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Wipro Ltd. Versus Assistant Collector of Customs & Others

Valuation - inclusion of 1% of the F.O.B. value of goods on account of loading, unloading and handling charges - Constitutional validity of proviso (II-i) of Rule 9(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - Violation of Section 14(1) and Section 14(1-A) of the Customs Act, 1962 - Violation of Article 14 and Article 19(1)(g) of the Constitution of India - Held that:- It contains the provisions from Section 12 to Section 28BA. Section 12 which talks of “d .....

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The yardsticks for arriving at this value are contained in Section 14 of the Act. - It introduced a deeming/fictional provision by stipulating that the value of the goods would be the price at which such or like goods are “ordinarily sold, or offered for sale”. Under the new provision, however, the valuation is based on the transaction price namely, the price “actually paid or payable for the goods”. Even when the old provision provided the formula of the price at which the goods are ordinarily .....

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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 .....

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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 p .....

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f such goods. In fact, sub-rule (3) of Rule 9 leave no manner of doubt when it mentions that additions are to be made on the basis of objective and quantifiable data.

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 kn .....

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iple. Further, the loading, unloading and handling charges are fixed by International Airport Authority.

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. - Decided in favour of assessee. - Civil Appeal No. (S). 9766-9775 o .....

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ment, disposed of few writ petitions filed under Article 226 of the Constitution of India as well as certain writ appeals which were filed against the orders of the single Judge. All the aforesaid writ petitions and writ appeals were preferred by the appellants herein. 2) The subject matter of those writ petitions/writ appeals was the constitutional validity of proviso (II-i) of Rule 9(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (hereinafter referred to as .....

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ent leading to dismissal of writ petitions and writ appeals. This is how these appeals have come up in this Court, via special leave petition route, in which leave was granted. 3) In order to understand the controversy, purpose would be served in taking note of the facts from the Writ Appeal No.1079/2000 which was filed by the appellant in the High Court. The appellant is engaged in the manufacture and marketing of Mini and Micro Computer Systems and peripheral devices like printer, drivers etc. .....

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value of the goods as handling charges as the impugned provision entitles the authorities to add 1% of the F.O.B. value of goods on account of loading, unloading and handling charges. The actual duty charged, as a consequence of addition of the notional handling charges, amounted to ₹ 16,209.20 paisa instead of ₹ 69.98 paisa. 4) At this juncture, instead of proceeding further with the factual narration, we would like to deviate a bit and take note of the relevant valuation rules and .....

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e determined in accordance with Rule 4 of these Rules. This is to be read along with Rule 3. We, therefore, reproduce Rule 3 and relevant portion of Rule 4 hereunder: 3. Determination of the method of valuation- For the purpose of these rules, - (i) the value of imported goods shall be the transaction value; (ii) if the value cannot be determined under the provisions of Clause (i) above, the value shall be determined by proceeding sequentially through Rules 5 to 8 of these rules. 4. Transaction .....

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action value cannot be determined, such a value is to be determined by resorting to Rules 5 to 8 thereof in a sequential order. Therefore, first attempt has to ascertain the transaction value. As per the formula contained in sub-rule (1) of Rule 4, the authorities are to find out the price actually paid or payable for the goods when sold for exports to India, to arrive at the value of the goods. Once this value is arrived at, it is to be adjusted in accordance with the provisions of Rule 9 of th .....

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6) Thus, normally, the value of imported goods has to be the transactional value which means the price actually paid or payable for the goods imported. Moreover, the value as specified in sub-rule (1) is to be generally accepted with the exception of certain contingencies stipulated in proviso to sub-rule (2) of Rule 4. Only when such a value cannot be determined, one has to resort to Rules 5 to 8, in a sequential manner which would mean that the authorities would first refer to Rule 5 and in ca .....

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eans consistent with the principles of general provisions of these Rules and sub-section (1) of Section 14 of the Customs Act and on the basis of data available in India. At the same time, sub-rule (2) of Rule 8 excludes certain methods which are not to be applied to determine the value under these Rules. Precise language of subrule (2) of Rule 8 is reproduce as under: 2. No value shall be determined under the provisions of these rules on the basis of - (i) the selling price in India of the good .....

