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TMI Blog2021 (5) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner also imposed penalty under section 114A of the Customs Act. 2. The appellant operates flights on different international routes. Every aircraft after conversion from a domestic flight to an international flight is filled with ATF, which is consumed during the course of such flight outside India. Likewise, ATF may also be filled at the foreign destination airport to be consumed on the return journey to India. At the time of arrival of an international flight into India, the aircraft may be flown on a domestic route. For this route, the airlines are required to discharge customs duty liability on the ATF that is left over in the tank, remnant ATF, to be used for the domestic sector. 3. The issue involved in the appeal is with regard to the valuation of this remnant ATF. According to department, in view of rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, 2007 Rules, cost of transportation of the remnant AFT should be added to the Indian Oil Corporation Limited, IOCL price, on which customs duties have been discharged by the appellant. For determining the cost of transport, the department invoked the proviso to rule 10(2) of the 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch may be adjourned till the appeal was decided by the Supreme Court. 8. It would, therefore, be necessary to reproduce the order dated 15.10.2020 passed by the Supreme Court in Civil Appeal bearing Diary No. 10284 of 2020, which Civil Appeal had been filed by the Commissioner of Customs to assail the order passed by the Tribunal in the Appeal noted at C. The order of the Supreme Court is as follows: "In Civil Appeal No. 933 of 2019, following order was passed by this Court on 03.01.2019. "Delay condoned. List in the first week of February, 2019. In the meantime, we direct that a committee consisting of Secretary, Revenue; Commissioner of Customs and Chairman-cum-Managing Director, Air India be constituted which shall look into the matter. We are passing this direction as one side the Commissioner of Customs is a party, while on the other side there is a Public sector Undertaking. This direction has been passed in keeping with the observations and directions issued by this Court in ONGC matter. The committee is directed to place on record by 31.01.2019 its finding/observations and recommendations as to how the dispute in the present matter can be sorted out." The Committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Minutes are as under: '6. CMD, Air India stated that financial position of Air India is precarious and Government has already decided to have a revival plan. Thus, in such situation it would not be viable for them to pay the duty for the said period i.e., November, 2010 to June 2012. Commissioner of Customs, Airport explained that there is no provision in the law to waive off the duty except writing off such dues/amount as per law. However, Revenue Secretary stated that as Government is the 100% shareholder of Air India and financial situation of Air India being precarious, writing off the said amount may be considered by the Government. It was, however, felt that such special dispensation in this case should not become a precedence for other pending cases. Accordingly, Committee agreed that while making a recommendation, it shall be clearly spelt out that this recommendation was governed by special circumstances in view of precarious financial condition of Air India and shall not be a precedent in any other case. 7. Accordingly, the Committee decided that as the Air India agrees as regards the applicability of Additional Duty of Customs on the ATF, as adjudged in the adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court on August 26, 2019. 16. The order passed in Civil Appeal bearing Diary No. 21545 of 2019 is reproduced below:- "There is a delay of 178 days for which no satisfactory explanation is offered for the application seeking condonation of delay. Hence, the appeal is dismissed on the ground of delay." 17. The order passed in Civil Appeal bearing Diary No. 36480 of 2018 is reproduced below:- "There is a delay of 340 days for which no satisfactory explanation is offered for the application seeking condonation of delay. Hence, the appeal is dismissed on the ground of delay." 18. It is, therefore, clear that it was only when a public sector undertaking namely, Air India was involved, that the Supreme Court condoned the delay and constituted a Committee for giving its findings/observations and recommendations as to how the dispute could be sorted out. 19. As noticed above, the Committee had been constituted by the Supreme Court in the appeal arising out of the decision of the Tribunal rendered in Air India since on the one side the Commissioner of Customs was a party, and on the other side a public sector undertaking was a party. The Committee had been directed to recommen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing or pendency of an appeal against the decision in ABN Amro Bank Limited, neither eclipses this decision nor operates as a fetter