this issue is as follows:
"13.6 The second issue to be decided is whether high sea sale commission of 2% is to be added in the assessable value or not. It has seen argued that in terms of circular no. 32/2004-Cus dated 01.05.2004, the actual high sea sale contract price paid by the last buyer would constitute the transaction value under rule 4 of CVR, 1988 and inclusion of commission on notional basis may not be appropriate. The Board has not approved the Mumbai Custom House practice of adding 2% notional High Sale Commission in CIF value.
----------
13.8 From the above analysis, it is clear that high sale commission is includable in the assessable value. The question is whether, the price at which the high sea sale is taking place between GOI and IFFCO can be considered as price at which international transfer of goods is taking place. In other words, can this price be considered as the transaction value in terms of rule 4 or not. As already mentioned above, the price said by the GOI to IFFCO is pool price (i.e. approx. US$ 83 per MT) and that the price paid by STE to exporter i.e. US$ 300 per MT. The pool price is an artificial price at which IFFCO sells goods further after clearance from customs to the farmers. As this is not the price at which the international transfer of goods has taken place, the same cannot be the assessable value in terms of the circular. In the instant case, as already analyzed above, there are two transactions involved. One is between STE and GOI and another is between GOI and IFFCO. The first high sea sale between STE and GOI is an international transfer of goods. I have already held that the service charges paid by GOI to STE are includable assessable value. There cannot be any doubt that the price at which GOI transfers goods to IFFCO cannot be accepted as transaction value. This is also the reason that IFFCO is paying duty on the price at which the goods are transferred by STE to GOI. In normal course of trade, a person selling the goods on high sea sale basis, 26 C/11356/2016-DB would naturally add some commission to cover his expenses and margin in the deal with high sea sale buyer. However, in the present case, no data regarding expenses incurred by GOI (apart from declared value of the imported goods) is available as the goods have been sold at an artificial price to IFFCO. Therefore, one has to go for best judgment method prescribed in rule 9 of CVR, 2007. It is established practice that where data regarding actual commission is not available, 2% high sea sale commission is to be added to arrive at the correct assessable value of the imported goods."
(emphasis supplied)
33. In this connection, the Circular dated 11 May 2004 issued by CBEC has been referred to by the Principal Commissioner. On an analysis of the said Circular, a finding has been recorded that High Sea Sale commission has to be included in the assessable value and the only issue that needed to be decided was whether the price at which the High Sea Sale was taking place between the Government of India and the Appellant could be considered as a price at which international transfer of goods was taking place in terms of rule 4. The Principal Commissioner noticed that the price paid by Appellant to the Government of India was a pool price of US$ 83 per MT, whereas the price paid by the STE to the exporter was US$ 300 Per MT. The pool price, therefore, was an artificial price at which the Appellant sold the goods to the farmers. Thus, this was not the price at which international transfer of goods took place and the same, therefore, could not be the assessable value in terms of the Circular. Thus, the price at which the Government of India transfers the goods to the Appellant cannot be accepted as „transaction value‟, more particularly when in the normal course of 27 C/11356/2016-DB trade a person selling the goods on High Sea Sale basis would naturally add some commission to cover his expenses. However, as there was no data regarding expenses incurred by the Government of India as the goods were sold on an artificial price to the Appellant, the best judgment method as prescribed in rule 9 of the 2007 Valuation Rules was required to be adopted and it was an established practice that when actual data regarding commission was not available, 2% High Sea Sale Commission could be added to arrive at the correct assessable value of the imported goods.
34. Learned Consultant for the Appellant has stated that this 2% Notional High Sea Sale Commission is being added to the assessable value only at Pipavav Port which is the port involved in the present appeal, but this notional Commission is not being added at Mundra and Kakinada Port where also urea is imported by the Appellant. It has also been pointed out that even in the case of two importers, namely M/s. Koramandal International Ltd. and M/s. Kribhco, when urea is imported from Hazira Port, this notional Commission is not added. In support of this contention, Bills Of Entry of the importers have also been enclosed.
35. The Circular, on which reliance has been placed in the show cause notice and the order of the Principal Commissioner, is reproduced below:
28
C/11356/2016-DB "Circular No. 32/2004-Cus., dated 11-5-2004 Subject: Customs Valuation Rules, 1988- Determination of assessable value for goods sold on high seas- Regarding.