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still incomplete. Adjustments to this value are still to be made in accordance with the provision of Rule 9. Only thereafter, exact transaction value gets determined on which customs duty is to be paid. It is so stated in Rule 4 itself. So, at this stage, Rule 9 comes into play, with which we are concerned in the present case. It deals with cost of services . It lays down that in determining the transactional value, cost of certain services is to be added to the price actually paid or payable f .....

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ns and brokerage, except buying commissions; (ii) the cost of containers which are treated as being one for customs purposes with the goods in question; (iii) the cost of packing whether for labour or materials; (b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been .....

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lated to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable. (d) the value of any part of the proceeds of any subsequent resale, disposal, or use of the imported goods that accrues, directly or indirectly, to the seller; (e) all other payments actually made or to be made as a condition of sale of the imported goods, by .....

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the place of importation; (b) loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and (c) the cost of insurance : Provided that in the case of goods imported by air, the cost and charges referred to in clauses (a), (b) and (c) above,- (i) where such cost and charges are ascertainable, shall not exceed twenty per cent of the free on board value of such goods, (ii) where such cost and charges are not ascertainable such cost and c .....

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to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. 8) Rule 9 was amended in the year 1989 vide Notification dated 19.12.1989. With this amendment, the provisos appearing below sub-rule (2) of Rule 9 were 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 ment .....

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dated 05.07.1990, the said provisos underwent further modification with the substitution of following provisos: Provided that - (i) Where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty per cent of the free on board value of the goods; (ii) the charges referred to in clause (b) shall be one per cent of the free on board value of the goods plus the cost of transport refered to in clause (a) plus the cost of insurance referred to in clause (c); (iii .....

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the goods plus cost of insurance for clause (I) above and the cost referred to in clause (c) shall be 1.125% of the free on board value of the goods plus cost of transport for clause (iii) above. 10) Clause (ii) of first proviso, as is clear from reading thereof, mandated addition of one per cent 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). 11) Reverting to the facts of the present case, it is .....

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and handling associated with the delivery of imported goods at the place of importation had been fixed at one per cent free on board value of the goods plus the cost of the transport of the imported goods to the place of importation plus cost of insurance. 12) This became the reason for filing the writ petition in the High Court to question the validity of the said proviso by way of impugned amendment. In brief, the case set up by the appellant was that such a notional fixation of the handling .....

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involving little or no expenses by way of handling, whereas heavy weight items like machinery, hardware might involve substantial expenditure for loading, unloading and handling. It was submitted that the handling services are rendered by the sea port and airport authorities. The handling charges are levied on the basis of either the gross weight or chargeable weight, whichever is higher. Both these weights are incidentally available in the air bill accompanying the consignment. The internation .....

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, it was found impossible to ascertain the actual amounts incurred towards loading, unloading and handling charges while making the assessment as they varied depending upon the quantities and place of import. Finding this difficulty in actual practice and in order to achieve certainty, one per cent of the F.O.B. value was fixed to be included in the assessable value. It was argued that once this uniformity is achieved with the aforesaid provisions, merely because some would be getting the benefi .....

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uding landing charges for the purpose of valuation as valuation on such a basis was held to be valid by this Court in Garden Silk Mills Ltd. v. Union of India (1998) 8 SCC 744. The justification for adding one per cent of F.O.B. value in determination handling charges can be discerned from paras 17 and 18 of the impugned judgment which read as under: 17. We are not able to uphold the contents of the learned counsel for the petitioner for the reason that prior to the impugned notification, the sa .....

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he basis of objective and quantifiable data taking onto consideration of the experience gained by the authorities and the difficulties in ascertaining the actuals. 18. The method of collection or the manner of collection may be prescribed either under the Act or under the rules framed by the delegated authority. In the case on hand, instead of actuals, rules have prescribed a fixed percentage which in some cases may be too harsh where the value of the goods imported is much more and the weight o .....

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ibed a fixed percentage based on experience instead of actual. Section 14 of the Customs Act itself made it clear the value of such imported goods shall be deemed to be the price at which such goods are ordinarily sold or offered for sale for delivery at the time and place of importation or exportation in the course of international trade and the price referred to shall be determined in accordance with the rule made in this behalf. For the purpose of determination of the value, rules have been m .....