on another Division Bench, which would be free to either follow the ABN Amro Bank Limited decision or could doubt its correctness and seek interpretation, by a Larger Bench. There is also no purpose served in adjourning the reference to await the decision of the Hon'ble Supreme Court. In case the ABN Amro Bank Limited decision is confirmed by the Supreme Court, that would be the governing law and the reference would not survive. The same would be the position if ABN Amro Bank Limited decision is reversed in appeal. Till a final pronouncement by the Supreme Court emerges, there exist diametrically contrary views in the Tribunal; one the final order in ABN Amro Bank Limited and the other which is expressed in the order of reference and in respect of the same subject matter, namely identification of the scope of "credit card services" in BOFS, during the period prior to 1-5-2006. Resolution of such a conflict at the level of the Tribunal is therefore a salutary course of action, in interests of interpretative stability which would operate until an au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to section 14(1) of the Customs Act contemplates the following conditions to be fulfilled for any amount to be added to the transaction value of the imported goods: (i) there should be transport of goods for delivery to India; (ii) there should be an amount agreed to be paid or payable by the importer; and (iii) such an amount should be towards the cost of transportation of the goods. Thus, only when transportation of goods is involved and cost is incurred or is liable to be incurred for such transportation, such cost is to be added to the transaction value. Where neither there is any transport of goods nor there is a liability to incur the cost of such transport, the first proviso to section 14(1) and rule 10(2) would not get attracted; There is no transport of ATF (vi) The airlines are not transporting ATF for delivery to India. ATF is required to fly the aircraft.; (vii) Any excess ATF that is carried is on account of emergency/ regulatory requirements.; (viii) Thus, as there is no transport of remnant ATF, neither the first proviso to section 14(1) of the Customs Act nor rule 10(2) of the 2007 Rules can be invoked for inclusion of the notional cost of freight to the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on landmass of India so that they can be introduced in stream of supplies to form part of mass of goods within the country. Thus, all expenses upto the destination port, including freight, transit insurance, unloading and handling charges are to be included. In this connection reliance has been placed on the decision of the Tribunal in Essar Oil Ltd. vs. C.C. 2004 (174) E.L.T. 379 (CESTAT); (iv) The assessable value of imported goods is determined under the provisions of section 14 (1) of the Customs Act read with 2007 Rules. Section 14(1) provides that the value of the imported goods is its transaction value. The 2007 Rules lay down a detailed procedure for determination of assessable value of imported goods and provides that the value of the imported goods has to be determined by applying rules 3 to 9 in sequence Further, rule 1O(2) specifically lays down that cost of transport, landing charge and insurance shall be included in the value of the imported goods. A plain reading to section 14 (1) and rule 10(2) establishes beyond any doubt that the valuation for assessment of duty must include cost of transport, insurance and landing charges; (v) The first attempt in determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods. It provides that duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975, The Tariff Act, or any other law for the time being in force, on the goods imported into or, exported from, India. The rates at which customs duties are to be imposed are specified in the Tariff Act. That rate is on the value of goods imported or exported, as the case may be. There is, therefore, a need to determine the value of the goods that are imported or exported. The yard stick for arriving at this value is contained in section 14 of the Customs Act. 29. Section 14 of the Customs Act underwent an amendment w.e.f. 10.10.2007. The period involved in this appeal is from 2010-2011 to 2014-2015. 30. Sub-section (1) of section 14 of the Customs Act, as amended in 2007, would, therefore, be applicable and it is reproduced below: "14. Valuation of Goods (1) For the purposes of 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 for the goods when sold for export to India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and handling charges associated with the delivery of the imported goods at the place of importation; and (c) the cost of insurance: Provided that (i) where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty percent of the free on board value of the goods; (ii) the charges referred to in clause (b) shall be one percent 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); (iii) where the cost referred to in clause (c) is not ascertainable, such cost shall be 1.125% of free on board value of goods: xxxxxxx (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule." 