RABINDRA CHANDRA PAUL versus COMMR. OF CUSTOMS (PREVENTIVE) SHILLONG

Citation: [2007] 3 S.C.R. 319 · Decided: 27-02-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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RABINDRA CHANDRA PAUL 
A 
v. 
COM MR. OF CUSTOMS (PREVENTIVE) SHILLONG 
FEBRUARY 27, 2007 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
B 
Customs Valuation (Determination of Price of Imported Goods) Rules, 
I 988-Rule 7 A-Arms length transaction-Invocation of Rule 7 A, by 
Department-Correctness of-Held, not correct as transaction was at arms c 
length and not tainted-Also no allegation that on account of discount, 
price pegged at lower level. 
Appel:ant purchased two consignments of Refined Soya bean Oil from 
Mis United Edible Oils Ltd., Bangladesh (producer). The C & F value of the 
Soyabean Oil (final product) showed the price to be Rs. 24.50 per kg. D 
calculated at the prevailing rate of US Dollar. The Department called upon 
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the appellant to give the cost break-up of the imported goods. The appellant 
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also obtained a certificate from the Superintendent of Customs which stated 
that the consignments imported was assessed by the Assistant Commissioner 
of Customs at Rs. 27.17 and Rs. 31.96 respectively. The Department, however, E 
refused to accept these rates. Before the Assistant Commissioner, appellant 
contended that Assistant Commissioner was not entitled to invoke ~ule 7 A 
of the Customs Valuation (Determination of Price of imported goods) Rules, 
1988 on the basis of the cost break-up, particularly when there was no 
allegation that the price declared was tainted. The demand raised by the F 
Department was confirmed. The appellant successfully filed appeal before the 
Commissioner (A). Aggrieved Department filed appeal before the Tribunal. 
By a cryptic order, the Tribunal held that the Department was right in invoking 
Rule 7 A. Hence these appeals. 
Allowing the appeals, the Court 
G 
HELD: I. The primary base for Customs Valuation is the Transaction 
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Value, i.e., the price actually paid or payable for the goods when sold for export 
to the country of importation. The said price should not be subject to any 
condition or consideration that could prevent the value from being determined 
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319 
320 
SUPREME COURT REPORTS 
(2007] 3 S.C.R. 
A under Rule 4(1) of Customs Valuation (Determination of Price of Imported 
Goods) Rules, 1988. Where the Department has reason to doubt the truth or 
accuracy of a declared value, it may ask the importer to provide further 
explanation to the effect that the declared value represents the total amount 
actually paid or payable for the imported goods. If the declared value is lower 
B than the declared value of similar goods imported by other buyers at or about 
the same time, it can constitute "reason to doubt" the truth or accuracy of 
the declared value indicated in the commercial invoice. !Para 7] 1325-C-E] 
c 
Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai, (2000) 122 
E.L.T. 321, relied on. 
2.1. The Department had erred in invoking Rule 7A. Firstly, there was 
no allegation made by the Department stating that the transaction was tainted. 
The appellant has proved that the transaction was at arm's length. Secondly, 
the Department has not even alleged that on account of discounts the price 
stood pegged at a lower level. In matters of agro-processing, processing of 
D seeds, refined oil from crude oil etc., the cost of the raw material has a crucial 
role to play in the method of costing. Crude oil which is the raw material is 
the major component of the refined oil (final product). In such cases, ifthe 
cost of the raw material exceeds the price of the final product then in that 
event the Department can invoke Rule 7A. However, even assuming for the 
E sake of argument that Rule 7 A applies, the Assistant Commissioner of 
Customs while applying Rule 7 A has followed a peculiar method. She has 
examined the cost break-up. She rejected the cost of the raw material but, at 
the same time, she accepted the processing charges (figures supplied by the 
appellant). Rule 7 A refers to Computed Value in contradistinction to Rule 7, 
F which refers to Deductive Value. (Para 8] 1325-A, B, F, G, HJ 
2.2. Computed value under Rule 7 A is the value of the imported goods 
consisting of the cost or value of materials plus amount for profit and cost or 
value of all other expenses under Rule 9(2). Further, Rule 7 A is subject to 
the provisions of Rule 3. Rule 3 applies in cases where the buyer and seller 
G are related. In the interpretative note to Rule 7 A, value of imported goods is 
to be determined by examining the costs of production of th

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