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ertain judgments of this Court touching upon the principle that when a power is conferred on the Legislature to levy a tax, that power itself must be widely construed. Reliance upon the judgment in Garden Silk Mills is placed by the High Court in the following manner: 19. The Supreme Court in Garden Silk Mills Ltd. v. Union of India reported in AIR 2000 Supreme Court 33 has observed that Section 14 is a deeming provision. The legislative intent is clear that the actual price of imported goods vi .....

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ant Dave, learned senior counsel appearing for the appellant in all these appeals, submitted that prior to the impugned notification dated 05.07.1990, the Rule in this regard was to the effect that the handling charges were reckoned on the actuals and only where the actual cost could not be ascertained, one per cent of the F.O.B. of the goods was to be added as charges on this account. However, with the impugned amendment in the Rules, the actual cost incurred and or ascertainable is totally ign .....

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ing charges in accordance with the prescribed charges by the international Airport Authority of India was not even a fraction of the notional handling charges arrived at by applying the formula contained in the amended Rule. In nutshell, it was pointed out that in the present case, where actual cost could be ascertained, the same had to be taken into consideration to determine the valuation of the goods for the purpose of custom duty and it is only in those cases where actual cost could not be a .....

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Union of India and Anr. (2000) 2 SCC 678 in support of his aforesaid submissions. He also referred to the provisions of the General Agreement on Tariffs and Trade (GATT) which inter alia laid down the yardsticks/methodology for arriving at cost of transport and the prescription therein is the actual cost of transport of the imported goods to the port or place of importation plus the handling charges and cost of insurance. 17) Mr. Radhakrishnan, learned senior counsel appearing for the responden .....

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Chapter V is the relevant chapter which deals with Levy of, and Exemption from, Customs Duties . It contains the provisions from Section 12 to Section 28BA. Section 12 which talks of dutiable goods , provides that duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975, or any other law for the time being in force, on goods imported into, or exported from, India. Thus, the rates at which the customs duties is to be imposed are specified in the Cust .....

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75), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to bethe price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where- (a) the seller and the buyer have no interest in the business of each other; or (b) one of them has no intere .....

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accordance with the rules made in this behalf. (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A) if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. (3) For the purposes .....

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ugh, we are not concerned with this amended provision, we are taking note of the same in order to examine as to whether any change, in principle, is brought about or not. The amended provision reads as follows: 14. Valuation of goods.- (1) For the purposes of the 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 f .....

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d, 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 to the extent and in the manner specified in the rules made in this behalf: Provided further that the rules made in this behalf may provide for,- (i) the circumstances in which the buyer and the seller shall be deemed to be related; (ii) the manner of .....

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to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill of export, as the case may be, is presented under section 50. (2) Notwithstanding anything contained in subsection (1), if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where a .....

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price namely, the price actually paid or payable for the goods . Even when the old provision provided the formula of the price at which the goods are ordinarily sold or offered for sale, at that time also if the goods in question were sold for a particular price, that could be taken into consideration for arriving at the valuation of goods. The very expression ordinarily sold, or offered for sale would indicate that the price at which these goods are actually sold would be the price at which the .....

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case, the authorities could say that generally such goods are ordinarily sold or offered for sale at a different price and take that price into consideration for the purpose of levying the duty. It could, however, be done only if there was evidence to show that ordinarily the price at which these goods are ordinarily sold or offered for sale is higher than the price mentioned in the invoice. In fact, this fundamental concept is retained even now while introducing the concept of transaction valu .....

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a change in the provision may not have much effect. 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 importa .....

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e 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, .....

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ubsection (1) in respect of imported goods shall be determined in accordance with rules made in this behalf. Therefore, rules can be made in determining the price. However, these rules have to be subject to the provisions of sub-section (1), the underline principle whereof, as stated above, is to taken into consideration actual price of the goods unless it is impermissible because of certain circumstances stipulated therein. Keeping in mind this fundamental aspect, we have to examine the scheme .....

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sting to note, which is somewhat strange, that though concept of transaction value was introduced in sub-section (1) of Section 14 by amendment in the year 2007, which before that in the Valuation Rules, 1988, the expression transaction value is incorporated. This also lends credence to our observations that the concept of unamended provision was also to arrive at to take into consideration the actual value wherever it was available and was not excluded by any of the circumstances mentioned ther .....