32. The contention of the Department is that in view of the provisions of rule 10 (2) of the 2007 Rules, the cost of transport of the remnant ATF have be added to the IOCL price, on which customs duties were discharged by the appellant, and since in the case of import of remnant ATF, the cost of transport cannot be ascertained, the proviso to rule 10(2) should be applied, accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14(1) of the Customs Act and the predecessor of the 2007 Rules - namely Customs, Valuation (Determination of Price of Imported Goods), 1988 Rules, 1988 Rules that 'payable' must be read as referring to 'the particular transaction' and 'payability' in respect of the transaction envisages a situation where payment of price may be deferred. The relevant portion of the decision is reproduced below: "10. The respondent's submission is that the phrase "the transaction value" read in conjunction with the word "payable" in Rule 4(1) allows determination of the ordinary international value of the goods to be ascertained on the basis of data other than the price actually paid for the goods. This, according to the respondent, would be in keeping with the overriding effect of Section 14(1). We cannot agree. 11. It is true that the Rules are framed under Section 14(1A) and are subject to the conditions in Section 14(1). Rule 4 is in fact directly relatable to Section 14(1). Both Section 14(1) and Rule 4 provide that the price paid by an importer to the vendor in the ordinary course of commerce shall be taken to be the value in the absence of any of the special circumstances indicated in Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is meant to indicate that goods are the subject matter of an agreement of sale. Once this becomes clear, what the learned counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is "known" at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods "at the time of removal"." (emphasis supplied) 40. It is, therefore, clear that an amount should actually be agreed to be paid and a liability created is for such payment, irrespective of actual payment. The use of the word 'paid' or 'payable' means that it would cover those cases also where actual payment of the agreed amount for cost and services is deferred to be paid on a subsequent date. 41. Even under rule 10(2) of the 2007 Rules, the cost of transport incurred in respect of the imported goods is required to be added to the value of imported goods only if the same has been incurred and does not already form part of the value of the goods that are imported. The first proviso to rule 10(2) of the 2007 Rules contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is being transported through the aircraft. A different situation would, however, arise if an oil company specifically imports ATF in large containers/tanker as 'goods' or as cargo, for the purpose of selling the same to airlines. There can be no doubt that in such a situation the cost of transportation for import of ATF would have to be included in the transaction value for the purpose of determining the customs duty liability. 49. It also needs to be remembered that any excess ATF is on account of emergency/regulatory requirements namely, Civil Aviation Requirement dated July 8, 2011. An aircraft has necessarily to carry sufficient amount of usable fuel to complete the planned flight safety. The relevant portion of the regulatory requirement is reproduced below: "1.1 This CAR lays down the minimum operational, equipment and instrument requirements for aeroplanes registered in India and engaged in domestic and international air transport operations. This CAR has been issued under the provisions of Rule 133A of the Aircraft Rules, 1937 and is in conformity with ICAO Annex 6 Part l (till amendment 43) xxxxxxxx 4.3.6 Fuel requirement 4.3.6.1 An aeroplane shall carry a suffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, as the case may be, in the course of international trade, where - (a) where the seller and buyer have no interest in the business of each other; or (b) one of them has no interest in the business of the other, and the price is the sole consideration for the sale or offer for sale. Provided also that such price shall be calculated with reference 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. (1A) Subject to the provisions of sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf. (2) Notwithstanding anything contained in sub-section (1) or subsection (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. *******" (emphasis supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge in the principle that had been brought about in section 14(1) of the Act was highlighted by the Supreme Court in paragraphs 21, 22 and 23 of the judgement and they are as follows: "21) A reading of the unamended provision would show that the earlier/old principle was to find the valuation of goods "by reference to their value". 