Representations have been received on the Ministry to clarify the manner of determining the value of imported goods imported on high-sea-sales basis. As per the existing practice in Mumbai Customs House, the "high-sea-sale-charges" are added to the declared CIF value in terms of Public Notice No. 145/2002, dated 3-12-2002. Such "high-seas-sales-charges" are taken to be 2% of the CIF value as a general practice. In case the actual high- sea-sale Contract price is more than "the CIF value plus 2%", then the "actual Contract price" paid by the last buyer is being taken as the value for the purpose of assessment. In some of the custom houses, however, audit has raised objection stating that if, in a particular transaction, there were about three/ four high-sea-sales, then high-sea-sales Service Charges @ 2% has to be added to the CIF value, for each such transaction.
2. The matter has been examined taking into account the Advisory Opinion 14.1 of the GATT. Valuation Code, which stipulates that if the importer can demonstrate that the immediate sale under consideration took place with a view to export the goods to the country of importation, then such transaction would constitute an international transfer of goods.
The later transaction which led to the import would be the relevant transaction for assessment and Rule 4 of Customs Valuation Rules, 1988 would apply. Hon‟ble Supreme Court, in the case of M/s. Hyderabad Industries Limited [2000 (115) E.L.T. 593 (S.C)] have also upheld that the Service Charges/high-seas- sales-commission (actuals) are included in the CIF value of imported goods. Therefore, it is clarified that the actual high- seas-sale-Contract price paid by the last buyer would constitute the transaction value under Rule 4 of Customs Valuation Rules, 1988 and inclusion of commission on notional basis may not be appropriate. However, the responsibility to prove that the high- seas-sales-transaction constituted an international transfer of goods lies with the importer. The importer would be required to furnish the entire chain of documents, such as original invoice, high-seas-sales-Contract, details of Service Charges/ commission paid etc., to establish a link between the first international transfer of goods to the last transaction. In case of doubt regarding the truth or accuracy of the declared value, the Department may reject the declared transaction value and follow the sequential methods of valuation under Customs Valuation Rules, 1988."
36. The aforesaid Circular refers to the practice adopted by the Mumbai Customs House to add 2% of the CIF value when goods are imported on High Sea Sale basis. The Circular clarifies that in case the High Sea Sale Contract price is more than the CIF value plus 2%, then the actual contract price paid by the last 29 C/11356/2016-DB buyer should be taken for the purpose of assessment. The Circular also mentions that if the importer can demonstrate that the immediate sale under consideration took place with a view to export the goods to the country of importation, then such transaction would constitute an international transfer of goods, which transaction would be relevant for assessment under Rule 4 of the 1988 Rules. However, the responsibility to prove that the High Sea Sale transaction constituted an international transfer of goods lay with the importer who would have to furnish the entire chain of documents, such as original invoice, High Sea Sales contract, details of service charges/ commission paid to establish a link between the first international transfer of goods to the last transaction and it is only in case of doubt regarding the truth or accuracy of the declared value, that the Department may reject the declared transaction value and follow the sequential methods of valuation provided for in the 1988 Rules. Thus, it is not in all cases that 2% Notional High Sea Sale Commission has to be added to the assessable value.
37. In this connection, it would be pertinent to refer to the decision of the Supreme Court in Wipro Ltd vs Assistant Collector of Customs16. The issue that arose for consideration was regarding the constitutional validity of proviso (II-i) to rule 9(2) of the 1988 Customs Valuation Rules. It was contended that the proviso was not only ultra vires section 14(1) and section 14 (1) A of the Customs Act, but was also violative of article 14 and 16 . 2015(319) ELT 177 (S.C) 30 C/11356/2016-DB article 19 of the Constitution. The High Court had upheld the validity and the writ petition was dismissed. The Supreme Court observed that a conjoint reading of the provisions of rules 3 and 4 of the 1988 Customs Valuation Rules would make it clear that the value of the imported goods has to be the transaction value and in cases where the transaction value cannot be determined, such a value has to be determined by resorting to rules 5 to 8 in a sequential order. Thus, normally the value of imported goods has to be the transaction value, which means the price "actually paid"
or "payable" for the goods imported. Only when such a value cannot be determined, that resort to rules 5 to 8 in a sequential manner has to be taken. Once the transaction value is arrived at, adjustments to this value has still to be made in accordance with the provisions of rule 9. Only thereafter, the exact "transaction value" gets determined on which customs duty is to be paid. Rule 9 deals with "cost of service". It lays down that in determining the transactional value, cost of certain services is to be added to the price actually paid or payable for the imported goods as mentioned in "(a)" to "(e)" of sub-rule (1) of rule 9. Rule 9 was amended in the year 1989 by notification dated 19 December 1989. The proviso appearing below sub-rule (2) of rule 9 was substituted with the following proviso:
"Provided that -
(i) Where the cost mentioned in clause (a) are not ascertainable, such cost shall be twenty per cent of the free on board value of the goods;
(ii) Where the charges mentioned at clause (b) are not ascertainable, such charges shall be one per cent of the free on board value of the goods;31
C/11356/2016-DB
(iii) Where the cost mentioned at clause (c) are not ascertainable, such cost shall be 1.125% of free on board value of the goods.
