1998 (2) TMI 124 - SC - Customs

Whether there was undervaluation for the purpose of levy of Customs duty under Section 14 of the Customs Act 1962 in the invoices of the various consignments of ball bearings which were imported by the appellants? Held that - The documents seized during the search and seizure that were produced by the appellants before the Customs authorities (genuineness of which was accepted by the Addl. Collector of Customs) show that apart from Mirah Exports a number of other importers namely Skefko Amul Engg. Krishna Engg. Works Delhi Jayaveer Forge Davangere Ajay Trading Co. Delhi Ramgopal Lachmi Narayan Bombay Sanmukh Engineering Industries etc. had also imported comparable quantities of similar bearings at the same or lesser prices as that of Mirah Exports and that discount from 50% to 70% on the list prices was the normal invoice price for a number of unconnected importers during the period. The Collector of Customs while passing the orders dated December 5 1986 and March 20 1987 and the Tribunal in the impugned judgment have not taken note of the said documents and the fact that the importers had been given 50% to 70% discount on the prices indicated in the list price. Thus the appeals are allowed the impugned judgment of the Tribunal is set aside and it is held that the invoice prices as mentioned in the invoices for the imports of ball bearings by the appellants shall be treated as the value for the purpose of assessment of customs duty under Section 14 of the Act.

Issues Involved:
1. Alleged undervaluation for the purpose of levy of Customs duty under Section 14 of the Customs Act, 1962.
2. Applicability of discounts in the valuation of imported goods.
3. Reliance on price lists versus negotiated invoice prices.
4. Relationship between the buyer and seller affecting the valuation.
5. Confiscation and penal action under Sections 111(d) and 111(m) of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Alleged Undervaluation for the Purpose of Levy of Customs Duty:
The primary issue in these appeals was whether there was undervaluation in the invoices of various consignments of ball bearings imported by the appellants, which would affect the levy of Customs duty under Section 14 of the Customs Act, 1962. The Tribunal had previously found undervaluation based on a price list from 1981, suggesting that the invoice prices were significantly lower than the list prices.

2. Applicability of Discounts in the Valuation of Imported Goods:
The appellants argued that the invoice prices reflected legitimate commercial discounts given by the supplier, AB-SKF, Sweden, due to the large quantities ordered. The Additional Collector of Customs had accepted this argument, noting that quantity discounts are a recognized feature of international trade practices and that discounts ranging from 50% to 70% were normal for various importers, including public sector institutions. The Tribunal, however, limited the acceptable discount to 20%, based on the price list.

3. Reliance on Price Lists Versus Negotiated Invoice Prices:
The Tribunal relied on a price list from February 15, 1981, to determine the value of the goods, allowing only a 20% discount. The appellants contended that the price list alone could not be the sole basis for valuation, especially when there was evidence of negotiated prices due to bulk purchases. The Supreme Court agreed with the appellants, noting that the price list did not preclude the supplier and importers from negotiating lower prices.

4. Relationship Between the Buyer and Seller Affecting the Valuation:
The Tribunal and the Collector of Customs had questioned the relationship between the importers and the foreign supplier, suggesting that a special relationship might affect the valuation. The Supreme Court, however, found no evidence of any special relationship that would influence the pricing, noting that AB-SKF, Sweden, held 39.8% of the share capital in Skefko but there was no evidence of Skefko having any interest in AB-SKF's business.

5. Confiscation and Penal Action Under Sections 111(d) and 111(m) of the Customs Act, 1962:
The Tribunal had found violations of Sections 111(d) and 111(m) of the Customs Act, 1962, and directed the revenue authorities to fix the quantum of fine and penalty. The Supreme Court, however, set aside this finding, holding that the invoice prices should be treated as the value for the purpose of assessment of customs duty under Section 14 of the Act.

Conclusion:
The Supreme Court allowed the appeals, setting aside the Tribunal's judgment. It held that the invoice prices as mentioned in the invoices for the imports of ball bearings by the appellants should be treated as the value for the purpose of assessment of customs duty under Section 14 of the Customs Act, 1962. The decision emphasized that the burden of proving undervaluation lies on the Revenue, which had failed to provide sufficient evidence beyond the price list. The Court also noted that negotiated prices reflecting commercial discounts are valid under international trade practices.

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