Customs - Valuation - Quantity or Price - Huge Win for Oil Companies in Supreme Court
THE Supreme Court delivered a landmark judgement day before yesterday. We reported the CESTAT Order in this case on 17.03.2006 as Shortage in quantity of imported goods - quantity is not relevant for valuation - oil companies in for a shock - Revenue wins huge case in Tribunal.
After nearly a decade, it is now the Revenue that is in for a shock and the huge win is for the Oil Companies!
In respect of liquid bulk cargo, the quantity of goods imported is equivalent to the quantity received in shore tank. The ocean loss is proportionately shared by all the refineries concerned. The point at issue is the valuation of the crude imported. According to Revenue, irrespective of the quantity of crude received in the shore tanks, they have to pay duty on the basis of the amount paid. On the other hand, the Oil Companies contend that duty is payable only on the value of the crude received in the shore tanks. In other words, the Oil Companies want to pay duty only on the actual quantity received in the shore tanks despite the fact that they had to make payment on the basis of the quantity shown in the Bill of Lading.
On 24th July, 2002, the Commissioner of Customs passed a detailed order in which he held that since the basis of customs duty had changed into an ad valorem regime, "transaction value" would necessarily mean the value at which the goods were to be purchased from the foreign supplier. According to the Commissioner, full payment for the goods has to be made by the importer only on the basis of the quantity mentioned in the bill of lading. This being the case, therefore the "transaction value" of the said goods would only be as per the payment made of the amounts stated in the bill of lading and not the quantity received ultimately in the shore tanks at ports in India.
The Tribunal agreed with the Commissioner.
Now, the Supreme Court has held that each one of the reasons given by the Tribunal is incorrect in law as:
1. It lost sight of the fact that a levy in the context of import duty can only be on imported goods, that is, on goods brought into India from a place outside of India. Till that is done, there is no charge to tax.
2. The taxable event in the case of imported goods, is "import". The taxable event in the case of a purchase tax is the purchase of goods. The quantity of goods stated in a bill of lading would perhaps reflect the quantity of goods in the purchase transaction between the parties, but would not reflect the quantity of goods at the time and place of importation. A bill of lading quantity therefore could only be validly looked at in the case of a purchase tax but not in the case of an import duty.
3. Sections 13 and 23 of the Customs Act have been wholly lost sight of. Where goods which are imported are lost, pilfered or destroyed, no import duty is leviable thereon until they are out of customs and come into the hands of the importer. It is clear therefore that it is only at this stage that the quantity of the goods imported is to be looked at for the purposes of valuation.
4. The basis of the judgment of the Tribunal is on a complete misreading of Section 14 of the Customs Act. First and foremost, the said Section is a section which affords the measure for the levy of customs duty which is to be found in Section 12 of the said Act. Even when the measure talks of value of imported goods, it does so at the time and place of importation, which again is lost sight of by the Tribunal.
5. "Transaction value" which occurs in the Customs Valuation Rules has to be read under Rules 4 and 9 as reflecting the statutory position, namely, that valuation of imported goods is only at the time and place of importation.
6. The Tribunal's reasoning that somehow when customs duty is ad valorem the basis for arriving at the quantity of goods imported changes, is wholly unsustainable. Whether customs duty is at a specific rate or is ad valorem makes not the least difference to the statutory scheme. Customs duty whether at a specific rate or ad valorem is not leviable on goods that are pilfered, lost or destroyed until a bill of entry for home consumption is made or an order to warehouse the goods is made. This is for the reason that the import is not complete until what has been stated above has happened.