Provided further that in the case of goods imported by air, where the cost mentioned in clause (a) are ascertainable, such cost shall not exceed twenty per cent of free on board value of the goods."
38. The said proviso underwent a further modification in 1990. Clause (ii) of first proviso mandated addition of 1% of the free on board value of the goods plus the cost of transport referred to in clause (a) plus the cost of insurance referred to in clause (c).
39. It is on the strength of this proviso that even when the actual handling charges were mentioned and that too fixed by the International Airport Authority at Rs.6998/-, the Customs Authorities still added a further sum to the value of goods, being 1% free on board value of the goods. The Appellant was aggrieved by this addition and it is this addition that was the cause for filing a writ petition in the High Court.
40. The Supreme Court examined the unamended provision of section 14 of the Customs Act as also the provision amended in the year 2007. It noticed that under the unamended provision, the principle was to find out the valuation of goods "by reference to the value" and it introduced a determining / fictional provision by stipulating that the value of all the goods would be the price at which such or like goods are "ordinarily sold". However, under the amended provisions, the valuation was based on the „transaction‟ price namely, the price "actually paid or 32 C/11356/2016-DB payable for the goods". It is in this context, that the Supreme Court observed:
"26) On the aforesaid examination of the scheme contained in the Act as well as in the Rules to arrive at the valuation of the goods, it becomes clear that wherever actual cost of the goods or the services is available, that would be the determinative factor.
Only in the absence of actual cost, fictionalised cost is to be adopted. Here again, the scheme gives an ample message that an attempt is to arrive at value of goods or services as well as costs and services which bear almost near resemblance to the actual price of the goods or actual price of costs and services. That is why the sequence goes from the price of identical goods to similar goods and then to deductive value and the best judgment assessment, as a last resort.
27) In the present case, we are concerned with the amount payable for costs and services. Rule 9 which is incorporated in the Valuation Rules and pertains to costs and services also contains the underlying principle which runs though in the length and breadth of the scheme so eloquently. It categorically mentions the exact nature of those costs and services which have to be included like commission and brokerage, costs of containers, cost of packing for labour or material etc. Significantly, Clause (a) of sub-rule (1) of Rule 9 which specifies the aforesaid heads, cost whereof is to be added to the price, again mandates that it is to be "to the extent they are incurred by the buyer". That would clearly mean the actual cost incurred. Likewise, Clause (e) of sub-rule (1) of Rule 9 which deals with other payments again uses the expression "all other payments actually made or to be made as the condition of the sale of imported goods".
----------
31) In contrast, however, the impugned amendment dated 05.07.1990 has changed the entire basis of inclusion of loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation. Whereas fundamental principle or basis remains unaltered insofar as other two costs, viz., the cost of transportation and the cost of insurance stipulated in clauses (a) and (c) of sub-rule (2) are concerned. In respect of these two costs, provision is retained by specifying that they would be applicable only if the actual cost is not ascertainable. In contrast, there is a complete deviation and departure insofar as loading, unloading and handling charges are concerned. The proviso now stipulates 1% of the free on board value of the goods irrespective of the fact whether actual cost is ascertainable or not. Having referred to the scheme of Section 14 of the Rules in detail above, this cannot be countenanced. This proviso, introduces fiction as far as addition of cost of loading, unloading and handling charges is concerned even in those cases where actual cost paid on such an account is available and ascertainable. Obviously, it is contrary to the provisions of Section 14 and would clearly be ultravires this provision. We are also of the opinion that when the actual charges paid are available and ascertainable, introducing a fiction for arriving at the purported cost of loading, unloading and handling charges is clearly arbitrary with no nexus with the objectives sought to be achieved. On the contrary, it goes 33 C/11356/2016-DB against the objective behind Section 14 namely to accept the actual cost paid or payable and even in the absence thereof to arrive at the cost which is most proximate to the actual cost. Addition of 1% of free on board value is thus, in the circumstance, clearly arbitrary and irrational and would be violative of Article 14 of the Constitution.