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 provisio, 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 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 they are ordinarily sold or offered for sale. More importantly, the rules viz. Valuation Rules, 1988 had incorpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the scheme contained in the Act as well as in the Rules to arrive at the valuation of the goods, 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 goods to similar goods and then to deductive value and the best judgment assessment, as a last resort. 27) In the present case, we are concerned with the amount payable for costs and services. Rule 9 which is incorporated in the Valuation Rules and pertains to costs and services also contains the underlying principle which runs though in the length and breadth of the scheme so eloquently. It categorically mentions 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. Signific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. Insofar as loading, unloading and handling charges are concerned, it was reduced to 1% of the free on board value of goods and in case of insurance charges, the amended provision provided for such cost at 1.12% free on board value goods. However, as mentioned above, the spirit behind this proviso continued to be the same viz. the proviso was to made applicable only when the actual cost was indeterminable. 31) In contrast, however, the impugned amendment dated 05.07.1990 has changed the entire basis of 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, there is a complete deviation and departure insofar as loading, unloading and handling charges are concerned. The proviso now stipulates 1% of the free on board value of the goods irrespect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only when actual charges referred to in Clause (b) are not ascertainable." (emphasis supplied) 59. What needs to be noted from the aforesaid paragraphs of the judgment of the Supreme Court in Wipro is that even when the proviso to rule 9(2) of the 1988 Rules provided that 1% of FOB value of the goods has to be added to the transaction value, irrespective of whether actual cost is ascertainable or not, unlike the other costs of services like cost of transportation where 20% of FOB value of the goods has to be included only if the cost of transportation is not ascertainable, the Supreme Court struck down the provision that mandated addition of 1% of FOB value of the goods for unloading and loading as the provision was found to be contrary to articles 14 and 19 of the Constitution of India. The reason being that it is only the actual cost 'paid' or 'payable' that can be added to the transaction value, as is provided for in section 14(1) of the Customs Act. 60. Thus, what has to be seen under section 14(1) of the Customs Act as amended in 2007 is the transaction value of the goods imported or exported for the purpose of customs duty and transaction value would to be the price actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the buyer. It has to be borne in mind that such a provision would make the provision really unworkable, since in making the assessment of seller, there is no machinery for ascertaining the "cost" of the packing which might be supplied by the buyer." (emphasis supplied) 63. Justice Verma, J. made the following observations: "23. I agree that the cost of packing envisaged in Section 4(4)(d)(i) of the Act for determining the "value" in relation to any excisable goods is only the "cost of such packing" incurred by the manufacturer and recovered from the buyer except where the packing is of a durable nature and is returnable by the buyer to the manufacture. The "cost of such packing" referred in Section 4(4)(d)(i) does not include within its ambit the cost of packing not incurred by the manufacturer when the packing is supplied by the buyer and not the manufacturer. This construction of the expression "cost of such packing" in Section 4(4)(d)(i) of the Act clearly excludes in these matters the question of its addition to the price of goods recovered by the manufacturer from the buyer for determining the "value" in relation to the excisable goods for computing the duty payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remnant fuel is construed to be an imported item for the purpose of customs duty. In the importation of such remnant fuel, we could not discern any separate freight element, which can be added in the assessable value. The fuel in the tank is part of aircraft in operation. Fuel cost is calculated, and apparently, forms part of commercial consideration while fixing ticket charges for transporting aircraft. No freight element is attributable to fuel in the tank, the usage of which varies on different parameters. In other words, the aircraft did not transport ATF on which a freight element can be attributed. The plain meaning of "Freight" is goods that are transported by ships, planes, trains or lorries/trucks; the system of transporting goods in this way (OXFORD Advanced Learners Dictionary 7th ed.).We note that on this basis it can not be said that fuel in the tank of aircraft used for propulsion can be considered as cargo/goods with attributable cost of freight. Further, we note that Rule 10(2) was applied by the lower authority on the ground