Customs - Valuation - Arbitrary loading of 1% as loading, unloading and handling charge, unsustainable- Supreme Court
THE value for determining the Customs duty shall include loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation. These charges are statutorily fixed at one per cent of free on board value of the goods.
This is the position for the last 25 years, though the law has been amended a few times. This provision of adding 1% of the fob value as loading, unloading and handling charges, even when these are clearly ascertainable, is challenged before the Supreme Court.
The Madras High Court had in held,
"For the purpose of determination of the value, rules have been made and taking into consideration the difficulties experienced in the past in fixing the handling charges on the actuals, it is fixed at one per cent of the CIF value of the goods. When the statute confers the power to make rules for determination of the value, such determination of the value by imposition of the same as a percentage cannot at any stretch of imagination be considered as repugnant to Section 14(1) or discriminatory."
This decision was delivered in October 2012 and the matter was taken in appeal to the Supreme Court in 2003. After twelve years, the Supreme Court delivered a landmark judgement last week.
The Supreme Court observed 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.
The Supreme Court further observed, "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."
So, the Supreme Court held that adding 1% for loading, unloading and handling charges is unsustainable and bad in law and it would apply only when actual charges are not ascertainable.
Though the decision is in relation to the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 , it would equally apply to the present valuation rules, namely., Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 , as the provision is identical.
So, if the cost of loading, unloading and handling charges can be ascertained, the importer need not suffer the 1% addition.
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