--------
34) In the present case before us, the only justification for stipulating 1% of the F.O.B. value as the cost of loading, unloading and handling charges is that it would help customs authorities to apply the aforesaid rate uniformly. This can be a justification only if the loading, unloading and handling charges are not ascertainable. Where such charges are known and determinable, there is no reason to have such a yardstick. We, therefore, are not impressed with the reason given by the authorities to have such a provision and are of the opinion that the authorities have not been able to satisfy as to how such a provision helps in achieving the object of Section 14 of the Act. It cannot be ignored that this provision as well as Valuation Rules are enacted on the lines of GATT guidelines and the golden thread which runs through is the actual cost principle. Further, the loading, unloading and handling charges are fixed by International Airport Authority.
---------
36) We are, therefore, of the opinion that impugned amendment, namely, proviso (ii) to sub-rule (2) of Rule 9 introduced vide Notification dated 05.07.1990 is unsustainable and bad in law as it exists in the present form and it has to be read down to mean that this clause would apply only when actual charges referred to in Clause (b) are not ascertainable."
41. It will be appropriate to reproduce section 14 of the Customs Act, that was amended on 10 October 2007 and it is as follow:
"Section 14. Valuation of goods. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf:
Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, 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 34 C/11356/2016-DB to the extent and in the manner specified in the rules made in this behalf:"
42. The Supreme Court noticed the change in the principle that had been brought about in section 14(1) of the Act in paragraph 22 judgement of Wipro Ltd and they are as follows:
"22) The underlying principle contained in amended sub-section (1) of Section 14 is to consider transaction value of the goods imported or exported for the purpose of customs duty.
Transaction value is stated to be a price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation. Therefore, it is the price which is actually paid or payable for delivery at the time and place of importation, which is to be treated as transaction value. However, this sub-section (1) further makes it clear that the price actually paid or payable for the goods will not be treated as transaction value where the buyer and the seller are related with each other. In such cases, there can be a presumption that the actual price which is paid or payable for such goods is not the true reflection of the value of the goods. This Section also provides that normal price would be the sole consideration for the sale. However, this may be subject to such other conditions which can be specified in the form of Rules made in this behalf.
23) As per the first proviso of the amended Section 14(1), in the transaction value of the imported goods, certain charges are to be added which are in the form of 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 which can be prescribed in the rules. Sub-section (2) of Section 14, which remains the same, is an over-riding provision which empowers the Board to fix tariff values for any class of imported goods or export goods under certain circumstances. We are not concerned with this aspect in the instant case."
43. Thus, what has to be seen under section 14(1) of the Customs Act as amended in 2007 is the transaction value of the goods imported or exported for the purpose of customs duty and transaction value is stated to be the price actually paid or payable for the goods when sold for export to India for delivery at that time and place of importation. Sub-section (1) of section 14 also makes it clear that the price actually paid or payable for the goods will not be treated as „transactional value‟ where the buyer 35 C/11356/2016-DB and the seller are related to each other. As per the first proviso to the amended section 14 (1), certain charges are to be added in the transaction value of the imported goods.
44. It needs to be noted that the Circular dated 11 May 2004 was issued during the period the unamended section 14 of the Customs Act was in force. Thus, while there was scope for addition of notional charges in the assessable value under the un- amended section 14 of the Customs Act, but after the actual sale price concept was introduced in the year 2007 on the basis of GATT guidelines and section 14 of the Customs Act was amended in 2007, any inclusion of notional charges seems to have lost its relevance and only actual cost incurred by the buyer is required to be considered.
45. It is, therefore, clear from the aforesaid discussion that 2% Notional High Sea Sale Commission could not have been added to the assessable value.
46. In this view of the matter, neither the amount of Rs. 17/- per MT paid by the Government of India to the STE could have been added to the assessable value on which the Appellant was required to pay duty, nor 2% Notional High Seal Sale could have been added in the assessable value. The confirmation of demand under these two heads, therefore, cannot be sustained. Such being the position, the order passed for confiscation of urea under section 111(m) of the Customs Act and the imposition of penalty are also liable to be set aside and is set aside. It is, 36 C/11356/2016-DB therefore, not necessary to examine the contention raised by the learned counsel for the Appellant that the extended period of limitation could not have been invoked in the fact and circumstances of the case.
47. Thus, for all the reasons stated above, the order dated 30 March 2016 passed by the Principal Commissioner is set aside and the Appeal is allowed.
(Pronounced in the open Court on 24.02.2020) (JUSTICE DILIP GUPTA) PRESIDENT (RAJU) MEMBER (TECHNICAL) ARCHANA