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cannot be determined, that we have to resort to Rules 5 to 8 of the said Rules. The purpose of these Rules is to fix the transaction value of the goods notionally. However, even when the fiction is applied, the scheme and spirit behind Rules 5 to 8 would amply demonstrate that the endeavour is to have closest proximity with the actual price. That is why Rules 5 to 8 are to be applied in a sequential manner, meaning thereby we have to first resort to Rule 5 and if that is not applicable only the .....

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minable. Value of the identical goods is most proximate. If that is also not available, next proximate value is provided in Rule 6 which talks of value of similar goods . In the absence thereof, we come to the formula of applying the deductive value as contained in Rule 7. In those cases, where even deductive value cannot be arrived at, one has to resort to residual method provided in Rule 8 which prescribes that the value shall be determined using reasonable means . This would indicate adopting .....

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, 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 .....

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ssion 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 .....

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e it clear that wherever loading, unloading and handling charges are ascertainable i.e. actually paid or payable, it is those charges that would be added. Proviso to the said Rule contained the provision that only in the event the same are not ascertainable, it shall be 25% of the free on board value of such goods. In fact, sub-rule (3) of Rule 9 leave no manner of doubt when it mentions that additions are to be made on the basis of objective and quantifiable data. 30) It would be pertinent to m .....

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ven when the aforesaid proviso was amended vide notification dated 19.12.1989, the spirit behind the unamended proviso was maintained and kept intact. Only difference was that instead of addition of 25% of free on board value of goods in respect of all the three kinds of charges, under the amended proviso, this percentage fixed was different in respect of each of the aforesaid charges. As far as cost of transport is concerned, it was changed at 20% of the free on board value of goods. Insofar as .....

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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, t .....

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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 against the objective behind Sectio .....

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thority has the power to make Rules but such power has to be exercised by making the rules which are consistent with the scheme of the Act and not repugnant to the main provisions of the statute itself. Such a provision would be valid and 1% F.O.B. value in determining handling charges etc. could be justified only in those cases where actual cost is not ascertainable. The High Court missed the point that Garden Silk Mills Ltd. case was decided by this Court in the scenario where actual cost was .....

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amended provision), the question of law decided therein would support the view we are taking in the instant case. A reading of sub-section (3) of Section 14 would make it clear that such rate of exchange can be determined by the Board or can be ascertained in such manner as the Board may direct, for the conversion of Indian currency into Foreign currency or Foreign currency into Indian currency. Thus, Board had been given power to determine the rate of exchange or stipulate the manner in which s .....

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dollar equal to ₹ 31.44 was challenged as arbitrary fixation of the exchange rate. This Court sustained the challenge in the following words: 5. The counter filed by the respondent before the High Court, as also before this Court, does not indicate why the rate was fixed at ₹ 31.44. The affidavits do not indicate that the prevalent Reserve Bank of India rate had been taken into consideration. Strangely, the High Court, adverting to this contention, stated that ... In the absence of .....

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t that the notification dated 27.03.1992 does, it must be shown that the Central Government had good reasons for doing so. Reserve Bank of India's rate, as we have pointed out, was ₹ 25.95, the rate fixed by the notification dated 27.03.1992 was ₹ 31.44, so that there was a difference of as much as ₹ 5.51. In the absence of any material placed on record by the respondents and in the absence of so much as a reason stated on affidavit in this behalf, the rate fixed by the not .....

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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 Internatio .....

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fall within the scope of such general power confirmed. If the rule-making power is not expressed in such a usual general form then it shall have to be seen if the rules made are protected by the limits prescribed by the parent act. (See: Sant Saran Lal v. Parsuram Sahu, AIR 1966 SC 1852). From the provisions of the Act we cannot spell out any legislative intent delegating expressly, or by necessary implication, the power to enact any prohibition on transfer of land. We are also in agreement wit .....

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falling within the ceiling limit. We fail to understand how a restriction on transfer of such land is going to carry out any purpose of the Act. We are fortified in taking such view by the Constitution Bench decision of this Court in Bhim Singhji v. Union of India, (1981) 1 SCC 166 whereby sub-section (1) of Section 27 of the Urban Land (Ceiling and Regulation) Act, 1976 was struck down as invalid insofar as it imposed a restriction on transfer of any urban of urbanisable land with a building or .....

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