that the freight of ATF is not ascertainable. We note that there is no freight element involved and hence, there is no application for Rule 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Section 14 of Customs Act, 1962 and Custom Valuation (Determination of Price of Imported Goods) Rules, 2007, it is quite evident that assessable value for the purpose of determination of Custom Duty has to be the sum of * transaction value, either actual transaction value between the parties to transaction in course of international trade or determined in accordance with the provisions of Rules 3 to 8 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007; and * value of various costs and services as provided by Rule 9 of the Custom Valuation (Determination of Price of Imported Goods) Rules, 2007." xxxxxxxxxx "5.7 In light of the law as above we examine the content of the instruction issued by the Commissioner. As per the instruction issued the value of the fuel has to be the actual invoice value of the ATF purchased by the Aircraft/ Airline, and in absence or non availability of such invoice value, this invoice value shall be substituted by the sale price of IOC of ATF to Air India/ Indian Airlines, for their foreign going aircrafts. In our view the sale price of IOC of ATF to Air India/ Indian Airlines, for the foreign going aircrafts has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the payment is deferred. What has to be seen, therefore, is whether the ATF which is filed in the fuel of an aircraft is actually transported through the aircraft. It is only when transportation of goods is involved and cost is incurred or is liable to be incurred for such transportation, that such cost can be added to the transaction value. 72. The decision of the Supreme Court in Garden Silk Mill was considered and distinguished by the Supreme Court in Wipro. 73. In the instant case, it has been found as a fact that neither the ATF is transported nor any cost is incurred. The notional value of transportation under the proviso to rule 10(2) of the 2007 Rules cannot, therefore, be added to the transaction value. The transaction value has to be determined strictly in accordance with section 14(1) of the Customs Act and rule 10(2) of the 2007 Rules. 74. The Instructions dated 20.10.2006 issued by the Commissioner, Mumbai Airport have been relied upon by the parties and have also been referred to and dealt with in the referring order. They are reproduced below: COMMISSIONER INSTRUCTION NO 06/2006 Subject - Leviability of Custom Duty on Fuel and other stores consumed on boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . IOCL price for International flights should be taken into consideration. The Instructions do not mandate further addition of insurance charges when IOCL price is to be adapted, even when such charges are not incurred. 77. Learned counsel for the appellant has pointed out that the appellant was not adding the insurance charges to the transaction value up to August 2014, but thereafter it started adding the same under protest. 78. In any view of the matter, the inclusion of the cost of insurance or the cost of transport is dependent on the provision of section 14(1) of the Customs Act and rule 10(2) of the 2007 Rules and not on any practice followed by the Customs Authorities/Airlines. 79. It is, therefore, difficult to accept the submission advanced by the learned Authorized Representative of the Department that a plain reading of section 14(1) of the Customs Act and rule 10(2) of the 2007 Rules establishes beyond any doubt that the value of remnant ATF fuel for the purpose of assessment of duty must include the cost of transport. In fact the decision of the Supreme Court in Wipro, on which reliance has been placed by the learned Authorized Representative of the Department, sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of goods so brought. The cost of the goods is ascertained either from the invoice value or from the price list of the manufacturer. However, no cost of transportation is added as the passenger himself carries it. In such a situation it cannot be urged that the cost of transportation is 'not ascertainable' and, therefore, 20% of FOB value has to be added to the value of goods as cost of transportation. 86. The Division Bench also commented that the though Instructions dated 20.10.2006 talk about adding of insurance charges on a notional basis, but do not talk about addition of freight charges. So long as the Instructions do not run counter to any of the provisions of the Customs Act or the 2007 Rules and are not in conflict with any decision of a Court, they have to be followed by the Officers. 87. The inevitable conclusion that follows is that the Division Bench of the Tribunal in InterGlobe Aviation laid down the correct law. The said decision of the Tribunal in InterGlobe Aviation was subsequently followed by the Division Benches of the Tribunal in National Aviation Company of India, Air India Limited and Jet Airways. 88. The reference is, accordingly, answered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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